tv Street Signs CNBC July 10, 2019 4:00am-5:00am EDT
welcome to "street signs." i'm jomana versace. >> i'm willem marks. we're in london. these are your headlines. >> european markets trade lower. they wait for the next policy move from chairman powell's testimony that is later today. u.s. and chinese counterparts have constructive calls. chinese factory inflation flat lines unexpectedly in june ending all of three years in
growth and increasing concerns about a slowdown in the country's manufacturing sector. and shares in british recruiter hays a profit warning and boris johnson and jeremy johnson clash over no deal construction in their next bid to become prime minister let's start off by looking at how some of the markets are fairing. yesterday in wall street we had a bit of a moderate session as the dow had its third negative session in a row s&p ended the day moderately higher nasdaq up half a percentage point. moderate gains for u.s. equities asia pretty well mixed we did have the china inflation data coming out overnight. the ppi data had flat lined. as a consequence, we saw a little bit of weakness the shanghai down to the tune
of 1/4 of a percentage point the theme in europe, we have stox down .10 of a percentage point. switching on though to look at the breakdown in the individual respective markets, and you can see that the ftse 100, which will come up in a second, is the relative outperformer almost barring italy up .10 75.50 is where we are at we are seeing the home builders at the top of the ftse 100 xetra dax marginally in the red. we are seeing rebounding today in the names under pressure today. yesterday the chemical sector got heavily hit. today we are seeing a little bit better performance in some of the sectors and the banking sector as well we're watching deutsch bank as
well cac carant is flat remember they have the 50 year tap. the bond tap yesterday that saw over 17 billion viewers worth of orders very good appetite for the italian bond market. in terms of sector competition, you can see on the bottom, food and beverages down .8 of a percentage point utilities, 2/3 of a percentage point. up at the top, banks are outperforming. also, oil and gas. we are seeing cyclical names the major focus for today as i mentioned is the testimony of jerome powell, the fed chair here he will be testifying to members of congress in washington later today as concerns increase about a slowdown in u.s. economic growth investors broadly expect the fed to cut rates at its july meeting.
a reading has raised questions over the timing of such a move on the back of that, as i mentioned, we were seeing a bit of a bounce in banks and europe today on expectations of some positive signaling out of chairman powell today. this is a picture across the board. changes right at the top of the stoxx 600 up 3%. deutsch bankis up 1.5% in his testimony today powell is also likely to be asked about the fed's independence after president trump's frequent criticism of the central bank. at a cnbc capital exchange conference larry kudlow dismissed those concerns and said there is no plan to alter powell's position. >> to be clear, there are no plans by the president to complaining powell's job or any of that sort of thing.
i read occasionally that in the papers and the president's said that, too, by the way. no plans to change his position, positions, career. >> let's talk about this global economist joining us here in the studio. what if anything you saw on the friday job numbers that in your view justified the negative reaction of u.s. equities? >> i think markets have been rallying because they expected a rate cut obviously that is not going to happen after this strong month on payroll i think markets are being disappointed by the fact that the fed may not be that dovish right now we have a very strong labor market there's a truce at the moment so there is less of a case for immediate fed rate cut >> how do you think the market would react to that though the market is pricing in almost
95% probability of a rate cut end of july. if the fed signals that they are even -- today in the speech if powell signals they are not ready to cut just yet and indicate that a cut could come later on in the year, perhaps in september, how do you think the market will take that? >> i think as i said the market is still pricing in rate cut in july in fact, a look at the change in market expectation before and after the payroll, it's not changed that much. that's pretty significant. maybe not warranted in the current economic environment i think there is a signal from powell today that the fed is actually not that keen to cut that much. i think markets can be disappointed again as the reaction we have seen in all of last friday. >> some people are talking about this rate cut as it being an insurance rate cut you cut as an insurance move, not because you actually need to be cutting if you look at the set of data and what it is right now. is it also not an admittance
that they maidsde a mistake in cutting in december. >> it wasn't a mistake because the policy is now neutral. back then the hike was justified. we have seen a very strong 2018 u.s.gdp growth the rate hike will be an insurance cut. although there is a trade truce, the trade talks are restarting there have been construction signals. so the issues, i think the uncertainty of the recovery and capital investment and spend in it's going to recover meaningfully there is an effect to have a rate cut in july and december. >> if we leave aside the trade disputes and we focus on the strong labor market you talked about there in the u.s. and the impact it's having there, how do
