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tv   Worldwide Exchange  CNBC  August 28, 2012 4:00am-6:00am EDT

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today's edition of worldwide exchange." i'm ross westgate. these are your headlines from around the world. residents along the gulf coast brace for tropical storm isaac which is expected to strengthen into a hurricane before making landfall possibly in new orleans later today. credit agricole goes down related to the greek and italian units but hope to sell within weeks. shares of foxconn posted its worst quarter.
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and astrazeneca named a new ceo. okay. warm welcome to you. i'm back after the little holiday we had in the uk yesterday. of course kelly is still in the states all week. she will be back next week. plenty to get through as ever. we'll be out to new orleans with tropical storm isaac on course to make landfall. it's threatening the gulf of mexico energy installations. and we'll be in stockholm where experts discuss ways to boost increasingly strained fresh water supplies. we'll also be out in north carolina to speak to a former u.s. government advisor about the gop's economic platform. this as the republican
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convention guess under way. we'll look at italy's biggest banks. >> and we'll go to new york talking to a guest who sees stocks moving higher in the near term. europe's peripheral bond markets are getting back to business. spain is going auction 3 billion in t-bills and italy will auction off inflation and index linkled medium term bond which kicks off a busy week, big focus on thursday when they have a new ten year being issued. the ecb will step in to buy the bond of struggling eurozone countries but only if they stick to the economic reforms according to jorg asmussen. asmussen said the ecb would only act within its mandate and alongside the blocks of bailout funds. joining us for the next 30 minutes fund manager and a
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awarded for the best eurozone break up plan. thank you for coming in. do you think -- it's quite a significant asmussen coming out, he's angela merkel's man at the ecb, you have to put your mic back on, it's just fallen off. i'll ask this question while the viewer can't see you micing up. there we go. very seamless. do you think, asmussen speaking yesterday reaffirming the toebs b -- to buy bonds on the shorter end? are you confident this is going to be delivered, and it is going to -- what is that going to do for asset managers? >> it's not obvious that they will in fact buy government bonds. i suspect they will. clearly there's the sort of southern bloc and even a few
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northern members pursuing this. so buying government bonds is very much like a drug and it's a addictive you will do it again. then the pressure to reform and stick to government budget cuts will disappear one said. that's probably true. we saw the front end yield curves. curves came down as soon as draghi said the ecb would be buying the front end. spain said they don't plan on implementing further cuts. so i think there's some truth to that. in terms of the market, clearly the market expects that the ecb will buy bonds. so we've seen those come down. in the world of trading, you buy the rumor and sell the fact. what further effects would happen if they did in fact go
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out and buy bonds. >> or if they didn't? >> we have obviously jackson hole this week. and, everyone is expecting the fed to do qe3. if the fed holds off for whatever reason it would be an enormous amount of disappointment there. >> how much execution risk is there because there's got to be negotiation on any terms of any assistance for spain and the conditionality attached to it and that seems to me the area where things could still fall apart. >> it seems like a mexican standoff where the spaniards say we'll ask for aid if you tell us the conditions for taid and tell us you'll buy unlimited quantity. the ecb doesn't want to buy unlimited quantity and want spain to ask for aid. it's interesting to see who moves firster and how that plays out. >> you wrote your paper about
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it's easy to have an exit. plans for what happens after that. do you see this all part of a plan to cauterize the rest of eurozone from what many believe will be some kind of a greek exit. >> last year people were against greece leaving. now people have gotten used to greek leaving. it's setting up a fire wall for spain and italy which are much, much bigger, where the costs to rest of europe would be much greater so i think that's one reason why the ecb would like to do that. one of the reasons draghi gave for buying previous bonds not so much supporting government borrowing, he was arguing the reason why governments had to buy high yields people were factoring in a breakup risk. >> we'll see what happens. you sticking around. you've written a paper about that. we'll get to that.
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july end up 3.8%. stronger than the forecast 3.3%. private-sector loans up very marginally up 1%, it did contract 2% in june. loans financial firms up 8.6 billion, loans to household down significantly, 7.61 billion. keep your eyes on reaction to that data. what will ecb's bond buying need. we'll be joined by someone from fitch rating. busy week for spanish prime minister. he'll be meeting with the french prime minister francois hollande on thursday. he's scheduled to meet angela merkel and mario monti. in the latest from am, the
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apple/samsung saga, apple closed at another record. the tech giant is looking to ban samsung from selling eight of it's smartphone models. samsung recovered a butt from its drop in nearly four years. remember the drop wiped out $12 billion from its market capitalization since last friday's close but still a down day for foxconn. it posted its worst ever first half results. foxconn blamed the global slow down and sluggish orders. said operating conditions are likely to stay challenging for the rest the year. astrazeneca tapped roche's
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pascal soriot as its new ceo. caroline is in zurich. what's he going to bring to the company? >> reporter: well many say he was central to the success over at roche. he oversaw the integration of genentech a few years ago and saw a massive cost-cutting program. analysts say he's hands on, fought problems and that's exactly why he is excellent for the job. analysts agree on that. definitely he has his work cut out for him at astrazeneca, because astrazeneca is grappling with a number of things. most importantly very huge patent expirations and the case of astrazeneca that's the expiration of its cholesterol drug. astrazeneca doesn't have the strongest drug pipeline.
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going forward the expectation is he will in some way shape or form announce a cost-cutting program. what will the m and a strategy be going forward. in the last few months astrazeneca has engaged in some smaller transactions. thanks for that. that's where we stand right now with that story. but what about the rest of the stocks today? we weighted to the down side, 8-2 decliners out pacing climbers. yesterday was a public holiday. xetra dax was up yesterday, down two-thirds. ibex down a third a percent. we'll get some focus today in bond auctions out of spain and italy. in spain's case we're coming
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back to auction, 2.5, 3.5 month t bills. yields are slightly higher 6.4%. in italy two to three billion, 570 million of index leaders. keep your eyes on that. treasury slightly lower, yield at 1.64%. as far as currency markets, euro/dollar 1.25. dollar/yen 78.55. we've been watching japan's economic growth. aussie/dollar 1.03. aussie/dollar down a five week low. and sterling steady at 1.5782.
