Transcripts For CNBC Worldwide Exchange 20130827

So, Current Conditions 112. The expectations component 103. 3 in august versus the reuters consensus of 103, so a little bit broader. Ifo has no revisions to the july indices. Lets get a breakdown on this. On the phone from munich, an expert at the Ifo Institute, helped to compile this story. Doctor, good to speak to you. Its been a while. Thanks for joining us this morning. Whats the key takeaway from what this survey says about the state of the German Economy . The strongest increase at this month in the manufacturing industry, and here particularly in the investment good sector, so it looks like that the upturn gets more momentum. How strong would you describe that momentum . Well, we had made the forecast for this year 0. 6, and i think this is something we could reach, so investment is always somewhat lagging behind, and this is now a positive sign that Companies Start investing more. This suggests that the data weve had, broadly speaking, which is improved, is sustainable. Is this more than a cyclical upswing . Yeah, we think this is more than just a blip. It will continue into next year. Right. Are the elections playing any part . Did you ask any questions about political certainty or uncertainty . No, we never ask questions of this type. Okay. What is the export optimism like . The export expectations have picked up here, particularly in the car sector, but also in other manufacturing sectors, so it looks like that even in some weak european economies now slowly demand is picking up somewhat. Yeah, when you look at the exports side, do you break that down between intereurope and external . No, we only have some information, but we dont ask it in a straight way. And is there any thought here about what should happen with Monetary Policy . Well, of course, this is our interpretation. I think at the moment, Monetary Policy is accommodating and this should go on for some time. Just finally, on terms of investment and new orders, what do we now expect . Well, we will see that the upturn will not only be fueled by construction sector, which was very strong in the past, but more and more now by the more important branches in germany like engineering, car, et cetera. All right. Dr. Nerb, good to speak to you, expert at the Ifo Institute. So, the Ifo Institute coming in better than expected. Bet whitman is ceo at cst asset management. Whats your thoughts on that . It confirms a trend weve seen in the last few months and the German Bundesbank indicated in the last few months that they have yet to recover in spring in construction due to seasonal weakness and then very strong in consumption in comparison, and now its very positive that manufacturing is adding up to it. So, all in all, i think there is a sustainable, steady but still slow trend. Difference between economics, of course, and asset prices and what theyve already priced in and value. Absolutely. European equities have been badly lagging u. S. Equities, but of course for many good reasons, and they are catching up. And most interestingly, i think, financials has been even more lagging, and they are at decadelow evaluations. Thats a good place to pause because well talk about why you like european financials throughout the program. Also on todays show, well be in hong kong in the next half an hour as chinas gome posts earnings. Can the electronic retailer find a way to pull the plug on its surging online competition . Well look at the Investment Case for Frontier Markets, which regions could offer the best returns for the brave investor. Find out at 10 45 cet. And the caseshiller 20 city index is expected to reveal an increase in prices over last year. Well preview the data in washington at 11 30. Plus, as indias economy struggles to get on the scoreboard, were joined by an author who says indian cricket is driving the countrys growth story. Tune in to find out why. Plus, tiffany reports before the bell today. Will china sales continue to sparkle, despite slowing growth in the worlds second biggest economy . Well be in new york to look at that at 11 50 cet. And if youve got thoughts or comments, email worldwide cnbc. Com. Its sort of there, really. Now, u. S. Secretary of state john kerry says there is undeniable evidence that chemical weapons were used in an attack on citizens just outside the damascus region of syria last week. Speaking to reporters, kerry added that president obama is now consulting with allies before he decides how to respond. Let me be clear, the indiscriminate slaughter of civilians, the killing of women and children and innocent bystanders by chemical weapons is a moral obscenity. By any standard, it is inexcusable. And despite the excuses and equivocations that some have manufactured, it is undeniable. President obama believes there must be accountability for those who would use the worlds most heinous weapons against the worlds most vulnerable people. Nothing today is more serious and nothing is receiving more serious scrutiny. All right, ayman moe ha dean is with us now. Where does this leave us . Reporter a lot going on on the ground locally and internationally. U. N. Inspectors who went to the site of the alleged chemical weapon attack continued their work, as we understand it. They are expected to continue their investigation. Yesterday they met with eyewitnesses, took blood samples, were able to visit a Field Hospital where some of the wounded were being treated. Its not yet clear whether they are going to make their findings public, and if so, when, but certainly, a lot of people will be paying very close attention to that. For the United States, though, it doesnt need any more evidence. In fact, the u. S. Says it has plenty of evidence it is going to make public in the coming days to confirm what a lot of countries have been saying, that it was the Syrian Government that has the capacity and the desire and the will to carry out this type of chemical weapons attack. As we were just hearing, it has also strained relations between the United States and russia. The u. S. Has canceled a highlevel meeting that was supposed to take place between its under secretary of state and its russian counterparts or russian delegations in the netherlands. That meeting now has been postponed, giving you an indication of how much of a wide division there is between russia and the United States over the issue of syria. Meanwhile, as the u. S. Says it is considering options that could possibly includemilitary strike on syria, syria comes out defiant saying if so, it would defend itself, and Something Like a military strike on syria would engulf the region in more violence and possibly even war. Its not only syria saying that, its its closest allies in the region, including iran and those from afar, including russia. Is there a real fear now that there will be there is a warning of a oneoff strike by the u. S. Allies. Is there a fear that is going to happen . All right, ayman, well leave it there. Thanks very much indeed. Nomuras chief political analyst warns that a oneoff strike against the regime in syria. So, what factors will affect a warning shot from the u. S. . Head online to find out. And as the price of brent hits a fivemonth high in anticipation of a military strike on syria, head to cnbc. Com and read what analysts are telling us about the outlook for the price of oil. As far as gold is concerned, thats also spiked up as well, up to around 1,400. We broke through on it at the moment, 1,407. A lot of bulls said if we get above 1,400, we will be in a bull market territory. Beat is with us. You talked about banks. What about middle east uncertainty . How is that going to impact us . And is the price of oil to get sustained . Well, the price of oil has been pretty stable the last two years. I dont think that any escalation in the middle east short term will have a big, Lasting Impact on oil, but we will have increased volatility and risk asset, and of course, in commodity prices, and i expect some action. Its clearly heating up to it. And clearly, yesterday tl was sort of a global sort of risk aversion was the daily trade. We saw, you know, bonds, treasuries and bonds rally, we saw a selloff in equities, gold a little bit higher, and thats classic risk aversion trade. Is this temporary, do you think . Its absolutely temporary, and september and october typically is the soft edge. We have the big running assets, so it all fits together, and this escalation in the middle east is going to come, no doubt about that. And the second thing is, of course, we have some fault lines in emerging markets. Yes. In emerging market currencies. So, i think these are the two headwinds which we have short term, but i would look through them and focus on the Global Economic cycle and the earnings recovery. Thats the dominating factor. All right, stay there. More to come from beat and well talk banks as well. Right now, lets bring you up to speed on where we stand on global markets. Across the Dow Jones Stoxx 600, there are only about 30 stocks at the moment in positive territory. Well come to the gainers at the moment, but were also down at session lows, follows losses yesterday, of course, we had in the United States latesession post those carry marks on syria. Down 1. 3 for the stoxx europe 600, translating into these losses for european equities. Ftse 100 down, the cac down, the ftse mib down. Italy and spain come later today. The might be down 2 yesterday on worries, on threats that they might try to unseat the Coalition Government. Ibex down 2 as well. Look at the gainers and losers. A number of stocks in focus. Well kick off with pet area back up 4. 3 , a 12. 5 fall in revenue largely in line with forecast. The Energy Services group said it remained on track to double by 2015. The big losers here is antofagasta, down around 4 at the moment after reporting a 31 drop in core profit for the first half of the year. Margin pressures offset higher production, but the miner said its going to pay 8. 9 cents, up almost 5 . In a first on cnbc interview, the ceo, diego hernandez, sounded confident on production. We are at full capacity. The problem is how fast we can grow. We can guarantee that we will continue to produce that level of production on the next three, four years. Reason the stocks down, of course, because hes talking about oversupply of copper on the market falling, citing demand in china, weakened demand in china, saying prices will be way down as a result. He put prices off slightly today. Gold, we saw this just at 1,410 at the moment, a little firmer, and Brent Holding at 110. 88, nymex at 106. U. S. Treasury yields, 2. 77 after being up 2. 