you interpret the latest job data in the context of the labor market and job market. >> right now labor is just about 2. however, the disappointing part of the nonfarm payroll has fallen from a peak of 3 to 4%. it hasn't been able to accelerate despite thefurther tightening that is despite the fact that there's pressure to be worried about. i think that supports the case for the if he hfed to cut. >> the market rather unkindly called powell a flip-flopper or as we know in the u.k., an unreliable boyfriend powell is living up to the reputation, too, because it wasn't that long ago that they were talking about further rate
hikes to come and then we had the significant change in tone towards the end of last year, then the market started moving as well. then we started talking about rate cuts. how long is this going to last for? are the feds genuinely at risk of losing some kretdbility here irrespective of what the president said about them? >> as a market participant we were shocked and surprised how quickly that changed last year there was still talk about rate hikes, but i think the fed is purely reacting to economic data. they have always insisted that they are data dependent. obviously at the end of last year there is more optimism that the trade deal would be done but obviously as president trump is always reporting, there isn't a deal done. there's not any deal done in sight. so i think the fed is purely reacting to the fact that there's just more heightened
uncertainty. i think it is a right reaction as you say, the change in tone is a bit too drastic going from a rate cut to a rate cut at the end of next year. >> stay with us. global economist at casano capital. cisco looks to step up its presence in the network equipment sector with a $2.6 billion acquisition of acasia acquisitions more on that after this break. my mom washes the dishes... ...before she puts them in the dishwasher. so what does the dishwasher do? cascade platinum does the work for you, prewashing and removing stuck-on foods,
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welcome back to "street signs. this morning shares in british recruitment firm hays are under pressure the smaller rifle said the operating profit will fall to the lower end of the forecast. it blamed lower macro conditions including brexit social unrest in hong kong meanwhile, j.d. weatherspoon reported a 7% rise in sales.
expect 3 million pounds in non-cash losses this year. said those were mainly due to pub disposals. nevertheless, it maintained its full year guidance. and the u.s. government says it will issue special licenses to companies that want to sell goods. the black listed tech giant had a way is allowed to sell crucially, any purchases of had a way components or systems, including those required in 5g networks, will still remain off limits. and shares of acacia systems surged after cisco agreed to buy them in a deal of $2.6 billion the acquisition will allow users to use more data over high speed networks ar again coppell joins us live
from hong kong what's the deal? >> acacia makes the deal for large amounts of data but at very high speed. this includes semiconductors it's all about 5g here cisco is a player in the 5g space. they're making it easier for data to move because 5g will be using tons of data for various use cases. i had a chance to catch up with the cio of cisco here. he was here at rise earlier today. i asked him about why cisco made this acquisition let's listen in to what he had to say. >> we're going from 25 billion things connected today to 500 billion over the next decade the primary requirements going forward will be data density, speed, being able to access the data faster and of course low power consumption which is critical for i.o.t. and a number
of other factors associated with digital progression. acacia tips all of those boxes for us. >> reporter: you heard guy there toque about iot, the internet of things this refers to the hundreds of millions of devices that are expected to be connected to the internet over the next few years which will be underpinned by 5g. you can imagine all of the data being processed by these devices. cisco is trying to boost the 5g division as it tries to catch up with some of the bigger divisions. another big topic here is all about the trade war. very tough for some of the global tech businesses on the ground here including one called logitech it makes a bunch of peripherals, keyboards, mice, gaming head sets specifically for professional gamers. i've had a chance to catch up with the ceo and talk about the
trade war impact on his business let's listen in to what he has to say >> it's just another macro economic variable that we deal with that's what we do. we have currency changes we have to manage those too. this is just another one of those. we work in exactly the same way. work every lever cost productions, price increases, supply chain changes. we're always looking at all of the variables and resorting that on a regular basis and we'll keep doing it. it will probably keep going. there will be macro economic changes always and we're here to manage those >> so the message i'm hearing from a lot of the global tech businesses including cisco is that they have been making changes to their supply chain. they may have seen some price increases elsewhere. they are thinking about that supply chain and what kind of impact this trade war is having but they feel they can mitigate a lot of the risks around that even as the u.s. and china