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plenty to get through from 10:00 london time in about an hour. let's get to singapore and get the details on the asian trading day. >> asian markets traded mixed with central bankers gathering at jackson hole. the shanghai outperformed. apple up strong after dipping to a 41 month low yesterday. other blue chips followed suit to rally on hopes of similar moves. hang seng finished in the green. further upside was cut by falling shares of china southern airlines and foxconn international on dismal earnings. apple component supplier retreated on profit taking. a big selloff in utilizes, and minute nears sent the nikkei to
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a two week low. japanese government cut its outlook for factory output. kospi was down marginally, dropped lower by financials. bellwether, samsung electronics rebounded. aussie market was support by bank and health care stocks but miners lack on falling iron ore prices. back to you. thanks. we'll take a short break. still to come australian mining sector feels an economic boom in the last two decades. is the country becoming a victim of its own success? we'll talk about that when we come back. [ male announcer ] the perfect photo... [ man ] nice! [ male announcer ] isn't always the one you plan to take. whoa, check it out. hey baby goat... no that's not yours... [ hikers whispering ] ...that's not yours. [ goat bleats ]
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all right. tropical storm isaac is moving closer to the u.s. gulf coast. expected to strengthen into a category 1 hurricane with top winds of 90 miles per hour. isaac could make landfall this afternoon or evening near the mouth of the mississippi river close to new orleans. residents from louisiana to alabama are making preparations as forecasters say the storm surge could be up to 12 feet in some areas. port of new orleans is closed and bars traffic on the southern portion of the mississippi river has been suspended.
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energy companies have closed 78% of u.s. energy production and 50% of natural gas output. as far as those prices are concerned crude nymex up slightly. gasoline up. natural gas is bullpen a percent. we'll bring you live coverage in about an hour and a quarter. australia suffered a setback made worst by a burst in housing bubble, slowing chinese economy. the company is becoming a casualty of the so-called dutch disease. the dutch disease, why do they have it? >> australia has a very overvalued currency and the name of the dutch disease comes from holland in the 1990s where they had a lot of north sea oil and it became over valued where it
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hurt the domestic manufacturing sector. australia has this mining boom and overvalued currency has meant it's hurt australian manufacturing and export sector. australia is a country that's exposed two large be bubls, china commodity boom which is huge and iron ore prices have risen by a factor of ten since 2000 and a domestic property bubble which australia having most of the expensive cities in the world. the housing bubble has started, the bust has started so prices are going down very much in the uk in 2007 or the u.s. and at the same time we're seeing that the main exports from australia, iron ore, coal and steel essentially, the prices are going to the floor. >> we saw that last week from the australian mining, saying the boom is over. so they will try to correct with
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that. do you agree with that assessment? >> countries can't grow at the rate china has been growing especially when you look at fixed assets. china has grown at bubble like proportion. capital expenditures in the mining sector they have been growing at a compounded rate of 30% per year for much of the last decade. another extraordinary rate of growth. whenever you see something going up by a factor of ten that's the sign of a peak in a bubble. china is slowing down. there are two week lows in their stock market and commodity prices keep falling and australian dollar keeps levitating. >> aussie is caught in a strange place. shanghai is down. any thoughts that the fed might at qe boost the aussie/dollar they are caught in a strange
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place. >> investors who borrow in countries that pay them low rates or have to pay very low rates to borrow and receive 3.5% right now even after the rba cuts. it's a carry play. people are worried about europe. >> it's a clean aaa, isn't it? a lot of people view australia as an alternative play. >> i think that's extremely misguided because if you look at, for example, ireland, spain before their housing bubble burst, very low levels of debt. they had very high ratings. once the bubble started bursting then the government started having short falls in their revenues. australia is relying on iron ore taxes, and as iron ore prices have fallen, when they did their budget it was 120, now it's 100 that's leading to $10 billion short fall.
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morgan stanley saying iron ore prices could fall. there's a domestic sector outside of australia that's in recession. >> your saying that there's going a scale of housing crash that we had in ireland and spain and australia and they are going to have to bailout? >> the closest comparison for australia is the uk which has a freely flowing currency where the bank of england could bring rates down to zero. so in the case of ireland and spain they were caught in the enviable position of being inside the euro which they couldn't weaken the currency. once the carry disappears the main prop the currency will go down. australia is much more comparable to tuck where you end up with rates coming down and currency coming down simultaneously. >> the aussie/dollar is short. >> if you look at the correlation of terms of trade,
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price of iron ore and coal to the us ay dollar those have collapsed. for the last ten years they have been highly correlated. big disconnect between terms of trade and the australian dollar. >> thanks for that. folks on credit agricole reported a 67% drop in second quarter net profits. stephane has the details for us out of paris. coming from greece is that, stephane? >> reporter: greece and italy are rough. the bank in the second quarter had significant loss of $227 million. greece had an impact in the second quarter, but all in all the numbers are stronger. we were expecting a small loss for credit agricole. the bank was still profitable.
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now we were expecting an important date regarding its greek unit. credit agricole says no decision has been taken on starting advance negotiations, still the ceo of the bank said this morning in a conference call that he was confident that the deal could be signed in the next couple of weeks and still hopes the bank can keep 10% or less of the greek lender, credit agricole last week said it received three bids for elm important i c -- emporiki. the french bank has been asked to recapitalize before being able to sell it which in the end it will be very costly for credit agricole and the stock is trading a bit higher this morning. >> stephane thanks for that. spanish and french lenders are
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steering clear of sovereign debt. french banks sold more than 9 billion euro worth of sovereign bonds. in a new report, fitch says sovereign bond purchases by the ebc will be critic positive easing down pressure on the sovran bonds. david, twice in a week. we're very honored. we touched on this last week what would happen in the event of spain getting a sovereign bailout. if you're doing it because you're losing access to the market and you think that was a credit negative event? >> well, it's recognition that spain is in the process of losing access to affordable financing from the market. one of the key takeaway from our report issued last week is that if spain, which we expect it to do so, requests additional
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support from the mechanism and potentially becoming and provide additional support in the back up plan then actually we wouldn't take a negative rating action on spain. now if the spanish or other governments receive support in the way that was highlighted is addicted to purchase from the ecb and others and they substitute market financing then that's a different story. >> how important is seniority then from that point? >> seniority is an issue but not necessarily the dominant issue. seniority matters when you approach a point where you think sovereign debt restructuring is becoming an increasing possibility. in that case that becomes a concern. obviously the rating, the credit view of that sovereign would fall. >> if the ecb retains senior
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status, it's going to make it harder, isn't it for people to want to keep funding spanish debt if they feel they are being pushed back in the cue. >> you're absolutely right. the whole issue of seniority is one of the obstacles to making ecb bond purchases more effective. we still think it reduces the likelihood of a self fulfilling liquidity crisis. the problem with ecb is how do you credibly pre-commit not be senior in the event, how do you do that? it's not clear. >> lately leading indicators for spain are still very negative. almost no growth. obviously real gdp is negative but even nominal gdp is close to zero. how is it possible at all to be optimistic about the peripheral economy staying when there's no positive outlook for growth at all so essentially no matter
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what happens the hole in the budget will get bigger and bigger no matter how much they cut. how do you view the growth challenges? >> you've hit the nail on the head with concern about growth both in nominally terms as you've highlighted and in terms of real growth as well. you know, the imbalances that arose within the spanish economy are correcting themselves. we've seen that in terms of the current account deficit. we've seen some reduction in level of household and corporate debt. so there's acts of faith you have to take. do you think as balances unwind you will get growth over the medium term. not this year or next year, you'll get a contraction. you look beyond that you can see growth coming through. >> if growth is, in the 0% to 2%, even in a good scenario and still borrowing at 6.5 to 7 the
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weather channel in terms of their borrowing cost is extremely high and doesn't look like it would improve at all. >> the issues that you can also get into, just as you can become trapped in a vicious one and in the scenario if you feel you are getting real growth of 1% or 2% in spain or nominal inflation on top of that -- remember islands had spread, 1500 basis points, 100 basis points at one point they wouldn't be able to recover. now it's not booming by any means but i think investors are starting to see there's potential for economic growth in ireland. >> what we need is an intervention that continues affordable market access for spain. what is affordable market access? what kind of yields are affordable? >> i think jonathan highlighted it. affordable is a function of
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where you think the budget will go but importantly where you think growth will go. if we're seeing growth in the medium term might be 1% to 2%, that doesn't seem like an extreme. >> what time period? >> over the next five, six, seven years, spain could average approaching 2% growth once it emerge from this current recession. then, you know, it could afford ten year yields or 5%, 6%. >> it's extremely unlikely spain will be able to grow again as long as it stays within the euro. either they have an internal devaluation process which will exacerbate their euro. spain having the right mix of policy response in terms of liquidity or massive debt right now both of which they need. >> onthajonathan, good to see y.
