hello. welcome to today's edition of "worldwide exchange." i'm ross westgate. >> these are the headlines from around the world. >> spanish prime minister says he'll push eu leaders to help stabilize financial markets at thursday's summit. debate over euro bonds. merkel says she won't approve for the ideas, quote, as long as i live. deal under threat. two weeks before shareholders vote to the deal. one california town has run out of options and set to final for one of the biggest municipal bankruptcies in u.s. history.

welcome to today's program. one hour into prading session in europe. one to the upside. 7 to 2 on the dow jones 600, 8 to 2. follows a flat session in europe yesterday. ftse was down three points. did make it four consecutive days of losses. we're up under 0.5%. the cac up nearly 0.4%. the ibex up a third of 1%. marianna coming out and saying not only are funding costs getting unsustainable in the long term but working on solution-preferred stockholders and seeking solution for retailers with preferred stocks as well, as far as the banking industry is concerned.

the key point is, spanish bond yield have been heading higher where we've been up 6.83%. gilt, euro is higher, 6.9 %. tamm bonds, 1.6%. five-year tomorrow, that will be a big test tomorrow. bund yield, 5.53%. ratings agency coming out last night and downgrading germany one notch. they say regardless of what happens to the eurozone, germany will be left with massive additional uncollectible receivables. we've got unusual solutions with spanish yields higher with bund yields and gilt. we bounced off the 1.2441 just under the 1.25 mark. dollar/yen moved away from the

high and now 7 .60. asset markets close to where we were this time yesterday with the exception of spanish bond yields which are gone higher. let's take a look at what happened in asia with traecy out of singapore. >> that's right. good morning to you. markets in the region recovered a bit today. congress hong shares outpace. ed indices to rise more than 1%, helped by glittering earnings. hoping for policy moves ahead of the 15th anniversary of hong kong as return to china. composite couldn't hold onto gains, market jitters ahead of the eu summit and nikkei broke a three-day losing run of expectations. korea kospi ended flat with

bellwether samsung outpacing the broader market. sensex clawed back the previous day's losses. lastly, just a quit look at sensex, up 0.6%. thank you very much for that. plenty more to go on today. the phrase, over my dead body or not in my lifetime? >> it was not while i'm alive. wait, let me look it up. >> right. but we -- >> yeah, yeah. the implication being, you'll are to do something about merkel if you want euro bonds. >> i'm going to use that phrase. any time we do something we don't like, not in my lifetime. we'll head to london hq, not in my lifetime -- no, we will and speak to the bank cfo. >> we hone in on china's ipo market as the biggest listing at

more than $500 million but can the momentum continue. spanish auctions are expected, $8 billion of short-term debt. we'll tell you how much they have to pay investors as a result of that action around italy, isn't it? >> it is. plus, the biggest u.s. city to file for bankruptcy in the country's history, perhaps. what impact will chapter 11 filing of stockton, california, have on the muni bonds market? we'll head to the u.s. at 5:30 eastern to discuss. first of all, spanish prime minister has told parliament he will ask eu leaders to stabilize the euro summit ands they cannot continue on a long-term basis they come as eurozone finance ministers to hold a summit in cyprus this afternoon. this is what we were talking about, no euro bonds as long as i live, the vow from angela merkel. she made the comment to parliamentarians from her coalition departments in a closed door meeting in berlin.

she'll met with francois hollande this evening in an attempt to forge an alliance ahead of the summit. despite merkel's long stance against issue, and van rompuy includes his vision of you roar bonds. >> let me tell you fiscal union is more than just about euro bonds or stability bonds. it also means, more coordination of taxation policy and much stronger policy to budget matters, at national and european level. >> joining us this morning is gina sanchez, director of global economics. thank you for joining us. i'm wondering, actually, the so little optimism ahead of this summit. whether, in fact, it's worth being along just in the case -- the risks are now for a positive

surprise, aren't they? >> i suppose you're right. there's definitely been a lot of negative baked into the market coming into this summit, more so than usual. usually it's the opposite. that isn't holding true this time around. we think this is an interesting time right now generally because we're reaching what we think is an important inflexion point where policymakers are very close to running out of real credible solutions. right now we're not seeing angela merkel budge in terms of the kind of solution that would cause a big rally. i think you could see a relief rally but i don't think it will be anything meaningful. >> normally, this meeting today between -- ahead of every eu summit, normally merkel and sarkozy would agree what would happen beforehand, because the eu is germany and france and everybody else would go along