restart the trade talks and even as the u.s. looks to relax some of the pressure it's put on huawei, i think trade very much still remains top of mind for many of the global tech businesses right now guys, back to you. >> indeed, you're right at the heart of it. argen, thanks for breaking down the specifics of that deal. now chinese auto sales fell for the 12th straight month in june and were 9.6% lower than the same period last year. the china association of auto mobile manufacturers is calling on changes to boost the consumption. the market will shrink but there was one positive, there was an 80% annual drive. chinese inflation flat lined in june. that ended a three-year growth run due to a struggling manufacturing sector the consumer price index
remained steady. eunice yoon filed this report looking at the numbers from beijing. >> reporter: rising prices continue to push up chinese consumer inflation the cpi for june rose by 2.7% from a year ago matching a 15-month high seen in may. producer price issued zero growth raising concerns about further weakness in the factory sector and the overall economy those worries will likely be o the minds of chinese negotiators. vice premiere and the commerce minister spoke over the phone with their u.s. counterparts beijing has signaled through the state media that it wants to prioritize getting all of the currently imposed tariffs removed, whereas, white house economic advisor larry kudlow believes china needs to make purchases of american agricultural products right away.
>> the president in a good faith showing has indicated that we will cease any new tariffs, any new tariffs. important point. now president xi is expected, we hope in return for our accommodations, to move immediately, quickly, while the talks are going on on the agriculture front. it's good faith that it would be real transactions. >> you mean big purchases of u.s. soy beans and that nature >> that's correct, soy beans, wheat, energy possibly, and that's very, very important. >> reporter: trump administration has already agreed to ease restrictions on chinese tech giant huawei though the commerce secretary has been downplaying the move saying the products approved for sale for huawei would have no impact on national security.
they will have their amounts let's bring in janet ppi zero no producer price inflation. cpi at 2.7 if you adjust for variable through prices, the picture is one of continued disinflation in china. what does that mean for policy makers >> i think the headline inflation is really boosted by the foot prices. underlying inflation is quite subdued and the message to policy makeris just that they can ease policy if they want to. i mean, they're having sort of more accommodative stances, the trade tension but not full on accommodative because they're still worried about the messaging. because underlying messaging is a threat, they can do more if it's needed. >> where is the currency if you look at the chinese economy purely from an economic
perspective, you could say from a disinflation angle, from the perspective that growth is slowing, manufacturing has been slowing, the trade war is biting that it would actually make sense for the currency to continue depreciating from here. do you think the fact that it hasn't depreciated more is because policy makers are stepping in to keep it under control so that it doesn't irritate the u.s. counterparts >> i think -- first of all, i think the chinese yen has reacted to trade news so it didn't appreciate when we had bad news on china, growth is slowing. i think the chinese government has been intervening because they do want to see a stable currency president trump and the government has been accusing china of potentially manipulating the currency to help with the trade war. so i think the chinese definitely, they would like to see a stable currency and also to help, you know, stem the
potential outflow. >> you mentioned some of the u.s. accusations historically. did this dispute, despite all of those accusations we're hearing now, did it really start because of a trade deficit has it morphed into something much more complicated and long term has it become a do or die effort around strategic technology do you think? >> i think definitely. the markets now have come to terms. this trade war is going to be persistent and structural. very early in the beginning they would talk about trade deficits but actually now from the case of huawei we all know that the u.s. government is trying to stop china from being more advanced in technology because the threat of china being a technology giant, in 5g
technology huawei is dominating the semiconductor sector, et cetera, et cetera. artificial intelligence. industrial policy of china i think the americans are trying to stop that from happening and that is why president trump is going to have a very tough stance on equalization it is very difficult to agree on the deal because of the structural issues. >> isn't there a paradox for investors watching this. if the u.s. is trying to do this, does it not just spur the chinese authorities to concentrate and redouble the authorities to avoid the reliance on foreign technology >> just following up on that how quickly can they do that you say china accounts for 60% for the global demand of semiconductors but they only produce 13%. how quickly can they become self-reliant >> it will take time but that is definitely the case for the chinese government because in the five-year plan they have a
target of technology sufficiency. various targets for semiconductor so it is definitely in the pipeline they need to do it they've got a lot of funding to do it, whether from the private sector, venture capitol or from the government funds also, china has got the most number of ph.d.s in s.t.e.m. subject. so they do have the human capital and the financial ability to boost it. as i say, it will take time. first of all, the u.s. is limiting their intelligence, their technology export to china. that will be difficult also the alliances of the u.s., they're going to do exactly the same which limits their export technology to china. it will take time but i think the chinese would definitely redouble their efforts but do it in a more quiet manner rather than being out loud about their targets but they would do it underlying more see cretivelily not to get any attention