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>> david, see you same time next week. still to come, we'll speak to adam puerto rican osen stepping down his possession on bank of england monetary policy. that's coming up in a half hour. plus some of italy's banks will report results today including the world's oldest. we'll be in milan right after this.
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and these are the stories from around the world. residents along the u.s. gulf coast don't brace for tropical storm isaac. expected to strengthen into a hurricane before making landfall possibly near new orleans today. credit agricole sees net income down after taking 100 million euros related to greek and italian units. and shares of foxconn down in hong kong, world's leading contract mobile phone maker on falling orders. plus the head of pharma roche gets the top job at astrazeneca.
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an hour and a half into the trading session here in europe and down slugly. ftse 100 off of .2%, cac and ibex down .2%. bond markets yields are slightly lower in germany and u.s., gilt yields down 1.5%, slightly higher in spain and italy. got a couple of auctions, three and six month t-bills for spain and some zero coupon and index linked auctions out of italy as well. on the currency markets euro/dollar we hit last week 1.2975, currently trading at 1.2521. aussie/dollar is down at 1.0380. and it's a busy day for earnings for italian banks. lender uvi see shares higher on
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the back of the group's capital base. we go milan. >> reporter: hello, ross, good morning. we are seeing positive note here in terms of how the bank is performing because it is performing higher by 3.73% along with a few other banks reporting today. they will be reporting in the early afternoon here. as for everyone unione di banche they had a decline. operating profit was higher by 33.3%. they continue with their cost-cutting. their interest margin was down by 1.5% while net commissions were also stable. exposure to the italian government bonds, sovereign debt has increased by 3.6 billion
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coming in at 17.9 billion. a trend that all italian banks are undergoing increasing to 331, their exposure so by about 20 billion in the last month. quite significant there also to watch what will happen in cutting employees there will be layoffs in the italian banking sector. the sector is troubled. you're seeing a lot less lending by these banks and putting their money into government debt and the layoffs that are expected in the next year is of 20,000 jobs lost for the sector overall that employs 320,000 people. so these banks are certainly to watch as we are looking out for these numbers that will be coming out later. the banks are performing in positive territory on this morning when we're seeing, those an index that's down by 0.25%. so we'll keep watching these banks. ross, back over to you. >> they've gone through a few
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financial crisis in their time. how old are they? >> reporter: 540 years old. the chairman said we would like them to have another 540 years. we'll see what happens today. >> we'll see if that's achievable. lone man said attendance at its mines has fallen to 13% following a strike that erupted into a protest. we spoke the mining minister and asked if fears of industrial action spreading to other mines were justified. >> as you can see the demands, we can see it spill over. what we've done we have through the department of labor, with the minister of labor to pull together the unions but also to make sure they also don't undermine the process of collective bargaining. last week we had various meetings with the minute steve labor that they pull the unions
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together and also where they are seeing there's no unions they are concerned workers to find a way. we consider processes of bringing valuation in making sure that the unions which are said to be at conflict can start working together because the key issues is work out issues or concern. so we put together that team which deals with that issues through the minute steve labor. >> there's growing perception that's becoming difficult to do business in south africa. rise in labor costs, speak of increasing power costs, instability due to worker violence. is there concern and what is government doing to try to address that? >> i must say these are issues of concern. tissue of labor cost, precisely we got to look to what extent,
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what is on the table? this is some of the issues the minister of labor is looking at. we believe that we have proper structures through the labor act when it comes to the structure and this is one of the processes -- one of the issues which we have addressed is for the platinum sector as a sector to come together and stop working in isolation and competing because it also opens them up for any approach by any one. centralization of working conditions that's going to take us at least one step forward where then you can create an industry with standards, that's one thing we'll be doing. the other issues which one would say are political issues, i must say that any situation you always find individuals explain the labor situation. as you can see now when things
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are normalizing, the violence which we're seeing has led to a lot of fear amongst workers who want network and part of the engagement to stakeholders is to make sure we stabilize the environment and if legitimate issues that affect workers they need to come together and start negotiating on those issues. so the employers have agreed, all the unions can. >> that was the minister for mining. joining us now is robert besseling. nice to speak to you again. we spoke last week about the possibility of violence spreading. that's now happening. the minister talked about trying to pull the unions together. do you see any prospect of that happening? >> yes. good morning. well to be honest the problems
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in mining are far from over. yesterday was the key deadline for mine towers return to work and ring operations to restart. 13% of the 20,000 workers returned to work was in our opinion the union's lost of control over the situation. both unions now exert very little influence over their respective membership. and calls for their members to return to work but intimidation along picket lines are continuing. so given the recent violence at the mine and how unions lost control over their members, with an eye for violence not only across americana. >> how long are you talking about? >> certainly something which can extend into the next three
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months. we're warning our clients about contagion risks. it has already spread. there's reports of similar intimidation at other mines. last week we saw short wildcat strikes. and local union organizations at gold mines are demanding higher wages even though the union accepted collective bargaining agreements. so they are breaking ranks with their own national union leadership and it shows the lack of control the union hierarchy has. >> what are the wider implications if this escalation and spreading across more mines and more sectors? >> that is certainly true. slow but steady collapse of the union's control and influence
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will reduce their bargaining power which does offer certain opportunities for striking miners. it's the most unreformed sector which hasn't gone through restructuring. low demand of platinum from european markets has increased their need to restructure. ironically all this industrial action does allow unprofitable mining companies to cut costs and retrench. so what we see maximum trenchment. >> robert, good to talk to you as always. i'm sure we'll keep up to sbeed you and what's going on. fascinating. african forecaster, yes, sir exclusive analysis. we had three and six month bond auction in spain. they sold three month treasury bills. maximum yield under 8%.
