Transcripts For CNBC Worldwide Exchange 20130723

Deutschland. A pair of u. S. Tech stocks could be in the spotlight today as netflix fails to wow analysts with latest results and investors get set for another quarterly decline in apples profits. Good morning, everyone. It is a brandnew edition of worldwide exchange. And on todays show, Turkeys Central Bank could take steps to ease investors fears in its latest Rate Decision today after a popular protest rocked markets last month. Morgan stanleys head of economics for the region joins us at 10 30 cet. And the bull run is on for u. S. Mna according to a new survey which says co confidence is on the rebound. We bring you the release first on cnbc. Thats coming up in the next hour. And telenora launches a share pieback after Second Quarter earns beat. We get the full story with the ceo live from norway in just under an hour. Netflix shares take a hit. Julia boorstin brings us an exclusive interview with the ceo straight from Silicon Valley at 11 30 cet. And there appear to be limits how slow beijing is willing to let china grow. The chinese premier reportedly told state council that 7 is the economys slowest tolerable growth rate. The report by the beijing news isnt the first time a 7 growth rates been tossed around. Over the weekend, xinua said they were set to double. We got these comments or reportly got the comments from the chinese premier and there is always this assumption in the market that the chinese officials were okay with chinese growth slowing, but apparently not by as much. Were these comments a surprise to you im not so surprised by them to be honest. I think 7 should be seen as something of a in what the chinese leadership wants. To be honest, it is doo baitable whether theyre going to ever print numbers that are much below the 7 mark. It is possible well get a 6 handle. We have to focus on what the underlying trend in the economy is doing and there is a famous wikileaks report which actually suggested the chinese premier was thinking in terms of the three key variables for chinese underlying growth being electricity, production, credit growth, and certainly there was another factor which momentarily escapes me. But if you look at the underlying factors, you can see there the actual trend in chinese growth is still, i would say, around 7 at the current stage. Going forward, though, i think we have to look at the composition of growth. I think thats really what investors are going to be focused on. Because china has been running with investment contributing half of gdp growth every year now for the last six years, ever since the financial crisis began. That led to very, very rapid gains in investment spending in china. That is going to have to correct. But, what is the problem with sub 7 growth in china. I talked to the ceo of swatch before and he said all we want is growth to be sustainable. We dont even care whether growth is double digit or whatever, whether it is revenues for swatch in this case, we want it to be sustainable. So slowdown is good. I think thats correct in that the chinese authorities want to suddenly reduce the dependency on debt, on credit, for growth. I think there is a lot of concern here. If you look at the ratio of private sector debt to gdp in the case of china, the last five years it has gone up by nearly 50 Percentage Points and running now at 163 . Thats the same ratio, by the way, that you find in the United States, japan and in the euro area. So they have actually achieved what growth they had since the financial crisis with debt. I think now there is a desire to actually reduce the focus on debtdriven growth and that means reduce focus on investment. But at the same time, china is going to want to boost consumption as a source of growth, even though it has been contributing a lot. That can be achieved through, for example, the service sector, can be achieved through more deregulation here through Health Care Opportunities like that. I think also we have to reckon the fact that china, even though it has been all along growing exports very substantially, it might actually still want to step up its exports to provide further growth. Thats a big issue for the advanced economy. Hold that thought. Were getting flashes from the pa bank of spain. Second quarter gdp on annual basis down 0. 8 1. 8 after the 2 drop First Quarter t seems a the spanish economy. Were looking at q2 being better than q1 and should see positive growth, particularly in germany, the bundesbank German Economy in q2. This is consistent. Industrial production in the euro area on a quarter on quarter basis has actually shown some gain in q2 versus q1. Thats reflected even in an economy suffering as much from the contraction and real estate sector. It is welcome news. I think the question is really where are we going to go in the second half of the year . Is this momentum that started to emerge, this more positive, going to continue through into the second half of the year or is it going to require a lot more stimulus to come through from the ecb on a later stage. More breaking news, though not necessarily in your expertise, ryan air and air linjia, neverending story, rain a ryan air offers to sell to another airline. All right. Lets check in on how markets are trading in asia. Li sixuan is in singapore. Were seeing a lot of green on the charts there. Youre right. A very strong session in asia led by chinese shares boosted by premier lis comments. The shanghai composite jumped to almost 2 and the hang sang hong kong gained 2. 3 . Elsewhere, japan, south korea and australia, those shares all ended in positive territory. In china, as you can see from the first row here, banking shares made a strong rebound on both mainland and hong kong forces. Local analysts suggest the Interest Rate reforms will have limbed impact on the shortterm while lower Interest Rates will support growth in the real economy. The property sector which has a relatively high dependence on Bank Lendings also enjoyed the rally. China merchants gained almost 6 . And Chinese Railway stocks also chugged ahead on hopes of a supportive measures. Cfr corporation gained over 8 . On to japan, mobile carrier softbank was the outperformer on the nikkei 225. Soared by 5 after reports that it will raise the bet 35 million u. S. Dollars to stock new smartphone hand sets. South Korean Technology shares also rallied ahead of earnings results. Lg electronics gained almost 4 and Samsung Electronics rallied almost 3 . Let me quickly show you gold miners. They continued to gain stream, tracking the rally in gold prices. Australias new crest laser gold and kingsgate jumped 3 to 5 in todays session. Back to you. Thank you so much for that. Lets take a look at whats going on with the european markets because we did start in positive territory, although we are losing some of those earlier gains. The just modestly higher by. 1. We are seeing gainers and losers evenly split. The cac 40 showing gains. The ibex 35 strong, well come to some mna stories later on. The ftse 100 in the uk flat, remember that yesterday we were trading at sevenweek highs. This morning, we are getting a little bit of support from those chinese comments as well. Now, lets take a look at commodities because a lot happening in that space. Particularly with regards to the oil. Brent crude losing a little bit down by. 1 . The more interesting one is wti, now down by twothirds of 1 after that fantastic rally over the last four weeks that 16 month high briefly lifting the price above that of brent. The last time we saw that happening was three years ago. I want to show you a spot gold, 1331, up by another 2. 9 . What an impressive rally. Were close to the onemonth highs and that in large part is down to the weaker dollar. Speaking of the dollar, heres what is happening in the dollar yen space. Currently changing hands at 99. 45. Back below that crucial 100 level, down by. 2 . We are seeing some dollar weakness across the board on the back of the disappointing, slightly disappointing existing home sales. The aussie dollar against the u. S. Dollar, 92. 57, up slightly ahead of inflation data we will be getting tomorrow. That could open the door for more easing. All right. Lets take a look at earnings. Netflix headland a big day for u. S. Earnings yesterday reporting better than expected Second Quarter profits thanks to a boost in subscribers. The tech watch continues with apple reporting after the bell today. Economic bellwether u. P. S. Also reporting today before the open. And lots going on in europe as well. Telenora in norway presented Second Quarter results better than analysts forecasted. Maintaining full year guidance and revealed it will buy back around 1 of all outstanding stock. And kpn, look at that, up by 5. 3 on the dutch market. Saw its operating profit and sales fall in the Second Quarter because of Lower Consumer spending, but shares are soaring for a different reason because the dutch firm announced it was selling its a plus unit to telephone ca deutschland. And swatch, just talked to the ceo not too long ago, has beaten forecasts with the 6. 1 annualized rise in first half net profit. The worlds biggest watchmaker expected a strong second half adding the integration of Harry Winston will become noticeable in the latter part of the year. And st micro reported the seventh straight net loss. Sales fell 4. 