with it. what's worrying investors is they seem a long way apart. >> they are. they don't just seem a long way apart. in fact, hollande has more power, having the support of the parliamentary elections. that sets up a real divide i'm not sure the eurozone can handle at a time when we need coordinated policy response. >> does the comment -- or the commentary we've seen from monti in italy also add potentially to hollande's negotiating position and i wonder with spain and italy lining up on the french side f you want to describe it as that -- >> let's call it the growth side. the need for growth. >> how difficult does that make it for merkel? how much leverage ultimately will she have? >> she has quite a bit of leverage as well. germany is one country that still has strength in growth. she's becoming more and more isolated. you can see that in the

positioning and commentary and i think it really is going to make it very difficult for her to kind of stronghold something. there are certainly measures they can do. some will probably be too little. really, at the end of the day what you need to do is figure out how to create a physical transfer union whether by stealth or outwardly. i think probably is a stealth maneuver might be what ends up happening. but the problem that we see is likely you have to face a fairly serious crisis in order to sort of cause that kind of coordination. >> well, jpmorgan is saying they liken this to the meetings that took place in the late 1980s before '81 and it wasn't until 2001 we got the euro. the time frame here seems to be quite a bit longer than people had hoped or expected a couple of months or years ago. what does that mean for investors? how do you position for this if this could be going on for years and years before there's really a fiscal union in place? >> well, i mean, i think that the problem you have to face is

that these are real structural problems and solvency problems you have to solve. if you can't come up with a coordinated policy response in a short period of time, some of those solvency problems are going to take precedence. you know, we think that that comes into -- that really comes to the fore in the next year. we think 2013 could be a very pivotal year. certainly 2013, 2014 could be really pivotal year where policymakers run out of policy options or can't get it together and the problem starts to really overwhelm them. >> this comes actually -- unable to refinance on a long-term basis. the question is, is how long do they have? what out there is going to bring yields back down to affordable? >> well, the problem is, so how long do they have is we're expecting, for example, that going to greece, that the unrest

in greece is going to cause a greek exit probably in early 2013. we'll probably see the government that is formed break down, collapse in one form or another because of social unrest and eventually greece will start to consider an exit. i think that is going to cause the spain and italy issue to come to the fore more quickly than you might otherwise have if you calculate out today, how much reserves do they have, et cetera. i think that problem becomes quite a bit bigger in items of a greek exit. depends on how that exit is managed. we actually think that exit is coming. >> greece being a much smaller country, cyprus, some peripheral nations easier to support with the bailout funds than a spain or italy which would require a much bigger response or much more firepower in place. >> absolutely. we totally agree. we think spain is a problem and italy is almost unsolvable with the resources that they have today. >> gina will stay with us. we'll have more on that in a bit. the head of hungary is more

optimistic than most on the prospects of his country in eurozone despite hungary being the most indebted. i asked him how sustainable he believes the country's yield levels really are? gli don't think it's getting worse. even if you -- >> it could get worse. many people believe a greece exit is only delayed and it will come perhaps in the first part of next year. >> but it's not hungary. we don't -- hungary has currency in europe. >> it's not about direct exposure to greek. it's what a greek exit does to confidence for international investors of central and eastern european debt. >> well, if that's going to happen, then the whole world is going to happen pipts not just a hungary country. we're a small country. we can eat, we can drink, we'll survive, actually.

>> okay. we've also seen the central bank today keep rates steady at 7%. many believe that will be the rate for most of the rest of the year. is it more important to do that, to keep the foreign strong than it is to cut rates to help the economy? >> it's obviously a more complex issue. if you use a economic policy, then you either define the exchange rate you would like or interest rate you would like to have it. at the moment, it's very difficult to what you like to be ideal for hungary so we try to balance it. obviously, it's a little bit stronger foreign exchange would be nicer. and if allow -- at the moment we have to leave it.

>> happy birthday, atari. the 40th anniversary of the computer game brand. do you think any of the more recent games like words with friend or farmville are as addictive or space invaders or pong. join the conversation on wou u "worldwide exchange." e-mail us at worldwide @cnbc.com or tweet us @cnbcwex. >> happy memorandums of atari games when i was at school. just having a flash back there. we'll take a short break. after that we'll hear from the cfo of standard chattered as they struggle with weak local currencies. [ male announcer ] this is the at&t network. a living, breathing intelligence helping business, do more business.