9 , so quite a good rally for treasury yesterday. A tenyear italian yields 4. 36 . Weve got a tbill auction today, but well be looking to thursday where we have got up to 6 billion euros being offered and a new fiveyear, 2. 5 billion of a tenyear as well. On the currency market, this is where we stand. Euro dollar 1. 3341, not a huge lift, but better on the session. Dollar yen still around the 98 market, aussie dollar below 89. Ive been away for two weeks and rates havent changed an awful lot in the twoweek period, so thats sort of the perspective youd get. Thats where we stand right now in europe. Been a while since ive spoken to sichuxuan. Nice to see you. Nice to see you, too, ross, been a long time. The nikkei 225 closed down by 0. 7 , but the shanghai composite managed to reverse early losses, ening higher by 0. . Chinas july industrial profits came in strong, kicking up to over 11 . And beijing reassured markets about the economic outlook, saying local Government Debt is controllable. Many shanghaibased companies surged for the second session after the central cabinet approved the free trade Zone Pilot Program in shanghai. But its the much grimmer picture for some other asian emerging markets hit by geopolitical tensions and possible fed tapering. Stocks in the philippines, indonesia and india are taking a beating. Theyre currently still in action, so tumbling somewhat about 4 . But as for individual movers, japans tepco bucked the downtrend, soaring over 12 today. This on hopes that the utility giant would receive further government funding to deal with radioactive water leaks at its Fukushima Daiichi power plant. The stock, which tanked about 27 , as you can see from here, over the past six sessions, is the most heavily traded stock in todays session. And to put it in context, they soared about 150 times year to date on hopes of reopening those nuclear plants. Back to you, ross. All right, sixuan, thank for that. Catch you a little later. Still to come, the guessing games over, tapering continues to hit emerging markets, so when does south koreas Central Bank Governor think it will happen . Stay tuned to find out what he told cnbc coming up in just a few moments. [ 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. Time to have new experiences with a familiar keyboard. To update our status without opening an app. To have all our messages in one place. To browse. And share. Faster than ever. Its time to do everything better than before. The new blackberry q10. Itime. Treasury secretary jack lew is Warning Congress the government could run out of cash to pay its bills by midoctober if lawmakers dont raise the debt ceiling. In a letter to congressional leaders, lew says the u. S. Would be left with around 50 billion of cash on hand, which could conceivably be wiped out in a single day. They have used the debt ceiling to push their agenda. John harwood sat down with an or will be sitting down with treasury secretary jack lew on squawk box at 7 30 eastern today. At the same time, cnbc has learned from sources from team obama that president intends to name former economic adviser and treasury secretary Larry Summers as the next fed chairman in a few weeks, but summers is still reportedly being vetted for the job, so an announcement will be delayed. The race for fed chief has largely come down to two candidates, summers and vice chair janet yellen. Bernanke is expected to resign before his term ends in january. This week kicks off a busy week of bond auctions this morning. 3 billion euros of zero coupon in 2015 and up to 1 billion of inflationary paper. This comes amid uncertainty for the Coalition Government which is challenging to stave off a challenge from the centerright party. Against that backdrop, the cabinet passed a package of budget measures yesterday, but uncertainty in rome has been weighing on markets, as i said, the mib down 2 yesterday and off another 1. 38 today. That ifo number hasnt helped out really. And well bring you auction results and Market Analysis with the global head of strategy around 11 15 cet. Beat is still with us as well. Beat, despite what goes on on the politics, which havent really improved an awful lot, you still think, you think eurozone banks is beset by overcapacity, but crucially, prices have bottomed out. Why . Well, the valuations are an historic comparison often, and theres a reason for that, though, isnt there . There is a very strong reason for that, absolutely. They are in the lowest of the evaluation price to book. So, you have to believe in to the integrity of the eurozone, of course, and the euro. And the second thing is rehabilitation of the Banking Sector has progressed, but of course, lagging the u. S. By at least two years. And then, you know, sentiment is really washed out on this investment and valuations are really cheap. So, its a bet on the Global Recovery and its a bet on a european recovery and its a high beta bet, so not for the fainthearted. And its a bet that the politics dont do anything further to disrupt. I mean, the best thing that can happen is probably they dont do anything, actually, and they dont make the situation worse. Well, politics are beyond crisis management, very clearly also in europe. So, take the topic of banking union, which is really crucial to that revaluation. Its really two steps ahead, one step back, but there will be an asset quality review by the ecb and the ecb will assume responsibility for supervision of the european banks. So, that is slow and steady progress, and thats really important in european politics. You say, you know, weve still got lots of overcapacity. Weve got the likes of dexia, commerce bank, bankia as well. How do you minimize the risk of them damaging or infecting the rest . Well, systemically important banks are really flogged by the ecb and by the system, there is no doubt about that. And all the rest has to be consolidated, but thats going, of course, much slower than in the u. S. , but we have seen quite a lot of banking consolidation in spain. For example, we have seen almost none in italy. So, overall, theres probably 30 overcapacity but with wide disparities between different countries. You know, the Global Economic cycle, very low Interest Rates are really pulling, you know, the tide out. Is the Global Economic cycle the biggest risk to the banks . I think the bank into recession territory in euro, that would be the biggest risk to investment in a bank, yes, i would say that. And how particular do you have to be with your choosing of stocks . Well, i would not choose stocks. We focused on really important investment themes, so its a view over the next two, three years, and i think we will have significant performance. And i think you have to be really right on that theme. Thats much more important than to go into individual subsectors or individual stocks at this stage. However, if you are stock particular, of course, there is a very richfield to be very selective about these things. Any risk as we get withdrawal of liquidity from central bankers there . I dont think we can expect that at all. That has not happened the last few years. The Central Banks cannot afford to do that too early because they could not come back to it without any big loss. Good seeing you today. Thank you so much for joining us, beat wittman of tcmg asset management. Are you the company you keep . Some companies have determined that analyzing social media indications can be an indicator of creditworthiness. They are trolling through Facebook Accounts to find out how trustworthy their friends are and then use this information to decide whether or not to give them loans. Okay, interesting idea. We want to know, should social media be used to ascertain your creditworthiness . Would you want your facebook friends determining your financial future . I think the idea is, if they do, get some wealthy friends and chuck out the ones who arent. Join the conversation at worldwide exchange. Email worldwide cnbc. Com, tweet cnbcwex or me me, rosswestgate. Im not on facebook, so it wont impact me. Meanwhile, the guessing game over the feds tapering impacts emerging markets with south koreas Central Bank Governors making any predictions on when it will happen. Kim choongsoo says the best contingency plan for his country is to keep strong economic fundamentals. It depends upon the type or the scale of the tapering that u. S. Takes. At the same time, we have to see very closely what impacts our social policy will have on other emerging economies. I often said that even if a tsunami comes, not all cities will be affected by that. There are some which will be affected more, there are some which will not be affected by that, and it depends upon the soundness of the economy. And so, the thing is that we have to be very much we have to prepare to make our, lets say price variables to change to be in line with the market fundamentalists and others, and i think this is very important. We have to go back to the basic. Right, we just got earnings o out. Profit up 15 on that. Well take a short break. Still to come, last month, Chinese Electronics retailer gome forecast for the first half of the year. Can the company make it . Well preview their Quarterly Results when we come back in a few moments. Heres the headlines from around the globe. Stocks fall further despite a betterthanexpected ifo readings on concerns over syria. Concerns over a military intervention after john kerry condemns the use of chemical weapons during last weeks attack near damascus. President obama believes there must be accountability for those who would use the worlds most heinous weapons against the worlds most vulnerable people. U. S. Treasury secretary jack lew issues a warning to congress saying the u. S. Could run out of cash to pay its bills by midoctober if they dont raise the debt ceiling. Plus, the risk of global conflict sends investors fleeing for safety, hitting emerging currencies like the rupee again and outsetting markets in indonesia and the philippines. All right, this is where we stand an hour and half into the trading session, european equities in the red, ftse 100 down, the cac down 1. 3, despite the epifo slightly better than expected. Bond yields heading a little lower again today. Tenyear treasury yields 2. 77, they were over 2. 9 last week. Tenyear guilds 2. 6. Weve got tbill auctions for spain and italy this morning, big auction for italy on thursday. As far as currency markets are concerned, the dollar slightly weaker against the yen at 97. 90, euro dollar is slightly weak at 1. 333 1. 