8 , but managed to meet forecasts. Speaking earlier on cnbc in an exclusive interview, the ceo said he expected Company Performance to improve dramatically in the Third Quarter. We expect them moving from next quarter, tremendous improvement and in addition to quebec, profit. It is really not related to what is today the ability on the smartphone market. We see many products, et cetera, and in the recent weeks we have seen a softening in the smartphone market. Still with us is julian callow at barclays. We have seen a slew of earnings from the u. S. I believe some 25 of the s p 500 have reported. Higher than afrnl number of companies have actually beaten. Revenue is looking a little light. It is a positive trend. Is that in line with what youre expecting for the u. S. Economy . Is there a big disconnect that you cant explain right now or is it all just in line with what you are seeing . I think the earnings are a little better. As you say on the revenue side, things are a little lighter. That fits in that the u. S. Economy is set to grow by about 2 or slightly less this year. Got to remember that the u. S. Is suffering a lot from very intensive fiscal consolidation. We estimate the personal tax hikes that happened at the start of this year combined with the impact of sequestration is nearly 2 of u. S. Gdp. At the same time, though, there are some very good signs coming through on the investment equation in the United States, both on the housing, you get some housing numbers again today, but youre seeing house prices up 12 year on year. As well on the investment side, i think were starting to see some much better intentions to invest in the United States and there is no doubt that the whole shale gas revolution is really galvanizing some renewed investment renaissance in u. S. Manufacturing. I think therefore earnings are more domestically into the United States are going to be doing better, at the global level, certainly were going to be seeing as we have already seen yesterday some pockets of weakness, and there will be concern about the emerging economies, also concern still about lackluster domestic growth coming through in europe. You make a very good point with regards to domestic exposure versus international exposure. I want to come back to the Housing Market. Existing home sales were a bit of a disappointment. We saw a decline, but prices actually rose to a fiveyear high. Do you feel that the recovery in the Housing Market is going to be choked off by the higher Mortgage Rates . We have looked at this very carefully. Mortgage rates are up 100 basis points over the last eight weeks or so. That must be having some impact and already you can see that Mortgage Applications for refinancing have really come down very sharply here. So there is a very large monetary tightening and that will be expressly the Housing Market. Still has the Housing Market got enough momentum here . A lot will depend on the evolution of the unemployment rate, if it continues to come down, things continue to tighten, house prices are actually still very affordable here. That will help confidence and so the Housing Market momentum will become a lot less, but at the same time, it shouldnt really stall out and start to unwind, i think. A couple of analysts are over the last 24 hours have actually said, well, the existing wholesale numbers are actually bad to the extend that the fed is actually going to hold off and tapering in september. Do you agree with that or do you still believe that we are going to ill call it still very much that the fed will start to taper in september. It clearly has come a long way. What you got to remember is the way the fed evaluates how it is actually weighing out different factors, unemployment, growth, inflation, are now its Financial Stability. How do you mix all those up. Thats really the question here now. It seems to us the fed has more concern about Financial Stability in the size of its balance sheet. It does want to start to taper. Only probably by a modest amount coming through at the september meeting. The economy probably wont even notice. Probably only if it is only around 5 or 10 billion, i dont think i think to be honest it is already priced in the bond market. Look at longterm Interest Rates, they have risen sharply here. You can say the markets anticipate it. For the fed to start going back is going to raise more questions. As an issue of communication here, and to be honest, the fed is finding it a bit clefrnin ch there. Well be covering a lot more ground over the next 45 minutes, i believe. Thats how long youre going to be staying with us. Julian callow, chief International Economist at barclays. Find out what the mining giant results say about chinas growth outlook. Well be live in hong kong after the break. And coming up, a first on cnbc interview with telenor ceo Jon Frederick baksaas. [ male announcer ] ive seen incredible things. Otherworldly things. But there are some things ive never seen before. This ge jet engine can understand 5,000 data samples per second. Which is good for business. Because planes use less fuel, spend less time on the ground and more time in the air. Suddenly, faraway places dont seem so. Far away. Shares of the worlds fourth largest iron ore producer fortescue jumped nearly 2 in australia today. This despite the fact that the Group Forecast stronger margins in the coming months on the back of higher demand from china. Joining us now is andrew driskill, regional and China Resources analyst and head of Resources Research at clsa. Julian callow, chief International Economist at barclays is still with us. Thank you for taking the time to speak to us today. In my introduction there to you, i said it is forecasting higher numbers on the back of higher demand from china. And just ten minutes ago we were talking about weakness coming from china. What am i missing here . Well, look, i think with regard to demand in china this year for commodities it has been pretty well in line with our expectations. We have seen some strong investments in infrastructure, the Consumer Sectors have done well. But the picture has been mixed. Residential construction and power consumption has been a little soft. If you look at iron ore prices, they have staged quite an impressive recovery. Iron ore up 13 so far in july. That is the biggest jump since december. Im a little surprised by this, because, again, day after day, we talk about the concerns coming from china. So do you feel that the fortescue, the rio tinto, the bhps of the world will be a completely different story from the other slowdown were seeing in china . Look, i dont think so. Were perhaps a little surprised as well by the strength in iron ore in the last month or so. I think that reflects the fact that Steel Production hasnt reduced much so far, that iron ore inventories are relatively low. Were probably seeing a little bit of a restocking cycle on better sentiment among the Trading Community and the steel mills. But, look, in terms of the outlook in the second half of this year, we think more of the same. For Commodity Markets were looking for steel demand to grow about 5 to 6 this year. We expect base metal demand to be midhigh single digit and thats a reasonable clip, but much slower than the level of demand growth we have seen in recent years from china. And i think investors recognize that a structural shift is well under way to a slower level of Economic Growth and a less commodities intensive level of growth. Market commodity supply has been growing, we have seen market shipped into surplus, and we have seen prices fall as cost curves are compressed. It is julian here. Lets talk a bit more about where the markets are shifting and in particular where the demand is coming from. Because for so long we have been seeing chinese Steel Production grow so rapidly and were seeing such rapid levels of investment in the chinese economy as a share of gdp. It seems inevitable the party has to end. Youre seeing new opportunities here, which imply you actually see aggregate growth still out there in china and maybe some other markets. Could you talk a little bit about which particular areas you think china has a lot of capacity still to ramp up growth in terms of spending that will continue to support this rapid growth of production in steel . Yeah, look, we expect steel demand to continue to grow at perhaps 3 or 4 a year for the next couple of years. Were not expecting steel consumption to peek before the second half of this decade. And i think youll see growth in Infrastructure Investment still, in resident through rates for apartments has been strong, inventory has been drawn, developers will start constructing again, and i think the consumer segments and machinery will continue to see growth. But i think the inflexion point perhaps for iron ore or whats relevant is we have certainly shifted from a demand growth environment to a multiple gdp and perhaps 15 odd percent in the last decade to one where steel consumption will grow at a fraction of gdp, 6 or 7 and hence much slower than what we have become used to. Andrew, how much of a role will the australian currency play in this, in terms of the future earnings for some of these australian plays . How important is that, and what are some of your key calls . Yeah, no, look, currency depreciation is a real tale wind for Mining Companies at the moment. A good portion of their cost sometimes 30 to 40 are denominated in local currencies, thats things like labor costs, while u. S. Dollars or revenue lines denominated in u. S. Dollars. They see Margin Expansion on the back of that. So thats a nice tailwind. Were seeing progress for bearish companies in terms of Cost Reduction plans, were seeing a focus on asset restructuring and opt mization, and thats a bit of a tailwind for the equities. But i think that the bigger picture, you know, remains one where demand is falling in china, markets are oversupplied and commodities will price off cost curves which means certainly margin pressure and less upside to commodity prices. Okay. Our view of the commodity price cycle really dictates favoring the high quality low cost miners with strong balance sheets. We do expect equity values to continue to reduce. Okay, andrew, thank you so much for that. Andrew driskill. Moving on the wait is over. Prince williams wife, the duchess of cambridge, has given birth to the third in line to the british throne. Annabelle roberts joins us with the latest. When we will find out what the babys name is . Well, hopefully pretty soon. But, you know, charles and diana took a week to announce Prince Williams name back 31 years ago, only took a day to announce harrys. The queen, she took a month to tell the world that Prince Charles was called charles. I dont think william and kate will take anything like that long, i think they understand that there is a huge hunger to know what their baby is called and hopefully theyll inform us pretty soon. Of course, the top names amongst the public, placing bets of james and george. There is they normally have quite a few