they will redouble their efforts. >> definitely a subject to redouble the efforts. >> that is for sure. i feel like we have been talking about it for years already thank you very much for joining us today the global economist from casano capital. who came out on top in the conservative leadership debate in the u.k.? we'll have highlights coming up next
welcome back to "street signs. i'm willem marks. >> i'm jomana versace these are your headlines. >> more clues on the federal reserve's next fed move from chairman powell's talks later today. constructive phone calls as the u.s. and china try to resolve the year long trade disputes. the u.s. government says it will issue special licenses to companies that sell certain goods to huawei helping shares in european chip makers trade higher and share in british
recruiter hays come under criticism after they are blamed and there is a clash over the next u.k. prime minister we heard there about the leadership contest here in the u.k. we've now got some u.k. data coming out in the last few moments. >> gdp numbers. >> gdp numbers for may up .3% month for month very much in line for expectations. up 1.5% year on year against the expectation of 1.3% bounce you can see the three-month period that's against the april number of .4% and interesting numbers around industrial output that's up 1.4% slightly lower.
>> interesting but is the reaction the pound here we had the shocker, negative 0.4% on back of some of the givebacks we had in march. we also had weakness in the auto sector some of that has been given back now in the month of may. month-to-month we're up 0.3% if you look at it analyzed, that is coming in at 0.4% it is coming a little bit higher than the market had anticipated. >> not great news for the manufacturing numbers. you can see manufacturing output is 1.4% higher month to month. that's very much lower than the expectation which was 2.1% as an increase there the manufacturing still under pressure construction slightly beating expectations for the monthly data there janet is still here with us from casano capitol in terms of the gdp data,
anything that surprised you at all? >> i'm quite surprised by the strength of the monthly data because we have been witnessing the trend in the purchasing manager index and some other surveys which continue to indicate weakness in the u.k. economy. in fact, we have been expecting a slight contraction in the second quarter looking at these, the april and may data, maybe it may not materialize, we don't know it is definitely stronger than we have expected. >> interesting, isn't it looking through some of these details over the last six months or so you had that q4 number of .2% g1 .5% it seems to be staying in the right direction, i should say, despite the constant political turmoil around brexit. >> i think the q1 number is definitely exaggerated by stockpiling effect so we think that that is not sustainable and we are very likely to see slowdown into the
rest of the year i mean, the personal manager index is an indicator of where they are and it was weakness across the board, services, construction, manufacturing. especially manufacturing although it is a small part of the economy, i think it can impact sentiment, impact capex and impact hiring and consumer spending we're still not positive at all for the u.k. economy because of the uncertainty. >> that lack of positivity reflected in the british currency over the last few weeks as well. i'm just wondering long term if the pound stays as weak as it is, what does that mean for the country's economy? >> well, i think the weakness of the pound did not have a good implication on inflation it will stay that way. that will have a negative impact on consumer spending we have higher inflation
consumer has less disposable income if it continues to be at this weak level, it wouldn't be good for the consumer also, i think if investors were to know that the pound were to stay this low, they may actually hold back on their investment into the country because the currency is not doing any favor to the investment returns. >> janet, thank you so much for joining us global economist. so just starting with the u.k. given we had the data, the ftse 100 is below the flat line slightly trading under water here as you mentioned, the gdp came in slightly under expectations month on month persistent weakness. that is a consistent theme we've had from the beginning of the year, not just from the u.k. but in years when there's a whole, particularly in germany. xetra dax down
cac carant down. the italian index is up .7 of a percentage point more optimism for italian assets after the country narrowly entered into the deficit procedure with brussels last week a bit of positivity there. the rest of the move for europe is quite negative as we head into that all important powell testimony coming up at 3 p.m. this afternoon investors will be looking for clues on whether or not they will, indeed, go for that 25 basis point cut at the end of july or whether they are starting to waiver that will be a big surprise to markets if they do so and also to fixed income. let's talk about fixed income. big moves this morning you can see that all of these fixed income instruments are actually trading higher in yield terms. so the market is selling off the bund is up 6 percentage points still we're trading at negative 30 basis points. italian yields also coming off a little bit as well to the tune of 4 basis points.