3332. Chinese appliance maker heyer says profits rose on the year to 243 million. We also expect results from the Appliance Retailer gome. Last month it predicted it was headed back to a firsthalf profit. The Appliance Retail market has become increasingly competitive with raiserthin Profit Margins on many ecommerce sites, leading some like gomes rivals into banking and demanding more bargains and goodsmakers are looking to squeeze more savings through distribution networks. Jackson wong is Vice President at tanwich securities, joins us now. Clearly, were waiting for these numbers right now, but jackson, whats your view of the company . Well, i think, as you said, gome is going to make a profit this time around, finally. I hope their Online Business is not losing that much, but i am expecting them to make about 300 million rmb for the first half of the year. I think probably the worst is over for the company. However, they are still facing severe competitions from online payers, such as 365 more players. And their market share of online is still very small. However, they would have to pool more money into the online section because if they dont do it, they are going to go out of business, i think, in the future, because when we look at the u. S. Markets, circuit city and best buy, these are big names. Circuit city is already gone. Best buy is also in trouble. So, they will have to focus on their Online Business, but their market share is very small, so going forward, they are still in a very tough situation. However, if they can figure out a way to do business online, i think they probably will survive. Talk about severe competition from other competitors, i mean, how tough is this sector . Well, now the online sales is accounting almost 20 of all the sales already. You are talking about, you know, a very short time. I dont think that Online Business is going to replace all these retailers. However, when we look at the markets in the u. S. , a lot of consumers will use these retailers as showrooms to test out all the products, and then they will just buy online because they are cheaper and there are more products to choose from and they can always figure out a way to find a cheaper product from another site. So, thats very important how they are going to figure out a way to combine their online and retail, Online Business and retail business. Their main competitors in the business has agreed that their online and retail will have the same price strategy. I dont know if this will work, but that would give away that consumers will be very confident that if they see a product online that the price will be the same as if they go to a retail store. So, i think thats one strategy, but gome has said they will not follow through with this strategy, but they still have to figure out a way to do business like this. Yeah. Clearly, you know, we might get a cyclical sort of turnaround here, but much will depend on the wider chinese economy, so whats your forecast . Well, as a lot of investors also expect, chinas economy is going to recover a little bit, so the worst is over for the economy. And a lot of these retailers were experiencing very tough situation in the last two years because they were overexpanding in the last few years, and their Profit Margins when the chinese economy is slowing down, their Profit Margins and their costs, their profit margin is shrinking while the cost is hiking, so thats why they got into big troubles. Now, if the chinese economy is going to recover in the second half of the year, that would help a lot, because when we are in an expanding economy, everyone wins. But going forward, are they going to make a big profit from it . I really put a doubt on it. So, if the chinese economy is going to recover, i think that the economy will do better, but probably not the best one you can choose from. Yeah. What will we learn from you talk about you try to bottom fish the ones with steady samestore sales numbers. Is that something youre going to try and do . Yes. Well, probably we are not going to see this in the electronic or appliance sector, but some of the other retailers, when they reported numbers such as samestore sales numbers, even they can hold steady. I think these are the ones that are going to be the winners going into the future, because when we look across the boards, all of the chinese retailers almost report a negative samestore sales. Only a few of them are reporting steady samestore sales. So, i think this is probably one of the best guidelines for investors to choose retailers among the consumer plays. And also, if we can look at the retailers have pretty solid Profit Margins, i think that will be another cool key to choose the retailers. Jackson, thanks for that. Jackson wong, analyst and Vice President at tanrich securities. Chinese industrial firms made more money in july, close to double the rate of growth from a month earlier. The figures support recent data suggesting a recoverys taking hold in china, and today the countrys vice minister suggested theres no need for more government stimulus. Shares of billabong took a fall in trade. The troubled australian surfwear retailer was knocked off its feet by a loss of 475 million. Thats more than triple what the company is worth by market value. The loss drives home the scope of billabongs turnaround challenge as it decides between two rival rescue bids. And a drop in coal prices helped take australias number two producer white haven into a hole, swinging to a loss of around 75 million for the year ending june 2013. Thermal coal prices have plunged. Whitehaven says a weaker aussie dollar and more coming online soon will improve its bottom line. Thoughts or comments . Email worldwide cnbc. Com. Meanwhile, the indian rupee trades lower having hit a record low of 66. You can see just below that at the moment, 65. 91. This is ahead of economic growth, which is likely to have slowed to a decadelow 4. 6 for forecast for the secondquarter gdp report due on friday. The figures would mark the third consecutive quarter with growth below 5 and analysts cited on cnbc. Com, the countrys being bogged down by weak manufacturing, construction and fixed investment. To make matters worse, allegations of corruption at top political ranks have impeded reform efforts. At the same time, our next guest has been taking a closer look at ind indias political economy through the lens of the nations most beloved sport, cricket. Joining us in the studio is Political Editor at economist and author of cricket corruption and the turbulent rise of modern india. Good to see you, james. Thanks indeed for joining us. You were in delhi as well for the economist as well. Your theory here is that cricket, whats happening with indian cricket actually is sort of a moral or more of a representation of whats going wrong with the wider political and Economic Situation in the country. Yeah. Why . Well, i think look, in indian, rit large is a story of phenomenal prospect, incredible opportunity, fundamentals are amazing, but that opportunity is very substantially being squandered. Its worth remembering the time of terrible crisis in the economy what these fundamentals are. It has a vast youthful population. Its been growing from a very low base, its been growing very fast. It has an engine of a english beating middle class, a great hunger for prosperity and a new consumerism. These all rank up, stack up for great opportunities. That opportunity is being squandered. In indian cricket, which as i say in my book, as you kindly point out, you know, it provides such a useful and revealing lens on to so much in india politics, economy, business, social change. This is manifestly true. India has more cricket fans than anywhere else in the world. It has the biggest cricket economy of anywhere in the world by far, about 8 of cricket revenues are generated in india, but that opportunity is largely being squandered. Now, we here in 1991, india was facing a lot of liberalization in the economy and cricket benefited greatly because of the liberalization of media. It very much did, to the extent that it became almost a totem, a symbol of indias new wealth and prosperity, its growth, its youth and enterprise. The indian airways, the Media Industry was liberalized just a bit after that emergency package formed in 1991, but it was driven within that it was in that environment and indian cricket was the most conspicuous beneficiary of those reforms, and indeed, helped drive them, because cricket is the entertainment product that indians most want to watch. I think you said 30 million tv households, now around 200 million . To about 200 million, yeah. Which is phenomenal, and cricket is what most indians want to watch, but theyre not the world beaters. I mean, theres a huge investment, its a huge population. They should be doing a little better. Its the problem of modern india. And you know, the big picture looks okay, but then you look at the winners and losers in indian cricket and there are just too many losers, as there are in the economy at large. The politicians who run indian cricket are doing okay, but the Indian Cricket Team is much less good than it should be and indian cricket fans, lets be honest, this is what really counts, are subjected to a constant dose of scandal and corruption and turbulent and malicious politics, which is slowing down the countrys progress in cricket, but across the economy. You make a couple good points. Just come back, weve got the spanish tbill auction, sold 3 billion euros of ninemonth bills. Bid to cover 3. 