names, royal babies, three or four middle names squeezed in between. I think louis say possibility to be in there. Philip as a tribute to charles father, we know william is very close to his grandfather, prince philip. Hopefully we will see the baby for the first time today. William and kate obviously spent the night in hospital last night with the baby at st. Marys hospital. It is understood they may leave at some point today. Thats if shes had a good night, if the babys doing well, then it is likely they will be able to leave the hospital today and head over to Kensington Palace. Annabelle, thank you for that. We want to know, what do you think the royal baby will be called. If you want to join the conversation here on worldwide exchange, get in touch with us by email at worldwide cnbc. Com, or via twitt eter cnbcwex or direct to me. What do you think . To be honest, we seem to have a lot of uk monarchy royalty in the spotlight from year to year. It is hard to see that much ongoing, a boost from this. Were getting good weather at the moment in the uk. Nice news here. So the uk economy more fundamentally, lets face it, is seeing some better export numbers. It is seeing some better performance on the industrial sector and frankly from the Economic Perspective to be rather analytical about it, thats what counts, what goes on in europe and how the level of confidence is based in the Financial Markets and also in the business sector. I think it is encouraging signs were seeing in the uk here and suddenly this is maybe, if you like, the cherry on top of the cake. Absolutely. So later on this week, we get Second Quarter gdp for the uk. Is it going to be as bright and sunny . Yeah, certainly it should be. Were seeing a general trend in europe. Saw that earlier with the bank of spain assessment for spanish gdp, a good guidance and for germany as well, we should be seeing strong gdp. Uk should be seeing that. I think really we are starting to get some traction. You got to remember the pace of business spending, Business Investment in the uk has been very low for several years now as a share of gdp, but businesses are piling up a lot of cash. The question is are they going to go out and start spending that. I think we are seeing confidence firmer to a degree. Some people are vased our forecast for the british economy here and it should be performing better. Julian, thank you so much for that. Julian callow, chief International Economist at barclays. The lira in a tail spin, but will the currencys plight be enough for the central bank to raise rates . Well have analysis next. I want to make things more secure. [ whirring ] [ dog barks ] i want to treat more dogs. Our Business Needs more cases. [ male announcer ] where do you want to take your business . I need help selling art. [ male announcer ] from broadband to web hosting to mobile apps, Small Business solutions from at t have the security you need to get you there. Call us. We can show you how at t solutions can help you do what you do. Even better. Chinese markets rally as the premier reportedly draws a line in the sand saying beijing wont tolerate annual Economic Growth below 7 . Vivendi trading higher as they confirm talks with abu dhabis etisalat over the sale of its 4. 2 billion euro stake. Kpn sharply higher in amsterdam as it sells its german unit to Telefonica Deutschland for 5 billion euros. And we hear from the ceo of telenor after a strong set of numbers. A pair of u. S. Tech stocks could be in the spotlight today as netflix fails to wow analysts with its latest results and investors get set for another quarterly decline in apples profits. Good morning, everyone. Lets take a look at how were faring in terms of european markets. Ftse 100 seeing a little upside, but underperforming versus the rest of the xetra dax seeing higher trading higher by around. 1 . The cac 40 and ftse mib seeing a performance. The psi in portugal adding on to yesterdays strong gains. Overall, a lot of activity in the telecoe space, more m a activity there and thats fueling us higher. European markets at around 7week highs. Taking a check of forex markets, the dollar yen changing hands at 99. 50. Broadbased dollar weakness as a result of the disappointing existing housing numbers. Euro dollar below the 132 level. Pretty much flat on the day. And sterling dollar at 153. 61. Turkeys Central Bank Holds its policy meeting today, widely expected the bank will raise Interest Rates in order to stabilize the lira, which fell to a record low recently against the dollar and bring inflation down. In rare written statement ahead of the meeting, the governor signaled the central bank is willing to raise rates. Lets continue the discussion about the turkish lira and what the central bank will be doing today with the head of the cemea economics at morgan stanley. He joins us now. Thank you for taking the time to speak to us. So there seems to be a pretty broad consensus that we are going to be seeing a rise in rates, but by how much . What is your base line . The market is divided in terms of expectations, 50 and 100 basis points. Looks like the majority expects 50 base points hike in the upper end of the quarter. We think they might actually go for 100 base points. We are in the minority, but i think two things to note here, first, last week i think bernanke gave some issuance to the market, which created a boost in overall emerging markets. And turkey will see the fair share of this. As you indicated, the governor already indicated there will be a hike. So this sort of will become priced in. Were also going to be looking at the statement attached to the decision, and we are looking for rather hawkish, if you will, assessment and we are hoping that the central bank will leave the door open for further hikes if necessary. I think 50 to 100 base points is already priced in the market, but i feel like 50 base points delivery might disappoint some and also in the coming weeks if things turn around, then they might actually take even bigger action later on. But, why this change of heart on part of the central bank . Because over the last couple of months, it has been very much opposed to hiking its rate or to employing the Interest Rate, and it is really only been working through forex intervention. What is going on here . I think the central bank lost about 7 billion in direct sales, that sort of relatively calmed the market down but not quite. There has been a very significant positioning in both equity and bond markets, and as the bernanke led or u. S. Fed concerns escalated, in terms of the cost of funding in the future, various countries and turkey is one of the top, i think, got affected the most. I think they realized that they need to take some action in order to reverse or at least stop the outflows. The other probably thing is the government has been quite pressuring, i think, the central bank that the rates should be kept low. Im not saying that they have lost their independence or anything, but i think they were under significant pressure, maybe the central bank and the other functions of the economy might have convinced the government to work in coordination so that the situation can be handled. All right, thank you so much for those comments. Vivendi entered into exclusive talks to offload majority stake in african phone operator Maroc Telecom to etisalat. Lets look at how shares in vivendi are trading. Currently higher by, wow, 3. 4 over the last seven days. Lets get out to stephane standing by in paris for more on the story. Stephane . Good morning. It is good news for vivendi, the company has been trying to sell its 53 stake for a while. The Company Announced a while that it is start something exclusive negotiations with etisalat, a company from dubai, which is ready to pay 4. 2 billion euros for the acquisition. The two companies will negotiate until the end of september, but confident that the negotiations could be successful before that date. And hopes to complete the deal by the end of the year. If the deal is confirmed, it is the first major divestment from vivendi from the telecom sector, very capital, so hes ththats news. The stock is trading higher this morning. Vivendi is planning to neutralize its mobile phone network in france with one of its competitors. Weak telecom to share some parts of the network, precisely in the country side where there is not enough demand to justify some significant investment. It is not a merger the company will keep their independence, commercial independence and leave some parts of the networks would be in common as they want to reach an agreement by the end of the year. According to specialists, theyre going to save some significant amount of money. The cost of maintenance would be lowered by 30 on future investments by 20 . Thats the reason why not only vivendi is trading higher, but also wig at 7 higher. Lets stay in the telecoe space. Telefonica will buy it will provide tougher competition for deutschland and vodafone and europes largest economy. This morning kpn beat expectations with adjusted earnings and said revenues were down due to Challenging Market conditions. Luckily, stephane is still with us in paris. So shares this morning, theyre actually down by 4. 2 last i checked. What have you got on this story, stephane . Well, for telefonica, it is very strategic investment. The company is expanding in germany which is one of the most resilient economy in europe. To offset the difficulties on its home market. The spanish economy is in a deep recession. So it is important to find some growth outside the doe sememest market. Telefonica already has a huge debt level, 47 billion euros, thats the target for the end of the year, this acquisition is going to be expensive. Telefonica deutschland will launch capital hike of 3. 7 billion euros to finance that operation. And its Parent Company telefonica will subscribe to most of its 2. 