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welcome back to the program. we've been following the bankruptcy this morning, potential filing of bankruptcy by stockton, california. of course, that happening in the u.s. but europe continuing to drive much of the rest of the news this morning. gina sanchez from roubini global economics is still with us. as we look beyond europe to the rest of the world, and some of

the growth problems we're having, i wonder if we're overlooking slowing in brazil, china and the degree to which that complicates efforts to get growth back in the eurozone. >> yes, although i would say there's a little more reverb rags from the eurozone to china and that's part of what's causing that problem because china is so export-driven. that does certainly -- you see that in the headlines. what you don't see in the headlines is the slowing of the rest of the yen as well. folks have very kernconcerned a china, but you're right they should be more concerned about the general cooling of the rest of emerging markets. they've gone from a v-shaped rove and now paring that back. not a recession just slowing. we're in a general slowing environment all around the world, where growth is becoming more and more scarce. >> what would you pin that down to? eurozone or the u.s. more? and they haven't been able to develop their own domestic

markets fast enough. >> it's a combination. i think in the case of china, it's that they clearly have not developed their domestic market fast enough. brazil is a different story. they have actually developed a fairly robust domestic market. so, i think that that certainly continues. however, you know, brazil still trades with china with respect to commodities. to the extent commodities falls off, we've held the view that latin america is probably the best place to hide because southeast asia is so connected to china through trade. obviously, emerging europe is so connected to europe through both trade and finance channels. that leaves you with latin america as your best option -- >> excluding argentina. >> yes. let's continue the asian them. standard charter says it sees

slowing in the first quarter of the year because of asia weakening. joining us is cfo from stand ard charter. very good to speak to you this morning. you've said this morning you're comfortable with the analyst's consensus forecast for 2012. >> yeah. >> but with the slowdown we're seeing at the moment, how would you characterize what's happening? >> i think there is some slowdown evident in global trade. i think intra-asian trade is more resilient to a slighter slowdown there. in spite of that standard charter continues to take good market share gains in that area of business. i think the eurozone is having an impact on investor appetite for equities globally so we saw that causing some slowdown in our wealth management. elsewhere in our group we saw very strong levels of income performance in other business units that more than counteracted that. >> it was interesting to read you did seem to see a slowing in

mortgage demand across asia. >> yes. i think part of that has been very good intervention by the regulatory authorities and governments who have been looking essentially to detune, i think, what they were seeing as growing property price pressures, so they've intervened in terms of changing things like loan to value ratios across a number of markets to cool down the rate of price growth and also demand. >> we've seen a lot of sort of interesting policy out of india. some call it policy mistakes out of india right now. this used to be your biggest market. what's your own view of what they need to do to turn things around in india? >> i think there needs to be a much more business-friendly and growth-friendly set of policies coming through india. i think there's very low confidence amongst many leading business groups as to domestic political agenda. clearly there is a relatively subborn inflation rates and that

limits policy action to some degree. fundamentally it's a world of political conflict with business around some of the ways of the business is run causing a high perception of political risk and a reduced appetite for investment in the domestic economy of india. standard charter's business is a size yabl offshore business, which has been immune to those pressures and where we've seen good double-digit growth in our indian business overseas. >> richard, the strong dollar has been a headwind for you guys. are you going to try to hedge more of that exposure? do you continue that to be a drag this year? >> it looks like it continues to be a drag this year. it reduced our xincome by over % in the first half and it was the dollar/indian rupee currency pair that caused that pressure. we don't hedge on our exposures, we tend to be balanced across our businesses. actually, our assets and income

are balanced on a geographic basis. the only hedges we do head off cost in singapore and the uk. it's not something we would seek to hedge. we think we have a natural hedge in the shape of our business. >> hi, this is gina sanchez from roubini. >> hi. >> there is quite a bit of expectation for chinese stimulus. first of all, do you think there will be more stimulus? >> i think what we're seen from chinese authorities is cogent response and we've seen that throw lower rate environment and liquidity reserves, therefore, credit capacity into their banking market. the interesting thing about china is they have a depth of financial reserves that they can deploy. and their policy tool kit remains very full. it's a very different picture