gilt and ten year off as well. is this a function of investors getting nervous about what powell has to say. is it positioning long and fixed income you would think given how much fixed income has rallied that positioning is certainly looking a little bit stretched that is one of the reasons why bonds are trading higher in yield today. let's talk about the u.s. though yesterday we had sort of a moderate session dow was the only index trading negative third negative session in a row. you can see today all three majors are set to open up in the red. s&p up 7 points. dow down 50. nasdaq, the tech sector also down about 20 points yet again we've been saying that over and over again. the one thing you want to watch out for is what chairman powell has to say at 3 p.m. this afternoon. lawmakers put an obstacle in place to try to prevent a no deal brexit in october mp voted for them making it more
difficult for them to take the e.u. out of the conversation any such suspension will be simply unacceptable. the two men who hope to be brittain's next prime minister faced off at a heated debate the obvious underdog jeremy hunt said boris johnson would put rival over principle if he became leader. >> if you don't get us out of brexit concerns, will you resign >> anybody going into this proposing to kick the can down the road will, i think, run the risk of forfeiting trust with the electorate and undermining the negotiating position. >> could you answer mr. hunt's question >> delay does not deliver a
deal we must stick to that deadline. >> i think it's a no what we've got is someone who says it's do or die. >> i'm sorry i'm sorry. i think what we have with -- >> no, no, i asked you if you would resign and you didn't answer the question. will you resign if you don't deliver? yes or no? >> my opponent is clearly not committed on coming out of the e.u. on october 31st. >> will you resign >> gentleman, it won't -- excuse me, gentlemen. sorry. can i say, it will not help if you speak over one another so, please, could you respond to the question that mr. hunt has put to you then you can respond, mr. hunt. >> i think it very, very important not to enadvice sage any circumstances in which we would fail to come out of the e.u. on october 31st i don't want to hold out the prospect that they might encourage my resignation by refusing to produce a deal >> we're being joined in our london studio. based on the performance of
these two candidates in this race, do you believe that the conservative party, which i think you can fairly describe as fragmented in a parliament i think you can fairly describe as fragmented can ever hope to row in the same direction on brexit? >> it's worth remembering that the whole issue of europe has destroyed conservative prime ministers one after another so i don't think it's going to go away as an issue in the immediate future indeed, as soon as whichever one of these candidates becomes prime minister, they're going to have to wrestle with what to do by the 31st of october or whether the u.k. does leave on the 31st of october. against that backdrop, this issue is going to dog the whole of politics for some time to come. >> one other development that went under the radar yesterday the house of commons very narrowly voted for a measure that would essentially keep parliament open and stop the future prime minister from suspending parliament in case they wanted to put forward a no
deal brexit. in your view did these developments out of the house of commons make a no deal brexit not likely >> i think there's an overwhelming majority of members of parliament, conservative and labor, who simply don't want a no deal brexit they don't want to risk the sudden change to the u.k. economy that they think that would bring. yesterday's vote was not exactly a procedural device. it was a way of ensuring parliament had to be kept present moving forward it's interesting whether the whole government could suspend parliament has been on the radio in the u.k. with the former prime minister john major saying he would challenge a prime minister in the courts if they were to try to do this so the ante has been up somewhat further overnight and this morning. >> is it not still shocking the idea that a measure like that to
essentially insist on parliamentary sovereignty only passes by one vote >> the government forced their own vote it's true, we haven't quite got to the edge of the cliff the difficulty with this issue in the u.k. is the further we are from the next cliff edge, the easier it is for mps to vote with the government and hope something will come along. as we get towards as it was first the end of march, now the end of october, then, again, mps probably would break ranks more if they thought it was a real risk either that the u.k. would leave the e.u. with no deal or that parliament would find itself suspended or paroled to use a term of art. >> a business show, spent a lot of time talking about how the brexit had on the economy and so forth. how do you think brexit has affected u.k. from an international relations perspective and whether or not the picture going forward is one of a country that is looking increasingly isolated versus its
