Shares in the telecoms arena, as the giant heads for the worst day in nin months after it slashes its 2017 outlook amid declining sales we will speak to borje ekholm in 15 minutes time. Swiss pharma giant novartis beats expectations in the Second Quarter, amid improvements in its eye care unit alcon, as the ceo tells this channel that th collapse of republicans latest healthcare bill will not affect his business im not so sure it provides certain certainty. What it provides is there will continue to be debate what will benefit patients in the u. S. Is if theres some level of coverage whether its voluntary or mandatory, but to allow the access to medicines through insurance plans that reduce the copays shares of lufthansa struggling despite the German Airliner lifting its profit target for 2017 after a busy summer for bookings netflix blows away expectations for subscriber growth, with investors scrambling to bid up the streaming services stock, sending it higher by more than 10 in after hours european equities giving up a bit of ground in the first hour or so of trading. Trading pretty much on the lows of the session 0. 5 lets look at individual sectors. Yesterday basic resources strong here in europe i. T. Stocks one of the best performing sectors in the u. S. , 21 higher this year telecoms moving the opposite direction. Today we have the major indices down the ftse not getting the boost it got yesterday from basic resources. Dax was one of the worst performers in yesterdays session. Is it the strength of the euro which is hurting the german exporters . I think possibly thats one of the questions being asked given how sensitive we appear to be to Interest Rate moves and currency moves to the underlying level of individual stocks lets look at those sectors. Lets see which ones are moving. This is interesting. This is chris griggs, british land story ill talk more about that one later on safe to say is it more about buybacks than underlying performance of the company if it is, why is the company that has cash to spare not spending it on land, not building more skyscrapers, why are they giving back money to shareholders ill give you answers on that basic resources down 1. 5 . Technology down 1. 3 you think netflix pretty good. But we have our own problems on this side of the atlantic. Thats ericsson. Ericsson trading at the bottom of the stoxx 600 it posted a bigger than expected loss in the Second Quarter the telecom equipmentmaker which has its own activist problems as well reporting an operating loss of 1. 2 billion Swedish Krona compared with a profit of 2. 8 billion a year earlier ericsson said it expected the mobile Infrastructure Market to decline by a high single digit percentage this year up from the previous estimate but added planned cost cutting will be accelerated. Huge numbers of problems potentially inside the company and in the broader environment the ceo, borje ekholm will join us in ten minutes time shares of lufthansa trading lower. Everybody is scratching their head this is the chart i wanted to you look at. Threemonth move 36 higher off the top of my head this one peaked at about 21 euros, which is greater than the fiveyear peak so its trading lower despite the company raising fullyear guidance german carrier revised up the forecast in preliminary numbers, but analysts warned, seeing a stronger number in costs i think its the shares and where they have come from. The shares have rose 60 yeartodate ill giveyou a bit of valuatio work on this one ryanair trades at 31. 76. This one only trading on 6. 6 times. You can see why some analysts like this one. Trades at a discount to aig, which is the ones that owns iberia and british airways, that trades at over 7 times. And zalando reported stronger Second Period growth are they a retailer or tech company . While profitability improved after a membership scheme. Second Quarter Sales increased between 19 and 21 compared with a 23 rise in the first quarter. Herein lies the problem. Roll that back herein lies the problem. If you trade at 52 times forward, 52 times forward, thats exactly double, i can tell you, what inditex trades. Trades at 27 times forward this one trades at double. Is it better to be a tech company that does retailer or a retail their does tech better to be zalando shares because they have that 19 to 21 increase, compared with 23 last time around, are they running out of momentum if so, can you justify 52 times forward . Just a question. Novartis has lifted the outlook for Alcon Eye Care division after Surgical Equipment sales bucked the trend of consecutive declines this after a smaller than expected 2 drop, in core net income the ceo joe jiminez said novartis was on the cusp of a growth phase we expect a new drug to be approved in october of this year the fda action date is october we will commercialize that well file the second indication before the end of this year, which means we will be selling in 18 2018, most likely two indications. The second one being significantly bettigger than the first. I said novartis is about to enter its next growth phase, cart 19 is part of it once we get out of the patent expiration of gleevec at the end of this year, we should begin a growth phase in 2018, 2019, and 2020, cart 19 will be part of that how does the sandoz business fit into that . Its a truchunky part of revenu but looks tobling in the u. S. Around retail generics declining sales. It is true there is a lot of price pressure in the u. S. In the generics industry. Those are basically the more of the commodity generic side of the business our plans for sandoz is all in bio similars in term of how we grow that business, sales and margin the bio similars business, these are generic versions of boilogi. We were able to get our generic version in oncology and our generic version of imbril in immunology those will have an impact in the second half of 2017. We believe the outlook for sandoz is positive in the longterm. The