from that xh we see in the west. our expectation is that they will continue to deploy that tool kit well and that it will manage essentially a soft landing and certainly not a hard landing in china. >> richard, we've seen commerce bank exiting shipping line business. what lines of business are you seeing most impacted either by capital changes or trouble in europe or do you see opportunities as others pull back? >> we're certainly seeing significant opportunities. there were competitive pressures, higher competitive pressures in our first quarter this year. i think as some of the european banks were more resilient in that competitive stance because of the ltro. the benefit of that is favored and we are seeing, i think, partly for regulatory reasons as to capital and partly for dollar funding pressures where european banks are more constrained in dollar funding capacity. we're seeing a reduced competitive pressure from the european banking sector into our

markets. standard charter has very good dollar funding and is continuing to see very strong market share gains in many of our business units across asia, middle east, and we are an extremely strong capitalized bank with very good liquidity levels so well placed to grow our lending and financial support for our customers. >> richard, do you see a period of weakening sentiment we have at the moment as an opportunity to invest for when things get better? you're painting yourself as a strong guy. what strong guys do when things are weakest they put money into the pot. >> well, we are accelerating investment. i think that the financial strategy of standard chatter has been to produce very strong income growth. to manage our expense growth tightly. and then to invest surplus capacity from excess income growth over cost growth in building out the business gathering infrastructure standard chatter in the growth markets of the world, in asia,

africa, middle east. if we invest organically and grant systems and atms and sales forces and relationship managers we'll have a bigger business growth strategy in those growth markets. we've said for the second time this year, we said in may we would do it, we just said again today we would do it, we're accelerating our investment spend this year to build out much better underpin to our income momentum forward years. >> thanks for joining us. richard meddings at standard charter. extraordinary, they were so long a perennial take joef target and nobody is talking about that anymore. for a decade everybody said standard chatter would be taken over. nobody says that anymore. talking about takeover, reported surprise adventure by sovereign wealth fund could force both sides to delay

shareholder meetings. qatar would need over 16.5% of remaining shareholders to back the motion in order for the existing deals. it calls for retention packages at both firms which includes 30 million pounds for xstrata. >> many shareholders share that view. still to come on the show, we're live in madrid where mariano ra highway says he'll ask for eu officials to stabilize markets at thursday's summit. [singing] hoveround takes me where i wanna go... where will it send me... one call to hoveround and you'll be singing too! pick up the phone and call hoveround, the premier power chair. hoveround makes it easier than any other power chair. hoveround is more maneuverable to get you through the tightest doors and hallways. more reliable. hoveround employees build your chair, deliver your

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here are here are the business headlines from around the world. spanish prime minister says the country cannot fund itself with current yields for much longer and insist he'll push eu leaders to stabilize financial markets at this week's summit. debate over euro bonds continues. merkel says she won't approve the idea for, quote, as long as i live. and deal under threat. qatar demand glenn core improve term of the takeover two week before shareholders vote on the deal. one california city has run out of options and is set to file today for one of the largest municipal bankruptcies in u.s. history.

a little data out of the uk. mortgage approvals for home purchase, 30.28 in may versus 32 in april, the lowest 2011, contracting 3.4% according to the bba. down 73 million pound in may versus 563 million in april. that's the lowest, the lowest on record net mortgage lending. gina is with us. let's get your view on that. the bank of england is trying to now loosen capital controls on banks. they're trying to put money into the economy. i suppose these sort of figures suggest why they might want to

do that. >> absolutely. i mean, i think that the uk has certainly taken fairly austere approach and has now faced the double-dip recession that comes with that. and so, you know, as long as they're not generating inflation, which it doesn't seem to be the case -- >> well, we've had lots of inflation. well over 5% for quite some time. >> it is coming down. but, you know, these are interesting times because i think that loosening policy is probably the thing to do in absence of growth. there is just simply a lack of growth all around the world and in the uk. >> on the supply side and qe isn't going to do anything, is it? >> no, qe does not matter that much. unless you're a bank that just needs to continue business as usual and not suffer from a cash crunch. but it doesn't actually solve any of the structural problems. >> i wonder whether they should just actually throw off all new regulations on banks.

