Transcripts For CNBC Street Signs 20180117 : comparemela.com

Transcripts For CNBC Street Signs 20180117

Its education business continues to struggle in north america. And asml is among the hottest stocks in europe this morning hitting a record high as Fourth Quarter profits beat expectations good morning were about an hour into the european trading session wild swings in the u. S. Equity session. Well get into that. The handover from asia was mixed. The nikkei was down about 0. 4 overnight. Hang seng stood out there, ending up about a quarter of a percentage point the mood music in europe is grim this morning it points to a weak start for the stoxx 600. We recovered a bit, but for the day the index is trading down. Lets look at european markets and see what the picture is like there the only one in the green, is ftse mib. The italian index, but ftse 100 is lagging in the uk, the focus is on the voting of the uk withdrawal bill later in the lower house of the Parliament Today xetra dax is also struggling, down 0. 2 . We get eurozone Inflation Numbers in about a half hours time we should get confirmation on whether the Inflation Numbers have, indeed, stuck around 1. 4 , or are going to dip a bit. We also had corporate earnings announcements this morning one of the major stocks that was under focus this morning was burberry, that was a key name pushing down ftse 100. Its down about 0. 5 in trading. Going into deeper, technology is the outperformer, up 0. 7 insurance also having a good day. Its mixed in terms of sector composition. Media is lagging and telecoms is the underperformer, down 0. 7 . Lets get into what happened in the u. S. Equity session last night. So, we did mention many times during the show yesterday that the futures are pointing to a very strong start for the dow jones and suggested that one of the strongest starts in record and indeed that was the case at one point the dow was up almost 270 points, then quickly capitulated, fell about 300 points on the day. The largest single day drop in a couple years time. That meant overall it went from being up almost 300 points to ending the day down ten points overall for the index, its not that alarming, because overall it ended up not down 0. 1 . S p same type of volatility, because deeper down day as far as where tended. It did touch an intraday high of 2800 thats the first time the s p reached 2800, but ended much weaker the tech stocks, nasdaq was the biggest underperformer here, ending the day down 0. 5 no surprise with all of this volatility, we saw an uptick in the vix. You can see that at the end. There is an uptick in the vix. It was it hit a high of 12. 4 in yesterdays session, thats the highest level ina couple weeks. You can see vix has been really underperforming. It has not been doing much because of volatility in the index indexes has been low it looks as though it closed down a bit lets look at some of the european stocks moving skanska is trading near the bottom of the stoxx 600 after the Building Firm issued a profit warning and announced sweeping plans to restructure its business skanska says it will cut 3,000 jobs the company reshuffled its Leadership Team as part of its restructuring effort ubm shares have risen to the top of the european stocks after informa agreed to buy the event organizer. Informa will pay 3. 8 pounds for ubm. The deal will combine the two firms into a group worth billion pounds but has greater international reach. Pearson shares have dipped sharply in early trading after the Education Firm forecast lower 2017 Profit Growth and said staff cuts and asset sales will help this years profits. The world is bracing for yet another year of heightened risk. Thats the finding of the latest global risk per sception survey ahead of the annual meeting in davos. 93 said they expect political or economic confrontations to worsen in 2018 and the environment topped the list of concerns with extreme weather events seen as the single most prominent risk i sat down and asked what environmental risks were worrying decisionmakers here the risks would include extreme weather, which you saw with hurricanes, wildfires, anticipation that that type of event will increase. You have the adaptation to Climate Change and can we adapt fast enough to respond to that and air pollution also is featured in the survey as a key source of future potential risk. Looking back at previous reports, what i can tell is in 2009 the biggest risk was asset price collapse in 2013, the biggest risk was income inequality. 2016, migration around the time of brexit. Isnt it often the case the big event for that year becomes the biggest risk factor for the next year, given that this year was a year that saw many natural events and climate disasters, the expectation is that this will continue into next year do you detect that theme theres no doubt that coverage and visibility of risk within a year affects the survey on the environmental side theyve been prominent for the last few years, even before you have the big year of hurricanes in 2017. In terms of cybersecurity, surely that must be a threat that evolved over the last decade or so has it featured high in the global risk report its jumped up, but now cys r cyber is in the top five in terms of overall global risks and has been rising. Does that play into the geopolitical context absolutely. One key underpinnings of the growth of cyberrisk in the survey is the likely increase in state sponsored attacks, so a clear connection between geopolitics and cyberrisk. I guess the bigger question is whether government is, and Central Banks have the right equipment in the toolbox to manage the next challenges when they arise what is your view when it comes to that . A couple concerns multilateral institutions and agreements have been waning, as the more nationalist politics has taken hold so more protectionism, less liberal multilateralism. That could be a problem in responding to risk the other issue is Central Banks are usually responding by lower Interest