bonds. >> euro bonds make sense when you have a fiscal union. otherwise they don't make sense. >> china's factory stalled for the second con secretary could you it difference month. shanghai stocks slump. >> and india's controversial gas hike lifts stocks on state owned oil companies, but the rupee continues to hit fresh lows. welcome do today's program. plenty of data. com poise it pmi 45.9, declining from 46.7. the services number weaker, 46.5. photographs at 46.about 9, a

seventh month low. and the manufacturing pmi 45 again weaker than the forecast 46. this comes after disappointing pmis for both germany and france, as well. and remember the german number manufacturing 45 versus 47, new orders index, the 11th month in a row that we have contracted. we also have the ifo number. >> and the news isn't much better. you can see the reaction in the euro. down at fresh lows against the dollar. business climate index 106.9 compared to a forecast of 109.5. so again, three full points lower. a key index watched to confidence. it is also i believe the lowest in quite some time. joining us is global head of foreign exchange at morgan stanley. welcome. initial reaction. >> no surprise.

when you look at the weakness in the german data, german exports are about 55% outside the eurozone. and what we discovered recently, weakness in it brazil and china. and when you look into some of the economies, you can see that this there are some similarities to the developed world. it seems that there is less lending taking place in the banking sector. so it that is having an impact on these economies and therefore you have it the negative spillover effect into german exports and it that may explain the weak manufacturing data. now the divergence manufacturing and service easily explained. we have better wage increases in germany. there's a deposit shift taking place from peripheral into germany and that actually puts german banks in to a much better landing position and therefore the service sector is better.

but it does underline thedy ver against of activity when you compare services in the peripheral but services in germany. a huge die injury against taking place. so this is potentially a weaker set of data you can get for the europe. that's why it is trading south this heavily. >> are you surprised how low the euro has gotten today and do you think given the news and lack of news out of the euro summit yesterday that we can continue to move even lower from here? >> no, i'm not surprised for the reason morgan stanley has been a bearish house. we're projecting 115, so we can't be surprised by the price action. maybe the first point where we might have an initial reaction is around 121, but before i do not see this it. >> that's a lot of space down. >> it is a lot of space between that level and the current level, but you have to also

consider that we are a trade at 3 1/2 months in a sideways track. and when you break out of that type of pattern, you should not assume that after a week or so the entire move is done. normally the relationship sideways and trending is 1 to 3. so three months of sideways means one month of trend. >> so does your forecast mean they'll do more stimulus? >> they have to do more stimulus. what they need to do is it they need to cheat liquidity. the weak euro is helping to keep it together and it needs to be discovered as a policy tool. >> 125.16. and the ifo saying undoubtedly uncertainty over the eurozone

impacting the economy in germany as you might expect. plenty more to come from hans. also oil companies are hiking the price petrol about 11.5%. >> and we'll be joined by the chief china equity strategist who will explain why another 5% up side for chinese stocks could be in store. >> also in madrid where it's dropped a staggering 46.5%. and pumping more in to bankia. >> and a look at the new u.s. pmi survey. chris williamson will join us from new york. >> can they break into that territory. and then we'll focus on none other than jersey city. did i get it that right so? >> after fitch warns u.s. banks are facing challenges.

and citi group's economists expect greece to leave the euro. they're very precise about this, the first of january next year, 2013. it sees the new greek economy dropping by 60%. this comes after heads of state meetings in brussels urged greece to stay, but reports suggest it they are putting in place contingency plans for possible exit. silvia joins us from brussels. here's the question. are they playing a game of bluff or not? when they say we want greece to stay, but if you don't sign up to the it terms, we're ready to let you go. do it they mean that or is that bluffing? >> i don't think they have a choice ultimately. i think they're always willing, we heard that from angela merkel, from hollande, from

rajoy, they're always willing to give greeks more lenient terms. maybe no stretch the time horizon, maybe to give them more money. but the bottom line is they say you have to agree to stick by let's say the spirit of the treaty if nothing else. but what can they do? if they have a greek government after the 17th of june that says you can basically stick your stroo treaties or burn them, then they can't help anymore and reports about con tense -- >> so you think if they cannot sign up the terms of a bailout plan, then they are prepared to deal with the unknown consequences of a greek exit? >> what else are they going to do is this if you go to a bank

and you want a loan and you say it doesn't matter what kind of terms you give me, i don't care, i'm not going to pay back anyway, is the bank going to given you any money? of course not. everything else i would say is negotiable and that's the the message to athens and let's wait and see how that pans out. francois hollande, first appearance here at a leader summit. he floated again it the idea of a euro bond. but it's clear that the divide between i would say not only the german camp, but the germans and the ones that oppose euro bonds and the protagonists that say better have euro bonds now, let the divide remain. so we're not going to see them in a hurry. we have a number of comments lined up starting with angela merkel saying this is not the right way today and here it goes. >> silvia, thanks very much. greek's finance ministry has denied reports that the euro

working group have been preparing for a greek exit. julia chatterley is in athens with the latest. how much is greece trying to back pedal reports that the rest of the eurozone is planning for its exit? >> well, as you said, the greek finance ministry denied anything was going on. they said it damaged their effortses to try and address the crisis. it's interesting at the same time of course the greek president said he felt like he had the backing of european leaders. but all paths lead back it to the election and just when we get there and just what it means for policy going forward as silvia just mentioned, the undeniable message is that they can't take it anymore us a tear temperature. 70% of the population made that point in the vote back in may. what we have heard from the new democracy is how they can renegotiate. there is a party that they just

directly oppose the bailout deal and you have to argue that it makes sense for some kind of contingency plans to be put in place. part of the working documentation did include a potential for the eu and event mf to give greece 50 billion euros if it they do decide to leave. it is all about giving the choice to greece here. difficult to understand where that calculation comes from. financing here is a huge problem. it just highlights the need for a decisive vote at the elections on june 17th. the question is the population listening and understanding. back to you. >> let's pick up on that with hans. do you think they're bluffing they're trying to scare the greeks in to voting the right way in the election and even if they don't, they may stretch out some assistance in the short