8 billion euros. That being said, in a statement, telefonica is confident, it says this operation will not change its debt target of 47 billion euros, which is already a huge level. The stock is trading higher. The market seems to be believe it is a strategic acquisition. Definitely. Thank you so much for running us through all the activity that is happening in the telecoe space this morning. Still to come on the show, with telecom dominating in europe, we get a check on activity in the u. S. With pricewaterhousecoopers coming up at 11 20 cet. Mitsubishi will likely post a 7 gain in the Second Quarter of 2013. But are sales still stuck in the slow lane . We have the story live from tokyo. Mitsubishi motors is expected to post a profit of 160 millioned for tmillion in the quarter ending in june. It helped improve margins on exports which lifted profit by more than 100 million. But its new car sales declined in the same quarter as they struggled both in the domestic and international market. Mitsubishi is expected to keep the full year forecast for now, since it plans to generate the majority of the profit in the second half of the fiscal year. In the meantime, major japanese car parts makers are breaking the industry and are increasing their production in china. Both companies projects in china were put off a dispute last year. The output capacity will double in 2015 from this year. They will also start making automotive lamps at its new plant in september. Along with its other plant in the same area, it plans to produce headlights to equip 1. 5 million cars each year, tripling the current capacity. Back to you. Thank you very much for that. Japans finance minister says the country needs to raise its sales tax next year. Doing so would show japans resolve to fix finances. But also says an extra budget may be needed to mitigate the tax hike. After upgrading the outlook for the third month in a row, japans government wants to keep the economy moving in the right direction. It says deflation is easing and growth is ticking up thanks to the bojs massive stimulus. And today on cnbc. Com, full steam ahead for the yen, following japans elections. The currency defied expectations by climbing higher after a win by the countrys ruling coalition. So where does the yen go next . Analysts give their verdict on our website. Sticking with the region, confidence among japanese consumers is on the up. Figures by nielsen show it is at its highest level in seven years with holidays and technology among the most popular areas to spend extra cash. Is abenomics paying off . Read the full story at cnbc. Com. Tokyo lost its crown as the worlds most expensive place for expats. It has been overtaken by the capital of angola. It is all part of the latest survey into the cost of living. Catch the full list on our website on cnbc. Com. Dont forget, you can also follow us on twitter cnbcworld. On the agenda in asia tomorrow, well get a key gauge on chinas ability to keep growth above 7 when hsbc flash pmi for july is released. June trade numbers will be released in japan. And Second Quarter cpi data in australia. As for corporate earnings, well hear from canon, baidu, Lg Electronics and lsm. State media reports the official death toll has climbed to 89 with hundreds more severely injured. Damaged roads, Power Outages and disrupted phone lines are hindering access to aid. Terrible pictures that were seeing there. Still to come on the show, on friday, the price of american oil rose past european brent crude for the first time in three years. What is behind the rise in wti . Find out after the break. U. S. Oil prices reached brent crude last week for the first time in nearly three years. Brent has reasserted a small premium, but nearing the spread. Joining us in the studio is neil atkinson. Neil, good morning. Thank you so much for coming in. That was a perfect introduction for you, you sent us a fantastic list with the number of points here. Walk us through those. Sure. The bottom line is i think that the current runup in prices for wti and brent is overcooked and were due for a correction. What happened more recently as far as wti is concerned, for a long time there were huge logistical bottleneck and barriers to moving crude oil efficiently around the u. S. That depressed prices. Now those bottlenecks are being eased or moving around more easily so the wti price has come off the bottom. It was always due to come up to some extent. Meanwhile, the brent price has been supported a little over the summer because of field maintenance in the north sea, there has been slightly less oil from the opec countries than we thought, little bit of higher demand from refiners. We have seen some shortterm support. But ultimately it comes back to the longterm fundamentals and the longterm fundamentals of the oil market now after the summer is over is that demand growth is relatively weak on a global level, supply, lots of it, virtually everywhere you look, and it is difficult to see with an excess of supply and demand how prices with stay at levels, therefore i believe theyre due for a correction by the end of the summer. Lets take a step back. Currently were seeing the spread around half a dollar. What is a fair spread . I think that wti should be heading back on the fundamentals, back closer to the 95 a barrel level which was sort of where we were a couple of weeks or so ago. Brent should be down to back around 100 a barrel, maybe slightly more. Not going to so in the region of 5, some people think a more natural spread is 5 and 10. But somewhere around that level. It is difficult to see how prices can be sustained at these levels and this differential once some of the immediate pressures have been removed. So you say that prices are overcooked. We are going to be seeing a correction. Big question now there is, will it be a moderate correction or will it be a flash crash, which is what a lot of people in the market are fearing, especially if you look at net length for bullish, oil at an all time high. So what form is this correction going to take . This is the great question. Whether it will be a crash or whether it will be i think it will not be a crash. I think it will be a more gradual correction as people turn away from some of the shortterm issues, some of the shortterm speculation and look at the underlying fundamentals, which are very simply that Global Oil Demand is going up 800,000 barrels a day so far this year. Nonopec Oil Production going up by a Million Barrels a day this year, already in excess of supply and demand. Oil demand in the United States, contrary to the impression given by some people, is at best flat for the year as a whole, and by some estimates including my own it will actually be lower than 2013 than in 2012. Oil demand in the eurozone is a dead duck. Japan is going down. Chinas Economic Growth is slowing, Oil Demand Growth is slowing. It all points to me to a point where we have loss of supply, not enough demand growth, therefore prices must come off. You say they must come off. Lets look at the other side, the other scenario, what if they do continue to rise for whatever reasons out there, maybe work refinery demand, a further decline in the glut of supply in oklahoma. At what point are we going to be seeing demand destruction in the markets. Thats a good question. Hard to put a precise figure on this. In the last few year we have gotten used to Brent Oil Prices in excess. It is hard to come up with a precise figure. I would have an informed guess that if you were going up over 110 a barrel for brent for a sustained period of time and staying above 100 for wti for a sustained period of time, that will feed through into the price of oil products and the United States, it is the great motorist is the person that counts. That will feed through to higher prices at the pump, which will feed through to lower economic activity. It is difficult to be scientific and formulaic about it. But high prices for a sustained period of time are bad news. The economic recovery is not exactly roaring ahead. It is very gentle. We dont need anything to upset it. Absolutely. In the u. S. , were already seeing gas prices approaching 4. Not quite the highs of 2008, but they are taking higher yields. Neil, thank you very much for sharing those insights with us. Neil atkinson, head of analysis. Lets look at how the price of gold is doing. It is continuing its surge high, up by 36. 52 or 2. 8 . That follows that big spike yesterday up by 3 in the spot markets. Partly on the back of a weaker dollar. Or close to the onemonth highs. As you can see there at 13. 30, so well above that 1300 level. The Senate Banking committee holds a hearing today to discuss wall street Bank Ownership of physical commodities ranging from metals, warehouses, to power plants. In prepared remarks, the company is urging lawmakers and regulates to boost oversight of the metals exchange. Some public unions say they werent given the opportunity to discuss issues with detroits emergency manager before the city filed for bankruptcy last week. Detroit retirees, workers and Pension Funds concerned their Retirement Benefits will be slashed have filed lawsuits to challenge the case. A federal judge will hear their argument on wednesday. To remain in bankruptcy, detroit must prove it is insolvent and make a good faith effort to negotiate with creditors over its more than 18 billion in debt. Capital is firing back at the s. E. C. s pace against steven cohen. The wall street journal reports the hedge fund told employees evidence shows that cohen didnt read the email from 2008 about the earnings which is at the center of allegations he failed to prevent Insider Trading at the firm. Cohens lawyer say he received so many emails a day, he only opened about 11 of them. The s. E. C. Says cohen ignored red flags that should have alerted him to improper trading. The agency is seeking a lifetime ban from the brokerage industry. A key witness is expected to testify today in the s. E. C. s case against former Goldman Sachs trader fabrice toure, accused of misleading investors in a 2007 bond deal. Laura swartz, a former executive and bond insurer, all say that toure told her hedge fund was backing the deal which was made up of subprime mortgage securities. Swartzs testimony is central to the argument that toure hid the fact that paulson was actually shorting the deal. And coming up, just after the break, we have a first on cnbc interview with telenor ceo jon Fredrik Baksaas. Well be back. [ kitt ] you know whats impressive . A talking car. But