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and the six month t-bill maximum yelled 2.1% versus 3.95. that's come down as well. bid to cover ratio is 3.35 versus 2.9 three month and 2.17 versus the 3 on the six. bid cover is okay. yields have come down as we thought they would fairly substantially and that was indicated of course last week. now we wait for these italian auctions. a little bit of good news for spain. in india the biggest carmaker maruti suzuki plans to ramp up their diesel engine production. more from new delhi. >> reporter: hi. thanks very much. maruti suzuki chairman is in india and attended the company's agm this morning and the management here at maruti suzuki
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renewing its commitment to ramp up the diesel side of the business. petrol prices are aligned to the market, diesel prices are aligned by the government. over the year we've seen diesel car sales go up 37% while petrol car sales have declined 13%. so maruti suzuki has been trying to ramp up on the indonesiale car side. they have an arrangement that provides them with less diesel engines. they will be setting up a diesel engine plant. so they are stepping up their plan as far as diesel vehicles are concerned. outside of that, maruti betting on its new small car, 800 cc car which replaces its blockbuster which is the auto and that should think it roads in india sometime around november. that could be a big turning point as far asthma rue city is
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suzuki which has been losing market share. seen a terrible incident as far as industrial strikers at one of their facilities here in india. maruti suzuki is spreading the message, renewing the commitment that maruti suzuki has with india. this love affair has gone on for 30 years. they say they are not going to scale back their investment plans. india is the top priority for the company along with getting their worker eyigts. >> thanks for that. have a good day in new delhi. still to come boeing sees huge growth in asia. when will we see it in the airlines profits? we'll check in with an analyst right after this.
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the french prime minister says next year's gdp growth forecast at 1.2% may have to be revised lower. the figure is key to next year's budget which will be outlined in september. do you think governments are being too optimistic. get in touch with us. e-mail us at or tweet us at
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>> according to reutes airbus will have a deal announced today in manila. china southern airlines hit some turbulence. intense competition and fuel costs will drop price. china's biggest carrier expect conditions to persist in second half of 2012. the carrier says the situation could improve if government stimulus moves kick in. they sent shares down 3% in hong kong trade. virgin australia pulled a profit reversing floss a year ago mainly due a rise in corporate travel.
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its shares closed flat. joining us from singapore for more, the chief analyst at c.a.p. center for aviation. thanks for joining us. we saw qantas last week, awful forecast and cancelling of orders as well for planes. how tough it is across for everyone. clearly some airlines doing better than others. >> very tough for airlines including asia but asia is performing better than europe which is really hurting and those airlines in asia that are exposed to the asian market like qantas and others are hurting more than some other airlines. generally asia that's where the growth is in the world and these airlines are in better shape than airlines for most other regions. >> what's sort of troubling here is that we're in a global growth slow down, recession.
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it's pretty synchronized. yet we got oil prices up, brent is up 115. we haven't had the offset in lower energy costs. how much of a double whammy is that? >> oh, yeah. that's always the double whammy for this industry, high oil prices and difficult economic situation. however, in asia we do still have rising middle classes increasing discretionary incomes which continues to fuel the growth in china, you know the domestic market continues to grow and that's where most of the chinese carriers profit from. there is a concern of a slow down but that stimulus could prevent that slow down or at least offset it a bit. >> will they protest profits or dip into lost territory? >> expect that they will continue to maintain profits in the second half of this year.
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also qantas should, you know, also be in the black, cafe specific was in the red should be back in the black. not huge profits but small profits. given this situation in the world and with high oil prices thaltd be a pretty decent showing. so, it's not all bad. certainly not going to be as good as last year or the prior year. most of these airlines will be profitable and some airlines like eurasia will show profits. >> i was reading, you say malaysian unit is one that's driving. are we not at a stage yet where we might get over capacity? >> oh, definitely not necessarily malaysia but in markets like the philippines, potentially indonesia. philippines we have five low cost carers in addition to philippine airlines which will be growing 0-that they placed
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this huge order and indonesia where we have four or five low cost carers. malaysia basically one low cost carrier so they have a monopoly in the market. malaysian unit has the highest profit margins, airasia. we're talking operating profit margins in 20% profit range while other airlines are seeing profit margins decrease in some cases go negative for one or two quarters. so, the malaysian situation is different than the rest of asia. i would be most concerned about the philippines and indonesia where we don't have profits right now except maybe one or two airlines and even those profits are very small. we need some consolidation in those markets. even though we have the growth we not sustainability. >> yet philippines is launching its own low cost carrier.
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is that the right way, adding another player into the market? >> yeah. they basically rebranded one of their subsidiaries as a low cost carrier and that's a strategy that's been very successful here in asia with basically all the major asian airline groups, including garuda which is using citilink and singapore airlines launched another one a couple of months ago. it is a strategy that allows the major airline companies to participate because of the middle class expanding, discretionary incomes we're seeing a growth in the lower end of the market. for premium carers they need to launch low cost carers. only one hasn't followed that trend and pressure will be increasing for them to follow that trend now that china eastern will be launching a low cost carrier next year. >> have a good evening in singapore.
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no worries. on the agenda in asia in beijing diplomats from north korea and japan will hold talks. many see this as a test of pyongyang's new leadership. another whopper of a day for hong kong earnings. also get full year numbers from australian firm worley parsons. as we turn our attention the united states. the u.s. national hurricane center has made tropical storm isaac a hurricane. it's now officially hurricane isaac that is preparing for a hit on new orleans and the u.s. gulf coast. we'll have the latest on that when we come back. also still tuned at the top of the hour, we're joined by adam posen. he's stepping down from his
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position on the bank of england monetary policy. he'll be with us in the next four minute. we've had spanish t-bill auctions. yields have come down on three and six most bills this morning. the three month yields came in at 2.1% versus 3.95% on july 24th and six month t-bill yields also came in substantially lower as well. so, with isaac now officially a hurricane and the threating to strike new orleans on the seventh anniversary of hurricane katrina we'll bring an update on the storm's path.
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hello this the "worldwide exchange". i'm ross westgate. these are your headlines from around the world. . residents along the u.s. gulf coast continue to brace for isaac. it's going make landfall in new orleans later today. relief for spain as yields fall significantly in the latest t-bill auction. shares of foxconn fall in hong kong world's leading contract mobile phone maker posted a loss. and head of pharma roche gets the top job at astrazeneca. indicating a focus on innovation and deal making.