term even if it elections go the wrong way. or do you think if the greeks vote for anti-bailout parties in the next session, that's it? >> the question is do we have a bluff on two sides. and the bluff hear is that europe is pointing out to greece if you don't deliver the right election results, we may consider more drastic actions. or re turn off the tap. on the other side, the hardcore social list left wing in greece. so they're saying we stay in it the euro and believe euro is going to pay it for us. though the question is are both positions staying where they are. can we get after the election let's say greece would vote for the left wing. so could we get to a situation when both sides come together and they basically say, okay, what can we do. of course we need to consider one thing. there's one very important asset in euro and that is the asset of

irrevocab irrevocablety. so when you move this away, then you will have totally different reaction functions in bond markets. how about will the bond market react once you have moved one country out there. >> what do you think will happen? >> i think that they have to maintain greece in. it is very important for you, right, and therefore i think that we'll head towards a compromise. of course you would execute an example, but on the other hand, the firebawall you have to buil needs to be tremendously high. and where do you get the resources. so it means that the bricks for

the firewall need to be produced in the ecb, right? and that actually means that under those circumstances, greece is going to leave, you have actually a much weaker euro than you might like to have, so, therefore, i dismiss all this course and saying, okay, you've cut the weakest link out and therefore the chain is getting stronger. it's not going to work like that. >> and citigroup this morning talking about greece potentially leaving in january says a greek exit if it happens whether not end the eurozone's crisis. >> ireland and portugal might follow. >> and china's factory growth has contracted it for the seventh straight month in may. it dippeded to 48.7 compared with april's final reading of 49.3. the drop sparking fresh fears of a hard landing in the world's second largest economy. hsbc says that's avoidable if beijing takes more aggressive

easing measures. on wednesday, premiere wen says beijing will step up policy fine tuning to support growth. so hans, quick reaction from you here. should we expect the yuan to start moving the other way? >> it is now a huge policy tool. clooi in a takes care of economic growth and therefore a weaker recommend bioig plays in here. and number two, we have to watch the currency reserve data he released out of china in a couple weeks time. if he will see that currency reserves it in a month where the recommend renminbi was weakening, then it would confirm that the decline of the renminbi was due it capital leaving china, which

actually that would be a very interesting thing. and it would be interpreted as a very big plus for the u.s. dollar. so watch out this data in a couple of weeks time. it that is a key number for any change. so if it there are no currency reserve increases for the months of may, then you will have u.s. dollar going very quickly higher. >> and we're it actually going to speak precisely about this issue of capital leaving china, investing elsewhere with a -- >> building a case for the dollar across the board. >> and when we talk to david lutz, he thinks dollar strength is the reason the federal reserve has to do more quantitative easing. >> we'll hold that thought, as well. >> and let's check out markets in it asia have reacted. tra tracey chang is in singapore recapping all the action.

>> asian markets are mixed today as the weak hsbc china data weighs on sentiment. the composites about half a percent dragged lower by smaller banks and domestic brokers. hang seng index lost about 0.6%, but the top chinese companies plunged nearly 7%. and moving on to japan, the nikkei bounced back to positive territory after a quick rally in the late afternoon. analysts point to a short recovery and low volume with a lot of uncertainty about the and you are row zone's future still out there. in australia, the 200 turned negative for the year. and last year, i said i can't sensex gaining about 0.7% at the moment led by state run oil companies on the government's move to raise gasoline prices. we should also tell you the

endian rupee. take a look at how it's trading now. a hit, fresh record low against the dollar. but overall a mixed picture here in asia. ke back to you you. >> that's the view in asia. we're 6:4, 3:2 decliners outpacing advancers. we did start up this morning after heavy losses yesterday. the german pmis coming in weaker than expected. plunge in new orders. 11th month running of contraction. and the ifo statement as we lower across the board. so ftse 100 the only major indices up. xetra dax down half a percent. ibex down around 0.8%. we've had fresh record low

yields this morning. we got 1.742 on trade this morning. ten year bund yields 1.361% is where we stand at the moment and that is a fresh record low. euro-dollar heading down towards 1.20 mark. dollar-yen holding slightly. fresh six month lows for the aussie dollar. not a huge reaction to the hsbc number. it was kind of expected even though it was weaker. and euro sterling, are we finally going to see is it with a meaningful break. quick view on commodities, as

well. brents down to 105.20. and it nymex at the moment trading flat according to that. we'll just check the data p. the bond yields, you have to keep pinching yourself. >> it's an incredible moment. when you talk about germany borrowing for 30 years at less than 2%, these numbers are amazing. if you want to join the conversation here, e-mail us at worldwide at cnbc.com or tweet us @cnbcwex. you can also contact us directly. >> petrol price hike considered a currency intervention by some has fail stod stop the rupee from continuing it fall. more on that from mumbai in a

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india is our attention. it's hiked petrol prices.

as you might expect, the likes of stocks have sod out and failed to stop the rupee falling. >> yes, in one swoop, the government has raised the petrol prices of about 11%. they did not want to it take any political measure while the parliament is in session. so now that the parliament session is over, that hike has come through. it's effective from midnight and it has resulted in a lot of political backlash. it should be tracking what the global commodity crude prices are doing. but despite that, for six months the government has been silent

at back of the political and in one swoop it has raised it by 11%. the hope was that it would be done in a staggered fashion. the more important diesel and lpg is expected to be taken as well as higher and the negative news is on automakers so that's the big news here. over back to the studio. >> appears to be a one way street right now? >> the current account deficit is a base hash i don't and you need to stabilize it. it's not doing the difference required to get confidence back into the currency.

monetary policy was considered to lose. so it creates a credibility issue. and central bank operating was not credibility or as little credibility is exactly facing this type of problems when it comes to a crisis. >> it would seem india's management of its economy, attempted management anyway, and these issues with the falling rupee with central bank missteps are keeping foreign capital out of the country. do you expect that to continue to weigh on the rupee? and we should mention we have comments from an indian official talking to reporters saying there's no possibility through retailers can roll back the gasoline price hike. so they're serious about it. >> they have to be serious about it. going from here, i guess we have to both consider from where it was coming from. so we have seen a big move in the rupee and the currency has

cheapened significantly. so we need a policy reaction and i'm convinced we'll see a policy reaction. and one needs to be more careful. >> all right. more with hans in a little bit. but still to come, we'll get a second reading on uk first quarter gdp,s that been revised in the right direction. >> up our down, yeah. a lot of debate about that. plus china's factory growth slipping again. will the country be facing a harder landing than previously thought. of how a shipping giant can befriend a forest may seem like the stuff of fairy tales. but if you take away the faces on the trees... take away the pixie dust. take away the singing animals,

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eurozone concerns weigh on german businesses. ifo index falls more than expected pushing the euro to fresh lows. >> investor sentiment also weighed down by the eurozone pmi data amid manufacturing contraction in germany and france. >> china's factories also stalled for the second consecutive month.