5. I havent seen the yield. Well come back to that. Im sorry, just to come back to you, james, are the problems in cricket, therefore, selfinflicted, and is that also the case for the economy . Is that what youre predicting . Absolutely. The problem, as so often in india, is also its greatest strength, which is its democracy. Its the worlds most unfeasible democracy. Its hard to think that the country could have knit together or functioned as it has without it, but Democratic Politics in a poor country, india, are inevitably corrupt, lead to constant disdain and basically stop the correct, the progressive, the enlightened reforms that the country actually clearly needs to move forward from happening. This is apparent in every sector of the economy and apparent in indian game of cricket, which is, by the way, no small industry in and of itself. It generates hundreds of millions of revenues every year. So, if in 1991 crisis drove reform, is this crisis going to drive reform or not . I think it is much less likely alas. The government is solvent. It has very few foreign currency debts of its own, and most worryingly, we have an indian election coming up next year, which is going to make all Political Parties extremely cautious. And there is no clear understanding of the economic informants that are required. Thats the big picture. In indian cricket, there is no chance of reform whatsoever. Why none in indian cricket either, despite all the corruption . Well, because indian cricket is run by indian politicians. It wasnt before it got rich, strangely enough, but since 1991 and during the growth of the economy, which has had a very profound effect in indian cricket, indian politicians have flooded into the game. So, its now about twothirds of the bosses in indias state cricket agencies are politicians. The same people who run indian cricket run india practically. Any chance of adopting the review system for test match cricket . Do you think theyll ever do that . Well, eventually, but at the moment, they feel completely vindicated. Right, after the last series with england and australia. James, thank you. With the economist and author of cricket corruption and the turbulent rise of modern india. Still to come on the program, labor disputes, poor working conditions and even collapsing buildings have all proved bad for the reputation of firms investing abroad. After the break and as part of our frontier week, we look at what firms need to secure a safe and effective supply chain. [ 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 . Lets just recap the tbill auction out of spain. Three and ninemonth bills. 0. 01 for threemonth bills, 0. 92 the previous auction. A bit more to cover. 4. 5 versus 4 the previous auction. Then 3 billion euros of ninemonth bills versus 2. 6 of the previous auction. Bid to cover there 1. 9 versus 2. 3, slightly lower. The threemonth yield, 1. 55. Better. And the ninemonth yield 1. 089 versus 1. 85. Again, a little lower. Well have more analysis as well on that auction and italys forthcoming auctions with the global head of strategy at natixis coming up after 11 00. Reuters says the s. E. C. Asked the exchanges to come up with a timeline of events. At the center of the disagreement, the role of arca, nyses electronic stock market, the blackout which saw trading in some 3,200 nasdaqlisted stocks halted was proceeded by connectivity issues between the information processor. The isp consolidates and distributes stock prices. Its unclear whether the problem was caused by arco or technical faul faults. Dan loeb is buying auctions at sothebys. He disclosed in an s. E. C. Filing hes taking a 5. 7 stake in the auction house. Third point intends to open a dialogue with the board and management. Sothebys says it welcomes loebs investment. Sothebys stock in frankfurt up 2. 6 . The u. S. Judge has ordered jpmorgan to pay 42 million in damages, plus interest stemming from a sour investment. The fourth on the list of forbes billionaires says he lost billions in a 1 billion investment which he claims was stuffed with subprime mortgages. The judge found jpmorgan wasnt liable for negative. The bank says its interesting its legal options. And apple is reportedly prepping an iphone tradein program that was originally supposed to launch in june. It would allow apples store customers to trade in old iphones for credit towards a new one. All Things Digital reports the program is currently set to debut next month, which would happen to coincide with the launch of two new Iphone Models which apple is expected to unveil on september 10th. Apples stock in frankfurt down 1. 33. Are you the company you keep . Some Lending Companies think you could be. Theyve determined that analyzing a persons social Media Connections might be one way of indicating their creditworthiness. Online lenders have begun trolling through, apparently, their customers Facebook Accounts to find out just how trustworthy their friends are, and then use the information to decide whether or not to give them loans. Seems a strange way to do it. Is measuring your friends creditworthiness any way to work out your creditworthiness . Should social media really be used to ascertain it . Let us know what you think. Ema email, tweet cnbcwex or direct to me rosswestgate. If i was on facebook and i wanted to be creditworthy, i would immediately sign up julia to be on that because that would improve my Credit Rating brilliantly. And the reason i mention julia is because shes now looking, joining us for our continuing look at Frontier Markets. Is weak infrastructure, jules, going to hamper growth as well . Thats tomorrow. Jules, lets get over to you. Thanks very much, ross. Weve taken a shift away from the developed markets this week to have a look at just whats going on in Frontier Markets and alternative places to invest somewhere thats interesting for perhaps some more brave investors. So, were going to be looking at a whole range of different ones. On thursday, well drill down into the middle east. Energy supplies, of course, long been the dominant theme of the region there. What does the future hold for markets looking to attract foreign cash . Can countries develop beyond the Energy Sector . Now, come friday, its time to focus on the recent stellar performance among the frontier regions, too. Africa is in focus. China invests, of course, heavily. Countries across the continent are enjoying an average growth rate of around 7 a year. But the key question is, of course, can it be sustained . The frontiers index captures large and mid cap representations across 25 different countries. Money has flowed out of emermging markets on tapering fears, of course. The smaller Frontier Markets have enjoyed a popularity boom. The msei Frontier Markets index is up approximately 15 year to date in dollar terms. Now, the managing the supply chain is a key task for any business looking to operate in the frontier economies. Ross, back to you. All right, jules, good stuff. Thanks for that. Yeah, and one expert in this field is with me now. Tom smith, head of Business Development at cidix, thanks for joining us. You work with buyers and suppliers around the world. Whats the biggest problem . Theres a huge wide range of problems that buyers and suppliers face. We categorize it roughly speaking into labor standards, health and safety, environment and business practices. What we hear from big brands and retailers and suppliers is that there are some overriding themes that were seeing emerging from some of these Frontier Markets. For example, issues like fire safety. Weve seen about 22 of social audits in bangladesh are coming up with that as an issue area. Were also seeing areas such as working hours as a big issue area. So, again, about 23 of social audits from sri lanka coming up where that is a big key risk area, but i think the central theme is, theres a huge variety of different risks ranging from sectors and country, and i think thats part of the challenge, really. Your membership is almost 30,000 buyers, suppliers . Thats correct, yes. And audit firms. How can Companies Deal with some of the risks you talk about . I think really the key element to start with is understanding the supply chain. I think Companies Need to understand where does it go, where that products actually being purchased from. And thats not just firsttier, but second, third, fourth tier and looking all way down. And from that, theyll be able to understand exactly what risks they are exposed to, and then build a program around that and using either tools like sedex or reporting mechanisms or whatever it might be to actually address these risks. But i think the key element is to be proactive in this area and not let the problems come to you. Yeah. We also had the bangladesh clothing disaster. How do the Companies Respond to that . Because i mean, theres enormous problem here. As you might know, your first supplier, youre the outsourcer, but as the suppliers to your supplier, there may be enormous risk there. How far down can you check the chain . I mean, if you work on the simple concept that the further, the risk is far down the supply chain and youre unlikely to have massive risk on the first tier, the key is just working your way down. I mean, theres no overnight success, but the key thing for companies and investors to understand is this is, you know, youve got to make your way down the supply chain for any programs to actually be effective, and not just to stop at that firsttier supplier she shows you interaction. Is that the only way to minimize the damage . Exactly to understand where the suppliers are actually coming from and weve seen that in scandals over the years. Companies need to understand their supply chain to manage it. Just how deep can a supply chain go . We work with companies that might be maybe six, sevenplus tiers down the supply chain, depending really on the type of product, but obviously, the more complex a product, the more it may go down. We look at a consumer soup for example. It may be made in ten different places before it actually reaches that consumer. And how do you i mean, at the end of the day, if youre seven steps away, how do you make sure that company isnt employing underage or child labor or exploitation or all the other issues that come up . Its a big challenge, but i think the key element is either using tools like sedex, but more importantly really to actually understand your suppliers, work with them, speak with them, meet with them and actually kind of figure out ways to actually improve them, rather than just sort of bashing them on the head with bad practice, but really understand and help them improve. And look, is this are the risks here, are they changed . Of themselves, we hear about fashion chains thinking actually maybe ill make the clothes closer to my market. Is that a shift thats going on . Are you seeing this market actually making things closer to the market . Yeah. I mean, theres been obviously huge shifts in Global Supply chain as a whole. What weve seen with our members is traditionally companies have been wanting transparency on countries from highrisk areas such as china and india. What were now seeing is a big growth in members from other markets such as south america or even actually europe and the u. S. So, its very interesting to see, i think people are wanting to get the traceability from suppliers close to home as well. All right, tom, good to see you. Thank you for joining us. Tom smith from sedex. Now, lets give you a look at whats on the agenda in asia tomorrow. Its all about corporate earnings, mostly out of china. China, the troubled ship builder reports along with others. Well hear from retailer woolworths and agl energy. All right, before we take a short break, just to recap where european equities are. Ifo today came in better than expected. Xetra dax down 1. 