>> brought to you by the bankers association of -- >> no, no. but i mean, in a sense, we spent so much time trying to prevent the next cries that we're not -- we need to deal with the crisis we're currently in. >> let me mention, what has basically happened the first net mortgage repayment since records began in 1997. isn't that surprising -- i can hear richard saying, isn't that surprising after overleveraging themselves households are in a net repayment mode and in that case, ross this is what you're saying, should any policy initiative be directed as trying to prevent that from happening or should we be focusinging on where other sources of spending or investment come from. >> i would say it's going to be a combination of the two. obviously, you don't want to stop, you know, balance sheet repair. that is an important part of this process. but if that balance sheet repair comes too soon or too aggressively before that spending can be done, you know,

your choices are spending and saving, right? you do need to spend some and you do need to save some. that's why i'm saying it has to be both. you can't go into oversaving mode, even if that's maybe the right thing to do in the long run, it could actually cause significant -- significant cut in growth now. >> the paradox of thrift. >> absolutely. >> european stocks, why don't we just turn negative, an hour and a half in the trading day. advances being outpaced on the dow jones 600. we've gone flat. ibex just 0.25. >> spaniitaly well over 6% at 6. bund yield climb and as ross says, we're seeing this move up even on flight to safety days. 1.53%. not too surprising in the wake of that egan jones downgrade.

spanish prime minister told parliament he'll ask eu leaders to intervene to stabilize markets as he says they can't sustain themselves at high term yield on a long-term basis as they are prepared to hold a conference call on cyprus and spain this afternoon. stephen is in madrid. does he mean he wants the ecb to intervene? >> reporter: he didn't specify. he said he would like european leaders to use existing measures to stabilize the financial market. it could be a call for the ecb, or buy sovereign debt from spain to stabilize markets and he would like toy clear political market to say that the euro is here to stay, what he told congress before attending this european summit on thursday and

friday. he also says spain would support the plan for a fiscal and banking consolidation union in europe. but he believes for the time being, the most urgent issue is the financing because of the current level the situation clearly is not sustainable for the spanish government. meanwhile, because of this situation, because also the deficit was higher than expected for the central government so far this year, the budget industry is working on additional measures to reduce the public deficit in spain. it could raise taxes and consumer products on energy, on properties. spain is the european country where the vnc.a.t. has smallest griction to gdp. the v.a.t. rate in spain is 18%. plenty of products sold with lower rates, 8%, sometimes even 4%. that's the reason why the spanish budget minister is working on plan to raise the v.a.t. on a couple of products.

the question, though, it might jeopardize the economic recovery in spain and might also arm the tourism business in spain because it's planning to raise v.a.t. on hotels, restaurants also. that situation is one of the main contributor to spanish economy. don't write off the chinese ipo market just yet. a japanese pachenco parliament maker, a chinese car dealer and coal producer are among the latest to go public in hong kong. tracey has all the details. >> all three companies are gearing up to raise a total of $1.5 billion from ipos ahead of july listings. they are breathing a stock market that has seen few successful new offerings this year. in terms of fundamentals, pachenco parliament operator plans to take order from

investors from july 9th for $300 million float. and yonga auto splanz to raise $250 million after a chinese car dealer shelved the deal. lastly, chinese coal miner vitai is looking to raise $1.1 billion in trimmed down ipo. they started taking offers today. if successful will be the second largest hong kong listing this year and the first mainland b-share to trade in hong kong. although the hang seng index has risen 4% since the lowest point earlier this month, analysts say interest is caution and why china's mining priced in the low end of this range ahead of its debut on friday. >> thanks. joining us director at clse. thanks very much, frasier, for joining us.

we've seen a sort of decline in ipos. what do you make right now of sort of investor confidence? >> well, i think it's very low. you can see basically all of those deals not outright canceled have cut back or priced at the low end of the range. so, confidence is clearly low. how could it be otherwise? confidence lowly, low confidence in asia, low confidence in china so it's hardly surprising they come in at the low end. >> to what extent will this support hong kong's desire to steal business away from london, new york? >> well, i think -- you know, it's not zero sum game. there's plenty of room for everybody to benefit. hong kong sees itself as primary offshore listing or nondomestic venue for mainland companies and

they'll try to push it. the trouble at this time, timing is very bad. ultimately hong kong can buck the market. i think in the longer term it will are lots of ipos. bigger ipos coming out of china. but it's not happening. >> what i thought was fascinating the f-1 were planning a float, probably in singapore, which they decided not to proceed. they're now looking at taking it back to the united states. they seem to be saying, we're going to shun the asian investor. >> yeah, no, that seems a bit odd given the lack of success the f-1s had in the u.s. as well. that's a story been playing for a number of years where it's going to list, manu talked about listing in asia as well. look, there's obviously a lot of money here. there's a growing demand for international listings in the asian time zone. so, it's a trend that's going to continue but there's going to be hiccups along the way. one deal is not going to make or break the trend. >> to what extent do you think the trouble that's happening