>> and the indian controversial petrol hike and the rupee continuing to hit fresh lows. >> if you've just joined us, a lot going on. we're about to get the second print of uk gdp. one firmed it was in concession. it is out and -- >> it first year on year drop. >> revised down to minus 0.3%. >> wasn't that the ross westgate call, too? >> construction all things being equal, it would take another 10th of a percent off. so revised down and the weakness more than expected driven by the sharpest quarter on quarter construction drop since the

first quarter of 2009. q1 revised to a drop, first since the fourth quarter of 2009. so we have confirmed a double dip recession in the uk. sterling getting knocked again against the dollar, now down to 15648. actually might we get more qe to drive the pound lower even without a greek exit? >> i think that the bank of england is considering additional measures and that especially in an environment where inflation has calmed down. so consider where we were accept or eight months ago. at that time inflation was higher and driven by import prices.

so that will allow the central bank to act and the currency is a policy tool which it should use. if your local multi-applying process is not working, and it looks very likely that it has been interrupted here. so when you look into the morgan rate, they have gone up, so banks were increasing mortgage rates because they wanted to improve the balance sheets because they're fearful of what has happened. >> despite the fact record low yields. >> absolutely. and similar situation about two months before in australia, you see what happened -- how that impacted the economy and how it impacted rba policy. so that actually means that the bank of england has to consider this unwanted tightening of monetary conditions due to higher rates. and they have to it take counter

measures p. and i guess they come up with additional measures and it is going to be sterling negative. >> we see household spending was down year on year. and business investment posted its strongest year on year gain since 2005, it was up 14% year on year. >> the business investment is obviously assumed by very strong balance sheets for corporates. and you should not forget that in the first quarter, we have a situation of confidence. we have the suggestion that the ltros were stabilizing euro. so it means you could plan forward, you could get your investment done. what is now happening, it's a broad based uncertainty related to europe. >> which would suggest if that was a significant factor in the first quarter, which weren't it that great, that it falls back it to the next -- >> and that is a danger.

so we have to solve the european issue here, regardeded by the imf as biggest risk to global stability. and that's how we have to treat it in financial markets. we have to understand that we need to solve the european problem. >> the idea that we have to solve the european problem implies that the best idea is to move toward more fiscal integration, towards more europe. but this is ultimately a political question. are people -- i wonder it if there it's a risk that by trying to do what's best from the market's point of view we're not letting people vote on their future. >> peripheral countries will be very happy with that. i'm not sure how they feel about it in germany. >> the fiscal compact does require fiscal discipline. this is about all it is.

when the french come in and say we want to have a growth oriented policy and we think about demand, the manner of reality is that we are living what our economists call the post keensian world. and germans saying we don't want that. we have to come up with a proper compromise on >> gilts are steady after that number. ftse 100 is steady, as well.

weaker than expected composite german pmis and ifo also much weaker. >> and we had a bit of weakness in china overnight. flash pmi reading is sparking fresh concerns about how it that country can engineer a soft landing and not a hard one. tracey chang has more on that this morning. >> a sharp drop in new export orders helped bring that reading down. it marked the seventh straight month that the index has been below 50 indicating contraction. economists predict the conditions of the first quarter are set to continue throughout the first half of this year. beijing now is expected to aggressively step up easing efforts to stabilize growth and avoid a hard landing, but according to a newspaper report, state owned china international capital feel as $95 billion stimulus package may be needed on top of rrr and interest rate

cuts to protect china from any fall off if greece leaves the eurozone. on wednesday, wen pledged beijing will dial up policy fine tuning to support the economy, but it is unclear how far beijing will go at this time after the massive stimulus package back in 2008 brought persistently high inflation. but most analysts do agree it that as long as sufficient easing measures filter through, china should be able to secure a soft landing in the coming quarters. back to you. >> our next guest says this could actually be a great industry point for chinese equities. helen, welcome. isn't the risk of a depreciating currency going to make it tougher for overseas investors to pick up on those gains? >> well, indeed i think the expectations in terms of renminbi appreciation have substantially weakened over the past months. however, we think that if you look at the forecasts that we have for the coming 12 months,

we think that the appreciation is probably a little milder in the coming three to six month, but over a 12 month view, we would probably still look for something like a low to mid single digit pace of appreciation. indeed we are seeing significant volatility in terms of our export based not only on the domestic situation, but also in terms of the global demand picture which is quite muddy at the moment. but over the medium term, we're still looking for the currency to strength then and not weaken. >> and helen, what is your view on why equities outperform, is it valuation, is it earnings? what are the catalysts? >> i think it's really a combination of things. i think really the expectations have fall p pretty significantly towards china equity its over the last, you know, not even 6 to 12 months. i would say 12 to 24 months. the key area that has deviated from global is really the valuation. where starting the fourth quarter of 2010, china's

relative valuation versus asia, versus emerging market, versus the world has really widened and we've seen about a 20%, 25% derating relative to other global markets. i think it's reflective of concerns over cyclical factors and structural factors. but as the cyclical factors are increasingly under control, we did see room for valuation rerating relative to global markets. and earnings we think will post probably in the mid to high single digit in terms of growth, so earnings accrual will be a partial contributor to this year's returns, as well. >> helen saying she expects current city to rise a little bit about that what's your view? >> my view is that china does need monetary expansion and the currency might fall as well into this category. we have lower inflation data, so that actually mean it is it does not need to be used, the currency does not need to be

used similar to last year. last year it was strengthening to five of inflation, so it's not required, but what china does grow is the growth support from the monetary side and as well as the fiscal side. and therefore i think that looking for near term appreciation of the renminbi might be wrong. when the economy does start to revolve, then i guess it is time to get back into the renminbi, but i would hesitate to do so. >> so a bit of a opinion there. and helen, looking across china equities, are there areas that could be stronger, sectors in particular that you like? >> sure. i think the very prevailing trend over the recent past is that people have shunned macro sensitive sectors and really favored more of the consumption and more defensive sectors. so we see that most of those sectors are trading at valuations that are not particularly attractive versus their history. comparatively, i think more of the macro sensitive sectors are

really very good values. maybe at trough valuations even well below 2008 financial crisis levels. so the sectors we favor would include banks which is trading at about six times pe this year. and still mid teens earnings growth. we also like some of the domestic cyclicals. for example, retail, which is a consumption cyclical, as well as cement which is a more supply tight investment cyclical. the only sector that we have an overweight at the moment which is not so macro sensitive is the health care sector, where we think it that actually valuations have come down significantly and for 20% plus earnings growth, we think is a relatively decent industry point on probably most of the regulatory risks already being priced in. >> cyclicals and cement. cement can be its own sector it seems. >> interesting to see if we get more stimulus from china, that's probably the -- helhelen, thank for that.