5 along with the cac and ftse mib. Tbill auction out of spain has gone fairly well. Well turn our attention to italy in the next 15 minutes. And as far as bond markets are concerned, yields are lower, so theres still a risk aversion trade effectively with gold held up, oil a little firmer, stocks off bonds up. Thats essentially it. Still to come, the reason we got the selloff, of course, yesterday in the states, secretary of state john kerry saying last weeks suspected chemical attack in syria should shock the conscience of the world wp well take a closer look at the international response, right after this. Youre watching worldwide exchange. Im ross westgate. Your headlines today. A betterthanexpected reading of german business moral, not enough to prevent stocks in europe from falling and gold rising as syrian fears persist. Concerns focus on a possible military intervention. The British Government says no decisions been taken after the u. S. Secretary of state condemns the use of chemical weapons. President obama believes there must be accountability for those who would use the worlds most heinous weapons against the worlds most vulnerable people. And u. S. Treasury secretary jack lew issues a warning to congress, saying the u. S. Could run out of cash to pay its bild bills by midoctober if they dont raise the debt ceiling. Plus, cnbcs learned president obama will likely tap former economic adviser Larry Summers to lead the fed in the next few weeks, replacing ben bernanke. All right, if youve just joined us this morning, welcome to the start of your Global Trading day here on cnbc. This is where we stand with u. S. Futures after the selloff yesterday. The dow nearly down 0. 5 , off 64 points right now, below fair value again to the tune of some 67 points. The nasdaq at the moment is around about 13 points below fair value, and the s p 500 at the moment is around 8 points below fair value after also being down around six points yesterday as well. European equities, well, theyre down along with the ftse cnbc global 300. Not quite at the session low but not far off it. This is where we stand with european equities then right now. This is despite the fact that the ifo Sentiment Survey out of germany came in a little better than expected. Didnt get much support. Xetra dax still down, along with the cac. The ftse mib down and the ibex down. The ftse is outperforming, down around 0. 8 . Its back after the holiday we had yesterday. We just need to put it back on the wall. As far as bond markets are concerned, yields on tenyear treasuries are lower again 2. 76 is where we stand at the moment. We just got slightly higher yields in italy at 4. 4 . We did see not a bad tbill auction for spain. They raised a little bit more yields on the threeyear, slightly lower. And we keep our eyes on commodities. Gold still above that 1,400 mark. Copper weaker today antofagasta saying well see copper weighing on prices into 2016. And continuing concerns over syria supporting gold and brent. Nymex over 106. Oil moving higher again during this session. On the currency markets, dollars down against the yen, but pretty much up against everything else, so, it is a classic sort of risk aversion trade that weve got going on. Equities down, bonds higher. The dollar up against most things apart from the yen. Lets see whats happened then in asia. Sixuan is at her post ready to tell us all. Hi, sixuan. Thank you, ross. Asian markets pulled back after yesterdays rally and the nikkei 225 lost 0. 7 , but the shanghai composite reversed early losses, ending higher by 0. 3 . Chinas july industrial profits picked up to over 11 , and beijing reassured markets about economic outlook, saying local Government Debt is not out of control. But its a much worse picture for some other asian emerging markets, hit by those geopolitical tensions and possible fed tapering. Stocks in the philippines, indonesia and india are taking the beating. But let me show you some gainers. Japans tepco soared over 12 today. This on hopes that this utility giant would receive further government funding to deal with radioactive water leaks at its fukushima power plant. The stock, which tanked about 27 over the past six sessions, made a strong comeback today. And take a look at Chinese Airline stocks, helped by the free trade zone concept. Shanghaibased China Eastern Airlines surged up by 10 . And chinas Southern Airlines saw fir firsthalf profit decline 30 from a year ago. Analysts pointed out that the company has over 80 billion yuan worth of debt in foreign currencies, mostly in u. S. Dollars. So, if Interest Rates pick up along with the feds tapering, it will definitely take a toll on the companys financing costs. Yet, not a concern in todays trade. The stock jumped 3 today. And air china gained 2 . Back to you, ross. All right, thanks for that, sixuan. Have a good evening. We have comments from the british Prime Ministers spokesman. This is David Camerons spokesman. Hes declined to say whether britain will wait for the United Nations evidence before taking a decision to act on suspected syrian chemical attack, but he thinks that that syrian chemical attack is absolutely abhorrent and the International Community must respond. Theyre considering whats called a proportionate response to suspected chemical weapons attack, according to this spokesman. Britain have a strategic need to act quickly in situations such as this, but its taken no decision so far. The armed forces are making contiguongency plans on how to respond. They will announce later today whether parliament will be recalled to discuss the situation. This comes after the u. S. Secretary of state, john kerry, meanwhile, says there is undeniable evidence that chemical weapons were used in an attack on citizens just outside of the damascus region of syria last week. Speaking to reporters, kerry added that the president is now consulting with allies before he decides how to respond. Let me be clear, the indiscriminate slaughter of civilians, the killing of women and children and innocent bystanders by chemical weapons is a moral obscenity. By any standard, it is inexcusable. And despite the excuses and equivocations that some have manufactured, it is undeniable. President obama believes there must be accountability for those who would use the worlds most heinous weapons against the worlds most vulnerable people. Nothing today is more serious and nothing is receiving more serious scrutiny. Lets get more. Joining us is nbcs ayman mohadin in cairo looking at events in syria. Ayman, things are getting more intense. What is the reaction there . Reporter well, there has been a mixed series of reactions coming out of the region from allies and opponents of the Syrian Regime in response to the possible or perhaps even looming option of a military strike on the government there. We start off with some of syrias closest allies, including iran and the Syrian Government for that matter. The Syrian Government has been very defiant, both the president and the countrys senior leadership, saying that they would respond to any Foreign Military aggression on syria, and more importantly, warned that it would engulf the entire region in a broader war. And the Iranian Foreign minister as well, including senior lawmakers, echoed that very sentiment, saying that if there was, in fact, any type of Foreign Military strike on syria, it would lead to a regional war that would not end favorably for the United States or its allies. So, theres a lot of political concerns, but also humanitarian ones. Already we have seen in refugee camps in jordan and iraq thousands, tens of thousands of syrians fleeing almost every day, and that would certainly be exacerbated by any military operations in syria. But the arab league, the arab countries here, they want a very strong response from the International Community, including the Saudi Arabian government, the uae, qatar, all pushing for a strong response. Nonetheless, there remains a division in the International Arena between the United States and russia over what to do inside syria. This week, the United States was scheduled to have a meeting with russian delegations in the hague, in the netherlands. That now has been postponed. The United States expected to make in the next couple days its evidence that the Syrian Government used chemical weapons. Its expected to make that evidence clear for the world to see. Ross . Okay, ayman, thanks very much indeed. Thats the latest from the middle east. Joining us now is john francois, global head of strategy at natixis. Good to see you. Clearly, the comments from kerry yesterday and whats going on in syria is a typical sort of risk aversion trade, really. Equities sold off, bond yields fell back, gold is a little bit higher, oil is a little bit higher. How long do you think this trade lasts for . Well, we see a mature of contention. We were just talking about syria and the middle east tensions. We are seeing some geopolitical situation is clearly waiting on the markets, on the global markets, and clearly, the flight to safety is playing a little bit there. But just as well probably we had another factors coming. We had poor data out of the durable goods autos in the u. S. , probably making the case for reducing the volume by the fed less urgent. So, clearly, the liquidity factor is still there in the bond market, is still a big, big player in the global markets. We see that in the emerging world as well, but at this point, these poor figures out of the u. S. , we have seen a currency depreciation continuing in the rupee out of india, out of indonesia, a sharp depreciation there. So, a bit of concern regarding the middle east geopolitical situation, but as well on the emerging role. These currency questions are back into the emerging world do you think thats not liquidity. Do you think emerging markets continue to be under pressure, regardless of whether its geopolitics or, you know, fed policy . Well, probably the agenda is there. We are a lot of things, again, geopolitical agenda, the concerns about the current balance out of emerging market. We see that the debt ceiling in the u. S. , we see that the italian political situation is weakening. So, while the situation is a bit demanding, so a bit of a risk aversion may be in the market for a couple of weeks now. All right, jeanfrancois, thanks for that. Stick around because i want your views on other stuff. Meanwhile, theres a warning of a oneoff strike against the u. S. And its allies in the area. So, what factors will affect a warning shot from the u. S. . Head online to find out. Plus, as the price of brent hits a fivemonth high in anticipation of a military attack on syria, cnbc. Com has analysts who tell us about the outlook for the price of oil. Meanwhile, back in the eurozone, expectations for the German Economy are high. The ifo think tank says its Business Climate index, which queries as many as 7,000 firms, has risen to its highest level since april last year. The numbers bolstered the view that europes biggest economy is gathering steam. Jeanfrancois, we actually didnt see any improvement in equities this morning. In fact, if anything, we went the other way. So, whats your readthrough from the ifo index into your strategy . Well, clearly, the european situation in a way is less at the center of the agenda of the markets, and clearly, now the market has understood that the european situation is not good, thats for sure, but clearly, the deterioration is to be over. The stabilization is there. So, i think its a little bit put aside the european fragmentation. Everything is now beyond us in a way, so its another argument showing that the european situation economy is a little better than the gdp growth we have seen in the last quarter. We have seen that spain is probably on the verge of getting out of the recession next quarter. No way this kind of stabilization is good for convergent play and the investors probably are going to be back into i would say a nice yield spread, portuguese, spanish, spanish is outperforming and it is going to continue in our view and maybe going further than that in the next couple of weeks because of the italian political situation, for instance. All right, jeanfrancois, stay there. Well get your thoughts on italy and spain, kicking off a busy week of bond auctions this morning. 