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okay. just joining us very good morning to you. we'll correct something we said in the last hour of "worldwide exchange". that tropical storm isaac is expect to become a hurricane. it has been upgrade a hurricane. hurricane next is not saying they are a hurricane but they are expecting to become a hurricane when it makes landfall zeroing on the gulf coast and new orleans as well and of course it's the seventh anniversary of katrina. we'll have more on the expected path on that later in the show. right now as far as the australian day is concern, futures were called up higher. seven points above hire. nasdaq is down five points. about a point above fair value for s&p 500.
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dax and cac about a percent of .1%. ftse global 100 down by .1%. there was a public holiday yesterday. ftse today down .2%. dax down half a percent. we had a six and three month t-bill auction for spain. demand with solid yields continue to fall. that was fairly good news unlike yields themselves. still a long way from the 7%. in italy we're now just concluding an auction, two, three billion for zero coupon bonds. that will give us some idea, some clue, big bond auction out of italy on thursday. got a fresh ten er. currency markets, euro/dollar, hit that seven week high of 1.2590 last week.
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1.2544 is where we stand. bank of japan citing u.s. and chinese slow down. aussie/dollar down today with five week low of 1.03. chinese growth impacting the aussie/dollar. shanghai composite down. let's get more on the asian trading session from singapore. >> asian bourses actually finished mix with friday's symposium at jackson hole in focus. shanghai outperformed. after tipping to a 41 month low yesterday. other blue chips joined the rally on hopes of similar moves. the strength in the midland pulled the hang seng out of the red marked its gain for the first time in three days.
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foxconn international in very dismal earnings. apple component suppliers retreated on profit taking. a big selloff in utilizes, metals and miners sent the nikkei to a two week low. south korea's kospi down marginally, dropped lower by financials but bellwether samsung electronics rebounded after falling more than 1% yesterday. aussie market was support by banks and health care stocks put miners on falling prices. sensex lower by .4%. >> we have a special half hour here on "worldwide exchange". adam posen tenure on the monetary policy for bank of england ends this week. a quantitative easing program was under way when he joined back in 2009.
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he's advocating more asset purchases to stimulate economic growth even when inflation hit 5.2% in september last year. he stood by his call. last october the central bank okayed a further 75 billion pounds of qe and then in february of 2012 another 50 billion was approved and hinted more money could be pumped into the economy if need. >> if we wanted to do more we could certainly do it. a third is a high number but only a third. gilt is increasing all the time. the deficit remains very large. >> we got more positive looking data coming through p.m. adam saw a sign of a recovery then reversed his long standing call for qe. two months later he admitted he was too optimistic. by july another 50 pound charge had be about authorized. >> it would damage some
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financial institutions and it would, therefore in all probability an element of at least it being counter productive which is why we haven't cut the fed rate. we discussed it but concluded it would be more counter productive than beneficial, which is why i don't think it's something we would contemplate doing immediately. >> i'm happy to say joining me now in the studio is adam posen. a senior fellow for international economics opinion your last week as a member of the m pc -- >> glorious monday as we say. >> we're delighted. thanks very much for joining us on cnbc. delighted to have you on. there's indeed an awful lot to talk about. as you leave, what's your single biggest regret? >> i wish i had been more persuasive in getting the other members of the committee to vote for quantitative easing earlier in 2010 or 2011.
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i think that could have made a difference to the outcomes in the british economy. close second regret is that starting about a year ago i pushed very hard for specialized institutions and purchases to help small medium business lending. there seemed to be lot of support from that within the committee and politicians but we're still not there yet. >> you raised two very good points. let's raise the first one. more qe earlier on. there's now a view that more qe now, while good sentiment won't deliver very much in terms of real results. do you share that sentiment? >> think that view is exaggerated. it's better that people are realistically saying qe depends on the state of the economy, state of the financial system than the nonsense people were saying about it would lead to hyper inflation or crazy things would happen. none of that is true. i rather have people focus where they are which is how to make it operationally effective.
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they overshot a bit. no question additional qe has a positive effect on the economy. that said there may be better ways to deal with problems. >> that brings to us the second point. doesn't the fact that we now have a funding, you were talking about this a year and a half ago tell us that yes qe does not fully deliver. >> well it's just like i'm trying to get a bunch of things done at once and as i've said in the past we may need a hammer for one job, a wrench for another job, they are both about getting the flow of water out there and your plumbing system. it does deliver but in the uk in particular we have a damaged banking system. i give credits to my colleagues that they came up with funding for end thering scheme to force things through the banking system. my concern is rather than going through it's better to go around. >> if the banking system is damaged surely having a scheme that relies on that damaged banking system is the wrong way
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to go >> i would prefer we went around the banking system or went to new competitors in the banking system and new products. >> there was an article this morning, saying we should have a british business bank. do you agree with that? >> i've been talking with people. i'm aware where john is going. there's a credible case to be made. a lot of other countries are doing this. we over shot on having too much worry on public sector investment. germany you look at the small business administration in the u.s. you look at the various schemes the french has and uk for hundred plus years has under-funded domestic small businesses. there's an argument for it. >> also with qe should we be buying other things than just government debt? we fathom, as you well know and suggest the problem is that they are still sitting on a lot of
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bad debt that they haven't fessed up to. what we should be doing is set up a bad bank and qe funds that bad bank. then once you clear that out they will go back and lend. >> it's not just that. that's essentially what i said when i first joined the committee and i think there's a lot of sympathy for that. to set up a bad bank is not something bank of england can do. properly elected officials have to do. we've been clear and i certainly believe the bank of england and certainly the m pc would act to support a bad bank without actively intervening to make the bad bank work if the government decided to go down that route. as long as you think as you just said ross the bank, part of the reason they are not lending they have a bunch of junk it's worth the supervisors going in and forcing them to own up. >> the bank can't decide on its own. what other asset? >> there's still room for the
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bank to be more aggressive. we have legal room and done on a very small scale in the past buying corporate bonds. why we haven't done that is the corporate bond market is still small. but there comes a point where we buy more it will also create more supply in corporate bonds. i would like us to look at that. a particular thing which the business bank, the bcc is talk about doesn't replace is i talked about a two pronged approach. something like fannie mae and freddie mac or the good version of fannie mae and freddie mac, call it benny. >> adam, great to have you on today. thanks very much. stick around. don't worry, he's not going anywhere. exclusively with us here on cnbc. we have the results from the italian auction. they sold 3 billion of 2,014.