latest republican healthcare overhaul bill is dead after two more republican senators said they wont support it that has led to the Senate Majority leader, mitch mcconnell, conceding the votes are not there to repeal and replace obamacare. President trump tweeted republicans should repeal obamacare any way and worry about a bill to replace it at a later date interesting. So heres my question you saw from the top of the show this is whats going on with the dollar, whats going on with the dow. And ill show you this i think its interesting you have thedollar trading at tenmonth lows and the conventional logic is, i think, its very much about the lady to the right of that. The fed chair, janet yellen, whether she will be able to raise rates or not people have questioned the lack of inflation despite the narrati narrative, and the Unemployment Rate and says the phillips curve looks broken at the moment the chart to the right, its about this gentleman, love the smile. Its about him certainly he believes thats why the market is up 18. 5 over the period since the election in november as well so, my question is the same one. Richard do we have a problem here in market valuations . Ie, the 4x are looking at the dollar and the equity market is looking at mr. Trump and if so, if the trump rally was about mr. Trump reinvigorating the financial economy, and the dollar is about the lack of ability to raise rates, do we have a disparity problem here im wondering now if the dollar move is also about the fact that we have a logjam on capitol hill i think theres been a big Asset Allocation trade going on. I never bought into the trump trade. I think people were mistaken to say all of this were because of mr. Trump. You know, i think people mistook the fact that the u. S. Data was getting strong before we went in there. It was the strongest data surprises. When trump was elected, it was the strongest data in five years and in the eurozone, we were all focusing on hillary versus trump. We priced that in. People built irrational expectations on the back of that and weve taken that out people wanted to be long u. S. Fixed income and long u. S. Equities i think the dow was along for the ride in some regards, people were bidding up european equities nobody wanted to touch european with a tenfoot poll after quarter after quarter, people realized the euro was not falling. Okay. Just on your point about the euro, karen tsao have argued about this in your view, is the european side of the story becoming more dominated than the american side of the story absolutely. You can start to price good news into the euro but only so much draghi and the ecb will be cautious over what they want you to price in. Theres a difference between the exuberance getting priced in the euro now versus what we saw in the beginning of the year. In the beginning of the year, the ecb muddled the message. They started pricing in hikes for 2017, that was silly now theyre pricing in for the second half of 2017. Maybe theyre good enough and the ecb is tightening. Thats appropriate theres another 10, 15 basis points higher for bunds. The market has begun to price in chance that there wont be a rate hike later. I think 42 now think there will be one it was much higher than previously is this regardless, in spite of what the president can and cant do as well you say it was convenient to say it was a trump trade rather than looking at fundamentals just be clear here, are you saying theres nothing to do with the president on why we had that rally i think if the Republican Administration could have gotten significant tax reform, fiscal stimulus into the pipeline that would have added upside risks to the fed and tightening from what we have seen the end of this year through 2018. The fact thats gone takes away the upside risks it leaves it appropriate for the fed to be hiking two to three times each year. I looked at the sub sectors for the latest cpi out of the United States. Mrs. Yellen clearly believes that there are some transitory factors that could come out of data and keep rate hikes one of them was a big decline in mobile phone costs another one was lodging costs. The former was about 13 lower year on year and the other was 6. 8 if you strip out lodging and i strip out mobile phone services costs, the inflation rate is dramatically higher. About a half percent higher. So, is the market getting very complacent about the low cpi in the United States . Thats actually going to get a shock does that create a ripple for the equity markets theres no question the pain point for the markets is everyone is caught off guard, we get to the end of this year, inflation is looking better. Theres a lot of oneoff factors that are in there that will be passing out of the data. The flip side is the wage numbers when you dig into the details do suggest that things are a little bit softer on that side than maybe the headline appears. The headline has already been decelerating that can leave the fed in a bit of a pause there is a difference there. Youve done me a favor. You said you would chat uk inflation with me. When we break those figures 15 minutes time thank you very much for hanging around for that. We have a brilliant interview coming up, electric slide down the stoxx 600 for ericsson shares after posting a wider loss than expected in the Second Quarter well have the ericsson ceo, borje ekholm join ftus aer this break. Ericsson has posted a larger than expected loss in the Second Quarter. They reported an operating loss of 1. 