4 billion euros of debt in france and Political Uncertainty mean borrowing costs spike higher. Well find out. Also, the latest debate of who should take over at the fed. Usua l please. Usua thank you very much. Ok guys, im back. I need a template of a template. Oh my gosh. Ive never even seen this record, ive only read about it in books. Yeah we can get some peanut. That is huge. Please dont judge the amount of Peanut Butter we are getting. From prepaid to platinum, cashback and more membership has a card for every character. Im Carrie Brownstein and i get to be whoever i want. This is what membership is. This is what membership does. All right, u. S. Treasury secretary jack lew is Warning Congress the government could run out of cash to pay its bills by midoctober if lawmakers dont raise the debt ceiling. In a letter to congressional leaders, lew says the u. S. Would be left with around 50 billion in cash on hand, which could conceivably be wiped out in a single day. Meanwhile, recap of the headlines. The uk says its reasonable to assume its military is preparing for action in syria. The outlook for germanys economy brightens as optimism hits its highest level in more than a year. All right, we also have the latest auctions from italy this morning. We saw slightly Lower Borrowing costs for spain today as well in this tbill auction. Italy sold just under 3 billion, 2. 89 billion of its bonds versus 2 billion euros planned. So, actually quite a bit more than we were thinking. And the yield 1. 87 is actually slightly higher than 1. 85 from july 26, bidtocover slightly lower as well. As they raise more, the cost of a slightly higher yield, but it comes, of course, after the political threat from berlusconis party yesterday to the Coalition Government. This is where we stand with yields in italy. Apart from elsewhere, they are slightly higher today. Lets get a comment from jeanfrancois robin with us. Jeanfrancois, how much do you read through to sort of the political threats from berlusconis party yesterday and the current stability of the Italian Government . Well, its clearly something a bit worrying regarding italy. Clearly, the decision on berlusconi will be a political one, so we have seen some, clearly, i would say, a bit of strong position out of the Democrat Party and out of the berlusconi, in response to the party threat to quit. Thats something which is a bit worrying, because for once it can be an early election threat, which is the biggest threat from a perspective of an investor in the way, but as well, the Current Coalition is continuing and it shows it would be more difficult to go through a structural reform, something which is still needed in italy to regain some confidence. We have seen italy underperforming not only as a core market but as well im thinking of spain. Spain is clearly outperforming italy, and thats something which might be a little bit a sign of cautiousness about italy from investor, a bit more confidence on the spanish side the other way. Okay. Thanks for that. Just stay tuned. I want to get your thoughts on this story as well. Cnbc has learned from sources from team obama that the president intends to name former economic adviser and treasury secretary Larry Summers as the next fed chairman. Could happen in a few weeks. Hes reportedly still being vetted for the job. The race for fed chief has largely come down to summers and fed vice chair janet yellen. Bernanke is expected to resign before his term ends in january. Jeanfrancois, investors favor janet yellen. If its going to be Larry Summers, what sort of reaction do you think well get . Well, clearly, janet yellen is seen as probably the biggest along with bernanke, maybe nor than bernanke in a way, so, clearly, she was in a way a continuation of a dovish federal reserve. We are a little bit more cautious about the possibility and that the easing is not that efficient to deal with that, so probably it is going to be a little bit more on the oakish side. So, maybe we can see a little bit of not selloff, but the selling pressure on the u. S. Market, because it means that the fed is going to reduce probably most currently its buying of tnotes, which is about onethird of it, so thats something we can play out in the next couple of weeks. And we should have an indication of this decision by midseptember, something around that regarding yellin or summers. Thats something to follow as well on the u. S. Market. All right, jeanfrancois, thanks for that. Jeanfrancois robin from natixis in paris. Well take a short break. Still to in, earnest and young analysts the g20 countries ahead of next weeks summit in st. Petersburg. Well give their findings a onceover in a few moments. [ 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. [ male announcer ] the parking lot helps by letting us know whos coming. The carts keep everyone on the right track. The power tools introduce themselves. All the bits and bulbs keep themselves stocked. And the doors even handle the checkout so we can work on that thing thats stuck in the thing. [ female announcer ] today, cisco is connecting the internet of everything. So everyone goes home happy. [ 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 ] all right, if youve just joined us, after yesterdays selloff, u. S. Futures are again pointing downward this morning. S p currently lower by 9 points, the dow down by 19. Its a long way to go, of course. The report ahead of the g20 is calling on leaders to improve conditions of leadership in their countries to stimulate job growth. It measures criteria like access to funding, entrepreneurship culture, tax and regulation as well as education and training. It shows that more than 80 of entrepreneurs agree that tax incentives are key to improving conditions, but access to finance remains a primary concern. Joining us for more is muriel pinelli at ey, formerly ernst and young. Where are the entrepreneur hotspots in the globe . At the moment, the developed nations clearly have a lead on an entrepreneurial culture, but the rapid Growth Markets are quickly catching up. Mexico and china . Whats happening . China, 70 of all jobs in china are led by entrepreneurs. As in the entire g20, more than twothirds. So, governments are realizing that job creation is led by entrepreneurs, and in fact, supplied universally by entrepreneurs. And i do hope the g20 will Pay Attention to this important constituency. Is this a g20 issue or individually country by country . Well, ross, its a countrybycountry issue, but the important thing is we can learn from each other, because all entrepreneurs in most respects are alike. And so, giving them the right tools and environment to succeed in, sharing those best practices is critical. The job creation thing is fascinating. This stat here from the u. S. , all right . In the u. S. , this is your information, startups and young firms make up nearly all of the net job creations in the last three decades. Zero to five years is the age of companies who have created net new jobs in the past ten years in the United States. The Kaufman Foundation has been researching this for quite some time. Its phenomenal. And more than 80 of job creation in europe has been led by entrepreneurs. But all the lobbying, all the political lobbying is done by the Big Companies. The Big Companies are not creating any net new jobs, but they have all the political power and clout. One of our recommendations is that they need a voice. They need a voice at the table. They need to be part of the policy leaders are so important. We talked about the u. S. In fact, Venture Capital funding came to be in the u. S. Simply by relaxing pension legislation that allowed for investment in entrepreneurial companies. They need a voice, and i would argue, they need ministers of entrepreneurship in each of these countries. And we need this as a topic at the g20. Heres the thing, how much does policy matter . Because entrepreneurs, you know, will say, whatever it is, were going to get on with it. Hugely, ross. 70 of all entrepreneurs today face the barrier of access to funding. Traditional bank lending they always have, havent they . They have. However, traditional collateral is not a method of funding a knowledgebased industry. Capital without mentorship is lost capital. There are few tweaks you can make that will continue to accelerate the growth of entrepreneurs, and therefore, jobs. Simplification of tax, for example, hugely important. Saudi arabia, interestingly, low tax rate, low time in terms of time spent on taxation issues, some 70 days compared to other nations where, you know, it takes 70 days to fill out the application to start a business. Yeah. Which is, yeah okay, look, they create the jobs. It will be interesting whether we can get more policy yeah, absolutely. And this is not all on government. Its really a system of government, corporations and entrepreneurs working together to create jobs, continue to create jobs and spur innovation. And by no means are entrepreneurs asking for subsidies. What theyre saying is, allow us to continue to innovate. Thats where they want the tax incentives. And reduce overhead expenses for us. Yeah. Well pay