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the yield on that has come down 3.064% versus 4.068%. bid to cover pretty good, 1.95 versus 1.78. i think you would call that a successful zero coupon bond. also got the results of an inflation bond to come as well, five to seven hundred million to come but on the zero coupon they raised the maximum. done get better than that. still to come investors toeon tender hooks ahead of ben bernanke's speech at jackson hole. we'll talk about that as well ahead.
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and these are your headlines from around the world. isaac is on the verge of becoming a hurricane as it closes in on the u.s. gulf coast. plus head of pharma roche gets the top job at astrazeneca. and all eyes will be on jackson hole this week. ben bernanke and the rest, sore are expecting the fed chairman could announce a third round of
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quantitative easing. minutes from the last fed meeting showing policymakers were standing ready to provide new stimulus fairly soon. with us adam posen, will be speaking right after ben bernanke. will the fed announce in its next meeting more qe, should they? >> they should. first the signalling that the chairman and other members of the committee has given has been pretty consistent and they haven't painted themselves in a corner but unless there's some new ridiculous information between now and friday they indicated they are leaning that way. they should on the merits. there is inflation in the u.s. a mess in the mortgage market. and do their qe. they got unemployment. >> how effective will it be. >> very effective. not like here in the uk. the u.s. has a bunch of bad
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banks but the banks play a much smaller role in the old banking system and financial system overall. you still got mortgages to restructure and buying and selling the securityized mortgages, the fed has the ability to do that. that can affect as well as the overall interest picture. >> the reason the u.s. economy is weak is because of external factors. china slow down. eurozone debt crisis. should a central bank be targeting the domestic economy that's been slowed down by external factors it can't control. >> not so much targeting but can you offset them. there's stuff you can't do anything about. the bank of england, the fed, ecb, everybody comes with oil prices and no point in trying to offset oil prices because they could reverse in three months or six months. but there are things like if the world is in a global slow down
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then it makes sense that you should be trying to offset demand and bring it up at home, particularly for the u.s. which is a large part of the global economy and for the u.s. more than the uk, more than the ecb zone is more of a closed economy. depends a lot on the rest of the world fwitd has more impact at home than the bank of england does in tuck. >> what do you think about the argument the fed shouldn't do anything because there's an election coming up. >> yeah. i think that's the wrong argument. the chairman has been very clear and rightfully slow they can't let the elections make their decisions. they have to make decisions if there was no election. the central bank has to take fiscal policy, not mess around with elections, not make statements about it. play straight ball. >> you mentioned fiscal policy there. how much has the bank felt it's had to offset in the uk, bank of
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england fiscal policy here, whether you agree with it or not, how much have you felt our job is tooff set government policy. >> our job is to get the economy on a relatively stable track. that meant taking in to account what the fiscal contraction would be. one of the arguments i had was my saying i think whatever its merits the fiscal contraction will be stronger, bigger, more of a drag than people think. that's one of the reasons why i was arguing -- >> even though they are spending -- >> you have to control for the business cycle. when times are bad, unemployment goips you spend more. what's going on with public investment and that's been cut. >> ecb, will they start -- are you confident they will start buying spanish and italian debt? is it the right thing to do to be targeting -- >> absolutely think it would be the right thing to do. as i said the other day, they will do whatever it takes to save the euro.
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it's time for them to get won it. right now you mentioned the good auction in italy. the ten year bond still above five. ten year bone in spain is above six. no economic fundamentals to justify that. >> you don't share concerns about exceeding mandates. >> no they are exceeding their mandates when they say we'll with monld tear policy until somebody we like gets elected. central bank job is to provide monetary and financial stability. their mandate is to stop the panic. buying and selling sovereign bonds is what they are supposed to do. no, this is their mandate. >> the fed, the ecb, they should all be acting soon. >> she should be acting this month and in targeted way. bank of england should be looking at small to medium enterprises. ecb should look at sovereign debt. do quantitative easing but do it on the structural area that means to most. >> adam great to have you on
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today. we wish the best. when you come out come straight back. >> love to. >> we'll be more than willing to give you a voice. adam thank you so much for joining us. adam posen. in his last week at the bank of england. joining us exclusively here on "worldwide exchange" and cnbc. don't forget we'll cover the action from jackson hole here on cnbc. the national hurricane center says tropical storm isaac is on the verge of becoming a category 1 hurricane. it's expected to make landfall tonight. alex wallace joins us from the weather channel. >> we're watching this very closely. looks like at this point as you mentioned may get up to that category 1 status as it makes
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its way towards landfall later tonight along the gulf coast. right now what it's looking like, not much change. national hurricane center iraq its advisory. 70 miles per hour, just shy of category 1 status which is 75 mile-per-hour winds or greater. moving to the northwest at 12 mile-per-hour, right now situated a little over 200 miles south-southeast of biloxi, mississippi. we're starting to see impacts along sections of the gulf coast. in new orleans sustained winds are at 22 miles per hour. gusts getting up to 30 miles per hour. those winds will be increasing as this system gets closer and closer. there's the center of circulation and seeing some bands, outer bands making their way to the panhandle of florida and within those bands of rain we find gust i engineer winds. that's what we're watching. here's the projected path. you can see where those winds increasing a bit, slowly potentially before it makes landfall getting in the 80, 85
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mile-per-hour range and working its way up to the mississippi valley. we'll be talking about this system. once we get into our weekend moving its way into the midwest of the u.s. again we'll be watching isaac for quite a while. big threats flooding. power outages and risk for that storm surge as well that could cause some big problems. ross, back to you. >> alex, thanks for that. still to come, mitt romney gets ready for primetime as he travels to tampa today for the republican national convention. we'll talk with the top democratic strategist next. [ male announcer ] it's a golden opportunity to experience the ultimate expression of power... control. [ engine revs ] during the golden opportunity sales event, get great values on some of our newest models. this is the pursuit of perfection.
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okay. breaking news. if all of you looking ahead to jackson hole, no ecb member at jackson hole. mr. draghi is not attending what ecb says is a heavy workload. mario draghi will not be attending the jackson hole symposium because of a heavy workload. i'm trying to confirm whether that means i've seen some tweets no ecb executive board member will be attending jackson hole. i need to confirm. i do know certainly won't be mario draghi this morning because of what is termed a heavy workload. indeed, he has got a heavy workload. nobody could deny that. meanwhile the republican national convention is getting under way for real today after being delayed for one day by
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tropical storm isaac. mitt romney who formally accepted gop presidential nomination on thursday arrives in tampa. joining sues the senior fellow at budget and policy. he's in charlotte, north carolina the site of next week's democratic national convention. thanks for joining us. identify been led to believe the republican convention, there's a debt clock ticking away which everybody turning up will be able to see. i got to get that confirmed. it sort of shows you, you know, what everybody needs to think about, i guess. how are we going to come out with a budget here that's actually going to deal with it when we have such differences of opinion on both sides of the aisle. >> that's a good question. first of all, nice to see you, ross and thanks for inviting me on. i think the debt clock -- i haven't heard that.