the eurozone crisis proved to be a pretty good opportunity for investors outbound direct investment from china to europe. more than doubled from the previous year. i think i was reading it in 2011 last year, i wrote down and i just brought it you. you can tell mena investment? >> absolutely and very much a contrast to the rest of the world. u.s. investment of chinese comes into the u.s. halved last year. and also to the other emerging companies. >> what are they perceiving here? are they perceiving assets are cheaper? because the euro has declined a little bit in value. and they can pick long term strategic displays up at a good price and i wonder whether that has also changed in the last sort of few months. >> well, i think a few investors

think that there is bottom fishing to do and as private equity investors know, right now good assets in europe are at least as expensive as they were even in the boon years of 2w020 2006 and 2007. the real issue is towards more energy efficiency because of the high consumption of energy and also more value added. going up the value chain. and when you look at what is high end manufacturing, what is removal energy technologies or valuable brands, a lot of them are in europe, so there's a shift actually in perception that probably right now we have chinese investors who sometimes are more confident about europe than the europeans themselves. i think they -- >> are they waiting to see whether we get drachma or not? >> i think a few tried greece. i think they're foe us cussing

on continental europe, uk, and some risk averse plays like infrastructure. >> and the chairman of china investment corp says it faces impediments but he likes emerging europe, africa. there are still a lot of concerns about investing in europe that goes beyond valuation point of view. >> i think the expression of concerns is more because of the perception of what's coming next is absolutely not clear. if i can make some kind of comparison, we just had a fan takes it tick road show by facebook. and then you realize that the fundamentals are maybe not as good as it they are. europe i think is exactly the opposite. fundamentals are in some companies fantastic and you look at the german auto manufacturers, look at the big companies in energy and france and belgium and uk, they're doing well. but the road show, the market, the vision that comes in beijing out of the european leaders is catastrophic. there's no clear line where everything is going.

>> hans, would you agree? >> i think that europe's problems are deep rooted. and the currency union is in an environment where we have to make some very tough political decision and economic decisions. and the question for me is it the right environment to invest in europe. i agree it that the degree value vags has come down, but the question is for how long will the crisis stay with us. as long as we do not get to joint funding in europe, the problem of the eurozone is not going away. so that means it could stay with us for another year. >> ands as you saw, there was

not a lot of investment into bonds. the sovereign risk is perceived as very strong. but our firm it's job is as to pick which are the fundamental companies doing very well. >> and they want to invest in companies that have part of the china economic chain or are they trying to invest in companies that have no exposure? you mentioned autos are strong because they're setting a lot of cars in china. are they interested if getting into those kind of supply chains or are they trying to get into companies totally not correlated to what happens? >> when you gar to ti compare t the japanese, there were a lot of trophy deals. you see something totally different with the chinese. the chinese are trying to invest in companies which will give them a competitive advantage back home back in the market which is still -- >> technology or brand or -- >> absolutely. you see a lot of exporters who

capture a lot of production chain, but very little of the value chain because they don't have a brand. same with technology. what is probably the perception in europe which has to change is that china is not anymore this low cost country where you can produce because costs are rising very quickly. so if you don't add this technology, this brand layer, et cetera, you don't capture, you capture only very little of the margin. >> all right. we'll leave it there. thank you so much for joining us on set for that. and speaking of japan, there is more evidence that overseas expansion may be gaining at the expense of jobs at home. the story live from tokyo. >> yes, kelly, more than 45% of firms that are planning to heek investments abroad will likely be cutting jobs in japan. that's from a government survey report dad. less than a quarter of the companies said they'll boost

ghess tick hiring, raising concerns of a further hollowing out of the nation's industry. in the past years, japanese companies have been shifting production bases abroad, but now they're also moving their r&d facilities and sales operations in order to break into emerging local markets. the survey will be published in the manufacturing industry's white paper said to be approved by the cabinet in june. that's all from the nikkei business report. back to you. >> thanks very much. let's give and you quick look at what's on the agenda this asia. annual cpe figures at 1:30 cet. rising centering costs may help give the data a moderate lift. but not necessarily the kind of lift people are looking for. second biggest retailer reports first quarter earnings. and singapore is out with final first quarter gdp figures at about 2:00 central european time. >> i just guess flipped when you

say gas meaning petrol. when i hear gas, i think of natural gas. >> i should have said gasoline. i'll say petrol from now on. >> just part of the ongoing sort of reformatting we have to do. still to come, we'll be in bruce he wi brussels. >> translator: the treaties don't plan for any country and rival for another step. this applies to euro bonds, as well. i don't believe they're measured to strengthen growth as the similar interest rates led to serious misjudged development. >> translator: we need to tell one another what we're thinking. we need to decide on the right tools, the right initiatives and the right steps to be taken to boost growth. europe obviously plays a part in this and we'll make a decision at the end of june, but for the time being, it's strilgts that we speak our minds to one another.