ill tell you what impresses me. A talking train. This ge locomotive can tell you exactly where it is, what its carrying, while using less fuel. Delivering whatever the world needs, when it needs it. After all, whats the point of talking if you dont have something important to say . Where will it send me. One call to hoveround and youll be singing too pick up the phone and call hoveround, the premier power chair. Hoveround makes it easier than any other power chair. Hoveround is more maneuverable to get you through the tightest doors and hallways. More reliable. Hoveround employees build your chair, deliver your chair, and will service your chair for as long as you own your chair. Most importantly, 9 out of 10 people got their hoveround for little or no cost. Call now for your free dvd and information kit. You dont really have to give up living, because you dont have your legs. Hoveround replaced the legs. And now every hoveround comes with this handy tote bag and cup holder for access to your favorite items. And right now, get this limited edition hoveround America Travel mug free with your hoveround delivery. [singing] hoveround takes me where i wanna go. Call or log on to hoveround. Com to find out where a hoveround can take you welcome to worldwide exchange. Im carolin roth. These are your headlines from around the world. A pair of u. S. Tech stocks could be in the spotlight today as netflix fails to wow analysts with its latest results and investors get set for another quarterly decline in apples profits. Chinese market ras rally ase premier draws a line in the sand saying beijing wont tolerate annual Economic Growth below 7 . Kpn sharply higher in amsterdam as the group sells its german unit to telefonica duchland for 5 billion euros. We hear from the ceo of Norways Telenor after a strong set of numbers in a few minutes time. Good morning, everyone. It is around two or three hours into a fresh new trading day in europe. This is how were looking. Were mildly higher for some of the core markets. The xetra dax is higher by a third of 1 . The ftse 100 up by. 2 . We are seeing a little bit of outperformance in the periphery, the span iish market showing a gain. The portuguese market following gains from yesterdays session, also moving nicely higher. And the cac 40 in paris up by around a quarter of 1 . Were getting a helping hand from those chinese comments about 7 being the floor for Economic Growth, and we have got lots of earnings today, which are driving us higher, especially in the telecoe space. This is how were looking in terms of u. S. Futures. We are seeing a slightly higher across the board. Keep in mind, thats after another record high for the s p yesterday. Despite disappointing numbers from mcdonalds and disappointing existing home sales. But the only way is up it seems for some of the markets. The s p 500 seemed higher to open at 1693. Commodities, a lot happening in the space, we just talked about gold, we also talked about oil, with the spread coming back a little bit. It was negative, now it is around half a dollar. Brent crude currently sitting at 170. 75, losing a third of 1 . U. S. Crude down more at. 75 after that impressive rally over the last four weeks and spot gold continuing its climb higher this morning up by 2. 7 at a onemonth high after that fairly fantastic rise of 3 in the spot markets yesterday. A lot of this is also helped by the weaker dollar. And, again, staying with the dollar, we are seeing some underperformance in the dollar against the yen. That has come back a little bit down by around. 1 . Currently this pair is changing hands at 99. 53. And the aussie dollar in focus ahead of the Inflation Numbers tomorrow which could open the door to yet another rate cut. Sterling dollar currently at 153. 53. Lets check in on how markets in asia are trading. Li shish sixuan is in singapore. A sea of green in asia today, a very positive session. Japans nikkei 225 gained for the second day in a row, while the government upgraded Economic Outlook on Capital Spending and business sentiment. South koreas kospi gained 1. 3 today and as you mentioned, chinese stocks were in fact the standout performers, thanks to reports that beijing will not let growth sink below 7 . The shanghai composite gained by 2 in the hang seng index in hong kong added 2. 3 . Speculation of supportive policies helped push chinese lenders higher. The top three banks were up about 4 to 5 in hong kong to date. Railway and construction stocks also jumped on talk that china may tap on the sectors to help reduce overcapacity in cement and steel. But one of the biggest gainers in hong kong today was vte. The telecom equipmentmaker soared 19 and this was its strongest daily gain in more than four and a half year. They had earlier flagged first half profit and also revealed plans to issue share options to staff. Technology shares also helped lift south koreas kospi to end at a six week high. Lg electronics gained almost 4 ahead of its report card tomorrow, and Samsung Electronics, which is the biggest components doc on the kospi, gained 2 it eed 2. 7 to. Back to you. Sixuan, thank you for that. Now to u. S. Earnings. Netflix headlined a big day for u. S. Earnings yesterday reporting better than expected Second Quarter profits thanks to a boost in subscribers. The tech watch continues with apple reporting after the bell today. Economic bellwether u. P. S. Also reporting today before the open. And here in europe, lots going on the earnings calendar. St micro reported the seventh straight net loss in the Second Quarter, sales fell 4. 8 , but managed to meet forecasts, but still shares are off by more than 5. 5 . Now, swatch has beaten forecasts with 6. 1 rise in the first half net profit and shares getting a nice lift up by 2. 7 . And we have talked about this before, lots of activity going on in the telecoe space, with regards to m a. Kpn saw its sales fall in the Second Quarter. That was because of Lower Consumer spending, but shares are soaring, not because of earnings, but because the dutch firm announced it was selling its e plus unit to Telefonica Deutschland. And last but not least, telenor in norway posting Second Quarter results slightly better than analysts forecast. The company maintained its full year guidance and revealed it will buy back around 1 of all outstanding stock. Jon Fredrik Baksaas is the ceo and he joins us on the phone now from norway. Thank you for taking the time to speak to us. So if i look at your earnings, they were a little bit better than expected. What were the Key Highlights for you . The Key Highlights in this quarter for Telenor Group is basically that growth has recovered again through a bit more negative First Quarter. So at root level we have a 2 organic growth and it is the asian operations that is back on track. In particular thailand shows strong figures after a period where fiji is really taking off in thailand. Lets talk about your emerging market exposure in a little while. I do want to just get another comment from you on your Share Buyback program, because according to some analysts, it is a little bit lower than what they would have expected. And lower what you announced in previous years. Why exactly is that . Well, the total remuneration to shareholders has been very competitive for the last couple of years and we have raised it on the dividend figures quite strongly. So on the back of that, we have seen growth in dividend, so we do believe that it is time to reduce the Share Buyback to a certain extent, which we have done. Of course, we also realize the comments that have been made here, but on the back of raising nominal dividends, we think this is the right move to take. So lets put two and two together. If you have that big jump in the dividend, if youve got lower Share Buybacks this time around, there is not a whole lot of money left for any acquisition activity out there. Is that correct or are you hoping to engage in what has been a flurry of m a deals . Well, we have done two moves in the Telenor Group this quarter also. We have done bulgaria and we are selected to become an operator in myanmar. So we havent been sitting completely quiet on that scene. On the contrary, i think we are now ready to integrate global after the approval which was recently given and we are about we are in the face of finalizing the license times in myanmar. And this is done then on the back of the whole experience that we have in similar markets, in asia, from before. So thats the way to go, going to emerging markets, to bulgaria, to myanmar, and not necessarily staying in the nordic markets where penetration clearly is very high. Well, the nordics are important to telenor, of course. And the strength of the norwegian market comes through in this report. We have solid margins in this country. We have strong investments. We are on the 4g Development Curve at 30 40 population do now enjoy 4g services. So norway is still a very important part of the Telenor Group activities. Jon, thank you so much for taking the time, jon Fredrik Baksaas, the ceo of telenor. Around the desk, i was just joined by matthew beasley, ahead of Global Equities at Henderson Global investors. Thank you for taking the time to come in and speak to us. Just before that interview with telenor, i was looking at the futures for the u. S. Markets. And my line was the only way is up. We did get disappointing earnings from a number of companies out there. Mcdonalds, u. P. S. Recently cutting its profit guidance, we have got disappointing numbers from the tech space. Only banks so far have really outperformed. Why are we still seeing that move higher . There is money flowing into markets, but youre right, this has never been a banner earnings season so far. A third of the way through the reporting season and on average i think were 2 , 3 ahead of where expectations had been before the supporting period started. As you point out, it has been led by financials. Financials on average are 8 of where analysts had been expected. And a disappointment, you messengered the tech sector and ebay, google, microsoft, three of the big headline misses there and the Consumer Staples environment too, mcdonalds, colgate, perhaps kimberly clark, some businesses are talking about economic backdrops which are not operating as clearly a drag for the Economic Outlook. Are the markets just rallying partly because guidance was so low, going into the earnings season, because now we are seeing a couple of more positive surprises . I think it is a combination. It comes in as being stock specific. Companies that do have some significant global exposure, being calling out the weakness in europe. Thats a drag for several businesses. But there are companies clearly too the u. S. That are u. S. Centric. This seems to be a great story of geographical strength now. Were entering into a poly anna type period. We know rates will rise at some point, we know there is rises that will come about the result of better economic conditions. And we have the better Economic Data to support the economy and that can still drive markets higher and clearly thats been behind the recent move in markets over the last quarter. But im puzzled by the valuation. We we talked about this yesterday. The s p trading on, i believe, 18 times forward earnings 2007 at 17. 