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that's an interesting idea. one of the problems that you see there is if you kind of dig into the budgets of either governor romney or ryan, nonpartisan groups have looked at them and have worried they are actually going make that clock tick even faster. they got very large tax cuts and while they argue they are going to cut spending and raise some undisclosed taxes here and, there they've been quite specific about the tax cuts and far less specific about any offsets. so i do think that the debt clock is kind of a political gimmick in the sense that it's really something a lot of people are thinking about these days and for good reason. it doesn't quite comport with their own budget plans. >> no politician will promise to cut spending heavily so what happens before and after is two different things. >> well, i mean interestingly at
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least paul ryan -- remember, he's the chair of the house budget committee. so the house republicans have a budget that he wrote and while it's not as specific as the president who has to submit a budget to congress, it is quite specific on the spending side and he actually does claim to cut well over $4 trillion often years. one of the problems there is that 60% of those cuts come from low-income programs. so at the same time that you're cutting taxes at the high end of the scale you're cutting spending at the low end and that's become a tough political issue for many on the democratic side who view those robs as quite important to vulnerable people at a time of economic hardship. >> hopefully he will lay out his budget in more detail this week. hopefully we'll be able to look at it in some more detail again and see what's on the table. the issue is we do need a plan of some sort and we haven't had
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a budget now in the states for a couple of years. so it would be nice to actually get government and congress to agree to something. >> it would be very nice. you're not going to get any more specificity this week or the next two weeks either up until the election. frankly in our politics, one of the things that candidates tend to do is try to stay on the down low when it comes to the specifics. that may be unfortunate for people like you and myself who really kind of crave those specifics but i guess the politicians view them as just creating a target. now just to be clear there's something called the budget control act which acts like a budget that's why we have a government right now that's, you know, is appropriating funds and things like that. but it's absolutely true particularly regarding this fiscal cliff that you've discussed that our folks need to
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get together and resolve key fiscal issues as soon as possible. >> should they target qe on mortgage debt? i propose they should. >> i was listening to adam. i thought he made a lot of scene. one thing i might disagree with is he seemed to argue that if the fed did act on a qe3 it would have a big effect. i think they should. i'm less optimistic about how much good that would do. interest rates are already very low here and i don't think the cost of capital is what's holding back the u.s. economy. >> thanks for joining us. we appreciate it. thank you. >> weidmann has come out and said he plans to attend the jackson hole sim possible sim.
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mario draghi will not. still to come more update on tropical storm isaac. > this is "worldwide
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exchange". if you just joined us i'm ross westgate. these are your headlines from around the world. . residents along the u.s. gulf coast are bracing for tropical storm isaac. expected to make landfall
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possibly near new orleans later today. some relief for spain and italy as yields fall in the latest debt auction. pharma roche ceo has the top job at astrazeneca focusing on innovation and deal making. the national hurricane center says tropical storm isaac is on the verge of becoming a category 1 hurricane as it nears lawful and heading towards new orleans on the seventh anniversary of hurricane katrina. joining us now from new orleans is nbc's danielle lee. danielle, what's it like on the ground. how are preparations going? >> reporter: hi there, ross. we're feeling drops of rain from isaac. earlier winds have been slightly picked up.
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it feels relatively calm. thing are about to change and businesses here have been taking preparations very seriously. if you walk along canal street many businesses put out sand bags and other precautions. they are trying to protect their businesses from flooding. and around the gulf, much is the same because of isaac, going through florida people saw the strength it had. people left without power. the floods. the winds. the rain. they know it will be worse as it comes here and gross in strength. people are shoring up their homes with sand bags, buying generators. some in low lining areas are choosing to evacuate. this will hit right around the seventh year anniversary of hurricane katrina so many people are on edge because of that. this storm will also be the first major test of the rough lui $-- roughly $14 billion the city has spent. many are take this storm
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seriously. they don't want to be caught off guard. emergency officials are preparing to act in helping assist people after the storm. >> thanks for that. the international race for farmland has raised the stakes in the global bid to preserve water resources especially in emerging markets such as africa and latin america. the threat is at the top of the agenda of world water week which is under way in stockholm. joining us is a key participant of that conference. doctor, thanks very much, indeed, for joining us. oil get into specifics of what you're talking about in just a moment. i first of all want to get your view on the drought that we've had in the midwest that's impacted corn crops in particular. how likely are the impacts of that going to be felt throughout the world in terms of food prices and in the poor areas of
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the world? >> this is a very difficult question because until now we see that there's a drought in the u.s., in some areas of the u.s. we see prices going up. but still too early to make a real assessment what does this halloween for the situation that the international markets. the situation is still a bit different than the situation we had in 2007-2008 and we really hope that the international community can manage this challenge. what is needed is that states, governments and the markets are acting in a very responsible way so no export restrictions, no tariff import/export increases so we can manage with it. what we can see is agriculture is an industry based on natural resources and droughts or floods will always have an impact and we have to be prepared for more extreme weather. >> how do you stop governments when there are droughts and food
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shortages, how do you stop governments restricting export quotas because they want to feed their own people first. >> yes, of course, governments are responsible for their own people, but i think we should learn the lessons from food price crisis in 2007-2008. the prices were going up and the reactions of some of the governments had increased their problems. so the lesson we've learned is if you start acting too early, if you put export restriction, for example, export ban, then the situation gets worse and other governments will follow and therefore i'm role happy the g-20 has asked the agriculture market information system where we closely monitor the situation and in close contact with the government. i think governments if they act in a responsible way can deal with this challenge. >> of course. one of the ways to deal with food shortages is literally to up the amount of farmland, up
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the amount of agriculture and production. how much of a strain then would that put on natural water resources? can we cope with higher production? >> first of all, let me say that agriculture globally is the biggest user of water resource. around 70% of all water resources drawn away from the natural cycle is being used for agriculture. in some areas of the world it's between 80% and 90%. so we can see that an increase in production for a growing population has to deal with natural resources in a different way. what we need is more efficiency and we also need a more integrated way to deal with water resource. in some areas of the world you can see an increase competition between agriculture and the use for water for industrial purposes or for urban areas and, therefore, the world water here concentrates on integrated
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solutions, global population will grow, we'll have to grow more food but have to do it in a more sustainable way. that's the central message here from stockholm. >> thanks very much. now just tuned in u.s. futures right now pointing to a slightly positive or up start for the u.s. markets. two points on the s&p, european stocks are weaker. just a short while ago i spoke with adam posen. he steps down this week from his position on bank of england policy committee. i asked for his thoughts and whether policymakers were doing enough. >> central bank's job in the eurozone just as every where is to provide monetary and financial stability. their mandate is to stop the panic. buying and selling bonds is what they are supposed to do.