keep the tweets coming. one viewer tweeted us to say germany has the global economy hostage and the ecb on a leash. china landing will be harder. agree, disagree? if you want to join the

conversation, worldwide@cnbc. m worldwide@cnbc.com. also tweet us @cnbcwe us @cnbcwex, @kelly_evans, or @rosswestgate. >> absolutely don't miss out on the conversation. hewlett-packard second quarter profits down as revenues drop 3%. hp also cutting 27,000 jobs around 8% of its workforce. a third of the cuts will come from the u.s. mainly through early retirement. hp is taking a 1 fmt $7 billion charge charge. stock up 9% it in after hours. and it's up 9.5% right now in frankfurt. and meg whitman will be on "squawk on the street" at 9:30 other than time. they said it's not about the

product or customers or voornmevoor environment, it's about being able to scale up the business. >> an amazing shares up given they're laying off so many people. and you have to wonder when investors are jumping the gun. >> an interesting story. and spanish government bailing out banks to the tune of 9 billion euros. bankia additional capital needs will get under way, the ultimate are results are expected in mid june. they posted a drop of more than 46% year on year in march. carolyn -- >> the worst part might be the

fact it was a little bit more than the drop in february. >> actually every time you look at spanish data, you kind of have to do a double take. >> did i need to check my eyes. >> skarl lynn carolyn, more mon pumped in about that. >> and it may still not be enough for bankia. they have 17 billion euros in toxic real estate assets. and bankia has new management working on the complete capital needs of the bank for the next couple weeks. we'll get a full update mid june, so it that number could rise considerably. but coming back to the mortgage lending figure i think kelly made a very important point here, it is a bit of a slowdown from a drop we saw in the month of february, but again, overall it shows that these banks are not willing to take anymore

risks because they don't want to end up like bankia. bankia is one of the worst performs stocks here on the ibex 35. the ibex down by around half of 1%, as well, following hefty declines yesterday when a drop of more than 3%. back over to you. >> i'm reading a tweet, apparently nick clegg says it's -- there's a big headline this morning i think 90 billion euros is what it's going to cost to us keep greece in. so are there will pompous people in germany. >> i guess they continue to grab in the taxpayer's pocket and that is how it is perceived. therefore you think it if you cut off greece, things would be better. and that is a misperception and

we have to work on that, we have to make them to understand it that if you cut greece out, the problem of europe is not going to be soft. >> is the currency to get behind euro-dollar and the dollar generally? >>. >> it means my rent just got a little cheaper. might be a problem for the u.s. economy. could prompt who are easing. appreciate the thoughts. >> we'll take a short break. still to come, flash composite pmis following china's lead. we'll go through the figures. ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today

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welcome to "worldwide exchange." >> headlines from around the world. >> eurozone concerns weigh on german businesses. the ifo index falls more than expected. >> pmi data the lowest in three years amid a manufacturing contraction. >> and china factories stall. and worries on economic weakness. >> hp set to cut 27,000 jobs after second quarter profit falls more than 30%.

>> let's tee a quick look at u.s. make you kets. it seems we might have a bit of a bounce back after weakness in the market yesterday. stocks ended a bit mixed. nasdaq would be down -- actually, opening roughly flat once you take fair value into account. the s&p 500 is pointed down about a point. ftse cnbc global 300, we're just barely in the green. stocks rallied sharply and then we've given back some losses. calls are examining what might happen in terms of a it time line for greece leaving the eurozone weighing on markets.

>> so yields lower despite the fact that we did have a bounce back first thing this morning. so the hand that we're giving to viewers in the united states, ftse 100 pup 0.6%. ibex up 0.2% manufacturing activity hit the low he is level in three years. pmi index down to 35. services pmi fall to go 46.5. new orders contracting. down at 1.371% is where we stand. ten year spanish yields still

below 6.3%. we also hit fresh record lows for gilt yields. currently at 1.771%. uk gdp was reviewed down. sterling further down against the dollar. euro sterling still above the 80 mark. dollar up pretty much across the board. aussie dollar weighted done by the china data. dollar-yen pretty steady. euro-dollar trading at 125.60. we did get down to 125.15. as far as commodities are concerned, they were looking at the hsbc china pmi this morning. factory growth again contracting for the seventh straight month. hsbc preliminary data dipping to

48.7. the drop mashing fresh fears of a hard landing in the world's second biggest economy, but hsbc says that's avoidable if beijing takes more aggressive easing measures. nymex ticking a little mier. spot gold this morning is weaker at 1553. but copper would have been the real derivative play. it's slightly firmer today. >> let's take a quick look at what's happening in the united states. weekly jobless claims will be out at 8:30 a.m. eastern, forecast to hold steady at 370,000. still uncomfort blbl high. at 10:00, the fdic will release it quarterly report on u.s. bank earnings.

we'll get numbers from of a the close. >> and on which the first month of a quarter you see this weird seasonal pattern of weakness. couple that with the surprising drop in aircraft orders at boeing and we could see volatile reports. >> the headline this morning in the ft which is the death of equiti equities, he said last time we headlined that was business week in 1979. >> and we know what happened then. >> started a 20 year bull run. so let's get j.j. burns in. j.j., it they should have written the head lifrn back in 2000. we've had a 2we68 year bear market. maybe the wrong time to write it that.

>> i think where i'm sitting, the average equity holder in the united states has a dividend yield of about 1.9% versus bonds of 1.78. so with the baby boomer population, people are commanding higher returns. so why should they look at a yield of stocks at 1.9 versus 1.78 or so in bonds. and i can answer the question and that is because stocks may grow. but the reality is from the year 2000 debacle, from what's happened in 2008, people are not looking at it that way. people are looking at it what can i do to get by. and i think this is permeating the economy globally. you mentioned the article. has less than 10% in equities. which plays really well into our portfolio managing strategy. we have probably less than 25%, 30% in equities globally.

>> i wonder having the pendulum swung during the boon with so much liquidity potentially going to too far, have we pulled back too far it in the other direction? is it now too hard it for companies to find capital they need? >> especially when regulators are doing very the to nothing to help regulate what's going on. look at what's happening on your end in the eurozone. 18 meetings have happened for eurozone leaders. and really what do we have to show for it? very little. now we're looking to the june 17th to see if greece will come out, hopefully not the self-fulfilling prophecy happening. greece is ligt the fuse for the bomb for the rest of the world.

and very little regulation is going. could . >> j.j., you it talk about returns in bond markets. 30 year money 1.97%. good and we have 20 days to solve our problems in the country for the fiscal cliff to happen. one big point, i think the can will be kicked down the road until march anden investors in the states will not now what's going to happen until congress decides they'll have their own bomb go off before they do some level of reform. >> all right. good to have you on today. and still to come, deutsche confirming 2015 of at least 1 billion. reaffirming their star gets this morning.