7 or close to that close to do that number. With all that money coming into u. S. Equities now, these investors seem to believe that earnings over the next couple of weeks will be so fantastic, and justifies those valuations. I just dont see that happening. There is only two things that drive markets higher. The valuation that investors are prepared to pay or earnings going higher too. So far we have had investors willing to pay higher valuations for investing in equities. And part of that is a reflection of other Asset Classes or lack of attraction in other Asset Classes. From here, undoubtedly with markets at lofty high teens, multiples of forward looking earnings, we need earnings upgrades to come through. All right, matthew, thank you for those initial comments. Well get much more from you throughout the next hour. Matthew beasley, head of Global Equities at Henderson Global investors. The world cheered the arrival of the new prince of cambridge yesterday, but now Everyone Wants to know when we will get our first glimpse of the baby boy. Well have the latest from the hospital in london coming up next. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] these are your headlines. Netflix fails to woo investors even as earnings beat, but the focus now turns to apple, which reports after the u. S. Close today. Chinas stocks rally as the government rejects hard landing fears. And a big day for telecoms in europe with the ceo of telenor telling cnbc hes confident on growth going forward. Now, we have been asking you what do you think the royal baby will be called . Edward tweeted in james and edward would be a good option, obviously, edward would say that. I think james is topping the list as far as the bookmakers are concerned. And jr tweeted richard. Keep your responses coming on worldwide exchange, get in touch with us at email worldwide cnbc. Com and via twitter cnbcwex or direct to me carolincnbc. The duchess of cambridge has given birth to the third in line to the british throne. The new parents are expected to give the world a glimpse of the baby boy when they leave hospital in london. Jim maceda joins us with the latest. Jim, we have just seen on twitter that an itn royal producer saw kates hairdresser just arriving at the lindo wing. Cant be that long until we see kate, will and the baby. Reporter thats right. Good morning to you. It wont be that long, but we dont know whether it will be minutes or hours. We were told by the threeday briefing shortly before, probably 15, 20 minutes ago, that we would get an hours notice, that hours notice hasnt come yet. So no sign of the new royal family so far. But there is every reason to believe now as you mentioned the hairdresser going in to prepare the ground work, every reason to believe that after recovering overnight from what looks to be a very normal, healthy birth that she will be extremely keen and so will william to go home, first to Kensington Palace and then probably on to kates parents home in berkshire as soon as possible and get out of this media scrum. Despite the thundershowers overnight, the joy and excitement here is palpable in britons and tourists are lining up at Buckingham Palace gates to take pictures of the short official announcement of the birth that was placed on that easle for all to see. The headlines seem to follow variations on one theme, its a boy in the daily telegraph. This is from Prince Charles quote, oh, boy, a grandpa. And the sun is being spelled son. There are celebrations throughout the day. This afternoon, we expect to see and hear the peeling of the bells at westminster abbey, not one, but two massive gun salutes, 62 guns, the other 41. But, of course, the main event today, the money shot that all of these snappers are waiting for is when william and kate and that baby make an appearance on the steps of the lindo maternity wing behind me. The first time the world will see the future king. Back to you. Jim, thank you very much for that. Jim maceda from nbc there. If youre a photographer or camera crew, thats absolutely where you would need to be today. Still to come on the show, m a conditions in the u. S. Are ripe, but dealmakers are boeinga little more picky. We discuss it right after the break. [ male announcer ] come to the lexus golden opportunity sales event and choose from one of five lexus hybrids thats right for you, including the lexus es and ct hybrids. This is the pursuit of perfection. With the spark miles card from capital one, bjorn earns unlimited rewards for his Small Business. Take these bags to room 12 please. [ garth ] bjorns Small Business earns double miles on every purchase every day. Produce delivery. [ bjorn ] just put it on my spark card. [ garth ] why settle for less . Ahh, oh [ garth ] great businesses deserve unlimited rewards. Heres your wake up call. [ male announcer ] get the spark Business Card from capital one and earn unlimited rewards. Choose double miles or 2 cash back on every purchase every day. Whats in your wallet . [ crows ] now wheres the Snooze Button . To experience the precision handling of the lexus performance vehicles, including the gs and allnew is. This is the pursuit of perfection. Welcome back to the show. Lets show you where u. S. Futures are. The s p 500 has seen higher by 2. 5 . If you look at the implied open, the dow jones is set to balance at 16 points. Keep in mind the s p 500 scaling to yet another record high in yesterdays session up by around a quarter of 1 . Despite the slightly disappointing numbers from mcdonalds and also the mixed housing data, but we get more housing data throughout the week. Spanish firm telefonica confirmed it will buy a company and is still subject to regulatory approval. A new survey from pricewaterhousecoopers suggest conditions remain ripe for sustained m a activity during 2013. Tim partment joins me now. Tim, welcome to the show. So if conditions are ripe, why are we simply not seeing those m a deals happening . We are seeing we have been busy for the last 12 months. We believe the fundamentals are there for pretty robust market. There is a lot of cash on corporate balance stheheets. The debt markets are lending. And there is somewhat of an acceptance between buyers and sellers on the economic condition. Were optimistic for the rest of the year. Yes. They are happening, but not to the extent that we would expect them to. If you look at bank earnings, there are very few indicators out there which would actually signal a pickup in advisory deals. None of the banks out there which have reported the last couple of weeks have actually shown a sizable pickup. Why is that . Well, there is a shortage of the good deals and a lot of competition for those deals. Were seeing higher multiples and thats leading to, you know, a lot more diligence and in some cases deals not reaching the finish line. So essentially, tim, youre saying that targets have become too pricey and some of these companies, theyre just going to wait it out a little bit and see, wait to see when valuations and prices come down and then theyre going to strike . Well, im not sure it is too pricey. Certain corporates need to get these deals to get the growth that the markets are looking for, and that those higher pricing is requiring them to understand that companies deeper. And in many ways the previous deals, the synergies or upside would have been just that, the icing, but what were seeing is those upsides are getting somewhat priced into the deals. Matthew, what are you thinking, do you feel that prices at this point in time are simply too high for Many Companies to actually sit down and say im going to be behind that company or do they still want to wait until we have more clarity on what happens with tapering until we some of that froth has been taken out of the market . It always has become a condition. They have become risk averse, afraid of capital and happy to let capital build up. Some of this is a natural reaction to the stress of 2008 when bank lending and funding was aggressive by a lot of lenders. Many companies wanted to build up cash to protect them and in case that happens again another time. When we look around the world, this is one of the key missing ingredients of a sustained economic recovery. Cash flow. When is that going to happen . Companies that we meet with, we meet a lot of investment opportunity, a lot of companies, theyre telling us the time is now. The excuse was all issues with the u. S. Fiscal cliff, concerns over the outlook for the removal of qe, but Company Management we engaged with telling us the time is now. Were seeing the evidence of some of that occurring today in europe as we have in recent weeks. Tim, now, you point out in your notes that private equity deals account for some 20 of the total deal value in the first half of 2013. This is very close to the levels that we have seen in the first half of 2008. Are we back to the more frothy territory as far as pe is concerned . Well, i wouldnt use the word frothy. There is there is a lot of dry powder. The availability of the debt to get these deals done makes it a pretty robust market and, again, we remain optimistic that will