2 billion Swedish Krona, compared with a profit a year prior. Im delighted to welcome borje ekholm the ceo of ericsson thank you very much for joining us outline for viewers where you see the biggest problems for your industry and ericsson specifically at the moment thank you its great to be with you. Yes. We had an unsatisfactory quarter. Our sales were down 13 if we adjust for currencies. We see that it is a tighter market for telecom and for our market in general its a tighter market condition. We see that relatively concentrated in europe and latin america as well as the middle east and africa. Thats where weve seen tighter markets. And weve said that we believe the market will decrease a bit more than we anticipated before. Looking at Gross Margins for the Second Quarter, its a precipitous decline. We know prices always go down. Do you not have enough in the pipeline in terms of new product with greater margin to offset that what we see is a couple of things impacting gross margin. We see here that part of it is that our legacy portfolio, primarily in i. T. And cloud are falling faster than we can compensate with growth of new product. Thats one reason. So what were doing here is accelerating the growth in our new products getting them to the market faster and growing them faster we are also seeing Second Quarter impacted by Lower Software sales which is that our customers are more cautious with capacity investments in terms of where you go next and looking at reorganization of the business, do you find yourself under enormous pressure how is your pressure with chris degardel and the rest of the sevian representatives i think its important to take a step back first, which is to look at what are we trying to do here. And our strategy, which we presented a few months back aims at reestablishing profitability on2018 we said we will double the margin from 2017 and 2018. That strategy is focused on being a product and Technology Led company. That Strategy Incorporated tough market it was actually there in order to combat a difficult market the market we see is not the surprise what we see and what weve done during the Second Quarter is start to quantify our Cost Reduction opportunities and efficiencies that is part of our strategy what we see is that we will take out at least 10 billion krona by mid next year in order to be on the path towards doubling the operating margin that is a strategy which all our major shareholders have supported and so has sevian. So theres no dispute in the boardroom or with the views of what sevian want to happen and your views for the company, sir . No what were trying to do now is accelerate the implementation and execution of our cost efficiency measures we need do that. Of koucourse it is a tighter mae out there. We need to take out costs out faster thats what were trying to do at the same time we need to invest in r d in order to be competitive longterm. Thats the Strategic Direction we have. And thats the self help. Thats what you can do yourself given the environment as well. I was also interested in the line in your report that you see an increased risk of further market and customer project adjustments with a negative impact on operating income is it just getting much tougher environment . Its not about whats going on at ericsson, its the broader environment actually quite opaque despite the hopes and were seeing a Global Economic recover recovery youre partly right it is a tighter and tougher environment out there. Thats one thing but the what we are also trying to do here is kind of frame this size of adjustments we need to make in order to execute on a more focused strategy these are not we cant say they will happen, but this is framing the risk in those contracts. Its typical customer renegotiations that need to be done those things we are conducting and they will happen over the next 12 months were trying to do our best to minimize the risk, but we want to be transparent and tell what we see just something you piqued my interest with. I spoke to ceva breka yesterday, he was trying out for regulators to understand the 21st Century Telecom setup and to give them perhaps more cohesion and more of a green light to go out and invest and spend do you think theres a regulatory problem or commissionbased problem in europe which is preventing investment in infrastructure and the next level of mobile telephony . I mean, we should be a bit self critical about the whole industry its really the vendors or it includes the vendors as well i would say 2g and 3g were led out of europe. What you see now in the lt world, it has been overtaken by north america. And its still unclear what will happen to 5g we should start to think as a continent how should we think about 5g how should europe position ourself to be a leader in 5g here its important to start to talk about this from a regulatory perspective as well as call it spectrum ail location, how will they be alloca allocated. Here we need to do more. Thank you very much for that. Its a key line as well. We need to think about this as a continent. Borje ekholm the ceo of ericsson talking to us about the industry and his numbers. Looking at sterling. The pound is trading at multimonth highs. What will we get on the inflation figures ter afthe break . Well break the numbers and get instant analysis from Richard Kelly coming up. Welcome to street signs. Im Steve Sedgwick these are your headlines poor reception for ericsson. Shares in the telecoms giant head for the worst day in nine months after it slashes its 2017 outlook amid declining sales ceo borje ekholm tells cnbc hes unhappy with the results we had an unsatisfactory quarter. Our sales were down 13 if we adjust for currencies. We see it is a tighter market for telecom and for the rand markets. Swiss pharma giant novartis beats expectations in the Second Quarter, amid improvements in its eye care unit alcon, as the ceo tells cnbc the collapse of republicans latest healthcare bill will not affect his business im not sure it provides certainty, it provide theres will continue to be debate what will help patients in the u. S. Is if theres some sort of coverage, voluntary or mandatory, but to allow access to medicines through insurance plans that reduce the copays shares of lufthansa drift lower despite the German Airline lifting its profit target for 2017 after a busy summer for bookings