Rates, and theres really nowhere to go with Interest Rates now if there was an economic crisis, it would be harder to respond to its interesting in the report, Economic Risks feature lower down in terms of risks for the next couple of years or so is this due to the fact theres less income inequality because that is certainly something that featured in the past, or is it just that people are focused on other themes right now i think theres a general feeling that the economy is better and growth has been higher but it masks some underlying concerns in the economic risk environment. Corporate debt to equity ratios are up global debt to gdp ratios are up defaults are rising. So theres shocks out there for companies that they have to find ways to be resilient to. You spelled out ten potential shocks, these are all hypotheticals, as i understand it in aggregate would you say the world is becoming a riskier place . I would say certainly the response of the survey, 59 say it will get riskier, and 7 say the risk will decline and the broadening array of risks. Ten years ago most of the prominent risks were in the economics sphere, now you see a wide array of risks, not only economic and technological, but geopolitical, societal and Economic Risks so a wide varity of shocks could come to the system. What is the main message for governments on receiving this type of report its multilateral cooperation will be needed to solve some of the most complex risk problems, these problems are increasing. Also that resilience, the wide array of shocks will be needed and building up system resilience to that wider array, not just a narrow array of risks is important interesting conversation. I have to say i noticed Economic Risks did not rank highly on his list well get to that but the way they rank them, theres an interesting diagram, its impact on one side and likelihood on the other. If you rank them by those two elements, what you see is that the likelihood of extreme were weather events, natural disasters are high in terms of potential risks for next year. The other thing that featured, this is a new element to be introduced in the report is the threat of cyberattacks and cybersecurity becoming a major theme. It never featured in these reports. Which is echoing what the u. S. Government is saying as well and plays hand in handed with the geopolitical risks as well when you talk about the Economic Risks, it is interesting i detected a pattern, like when it comes to the number one risks for investors. If you look back at 2008 and 2009, they there are numbre ares in 2016, the risks were largescale migration. This year and next year the risks are extreme weather events and 2017 is a year where we saw many extreme weather events. So youre saying they are good at these predictions . I mean as far as people are concerned, theres a bias as to what has been the major event for that year and it affects your assessments of the risks going forward. When it comes to economic report and here in the report it was telling, it was not as though the Economic Risks have significantly subsided, yes, the world is in a much better place as far as economic growth, but income equality and those issues are still there. And it reported to an imf report that showed over the last three decades, 53 of countries have seen an increase in income inequality so what governments should be doing now is using this good economic climate to address some of those issues. Really interesting. Well watch and see how right or how wrong they were. Cnbc will be on the ground at the World Economic forum for five days of live coverage that starts on monday. To follow us, search Cnbc International across all major platforms. President trump has again used twitter to lash out against the media. This time for not focusing on the recent stock market surges and the job creation that he says accompanies that rise in equities during an unannounced visit to a womans forum in washington, President Trump said his presence in the oval office is responsible for the recent bull market had the other side gotten in, the market would have gone down 50 from where it was. Right so lets look at Foreign Exchange pairs the dollar is back in the focus. Dxy at the lowest level in a couple of years. Its impacting those major Currency Pairs today is bucking the trend of moving through and setting new highs. Dollar yen is also stronger. The overall picture has been one of weakness. To get in on this discussion, im happy to say that the cohead of ubs is on the show. What is going on with the dollar why does it keep going from weakness to weakness despite the positive news that is the backdrop in the u. S. For now for us, its surprising how quickly it has come to materialize. A, the source of the shock is outside of the u. S the big surprise has been the strength of growth and the speed of growth in europe. The resilience of china emerging markets easing without significant pressures. All of that created a growth shock that is stronger outside of the u. S thats allowing space for financial normalization, policy normalization, financial conditions easing and central bank is needing to catch up. So, that allows a lot more space in a lot more expensive bond markets, such as the european bond market to correct and at the same time, while all of this is happening, lets not forget that the initial starting point is one where the dollar has been expensive on several metrics. If you put all these things together, you have an expensive dollar, growth coming from outside of the u. S. , markets outside of the u. S. Expecting very little of that all of that creating a positive shock for currencies lets talk about u. S. Yields. A couple months back you and i spoke you said the expectation was for tenyear treasuries to end the year at 2. 