tax as long as were profitable. Sounds fair. Maria, thanks for that. Good to see you, maria pinelli. Nice to see you. Global strategic markets leader at ey. Weve got numbers out from gome. We were talking about this earlier, the chinese electrical supplier. We were hoping they would get into profit, and they have got a h1 net profit of 332 million yuan. Well take a short break. Investors get a fresh check on u. S. Housing after massive loss in weak home sales. A preview of the s p caseshiller index, right after this. [ male announcer ] its time. Time to have new experiences with a familiar keyboard. To update our status without opening an app. To have all our messages in one place. To browse. And share. Faster than ever. Its time to do everything better than before. The new blackberry q10. Its time. Youre watching worldwide exchange. Im ross westgate. Your headlines from around the globe. A betterthanexpected reading of german business moral, not enough to prevent stocks in europe from falling and gold rising as syrian fears persist. Concerns are focused on a possible military intervention. The British Government says no decision has been taken after the u. S. Secretary of state condemns the use of chemical weapons. President obama believes there must be accountability for those who would use the worlds most heinous weapons against the worlds most vulnerable people. And u. S. Treasury secretary jack lew issues a warning to congress saying the u. S. Could run out of cash to pay its bills by midoctober if they dont raise the debt ceiling. Plus, cnbc has learned president obama will likely tap former economic adviser Larry Summers to lead the fed in the next few weeks, replacing ben bernanke. All right, if youve just joined us stateside, a very good morning to you. This is where we stand after the falls we saw yesterday on the u. S. The dow down 64 points, 0. 43 . We are called lower again this morning. Right now the dow is some 67 points below fair value. The s p was lower. Currently we are some nine points off fair value. The nasdaq at the moment is some 14 points below fair value as well. As far as the ftse global 300 is concerned, this is where we stand at the moment, down 27 points, as you can see. And european equities have been softer during the session, despite the ifo german business index coming in at the best levels for over a year, 107. 5 in august. Its better than we expected. Nevertheless, German Market down 1. 5 along with the cac, ftse mib down 1. 6 and ibex down 2 . We had slightly betterthanexpected auction results for tbills as well out of those two countries. Meanwhile on this tuesday, what are investors to do . Heres a recap of some of the thoughts already from our cnbc guests. We have to remember how much of the bad news is already in the price, what analysts are expecting and now what one might realistically see going forward, and i think theres an awful lot of bad news baked in the cake and therefore not a lot of upside in the numbers coming in marginally better than expectations. Saudi arabia, nigeria, bangladesh, kazakhstan as well, these are all markets that have aboveaverage gdp growth, though gdp growth is necessary but not sufficient for market performance. Theyve got a collection of companies that are growing fast, that are well run. We certainly, you know, would suggest it could head up towards 3. 5 if once taperings gone, recovery stays on court. 3. 5 would be a perfectly healthy level in a world where the fed isnt pressing the yield. Meanwhile, a reminder of whats on the agenda in the United States today. San francisco fed president John Williams speaks about Monetary Policy at a conference in sweden. Its at 6 50 a. M. Eastern. At 9 00, well get the june s p caseshiller home index. Prices in u. S. Markets are forecast to rise 12. 1 . That comes just days after the u. S. Commerce department reported a 13. 4 drop in sales of new singlefamily homes for july, hitting the lowest level in nine months. The report stoked fears that higher Mortgage Rates could dent the housing recovery. Doug caulkin is president of the Housing Foundation and joins us with his views as well. Doug, ahead of the caseshiller report, whats your own take on that new home sales stat . Well, i think, ross, that obviously the excess inventory and the increased Mortgage Rates is driving that phenomenon, and i think that is what really pushes right into the rental Housing Market right now in the United States. You know, we have 35 Million People living in apartments, over a third of the country lives in rental housing, and we have people who are going there no longer because of economics, because its now a lifestyle choice. And were finding that younger people, young marrieds without children and emptynesters, rental housing now becomes a choice because you no longer have to have or be bothered with all of the problems you have with the maintenance of a home. Yeah. Whats happening to supply . Well, i think theres an overabundance of supply of new homes, which obviously you read that it was down 30 plus over projections. And right now we dont have an excess supply of rental housing. The rental Housing Market is now starting to get back into the Development Side for the first time in a number of years, and we had over a million households were added to the rental Housing Market just this past year. So, again, its pretty strong for the rental Housing Market, while the homeowner market, while the existing, sales of existing homes are very strong. Those new homes that are being built and added to the market and to the inventory seems to be where the big pain is. Is a rise in yields, and therefore, Mortgage Rates, going to dent investment buyers in the apartment business . Well, you know, we havent seen any indication of that yet at this time. Again, the apartment industry, for a change, has been very moderate in its expansion, and it has waited until most of the existing inventory has been filled right now. Occupancy rates here in the United States in rental housing are at an alltime high, the highest that its been in many, many years. And its just been in the last two to three years that the Development Side of the industry has kicked back in, and it looks like we will have doubledigit increases in housing for the second year in a row. And again, this is all housing now that there is a demand for, where with expectations of we wont have excess inventory, such as happening in the singlefamily home market right now. Do you think rental yields are going to be stable, doug, do you . Well, yes. All of the demographics that were seeing lead to, between the baby boomers selling their primary homes and the millennials looking for homing, that for the next seven or eight years, by 2020, there was an estimate that we could add 7. 2 million new units to the rental Housing Market. Thats a significant increase. And right now, everything were seeing is that there is a demand for that increased housing, ross. Yeah, yeah. Well, if there isnt, though, then rents will fall, i guess, because well have an oversupply. Absolutely. If its not there, it would fall. Doug, good to see you. Thanks for joining us early this morning, doug culkin thanks, ross, my pleasure. From the National Housing association in d. C. A reminder of other stories were following today. U. S. Treasury secretary jack Lew Warns Congress that the government could run out of cash to pay its bills by midoctober if lawmakers dont raise the debt ceiling. In a letter to congressional leaders, lew says the u. S. Would be left with around 50 billion in cash on hand, which could conceivably be wiped out in single day. Republicans have considered using the debt ceiling as leverage to push their agenda. Cnbcs john harwood will be sitting down for an exclusive interview with the treasury secretary on squawk box today at 7 30 eastern. So, set your times for that. Dont miss out. Not that i know you would. Cnbc, meanwhile, has learned from sources from team obama that the president , meanwhile, also intends to name former economic adviser and treasury secretary Larry Summers as the next fed chairman in a few weeks. Now, hes still reportedly being vetted for the job, so that announcement might be delayed. The race for fed chief largely down to two candidates, summers and the fed vice chair, janet yellen. Ben bernankes widely expected to resign before his term ends in january. Starbucks Ceo Howard Schultz says they wont follow the lead of other companies and cut u. S. Workers Health Benefits ahead of the launch of obama care in october. The Health Care Reform law requires companies with more than 50 employees to offer coverage to those who work 30 hours a week or more. Starbucks offers health care to parttimers who work 20 hours or more. The firm is also expanding in south america, aiming to open its first cafe in colombia next year. The company will only sell colombia coffee amid protests by local growers for more government aid to combat low prices and cheap imports. Starbucks shares off just under 8 in frankfurt. Still to come, bill ackman is cashing out of jcpenneys, losing investment in the struggling retailer. Well look back at ackmans history with the Department Store chain, next. And a recap of the headlines today. The uk says its reasonable to assume its military is preparing for action in syria. The outlook for germanys economic rises as optimism hits its highest level in more than a year. And u. S. Treasury secretary jack lew warns the country could reach its debt limit by midoctober. All right, meanwhile, spokesperson for british Prime Minister David Cameron says the world must act on syria. This as the British Government looks at its own response. They say the attack in syria, the chemical weapons attack in syria were absolutely abhorrent and britain is considering a proportionate response as a result. Any decision will be taken under a strict international framework. The International Committee needs to respond to the attacks. This is according to british Prime Minister David Camerons spokesperson this morning. Nasdaq reported over the cause of the trading outage last week. Reuters says the s. E. C. Has asked the exchanges to come up with a timeline of events. At the center of their disagreement, the role of arca, nyses electronic stock market. The blackout, which saw trading in some 3,200 nasdaqlisted stocks halted was proceeding by connectivity issues between the information processor. The sip consolidates and distributes stock prices. Its unclear whether the problem was caused by arca or technical problems at the s. I. P. A u. S. Judge ordered jpmorgan to pay 42 million in damages plus interest to billionaire leonard blatvanik. He ranks 44th on forbes list of billionaires had sauget more than 100 million he says he lost on a roughly 1 billion investment which he claims was stuffed with subprime mortgages. The judge found jpmorgan wasnt liable for negligence. The bank says its interesting its legal options. Jpmorgan down 1. 