across europe is impacting this market? obviously, not just from the broader sense of weak growth, but what kind of funding conditions and changes are you seeing? >> well, i think there has -- you know, investors are very much international. there's no way they have decoupled. europe is a big burden on everybody. how it's going to play out. it's going to impact the companies trying to list themselves and there's profit in their outlook and investors as well. they're going to remain extremely cautious. you cannot blame them in this environment. it's very tough out there. especially if you're looking at chinese companies, recent ipos have performed very badly and various accounting scandals that continue to plague chinese companies. investor sentiment is completely irrational. >> what's the view here of whether companies should be financing itself through equity or through debt? i mean, one would imagine equity as sort of a much better way to go than bank debt.

>> i think that's true. what's interesting, the chinese space, although a number of these ipos are failing or coming at the low end of the range, you're still seeing a big demand for bond listing and bond issue answer in main land and junk bonds being issued domestically in mainland. it's not lack of demand for capital from companies themselves. they're basically just pushing any avenue that works for them. >> fraser, could to speak to you, managing director at clsa. in india, political churn is giving new hope to much needed economic reforms. finance minister has resigned to run for the post of president, handing over his portfolio to prime minister singh for now. singh is widely considered to be the father of india's economic reforms back in the indieindies. we have more from this story in new delhi. >> thanks very much, guys. yes, it is indeed official the

prime minister singh will take charge of the finance ministry. as you pointed out, singh is credited with opening up the indian economy in 1991. that was perhaps the most difficult period for the indian economy. we had just about two weeks in terms of foreign exchange reserves and singh brought about reforms. expectations are running re high but we ought to temper those expectations because he'll have to continue to deal with political compulsions. but the prime minister as he headed back from the g-20 summit on the 23rd of june made it very, very clear that he was keen this government revert back to the fiscal consolidation. is that going to mean tough decisions when it comes to things like hiking diesel prices, pruning down social sector spending? those are going to be questions that will be answered over the next few weeks. the prime minister's also spoken about the need to give fast-track clearances, big-ticket projects.

infrastructure projects are been facing hurdles. as far as foreign investment is concerned, and perhaps that's the most positive signal investors will pay from because the prime minister making it very clear that he was keen that india attracts foreign direct investment and he had said, i'm quoting him, we will do whatever we can to do away with obstacles that come in the way of attracting fdi into india. the budget -- the last budget india presented which allows them to open up tax cases so the prime minister making it clear the country was keen to attract foreign investment. we'll see what he delivers over the next couple of weeks. back to you guys. >> thanks. normally we're out of mumbai. we've moved to new delhi. is it enough? we have more from the nikkei.

>> thank you, ross. the government's reform bill to double the sales tax by 2015 passed by lower house yesterday is now headed to the option-led upper house. approval is virtually guaranteed thanks to a deal prime minister noticed noda made with two opposition parties. it's a step to curb the massive debt but japan has a long way to go before financial debt is fully restored. the government's target calls for a primary balance surplus in fiscal 2020. yet the cabinet office estimates doubling the sales tax to 10% won't be enough. the rate would need to be at least 16% to erase the deficit on its own. the government's failure to tackle the ailing social security system is still raising fears of never-ending tax hikes. but so far efforts to curb benefits have gone nowhere. as for the tax bills, impact on economy, consumers and businesses will likely go on a spending spree ahead of the first hike in april 2014.

but with advanced purchases eating into future demand, spending is forecast to shrink post-hike pushing down the gdp by 1.8% if fiscal 2014. back to you, ross. >> thank you very much. gina sanchez is still with us as well. gina, it's interesting. you look at the japanese stock market first quarter of this year a long with the dax, one of the best performers in the world. >> right. >> i suppose if this turned around temporarily, would it outperform again? >> that outperformance was probably on the back of stimulus, because of the reconstruction post-fukushima, so i wouldn't necessarily expect that to happen again. in fact, we're underweight japanese equities currently. >> to what extent -- this is a classic political gam but. you increase sales tax. how is the effect from that spending likely to stack up against the rebuilding sxh