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these are your headlines. isaac is on the verge of becoming a hurricane as it closes in on the u.s. east coast much some relief for spain and italy as yields fall significantly. bank of england adam posen tells cnbc exclusively the ecb should
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buy peripheral debt because its mandate is to stop panic in the sovereign bond market. yeah, adam posen with us a short while ago. also saying the fed should be targeting more qe directly into the mortgage market. get more thoughts on that. knight capital has named three new board members weeks after it received a life-saving $400 million cash injection. "wall street journal" says the directors are td ameritrade, and two others. both firms played a role in saving knight. knight capital stock up a third of a percent in frankfurt. bank of america is hosting a conference call today with hedge fund manner jon paulson. it comes days after citigroup
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stopped investing that could thread a move of $400 million. bank of america says it has no plans to end its relationship with paulson. and astrazeneca tapped ceo of pharma roche. caroline is in zurich with more on this. genentech, as well. i'm wondering how much this sort of the m and a and the biotech experience, what astrazeneca is more interested in. >> reporter: that may be the way forward. we got a taste what may be in store for astrazeneca when the chairman made comments. he said we'll do what it takes to get the company back on track which may involve further cost cuts but said we'll be looking
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at acquisitions, of course only if they make sense financially speaking and the new ceo was the head of the unit for two years. at that unit he oversaw the integration of genentech but also oversaw a massive cost-cutting drive and again analysts believe he's the right man for the job because pascal soriot has the right experience. astrazeneca is facing patent expirations. >> okay. thanks for that. we'll see how the appointment pans out. still to come wall street is on summer vacation as traders wait for market moving events later this week. ben bernanke's speech in jackson
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hole on friday. can he spur stocks to shake off the drop in volatility.
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if you just tuned in this morning stateside european markets this morning a little bit softer, the uk market had a day off yesterday down a tenth of a percent. this is how that translated to u.s. futures. call slightly higher. dow by 10 points. nasdaq trading about six points and s&p 500 around 2.5 points over fair value. this is the republican national convention gets under way for real today after being delayed by tropical storm isaac. republican party chairman reince
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preibus open the committee on monday only to call a recess. mitt romney will accept the nomination on thursday arrives in tampa today. his wife ann will give a speech in primetime tonight and keynote address will be given by new jersey governor chris christie. on the agenda in the united states, case-shiller price indebt. at 10:00 we'll get august consumer confidence. expected to cut slightly from july. at 10:00 the fdic releases its quarterly report on u.s. bank earnings. plenty of attention will be on ben bernanke at the end of the week with some expecting the fed chairman to announce a third round of quantitative easing when he speaks at the jackson hole symposium on friday. minutes from the last fed meeting showed policymakers are standing ready from vied new stimulus fairly soon. speak being after bernanke is adam posen who is stepping down
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from his position. he was with me exclusively ea y earlier. i asked him what steps the central bank should take in september? >> they should be acting in a targeted way. bank of england should be looking at small to medium enterprises. ecb should be looking at sovereign debt. we should be doing quantitative easing. >> our next guest says the markets won't be able to break out of the low volatility until we hear from bernanke and other central bankers at jackson hole. jim, thanks for joining us. of course we know who won't be there now, no mario draghi, none of the ecb governing council will thereabout. how disappointing is that for you and other investors? >> well perhaps a little bit disappointing but keep in mind the foc and ecb will meet in the next couple of weeks, perhaps
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bernanke as well, is not as market moving as people think. but we'll get that information flow started anyway with the fed coming on the 12th and 13th and ecb before that. >> of course the reason we're so focused on jackson hole it was at jackson hole when bernanke launched qe2, when he came out with shock and awe. what's the trading going into this week. >> from that perspective we think that equity volatility will remain subdued both through jackson hole and likely through september perhaps into october where you begin to run into the seasonal volatility peak for the entire year. >> what do you make? when we see volatility at these lows and stocks that are sort of at a relative high at the moment that would make me kind of question a few things. >> yeah. i think many people have been programmed over the last few
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years to when they see vix down to get very defensive. our interpretation is similar but with a little difference. we look at volatility cycles and judge from them based on the history exactly how long we think volatility could remain subdued. so, for example, mid-june, spot vix moved down through 20. we had what turned out in may and into june a relatively low magnitude event. historically that gives us two to four months before the next event kicks in. we're just at the beginning of that two to four month period. that's why we're pretty constructive and believe volatility will remain subdued for a little while but people i think should increasingly take advantage of the fact that implied volatility is low and, therefore, openings are relatively cheap to take down risk while maintaining that long directional exposure into the
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fall. >> you can buy some cheap insurance. why, going through all these fence that we've got coming up, the jackson hole, the fed meeting and ecb, big ecb meeting, why do you think volatility is going to stay low because clearly we got a lot of event risk coming through. >> right. that's the beauty of volatility and volatility cycles. again, when you get into these phases it takes a while and it takes significant events to drive volatility higher and sustainablely so. >> okay. you've laid out your strategy. how do you execute it? >> well, i think what we've seen here very logical progression as far as equity sectors go towards deeper cyclicals. since the beginning of june energy and financials took the lead, but over the last month that's transitioned to technology and materials as well and consumer discretionary.
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now, at the deepest cyclical end, materials you can tie that to the chinese equity market, i think. if you look at the shanghai composite that's sagt round 3 1/2 year lows. that suggests a warning. so continue to have long exposure in financials, in technology, apple big move yesterday, great way to play that. it's rather straightforward. but just via the etf, 20% of that is weighted in apple, implied volatility is expensive. you can represent that view just by going in and buying relatively inexpensive upside calls. so, again, we like positioning broadly but let's take advantage of the fact that implied volatility is low and options therefore -- >> jim, thanks so much. that's it for today's show. "squawk box" is coming up next. don't forget confronting the
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crisis, the fed at jackson hole. have a good day. [ male announcer ] whether it's kevin's smartphone... mom's smartphone... dad's tablet... or lauren's smartphone... at&t has a plan built to help make families' lives easier. introducing at&t mobile share. one plan lets you share data on up to 10 devices with unlimited talk and text. add a tablet for only $10 per month. the more data you share, the more you save. at&t.
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good morning. bracing for isaac the storm is packing swirling winds and rain and is headed for the gulf coast. it's expected to make landfall late today as a full blown hurricane. your money, your vote the gop convenes in tampa, republicans set to officially nominate mitt romney and paul ryan as the party's presidential ticket. and breaking news out of europe in the last hour, mario draghi won't attend the fed's jackson hole symposium this weekend as wekted. he's got too much to do. too busy. it's tuesday, august 28, 2012. "squawk box" begins right now.


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