coming up, i've been speak xg speaking exclusively to the ceo. and in a note sent to clientses, cd group sees the new greek currency dropping by 60% against the euro and probability of that happening between 50% and 75%. and this will comes after heads of state meetings in brussels urged greece to stay in the eurozone. reports suggest it that putting in place contingency plans for possible epic, topic of euro bonds also a key sticking point. >> translator: treaties don't plan for any country being libel for another's debts. we think this it applieses to euro bonds, as well. i also do in the believe they are measured to strengthen growth as the very similar interest rates that we had for many years led to serious misjudged development. >> we're not here to fight. we need to tell one another what we're thinking. we need to decide on the right tools, the right initiatives, and the right steps to be taken

to boost growth. euro bonds play a part in this and we'll make a decision at the end of june. but for the time time, it's vital that he we can speak our minds to one another. >> euro bonds make sense when you have a sort of fiscal union. otherwise they don't make sense. it's the first step towards a fiscal union. >> silvia has more. how alone is the german leader on this? >> well, is she. we heard mario draghi saying it's not the right time. the austrian, the spaniards saying it's not the right time. it's also a little bit -- always saying angela merkel is getting more isolated. i'm not so sure.

it's the old story of euro bonds yes somewhere down the road, with but we can't just addition o dish out money without having any control over how the various countries are spending their money it that make up the euro bond zone as it were. so that will remain the sticking point. i think we might have a back door into euro type bonds. we might see more of that that we have essentially eu bond or eurozone bonds. but only sort of pinned to specific projects. so we might get that through the back door like we got qe through the back door with the ecb's lt are ro. but i think the market is on the wrong track here. >> so germany would support

under what circumstances? >> the project bonds have already been approved. it's just at the moment, they make up a very small amount for financing. we're talking about a billion, a few hundred million here and a few hundred million there. but it that of course could be beefed up. so i'd say watch out for the volumes on the euro project bonds and see how that develops. and that could be a way of helping finance for example growth and infrastructure projects in countries like greece and spain and portugal that makes a lot more sense at this stage because you keep a certain amount of control over where it's going. >> thank you, silvia. >> only thing they agreed on is we want greece to it stay, but if they can't fulfill the terms, we're prepared for them to leave.

is this a big game of bluff from europeans and sgregreek sociali who are saying we won't deliver on the plans? >> i'm not sure if it's a big game of bluff. i'm not sure about if i can be -- have enough to comment on that. but what i will say is it's interesting that there is policies that greece has. and i understand the rest of the world wants to help support that. but what are those policies to create jobs and gdp growth it in greece that can be sustainable. when greece can't seem to pull it together themselves. it's one thing to have support for greece, but i'm not sure whether degrees has the support in its own country to make that happen about about and that's the trickiness of what's happening right now.

>> if you want to join the conversation, get in touch with us. you can e-mail at worldwide@cnbc.com, @cnbcwex. @kelly_evans or @rosswestgate. >> having comments saying how awesome kelly is. i degree. we'll hear from the deutsche ceo and why he thinks a greek exit won't impact his business in europe.

good morning. if you're watching, these are your headlines. eurozone pmi hit the lowest level in three years as business activity continues to contract in france and germany. >> flash pm chlt showed china fact toirs stall in may. >> and hewlett-packard set to cut 27,000 jobs after second quarter profit fell more than 30%. >> meanwhile dhl confirmed its outlook for the medium term. telling investors it will deliver up to 3.5 billion euros by 2015. this after the owner posted a 64% jump in net profit in first quarter thanks to strong business this asia and the sale

of post bank. shares trading higher at the moment. and this morning i caught up with the ceo and asked him if the economic slowdown was indeed impacting his business or not. >> we have not seen any reslowing of the economy. i believe we will see global gdp growth and we recently confirmed our targets for this year. but we confirmed today, as well, long term outlook until 2015. today we said we want to deliver by 2015 about about #.25 billion euro.

and that's a clear number target which hopefully convinces investors that we're on a healthy path to grow our profits and operations every year. >> fedex has lowered its forecasts because of what it's described as tepid growth. what's your assessment of the u.s. economy right now? >> if we're all bullish, then i would be concerned. if we get more and more bearish, then it will not get much worse. inventory levels are relatively low. and if inventory levels are relatively low, companies don't overproduce. so the situation is very different from 2008. >> and we heard from peter lynch suggesting that the impact of a greek exit would be underplayed. and i asked how he thought that might impact his business in the

eurozone. >> i think it will not have too much. because at the moment, we live in times where probably everybody has maximum uncertainty and maximum uncertainty is not good for business anyway. so the impact on business will be limited. certainty is better than uncertainty. so i'm in the too pessimistic that anything massively will have impact on -- there will be a massive impact on the economy globally. >> will german business leaders be happy to see development of a federal europe? >> i can't say that for german business. i can say for myself, yes r, i' convinced very with so go more in a staft europe situation. we have to do that because it that's the only chance how europe can compete on a global scale. and we have to see as well what

the european union brought to europe. we have almost 70 years peace which is something we hadn't had for centuries. so this is much more worth than talking about shall loan which was are not paid or have to be cut. we need clear steps to federal union of states it in europe. >>dy also ask about whether we would see now a lot more wage increases in germany. and he said, yeah, fine, and they'll pay more wages because you have to understand there have been no wage rises at all. so the wage rises they're getting now is because there has been massive wage suppression for a decade. >> but a lot of places that have wage suppression aren't getting a 4% raise now. >> he says we need to let them share in the profits about.

>> that's refreshing. >> china's factory growth contracted for the seventh straight month. the drop spashing fresh fears of a hand landing. j.j. burns is with us now. china does seem to be moving toward more reforms to encourage growth. do you think the next major investment companies comes out of china? >> i think it could very well happen. china is looking back to the model that the united states had in the 1970s where otc came into existence, looking at the junk bond area amend when you look at the regulations that america has

h had, we might be able to get the melting pot of america and take what they have and make it far better. so what china is doing is they're looking to pull in regulation to be able to have a goldman sachs like company come into existence. this is going forward in china. >> all right, j.j. appreciate it that. still to come, the u.s. has a new economic indicator, toe to toe with the ism. plus as we go to the break, ahead of the tape in europe, pretty even on our heat map at the moment. advances just about outpacing dehe kleiners.