reconstruction effort n your view? >> it's hard to say. i mean, i think that you always have to be aware of equivalence to the extent people know taxes coming down the road. you wonder to what degree they'll save. this is i nation of savers naturally. i think there's a challenge. they've been pushing -- the japanese have been pushing on a string for some time to try to create demand or even inflation. you know, i think it's going to be a challenge. >> they won't really stop saving. bear in mind, all they save is supporting their debt market. stop people saving, then they'll have problems with their own debt. >> 200% of gdp, i would say that's going to be a problem. you have the dependency ratio going upside down in the next ten years on that's probably in the next few years. that's going to be a challenge for japan as well. i mean, our view right now on the tax cut -- or tax hike, rather, is that while we think that symbolically it's an

important move, it's certainly not going to get them all the way there. we believe 8% of gdp primary deficit still by 2015, so that's going to be still well off what they need. >> yen is still a de facto hiding place. >> it's a safe haven currency. >> kind of weird when you think about it like that. gina, is that it? i think -- >> that's it. >> good to see you. thanks for joining us from roubini global economics. meanwhile, let's take a look at what's on the agenda in asia tomorrow. japan releases retail sales for may before 2 p.m. central time. 2 a.m., that is. japanese automakers are also set to announce production and export figures for may at about 9:00 central european time. and monday goya heads to the polls for its seventh parliamentary elections. that's sure to be a market-mover. >> yeah. keep your eyes on that. also still to come, are you excited, i'm excited.

>> for what in. >> 30 days to go --. >> to the olympics. >> yeah. we can't forget about this. just a month away from the games london 2012. we'll discuss the final preparations after the break and the lessons that we've learned from london 2012 about the future of the olympics, particularly in that all-important point of legacy and trying to make money out of it. we'll be back.

welcome back to the program. here are some top stories we're following this morning. stockton, california, set to become the largest u.s. city ever to file for bankruptcy. officials voted late tuesday to adopt a new budget plan to allow the city to pay for day-to-day operations. this seen as the last step before filing for chapter 9 protection possibly today. stockton has about 300,000 residents and is said to be $700 million in debt. the city's been hurt by high retiree costs, big spending on a downtown revitalization project and falling property tax revenues resulting from the u.s. housing slump. and with just about four months until election day, president obama and mitt romney are running neck and neck. the latest nbc/wall street

journal poll has the president leading his republican lively 47% to 43% nationally. obama has a bigger margin in key swing states like pennsylvania and colorado. still, voters' sentiment issing intive overall. nearly two-thirds say the u.s. is on the wrong track. ahead of tomorrow's expected supreme court ruling on president obama's health care overhaul, 37% are in favor of the justices striking it down and 41% say the law was a bad idea. and believe it or not just a month to until the london olympic games but as organizers make finishing touches, there are questions among unpredictable weather -- that's not unpredictable at all. that's the most predictable is the weather will be bad. joining us, and retaining gina sanchez because you were a world kay yakker and a judge at last

olympics. >> in beijing. which was incredible olympics to be a part of. >> why was beijing -- i'm going to contrast -- compare beijing with london in a second. why was beijing so amazing? >> beijing was amazing because the preparations for those lips were extraordinary. when we went to the test event the year before, the infrastructure was largely built. everybody who was going to play in the olympics --. >> a year before they had a test of it. >> that's what we've done in london. all facilities were built last year. we had a test last year except budgets are slightly different. >> in bay ying the budget was neither here for their. this was a coming out party for a country not olympic games. >> london delivered the same thing with a much smaller budget. what is the legacy of london for the olympics as a movement? the vision of london i think is what is going to attract other people. the olympic movement has a slight problem. they may not admit this, but the

fact is, when england -- when london won its bid, there were some of the world's greatest cities all lining up in this ferocious competition to stage -- >> paris -- >> new york was in there, moscow was in there as well. there was massive hype around it. contrast that to a couple weeks ago in quebec where five starters were reduced to just three. we had the spectre of rome pulling out because of its own financial problems within italy. >> the next olympics there in 2020. >> right. >> the icc needs to have strong bidding fields. i think what london will do is provide an example for those cities who would like to stage the games, would like all the benefits of being the host city, which are almost immeasurable in items of the -- gli don't know if it's immeasurable. it's a highly doubted area. there's been a lot of research on the legacy of olympics. often -- i mean, look at athens. that's hardly a paradigm of