traditional allies the relationship with europe is very broad china has been able to have the systemic rival you have the u.k. ambassador to the u.s. over the last couple of days which has illustrated that the relationship with the u.s. is perhaps not as special as people have deemed it to be in the past. >> well, i think british politicians, prime ministers for many decades have probably rather exaggerated the specialness of the special relationship and what it means the truth is what's happened to the u.k. ambassador in washington has more to do with the particular politics of donald trump, if i could put it delicately, than it does with the u.k.'s current political situation. the u.k.'s political situation at some level will eventually be sorted out either the u.k. won't leave the e.u. or it will at some fashion. at that point it will return and against that background many of the fundamentals of the u.k. remain in position the u.k. remains a kind of po r
power, decide what kind of economy it has broadly from before the real issue, this is a business program, against this backdrop the u.k. is going to have to negotiate lots of trade deals, assuming the country does come out of the e.u., and from not a particularly strong position that's the most interesting thing moving forward every single trade deal that will come will be with a country that knows that the u.k. needs it and that is not factored into this discussion at all and that lies ahead. >> talking about the u.k. on the international stage and the implications it could have talking about a weak pound, investors not necessarily wanting to look at the u.k. because it won't create returns for them in terms of the politics of these islands where you have a political class despised by huge proportion of the electorate, you have the business class constantly criticizing the civil service, you have the party
political system essentially broken and a very fragmented parliament that can't seem to do a great deal of anything besides brexit, what does all of that mean for the u.k. in terms of the way it's governed long into the future and how investors look at the lack of decision making on housing, on social care, on health care >> the big question, the u.k. government has because of brexit effectively stopped doing lots of other things, lots of things you're describing. having said that, the bleak picture you've outlined, it's interesting to compare the relative success of the u.k. economy against that back drop that's about the european average and it suggests to me that the economy underneath is resilient. it's creating jobs it's still growing it's still growing 1 1/2 percent a year
despite all that you're describing, the markets and investors still believe the u.k. is likely to be a stable democracy and i think all the evidence is to suggest that once this particular period is, you know, finally put behind the country. the fundamentals to the economy and to politics remain reasonably secure and i think, you know, we'll look back on this in 20 or 30 years, then we can judge how big an issue it was. the dislike of politicians isn't unique to the u.k. we all know that it's pretty common around the world these days. >> universal >> yeah. >> professor at school of public policy at the london school of economics. sticking here in europe. both france and germany have denied reports of a deal between the two nations to support the bank of england's mark carney for the top job at the imf it said it was seeking a european candidate to replace christine lagarde who is
nominated for ecb president. one other possible name includes margaret vestiga and jerome dosenbloom christine lagarde's resignation has been welcome the current imf director will be a success in the role. >> talking about the europe and central bank, of course we can say that it is a rocket science institution and ms. lagarde is sufficient competence as an executive to run the institution and i do believe she will be successful in that position. >> she's obviously proved to be very knowledgeable in economics and finance and at the end of the day the results are the ones that show the best we know her as a country we have a good relationship with
her as a managing director i would also see her as an expert, not only as a politician, because i am not central bank governor, but if you talk to any central bank governor, of course they will always put some kind of record that there should be an expert i think that she has enough knowledge and expertise so she can be characterized as one. >> based on her references, performances and past results, i would say that she would make an excellent govern nor of the european central bank. she's a financial expert international financial expert with a pretty good track record. >> well, for more on the process around lagarde's nomination to the ecb and why they see the former french finance minister, go to our website on cnbc.com. >> several conversations in