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>> and europe bounced back from lows we had an hour ago. >> goldman sachs holding its annual meeting in new jersey. protesters are expected to show up outside the gathering. three major proxy issues on the agenda. >> and fitch says u.s. banks will be challenged in the second quarter. concerns about europe's debt crisis, jpmorgan's trade loss have magnified the overall certainty and current ratings reflect the volatility, although it did cut jpmorgan by one notch. >> and we want to get to j.j. burns. we're seeing some rebound of shares, but what does it take to

get you if to u.s. financials? >> a whole lot more than what's going on now. i know we look at the volcker rule and in america we have either the overregulation or underregulation. so we take a loat the look it ak of regulation and although the volcker rule and other areas of dodd-frank come it in, sometimes the levels of proprietary trading may be too much of a harbinger of negativity for them to operate in. we're cautious on equities, period. we don't see the level of growth over the next three to five year period. longer term, i'm an optimistic

bull. and for those who don't look at the market from the 1900s to 2012 on that equities did better than inflation, to the average guy on the street, you can't look at a figure from what the market disin the last 100 year period. he's only concerned about the 10 or 20 year period and he's made absolutely no money. so unless meaningful reform comes in where it can show the guy on the street that things are going in a way that we're limiting trading and where a derivative can be leveraged to 99% or 70 o% or 80%, that's not going to be conducive for me to enter equities especially in the financial markets to any meaningful extent. >> all right, j.j. burns.

appreciate it. thanks. still to come, the compiler of european and china pmi market is now planning to go toe to toe by launching it open iwn index.

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manufacturing and service activity contracts while business sentiment falls more than expected pushing the euro to fresh lows. and leaders in brussels stand firm on greece, but fail to agree on a common agenda. >> and china factories stall. shanghai stocks slump further on worries about which i can weakness. >> and hp set to cut 27,000 jobs after second quarter profit falls more than 30%. >> let's take take quick look at u.s. futures. the moment, we're green.

but that could change while i'm talking. the dow jones would be opening up about 4 points higher, the nasdaq roughly flat, maybe a little bit higher. and the s&p 500 just barely pointed to the up side as we continue to digest growth headlines, data headlines, and future of the euro headlines coming from the region this morning. take a closer look at the ftse cnbc global 300, we've moved up about 0.2% on the day. we were up earlier than that but gave some of that back as data surprised to the down side. a closer look now across european bourses. ftse 100 up despite the fact that gdp figures confirm the region is in recession. cac 40 up 0.7% and ibex up almost 0.8%. >> this is after data out from

the private sector. the eurozone services and industrial sectors contracted again in may. the flash composite pmi down to the loes levels since june 2009. the index 45.9. germany weighing on the figures. manufacturing pmi saw the fastest contraction in three years. new orders down the 11th month running at 43.6. wes also had pm will i figures out of china, factory growth contracted. the data compiled sparking fresh fears of a hard landing. >> the u.s. is getting a new economic indicator. its first ever set of manufacturing pmi figures for the u.s. today the flash results are due at 8:58 eastern time. so what is the importance of this new data set and what exactly does it measure? chris williamson joins us.

good morning to you. what should investors know about your series and how it compares with the official u.s. pmi gauge that will be out in about a week's time? >> this is the equivalent measure of what we've seen this morning coming out of the eurozone and china. so market compiles those data indexes so we use the same methodology across all countries that we're working in, which is over 25 countries now. and we have a good track record. we've been doing this for 20 years. and around five years ago, we started looking at global sector data and we needed u.s. data. so we started building a panel of companies in the u.s. and we realize that those data were showing a really good indication of national trends, as well. so the time has come really to bring those day around and to publish them because we think

they're acting as a really good guide to indicators durable goods orders, production numbers, as well as payroll numbers and price pressures. we're not positioning head to head against the ism. surveys will always have some divergence in them. obviously analysts will be looking at is this some sort of heads up to what the ism numbers will be, but these are different panels, different companies. so there will be some areas. the key thing is what we're trying to get here is a really fast very accurate indication of what those official data in terms of production payrolls will be. >> and you actually have as you mentioned about five years of data going back now. how tight is the correlation between what you find and what the pms -- i'm sorry, pmi reports on a monthly basis? >> the correlations are very high. after all, we wouldn't be bringing to the market if we weren't really, really confident

that the numbers were performing well. obviously the period we're looking at here includes the steep downturn which flatters correlations, but when you look at correlations against things like production number and other surveys, correlations of over 90%. so very high correlation, very good indicators. >> it's a little difficult, but we've seen the pmis today out of china contracting seventh month in a row. 11 month of falling new orders in germany and weaker than expected out of the eurozone. so what is the global -- is the global picture still getting worse here? where do you think we're going over the summer? >> well, so we'll have 50% of global manufacturing output covered when the u.s. numbers come out in terms of what the indication is in may. so far to april and looking at

the wide variety of sources data, not just our own, is that the u.s. if anything has been some bright spot in an otherwise really quite lackluster global picture. we got the eurozone obviously the epicenter of the weakness, now seeing a down turn. strongest for three years. nothing like the pace of downturn that we saw in 2008, 2009. but it's moving in that direction. and that's the worry policymakers really need to come up with something to address that. china, there's mixed pictures there. a lot of people looking at the headline pmi number, but the headline pmi number is comprised of different indexes. the output stabilized. new orders fell. so mixed message, but overall what you're seeing is it they have arrested the rate of decline there. we may see more policy action

coming. so it's not all doom and gloom. there are signs of a floor in china. >> and you want to give us a hunt? >> i'd love to, but we have it all under wraps. >> winnow. we appreciate your time. 8:58 a.m. eastern time. we'll have to wait and see over time what the correlation is with the quote/unquote official data. >> and chris said we're not trying to go toe to toe with them, but they kind of will. >> chris, thank you so much. and a quick look at today's other top stories. shares of indian oil companies are surging after the go said yes to an 11.5% gasoline price hike. >> and energy stocks did very well in india today. also -- >> consumer stocks. people are saying are you

kidding me? now we have to pay almost 12% more for gasoline? >> and the latest data shows mortgage lending in spain has dropped a staggering 46.5% year on year in march. if you think that's bad, though -- >> should have seen february's figures. lenders pull back across that region. hewlett-packard second quarter profits fell 31% as revenues declined. still those results did beat forecasts and hp said it's also cutting 8% of it workforce. and that translates in to about 27,000 jobs. >> the big casualty is the controversial over them buying autonomy. and they said it wasn't the market, wasn't the product. >> you have to wonder if investors will get more concerned going forward. >> and russian president putin has announce that had he's canceling planned privatizations in the energy sector. declaring three of russia's big

utility firms majority stakes cannot be sold in to private hands. and yesterday i asked jim o'neill about how important that privatization drive is. >> a lot of noise about big privatizations that a pal of mine in charge of that area in energy. really important to see how they do with that and whether it's successful. they have on to get on with it. >> so jim says it's really important. >> and then they say forget about it. still to come, morgan stanley made a profit of about $100 million since the stock floated last friday. of course this despite major declines in the share prices.