33 . Apples reportedly prepping an iphone tradein program that was originally supposed to launch in june, allowing apples store customers to trade in old iphones for credit towards a new one. All Things Digital reports the program is currently set to debut next month, which would happen to coincide with the launch of two new Iphone Models, which apples expected to unveil on september 10th. Apples stock down 1. 6 in frankfurt. Plus, bill ackman has decided to go shopping elsewhere, cashing out of his investment in jcpenney. Jack jackies been tracking the story and joins us with a wrap this morning. Hi, jackie. Hi. Good morning, ross. Ackman selling his entire stake in jcpenney, 39 million shares or 18 of the struggling Department Store chain. Now, the move comes two weeks after the activist investor who runs Pershing Square Capital Management stepped down from the board over a fight over strategy and also who should lead the company. Ackman is selling his stake to citigroup, who will offer it to other investor at 12. 90 a share, well breakaway telow the paid when he started building position in jcpenney in 2010. The sale closes ackmans campaign to breathe new life into the company. He recruited a new leader to streamline pricing and that didnt pay off and johnson was ousted in april. Ackman last week admitted that Retail Investment isnt his strong suit, calling jcpenney as one of his big failures along with bad beds on target and borders. Ackman began buying shares in jcpenney exactly three years ago today. Since then, the stock is down 34 . Meantime, another highprofile Hedge Fund Manager is making a new bet as well. Dan loeb who runs third point has disclosed in an s. E. C. Filing that hes taking a 5. 7 stake in sothebys. Third point intends to open a dialogue with sothebys board and management. The auction house says that it welcomes loebs investment. Taking a look at sothebys shares in frankfurt, they are up 2. 6 on this news. Back to you, ross. All right, jackie. Good stuff. Thanks for that. Have a great day. Phil warber is a correspondent for reuters and joins us now. Good to see you. Jcpenneys stock down 34 in the last year in a broadly rising market with some underperformance. Ackmans throwing the towel in, as jackie says. Whats going to happen to jcpenney . Well, for now, jcpenney is going to get a bit of peace and quiet. Last week they put in a poison pill so nobody could own more than 10 of shares and i think they were exhausted by the last three years with ackmans activism. He brought in ron johnson from apple. That experiment did not work out well at all. In fact, the company is still reeling. So, a lot of people consider the poison pill last week was brought in to prevent another activist from coming in. All right. Phil, stay there. Still to come, well talk about tiffany, reporting secondquarter results before the opening bell. Are wealthy Companies Holding back on spending . Well get phils view on that as well. See you in a few minutes. All right, tiffany reports secondquarter results before the bell today, potentially offering clues about wealthy shoppers. The luxury retailers forecast to earn 74 cents a share on revenue of around 941 pimillio. Phil is still with us from reuters. Phil, what does wall street want to hear from tiffany . Above all, what wall street wants to hear is that luxury shoppers didnt pull back like their lower and middleincome brethren did. They also want to hear that the china storys still going strong and also that there are signs of progress in the less expensive jewelry that tiffany sells but makes up 30 of their revenue. Yeah. I mean, how important is the china angle going to be . Well, china is roughly 6 , 7 of their sales right now, but thats where the company is banking on its is betting on for its international expansion. So, people dont want to see a pullback in china. You know, theyre opening a lot of stores there, and its a luxury market that they cant miss out on, but of course, there is a question mark about the state of the luxury market in china this summer and in the next few months. Yeah. While we look at that, how important is what happens at, you know, the fifth avenue store . How much of an indicator is that . Well, you know, the fifth avenue store is famous and is really essential to the marketing of the company, but its about 8 of sales. The store had a few weak quarters, and all of a sudden, in the spring, sales perked up, and people are expecting the company to report that sales were up 4 at the store. And so, well see. You know, that store depends a lot on bonuses on wall street and on tourism, so it is a gauge for the companys Overall Health and not just, you know, for that 8 of sales that it generates. Yeah, and look, if they hit what we expect, what kind of readthrough will that mean for the rest of the luxury sector in the states . Well, it will give people some reassurance. You know, its been a rough summer for retail. You know, even saks and nordstrom, which are higher end as well, had a difficult summer, and retailers that cater to shoppers with less money than that also struggled. So, people want to know if people are willing to spend on jewelry as they head towards the holiday. The holiday is by far the most important time of the year for jewelers. So, you know, this morning will really give people a sense of consumer mood as christmas approaches, which is now less than four months away. As we set up for that, that runin, weve got the Labor Day Holiday next week and then were on the runin, right . How would you assess the consumer right now . Weve got a bit wobble with the new home sales data last week, people wondering about that and if Mortgage Rates rise a bit. Well, you know, the thing thats interesting about tiffany, of course, is that nobody needs jewelry unless youre getting married and you have to give somebody a ring. Its the very definition of discretionary. And i think what has a lot of people worried about is the fact that tiffany gets 30 of its sales from lowerend jewelry, and at tiffany, that means silver jewelry, typically less than 500 and theyve had trouble with that the last couple years. The company says they expect that part of their business to take a bit of time to recover. So, well see today if, indeed, the middleincome and upper, well, lower middle class shopper will pull back. The luxury shopper bounces back more quickly, but you know, its a different dynamic for jewelry than for fashion. People need to keep updating their wardrobe, but they can do without that 50,000 necklace if they need to wait a few more months for it. So, Wider Consumer sentiment and activity, how would you gauge that, phil . Well, you know, its the consumer is pinched, is waiting to see if, you know, the stock market will continue its ascent. In the case of luxury and other tiffany and other luxury retailers, the stock market is a good gauge. You know, people will feel a bit more comfortable spending 5,000 on a watch if their portfolios doing well, so there is a question mark. And you know, jewelry this is the slowest time of the year for jewelry, but you know, its going to pick up very soon. And again, today it will really be a good read as people start making their Holiday Spending plans. Okay, phil, good to see you. Thanks for joining us early this morning. Have a good day there, stateside. Thank you. Phil wahba with reuters. Now, before we start play today in the states, lets remind you, brent up over 111. 70 a barrel, highest since early april, continuing with syria tensions and gold holding above 1,400. So, we continue effectively the risk aversion trade which set in yesterday as well, which means equities are down and bonds are up effectively. This is how much equities are down in europe right now. Were off about 0. 75 for the ftse. It wasnt at play yesterday, a bank holiday in the uk, which is a day off. The xetra dax and cac down, the ibex down nearly 2 , despite the ifo index, which is probably germanys or europes most important Business Sentiment indicator coming up to the highest level in more than a year earlier on. And you will see yields on bunds are lower this morning and guilds as well. Italian yields slightly firmer. We had tbill auctions today that were okay, bearing in mind the political tensions worsened slightly the last day or so. Futures right now, well, the dow is called lower by some 60odd points. The s p at the moment currently called lower by 70 points. Dont forget, u. S. Treasury secretary jack Lew Warns Congress that the government will run out of money to pay its bills. John harwood has an exclusive interview with him at 7 30. Squawk box is up next. Whatever happens, we hope you have a profitable day. Bye for now. Ldly 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. Good morning. Your days top story, stocks fail in their effort to turn into a threeday winning streak. Would have been a pretty weak one anyway, but were called lower again today. Meantime, gold tops 1,400 for the First Time Since early june. Plus, the Treasury Department has a warning for congress the nation is on track to run out of money sooner than some had believed. Its tuesday, august 27th, 2013. Squawk box begins right now. This is a story about billy joe and bobbie sue good morning and welcome to squawk box here on cnbc. Im Andrew Ross Sorkin along with joe kernen and kayla tausche, sitting in for the vacationing becky quick. Weve got a lot of headlines this morning. Lets start with the biggie. The Obama Administration now warning of a midoctober default deadline. Treasury secretary jack lew saying that the government is going to exhaust its Borrowing Capacity at that point, and then it would be left with about 50 billion of cash on hand. He warns that amount could conceivably be wiped out in one single day. Our own John Harwoods going to be sitting down with the treasury secretary for an exclusive interview and were going to have that and bring it to you at 7 30 a. M. Eastern time. In other washington news, the white house preparing to release intelligence evidence alleging the use of chemical weapons by syria. Secretary of state john kerry called last weeks attack a moral obscenity, and hes laid out the case for a u. S. Military response. Anyone who could claim that an attack of this staggering scale could be contrived or fabricated needs to check their conscience and their own moral compass. What is regulations and policies