70 do you still have that view . Do you feel more confident given that last week, we had that little shake off, selloff in bond yields, and the expectations was maybe this was the beginning of the bear market for fixed income this is a very good question. I think l above the forwards today this is probably within the forwards not a particularly bearish view yet, but yields will continue to go up. The easing in financial conditions is actually pushing the front end higher that has an impact on the long end whats remarkable is that as opposed to other bond markets that are expensive, the space for the long end of the u. S. Curve to adjust. We see it happening. So you see it flattening then flattening and deeper potential inversion than the previous cycle want to ask about sterling that weaker dollar makes cable look slightly more positive. I wonder whether you think after this rally the last few weeks if there are geopolitical shocks down the road when it comes to brexit is that something you will be watching closely absolutely. Brexit is important to think about. For sterling in particular the most interesting bit is sterling is not a lot stronger than what it is today. You had significant positive surprise in economic data, the central bank adjusting Monetary Policy, and at the same time sterling is very geared to global growth. Actually the global pick up in earnings is boosting the current account of the uk significantly. In many ways, sterling is the new aussie the way we used to look at it five, six years ago, this is the new sterling the fact that sterling is not stronger compared to the euro given the surge in global profits is, i think, a sign that still the underlying current for sterling is weak, and it will probably rise against the pound as well. I was reading this morning that the iff said germany has the largest current account in the world followed by japan. What does that mean for Euro Currency as a pair and the second thing i picked um in your notes, you noted that the share of reserve allocation to euros is low still. Do you expect that to pick up . The question about euro yen or euro dollar euro dollar i think when we look at valuation metrics that are based on the current account of europe which is driven by places like germany, we get the feeling that euro is double digit cheap you need this year, next few years growth above trend in europe to narrow down the current account surplus and a strong euro, which will probably happen as the ecb normalizes policy so the valuation impact is definitely there when it comes to reserve managers, theres a shift in allocation i have to say some chunk of that is valuation driven as well. As the value increases, the share of euro based assets will increase most of that correction will happen by the price. Quick target for euro dollar . Where do you see it going . 1. 25 as a first step. Fair value in the long run, 1. 30 thank you very much for joining us thank you coming up, burberry sales dip as the British Fashion brand looks to raise its profile on the catwalk. A look at stocks across the luxury space after this break. For your heart. Your joints. Or your digestion. So why wouldnt you take something for the most important part of you. Your brain. With an ingredient originally found in jellyfish, prevagen is now the number one selling brain Health Supplement in drug stores nationwide. Prevagen. The name to remember. Welcome back to street signs. Chinas luxury sales grew at the fastest pace in more than five years. This trend is set to consolidate in 2018 as sales of luxury goods in china increased around 20 , reaching 22 billion. The report Shows Chinese shoppers are the worlds biggest sende spenders on luxury. Burberry shares are plunging after the Company Reported declining Third Quarter sales and revenues last year the ceo laid out a turnaround plan to take the label fur ler ther up market the british luxury firm said the weak pound boosted its performance in the uk. Joining us is beth pickens from william blair. Theres two stories there. They have a bit of a link, chth chinese are big spenders and that is helping burberry in the uk this week, we will see a lot of surprises as we look at holiday earnings, theres more surprises in the box. Short of those lead times from china coming to the west and the more the consumer has become global, the more we have realtime reporting of whats happening. We used to predict what would happen in that Fourth Quarter. We cant predict it so well anymore. The link of the Chinese Consumer today to burberrys success, there may be affects in there. That may be the tourism shopper and the strategy of burberry as they try to pare down retail locations, where you have a tourist consumer you may have a relaxed consumer who is in a leisure moment and is willing to spend more i want to ask about that new strategy Marco Gobbetti back in november said they are revamping the strategy they will focus on becoming a super luxe brand, similar to prada and gucci, which means closing down the department outlets. On the day of that announcement, burberrys stock was down 10 . It recovered a bit, but this morning down another 5 . Is the market telling burberry that this is not what the consumer wants the consumer is telling burberry this is not what they want we are in a transition period of fixing a wholesale distribution to a more Retail Consumer environment. Also when theyre in a moment of exploration to spend this will take time. It particularly takes extra time for a super brand. At the same time dealing with wallet share with the consumer public, where they vote with their wallet and change how they buy and what they buy. This should be good news for brands like burberry, which was originally selling a technology product. They were a need product with the trench coat, with the gaberdine created by burberry this is a tech business. So the consumer should be able to come back and choose this as an essential product but we need to pare down the offerings how are millennials affecting the markets here we first saw the premillennial movement in lifestyle. We took the brands and said this is the way i communicate, its shorthand

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