continue as long as the Capital Markets are providing the fuel to get the deals done. What is the attraction for the pe deals then . The pe funds see opportunity to create value for their investors. The competitive deals that are have a lot of buyers out there are getting some attention. But the value that were seeing for a lot of private equity funds and what we have been helping them with is large complicated transactions where they can bring Something Different to the table. Okay. Tim, thank you so much for those thoughts. Tim hartnet, u. S. Private equity leader at pricewaterhousecoopers. Still to come, netflix beat forecasts with a higher Second Quarter profit, but shares fell in after hours trading. Why are investors hitting pause on the Video Streaming Service . Up next, we bring you a cnbc exclusive with netflixs ceo. Welcome to worldwide exchange. Im carolin roth. And these are your headlines from around the world. A pair of u. S. Tech stocks could be in the spotlight today as netflix fails to wow analysts with its latest results and investors get set for another quarterly decline in apples profits. Chinese market ras rally as line is drawn in the sand saying beijing wont tolerate annual Economic Growth below 7 . Kpn sharply higher in amsterdam as the Dutch Telecom group sell its unit to Telefonica Deutschland. The ceo of telenor tells cnbc hes confident on growth after a strong set of numbers. And if youre just tuning in, if youre just waking up on this beautiful morning, thank you for joining us on the show. Here is how markets are faring ahead of the u. S. Open. We still have a couple of hours to go. We are once again looking at green arrows. The nasdaq is seen opening higher by 6. 5 points. The dow is seen up by 22 points. And the s p 500 is seen higher. But only by around three points to open at 16. 93, another record session for the s p 500, another record close by a quarter of 1 , despite weaker earnings that we saw for some of the components, some of the earnings in the form of mcdonalds and also some disappointing existing home sales. But we get a lot more earnings over the next couple of days and Economic Data to drive these markets. Now, here is a look at the european markets also showing a lot of green. The ftse 100 is up by a third of 1 . The xetra dax showing similar percentage gains. And the ibex 35 seeing outperformance, up by 1. 6 . The cac 40 in paris up just slightly. We are getting a nice boost from, of course, the chinese comments, but also from a lot of activity. M a activity in the telecoe space. How do you make money in these markets . Here is what some of the experts have been telling us this morning. We avoid sectors that have a massive exposure to emerging markets, avoid sectors that have a very big exposure to construction. We still like high dividend yield large cap as well, combination of growth too. When you clean up all the noise and mess, might as well just buy the market, go out and buy an etf. If i look at the ultimate talk about miners and basic resources. China, and think of logics then. From a valuation point of view, miners are contrasting. In terms of the outlook in the second half of it this year, we think more of the same. For Commodity Markets looking for steel demand to grow 5 to 6 this year. We expect base metals demand to be mid high single digit and thats a reasonable clip but slower than demand growth we have seen in recent years from china. Netflix has reported higher Second Quarter profit beating forecasts while revenues came in line with expectations. The Video Streaming Service got a small boost from customers checking out original shows such as arrested development. Netflix added 630,000 viewers streaming subscribers in the quarter. That was short of analyst expectations. Ceo Reed Hastings says netflix could eventually reach 60 to 90 million subscribers but admits the bigger the business gets, the harder it is to grow. In an exclusive interview with julia boorstin, he talked about the cost of adding new content. Youre spending over 2 billion a year on content now, around the world. It is really a big number and it is continuing to grow as were able to get more and more content and how we pay it off is we have, you know, nearly 38 million members paying about 8 a month, and thats enough money to pay for all that content. Does that mean youre going to need to raise prices, though, or shift strategy or have a secondary offering in order to pay it off . No, our model works great as is. At 7. 99 u. S. Or u. S. Market is growing great. Slightly faster than last year, which is exciting. International growing hugely. We feel great about our current price point. And we just want to get more and more content. And you can see more of julias interview with netflix ceo Reed Hastings throughout the day on cnbc. Netflix shares fell 6 in after hours. Now lets talk about why were seeing such a big drop in shares after hours with joe meager. He joins us on the phone from sydney and still with us in the studio is matthew beasley, head of Global Equities at Henderson Global investors. Joe, big decline in after hours trade, even though numbers were actually in line to slightly better than expected. Why this big decline . Are expectations too high for this company . Yeah, when your stock is up 180 through first half of the year, you come in with royally High Expectations and i think they fell short and not helping matters is the q 2 and i think were running up into some incredibly difficult expectations there. U. S. Domestics slowed subsequentially. International is proving to be a little bit of a headache for longer than people thought it would be. I do think in the longterm it is a nice place for them, but not inching forward at the pace people are looking for. Joe, it is absolutely incredible. Shares up 183 this year. It is the biggest gainer on the s p 500. To justify the current valuation, what would netflix have to do . A whole lot, you know. The goal is to get up to 60 to 90 million subscribers in the u. S. Thats very ambitious. There are 100 million households paying for tv in america, so youre looking at a pretty high penetration rate and when you think about customer turn being around 4 , 5 , at netflix, we dont get that anymore, but netflix is not reporting that, which is unfortunate, but when you think about that, in terms of the size of the current market, 60 million to 90 million house hole holds is a high mark. It is difficult for them to get there. It is a business that is great, in a great spot over ten years, but might be a bumpy ride over the next couple. Joe, the ceo spoke to my colleague julia about how expensive it is to be adding new customers. Is content, is that the crux of the matter here . Yeah, it is. I think theyre making very Smart Investments with that. I think quality original content is going to be what helps them differentiate. If you see all the emmy nominations, 14 of them, this go around, i think that proves out that theyre really hitting some out of the park and you develop loyal customers that way, bring in new eyeballs and word of mouth certainly helps these guys. And i think in the long run, these are very Good Investments for them, so long as theyre right sized and so far they are. I think executionwise these are all the right moves, it is just that the stock has run up in a way that there has been pretty aggressive and, you know, and the market is talking. As long as they keep managing the business and not the stock price, i mean, eventually things will work out for them. Thats the goal. Managing the business, not necessarily the stock price. Joe, thank you so much for that. Joe mager, adviser the invite value and hidden gems at the motley fool. Matthew beasley, is still with us. So you dont currently own netflix. You think it is too expensive. At what point do you want to get in . I think it is a bit lower here, thats really just a call on the valuation. Lets be clear here, there is nothing wrong with the numbers reported yesterday. It is really a question of very High Expectations, not quite being met. Subscriber growth is strong, margins improved, but the guidance was a little weaker, reflected in some of the things you talked about, some changes are growing and costs of investments needed to be made in advance of further growth. We look forward, we look forward to what other Analysts Expect for the company, people expect about 500 Million Dollars of net profit by 2015. The market capitalization of 15 billion. To us, thats too rich. Absolutely. Are you a fan of any of the shows . Well, the point is that lots of people are. Some good original content and this is go back a year, talked about the stopping of 180 this year, year to date, up 250 from a low last year. The company made some big strategic shifts and took some big risks in doing that. And investing original content is one of those. Undoubtedly it is paying off. The model is not broken here. Still an investment reset going on. Yes. Matthew, thank you very much for that. For full disclosure, i love the house of cards. I love it. But my new favorite show, matthew, thank you so much, matthew beasley, head of Global Equities at Henderson Global investors. Dozens of u. S. Companies are reporting earnings today, but none may be more anticipated than apple which reports third Quarter Results after the close. Mary thompson is live at cnbcs headquarters with the very latest. Mary what are the expectations for apple . Well, apple is forecast to earn 7. 