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weigh in on that here at "worldwide exchange." worldwide at cnbc.com. >> and what that whole debate is again driving record lows here on bond yields. you can see the two year down record low yields at the moment 0.33%. we hit fresh record low yield for the ten year bund this morning, 1.366%, just above it at 1.37. but 30 year money return at 1.932%. so how do those bund yields compare with other benchmark bonds around the world? guilts not far off their record lows. they hit fresh record lows. we got down to 1.742 this morning. gilts just above that, jjb ten

year.87. people always make comparisons. ten year treasuries not on the record low, but not if a far away. so what about some the comments we've had today? here are some views expressed. >> we have risks ahead, greek elections, referendums. >> the sectors that we favor would include for example banks which is trading at about section times pe and still mid teens earnings growth. we also like some of the domestic cyclicals.

>> we see a proceed jokes report this is the year of the u.s. dollar. business activity continues to contract in france and germany. hsbc's flash pmi shows china's factories meanwhile stalling for the september consecutive month in may. and hp set to cut 27,000 jobs after second quarter profit falls more than 30%. >> it wouldn't be rice if we didn't have a facebook who are beg underwriters made more than $100 million since trading last friday. the banks made the majority on monday where they bought the shares below the ipo price. the stock exchange is denying

reports that it has reached out to facebook about a possible stock listing after the botched ipo on nasdaq. facebook considering its options, but won't comment. facebook up finally 3.2% on wednesday. >> that's right. and night capital says it may incur a $35 million second quarter loss due to nasdaq technical glitches. the market maker says it's seeking compensation and may pursue action, no surprise. the ceo blames the full blame on nasdaq. >> for 2 1/2 hours, we didn't hear a thing. we were trading blind for 2 1/2 hours. retail, institutional, everything. and then we get the reports there were millions of shares unmatched. we thought we were short. we were long. >> you you can hear his concern this. and look at night capital shares trading up about 1.5% this morning. again, following some of the financials higher across the

board. still time will tell how those shake out over the next couple of days. >> extraordinary to think you're short and not to know where you're at. >> he was not happy. and still to come on the show, if not the latest goings on in europe, what will drive u.s. trading today? investors may be focused on the latest snapshot of unemployment. th s a weekly jobless claims are due. and she's looking directly at your new lumia, thank you at&t. first, why don't you show her the curved edge... now move on to the slick navigation tiles -- bam, right into the people hub. see megan, colin has lots of friends. hey, colin, what kind of phone is that? whaaa -- oh megan -- when did you get here? [ clears throat ] ohh yea no, let's... [ male announcer ] introducing the beautifully different nokia lumia 900. only from at&t. rethink possible.

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citigroup expects greece to leave the eurozone on january 1st in 2013 if they do exit. the probability, though, of an exit at between 50% and 75%.

citigroup has issued a clarification stressing that the analysts see a higher chance of greece seeing the eurozone in the next two years and examined what would happen if greece were to depart. >> it's confusing. we have the note right here. and what the economists basically do is say on page four here we assume a greece exit occurs on january 1, 2013. but this is an assumption in their forecasts for what may happen so they can go throughout currencies. >> they're not saying they will leave the euro, but assuming that they do leave, which is this 50% to 75% chance, those are one of the dates on which it might happen. >> or let's take this as an

assumption. here's what it would mean. so a little confusing. take a look at what's happening across markets. and we want to bring in david lutz from baltimore. you suggest that 1.20 could be the next stop on the euro. >> absolutely. thanks for having me this morning. yeah, euro could absolutely be heading to 1.20 because more importantly than greece exiting, these guys will need to recapitalize their banks. that's the key thing. everybody's guessing whether greece will leave and i'll tell you, the market will be pretty darn happy if they make it to january. but i think more and more firms are starting to draw contingency plans. what do they do if greek bolts in the next month or two. that will leave a lot of confusion on the streets. >> what happen ps s if we have messy compromise? >> the market wants transparency. and a messy compromise that has some structure to it, the market will initially react poorly, but

i think afterwards it will probably start giving us a pretty decent rally. but if it is not a structured leave, we could see contagion and a solid bear market on our hands for a little period of time and end up closer to 1200 in the s&p. >> how much of is concern is the stronger dollar in the u.s.? do you think it will prompt a response from the federal reserve? >> yeah, i think they're going to have to. i keep looking at qe as a relative relationship to where the dollar is. we're getting more and more competitive strength because of the dollar weakness. if it gets too strong, it will put pressure on us to stay competitive with our trading partners and we could definitely have qe. is that going to hit the dollar? i don't necessarily think so because the eu and ecb and b ocht oe and swiss national bank are all cutting pretty quick. so the u.s. has room to move.oe

and swiss national bank are all cutting pretty quick. so the u.s. has room to move.oe and swiss national bank are all cutting pretty quick. so the u.s. has room to move. >> how do we trade jobless and durable goods today? >> i think we'll have some level of reflation in the market. i put out a note to clients calling it a dead cat bounce. we have german 30s trading at 1.92. u.s. 30s coming in pretty sharply. a lot of the move that we have late in the day yesterday was because we're getting chatter that there was going to be some deposit guarantees. i haven't seen anything concrete coming out of the eu finance minister meeting. i don't think the market will be happy about that. but at some point in time, if it starts getting too bad as far as the economic data is concerned, then we could start seeing a qe trade and we could have a bounce. but one thing that's important to remember, we vhave the russel rebalancing here in the states tomorrow. it will skew a lot of stocks.

>> david, thank you very much. that's it for today's worldwide can changexchange.

good morning. topping the today day's headlines, a boat load of economic day it out of europe