brussels >> i'll make sure i read that. i tweeted it i tweeted out willem's article earlier. moving onto the finance sector, gam shares have a lower lying profit in the first half assets under management will stabilize. it rose to 136 billion franks from 132 billion at the end of last year. that's still down from around 164 billion in the same period a year earlier it comes after the company had to disclose several funds and dispose of one of the top bond managers for top misconduct last year. bayer has approached u.s. drug firm elanco over a potential merger of the animal drug businesses. they want a deal with secure approval both firms have, however, declined to comment. and coming up in the show,
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in tennis, mixed doubles with andy murray and serena williams eased their way through to the third round of wimbledon. the multi-grand slam winning pair won 7-5, 6-3. it was the second outing on centre court for williams that day. earlier the seven-time wimbledon champion had won her match >> i loved watching sir andy. all eyes on capitol hill as jerome powell begins two days of testimony in front of lawmakers. this is the reaction today in the yield curve. you can see that two-year notes
are off about 2.5 basis points ten-year notes are off about five basis points. 30-year bonds up six basis points we are seeing a bit of a shakeout across the curve now. ten-year notes at 2.10 steve, it's great to have you with us. nice and early for you i want to ask you about this price action in fixed income today. we're selling off pretty aggressively, five, six basis points, not just in the u.s., we're seeing it in europe and the u.k. as well do you think investors are a little bit nervous as to what powell may say later this afternoon? >> i think investors are nervous about what powell is going to say. the fixed income market is clearly very long, long duration, long bonds and there is a fear that if he's not as forthcoming as the market expects him to be, the bonds will back up that said, it looks like today's move was actually a european
move german yields are backed up a bit more than u.s. yields and the move started when the european market opened u.s. yields weren't doing much before so i suspect it's two issues both related to the market being long but the immediate move today not necessarily driven by powell here. >> let's bring it back to the u.s. right now and obviously the market pricing has shifted over the last couple of days and since nfp. the market is pricing in about 2 1/2 rate cuts by the end of the year according to your assessment, how much of that is on back of the actual weakness in the economy versus just inflation under shooting the target? >> look, i think the market is underestimating how much pressure the fed is under because they're missing their targets and they're missing it by quite a bit more than they expected it to be. so, you know, i think that 1 1/2 to 2, you know, eases -- 25 basis point eases can be related
to the inflation side. they've devoted entire conferences to worrying about the 0 bund i think the output side is maybe half a percent, it's much less important, i think, in terms of fixed income pricing right now >> quick question for you, steven if we see a major surprise we see a larger than expected cut this month, does that make a difference compared to two smaller cuts over the course of the next six months? >> it makes a small difference i think the issue for the market is where you end up and how long you keep the stimulus in place i think the view that if they do a surprise but then do nothing, it's going to be more powerful than if they, say, do two smaller surprises. it's not based on the analytics and there's no real evidence for
it so i suspect they're going to do 25 i don't think they want to use up that much ammunition that fast given that there's nothing on the economy that's that stressing. it's -- the economy looks softish, it doesn't look terrible i think they'll do 25 clips on that basis. >> steve, we'll leave it there thank you very much for giving your views ahead of the powell testimony. a quick look at u.s. futures before we head out all of the three majors seen as opening up in the red. fixed income is up and the dollar is weaker that is the setup for powell that is it for today's show. >> "worldwide exchange" coming up in just a moment's time
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good morning, it's 5 a.m. at cnbc global headquarters here is your five at 5 in the hot seat, federal reserve chairman jay powell heads to capitol hill today we'll break down the key things you need to watch. that's straight ahead. retreating from records. the dow on track for four straight days of losses. what will stop the selling maybe it's trade top u.s. and chinese officials wrapping up the first high-level talks since president trump and xi went face to face at the g20 summit. >>