32 a share in the fiscal Third Quarter on revenue of 35 billion. Now, if that holds true, it would be a 21 drop in profits from a year ago, the Third Straight quarterly decline and the largest since 2004. Analysts say the key to this quarter will be product mix, specifically sales of iphones and ipads. They expect apple to sell about 26 million iphones and nearly 18 million ipads. Margins will also be closely watched. They have come down steadily since peeking at 47 in the Second Quarter of last year, and keep in mind that apple doesnt make as much money off sales of older Iphone Models and the ipad mini. While some analysts note apple results have been impacted by increased competition from the likes of samsung, and the lack of new product launches, theyre more upbeat about the longterm future. Apple has a problem and its problem is that its been an incredibly successful company. Were talking about a company that could report tomorrow that they have recorded 33 billion in revenue, sold 26 billion new iphones and 19 billion ipads and that would constitute bad news. So this is a company that has a tough time generating growth until they come up with a new product. The way i look at it, fiscal 13 was a year to forget. A horrible year. The first year eps declined since fiscal 03. A lot of new products coming out. Of course, apple could do no wrong when reporting earnings between 2003 and 2011, they Beat Estimates each quarter by an average of 25 . But since then it beat expectations in only four of the past seven quarters. The stock has dropped following the past four earnings reports, recovered somewhat since falling from the 700 a share last fall to a low of 375. But apple is down 20 year to date, compared to the s p 500 which is up just about 19 . The Company Reports after the bell today and it will be closely watched. Back to you. Mary, thank you so much for that. Moving on, Texas Instruments Second Quarter profits rose 48 . Mostly on a one time gain, but adjusted results still beat forecasts. The chipmakers Third Quarter outlook is also above Analysts Expectations. Ti says customers are starting to place orders a bit farther out in the future and are more confident as to what their needs are. Shares rose about 2 in after hours, and currently in frankfurt, the stock is up by 2. 84 . Sac comes out friday, refusing to accept the s. E. C. Charges against Hedge Fund Titan steve cohen. Well have the latest. Thats coming up after the break. These are your headlines this morning. Netflix fails to woo investors even as earnings beat, but the focus now turns to apple, which reports after the u. S. Close today. Chinas stocks rally as the government rejects hard landing fears and a big day for telecoms here in europe. The ceo of telenor telling cnbc hes confident on growth going forward. And lets look at todays other top stories. Sac capital firing back at the s. E. C. s case against steven cohen. The wall street journal reports the hedge fund told employees evidence shows that cohen didnt read the email from 2008 about the earnings which is at the center of the allegations he failed to prevent Insider Trading at the firm. Cohens lawyers say he received so many emails a day, he only opened about 11 of them. Well, what about his assistant . The s. E. C. Says cohen ignored red flags that should have alerted him to improper trading. The agency is seeking a lifetime ban from the brokerage industry. Meanwhile, a key witness is expected to testify today in the s. E. C. s case against former Goldman Sachs trader fabrice tourre. Hes accused of misleading investors in a 2007 bond dial. The s. E. C. Says Lauren Schwartz at aca capital will say that tourre told her that hedge fund Paulson Company was backing the deal which was made up of subprime mortgage securities. Schwartzs testimony is central to the argument. Authorities say eight people were injured when the landing gear on a Southwest Airlines jet collapsed when it touched down at new Yorks Laguardia airport monday evening. This is exclusive individuvideo. Laguardia was closed for more than an hour after the boeing 737 jet and its 150 passengers and crew landed. Southwest says the jet was inspected just last week and the faa and ntsb are investigating. Coming up, u. P. S. Is on deck as the Package Delivery giant reports Second Quarter earnings in two hours. And a sluggish Global Economy and recent price hikes, can the Company Deliver on results . We get a preview straight ahead. [ male announcer ] ive seen incredible things. Otherworldly things. But there are some things ive never seen before. This ge jet engine can understand 5,000 data samples per second. Which is good for business. Because planes use less fuel, spend less time on the ground and more time in the air. Suddenly, faraway places dont seem so. Far away. [ whirring ] [ dog barks ] i want to treat more dogs. Our Business Needs more cases. [ male announcer ] where do you want to take your business . I need help selling art. [ male announcer ] from broadband to web hosting to mobile apps, Small Business solutions from at t have the security you need to get you there. Call us. We can show you how at t solutions can help you do what you do. Even better. Welcome back to the show. I do want to show you what european markets are doing. A couple of hours into the trading day. We are seeing a lot of green across the board through the ftse 100 in the uk higher by a third of 1 . Similar percentage gains for the xetra dax in germany. Ibex 35 in spain, outperforming today, up by 1. 7 . A bit of news here, tbill auction went smoothly with bore rogue costs falling sharply. Demand very strong. The bank of spain saying Second Quarter gdp on annual basis will be down by 1. 8 , that is verse a 2 drop in the First Quarter. So we are seeing a tiny bit of improvement there. And here is how u. S. Futures are looking. Early hours still for the u. S. Markets, but we are expecting a push higher across the board for all the major indices as well. Thats after another record close for the s p 500 and yesterdays trading session, which saw gains of around a quarter of 1 . The s p 500 gains are seen tempered around 3. 5 points. Lets give you a look at what else is on todays agenda in the United States. Three dow components report before the opening bell. Dupont, traveler and united technologies. In addition to u. P. S. , we also hear from Lockheed Martin and dominos pizza. After the close, we get results from apple, at t, broadcom, and panera bread. The Senate Banking committee holds a hearing today to discuss wall street Bank Ownerships of physical commodities ranging from metals warehouses to power plants. Brewer miller coors is among those prepared to testify. Theyre urging lawmakers to boost oversight of the london metals exchange. Banks control the lme creating a bottleneck that is limited global aluminum supplies inflating prices. And as mentioned, u. P. S. Reports Second Quarter results at 7 45 a. M. Eastern time. The Package Delivery giant is forecast to earn 1. 30 a share on revenues of around 30. 6 billion. David ross is an analyst and is with me now on the phone from baltimore. David, good morning to you. Thank you for joining us so bright and early. So with regards to u. P. S. , we already got the profit warning and we pretty much know that the Second Quarter wasnt that great. What exactly are you looking out for when u. P. S. Reports today . Basically were going to look to see if some of the sluggishness continued into july and what their outlook is for the remainder of the year, even though they updated guidance so we have an idea, more color around that would be great especially as it relates to the u. S. Economy, the european economy and global trade. The profit warning earlier this month, was that to you just temporary weakness or a paradigm shift in how Consumers Want their packages to be shipped . Oh, no, no. It was much more just a reflection of the slow growth environment that we have been in for about 18 months now here in the u. S. Coupled with, you know, some overcapacity in the global air freight sector, in the global trade continues to remain weak. The tradedown effect has been going on for some time, try to optimize the shipping modes, dont do it as quickly as you or i think they should. So the tradedown effect typically increases in slow periods, and goes away for a little bit when things pick up again. But in general the shift from air to ground, the shift from Priority Service to Deferred Service has been happening for 15 years and should continue to be a trend. Obviously the entire industry is affected not just u. P. S. So to what extent do you believe if at all u. P. S. A better selfhelp story than some of the other plays in the industry . U. P. S. Is a little different of a story than fedex or dhl. Fedex and dhl arent as profitable as u. P. S. Is now. They have their own Profit Improvement programs that theyre undertaking, and u. P. S. Is just trying to stay as profitable as it always has been and make incremental improvements to where it is. And u. P. S. For that reason tends to get a little more impacted by what is going on in the broader economy, because it has less to do internally to improve its margins. Okay. David, thank you so much for that. David ross, analyst. We await Prince William and Kate Middletons departure from the hospital. We have been asking you, what do you think the royal baby will be called . Peter tweeted, he would like clifford or richard. Clifford. I dont know about a baby called clifford. Richard, okay. I think james is currently still a frontrunner. Thats it for todays show. Im carolin roth. Thank you for watching worldwide exchange. Squawk box is coming up next. See you tomorrow. Good morning. Another day, another round of tests for the Global Markets and Quarterly Earnings the name of the game again. It is tuesday, july 23rd, 2013. Squawk box begins right now. Good morning, everybody. Welcome to squawk box here on cnbc. Im becky quick with joe kernen, Andrew Ross Sorkin on vacation today. Our top story this morning, earnings and the markets. Among the names set to post Quarterly Results before the bell, we have dupont, travelers, united tech and u. P. S. And then this afternoon earnings central headliners include apple and at t. More than 20 of the s p 500 have already posted results. The latest stats show that 64 beat their earnings estimates while 50 beat on sales. If all the remaining companies were to post profits in line with expectations, s p earnings would be up 3. 1 . This morning, take a look at the u. S. Equity futures, fairly unstoppable market. Dow feature futures up by anoth points. In corporate news, there was an accident with the Southwest Airlines jet at new Yorks Laguardia airport last night. The landing gear collapsed after it touched down. More than ten people on board were said to be injured. That boeing 737 was coming in from nashville with 149 people on board including the crew. An ntsb investigator surveyed the