how -- >> but if you look at the physical structural legacy, you're absolutely right. athens there's tumble weed blowing through olympic park. in beijing the bird's nest are hardly used except for shows and tourism. >> what venues -- the only permanent venues left are the ones they know are going to be used. >> absolutely. they thought it through from beginning to end with one exception and it is the dmraring exception which is the stadium itself. >> because they made a promise to keep an authentic -- >> right. they started building very, very quickly as well, which may not have been the smartest thing to do. >> gina? >> i think the challenge for many olympics is really to create a cash flow positive olympics. that is a huge issue. i know certainly in los angeles, you know, we were able to create an enormous legacy fund as a result of the benefits there. and i think the challenge to the ioc is going to be to retain its corporate sponsorship,

especially in an ailing -- in an ailing global economy. i think that's the biggest challenge. what do you think? >> that's tied up with maintaining the brand of the olympic games. i mean, the ioc is being challenged all over the place but the brand of the olympics depends to a large extent the job the host city does. we remember great olympic games. this was explained to me the other day by a guy who said, the games is the product, the city is the packaging. >> let's hope the city delivers. thank you. who knew she was a world championship kayaker. we'll come back with plenty more on the eurozone debt crisis. >> yes, we will.

welcome to "worldwide exchange." if we're just tuning in, i'm kelly evans. >> i'm ross westgate. spain's prime minister says the country can't fund itself at current yields for much longer and will push eu leaders to stabilize financial markets at thursday's summit. the debate over euro bonds continues. merkel says she won't approve the idea for, quote, as long as i live. one california city has run out of options and is set to file today for one of the largest municipal bankruptcies in u.s. history. plus, an upbeat outlook from standard charter. the cfo says they're on track to meet target growth targets. >> standard charter has very good dollar funding and is continuing to see very strong

market share gains in many of our business units across asia, africa and the middle east. good morning or afternoon, depending on where you're tuning in from. let's take a look at how u.s. futures are moving ahead of the open. we can see red behind me. if you take fair value into account, it's not quite as bad as things looks, putting the dow jones higher than eight point, nasdaq up by three point and the s&p 500 just barely holding on into the green as well. the tone from global markets this morning has been a bit mixed. cnbc ftse global 300 up 0.2%. a quiet morning. not a lot moving markets and of course there's a lot of caution ahead of the summit of eu leaders. you can see what impact that's having across the stock market. ftse 100 up 0.3%, despite figures showing first repayment

of uk mortgage repayment, that is, so keep an idea to that. xetra dax up 0.15%. cac up as well, and ibex up about 0.6%. >> we did touch flat line earlier in the session. what's happening with yields? they've been going higher in spain. let's go straight to it. still 6.86%, so the yield higher this morning. what's interesting is spanish yield are going higher, so are gilt yields. over here, german bund yields, 1.53. egan-jones downgrading germany one notch and they say regardless of whatever happens to the eurozone, they're going to be left with massive additional uncollectible receivables italy is the one exception here. yield slightly lower, 6.142%.

auction of t-bills coming out in the next half hour. we'll bring you that. of course, a big auction of 5 billion five to ten-year. spanish up. dollar/yen off the one-week month high. sterling/dollar just above 1.56. what about the trading day? tracey has details for us in singapore. good morning. >> good morning once again. here in asia, stocks recover some ground but caution lingers ahead of the eu summit. hong kong outperformed most asian to close up 1% helped by glittering jeweler retailer and hoping for friendly policy moves. over in main lynn they failed to hold on to jitters ahead of the

eu summit. in japan, the nikkei ended up 0.7%, snapping a throw-day losing streak. investors snapped up construction and real estate shares on expectation of benefitting from a surge in housing demand ahead of sales tax increase in 2012. sorry, 2014. south korean's kospi flat. australia, the market also ended up 0.7% clawing back all the losses we had yesterday. just lastly, a check on india's sensex, up 0.2% as well. >> thank you for that. in my lifetime is the phrase we're using this morning, kelly. >> in my lifetime. >> i'm wondering whether a british male will win wimbledon in my lifetime. >> i'm going out to wimbledon after this and i'll try to find out for you. although andy murray is not

playing today. >> no. he played well yesterday. good start. >> before the rain hit. >> it depends on how you finish is what count. >> the rain in london is a preview of what we could be dealing with for olympics. spanish prime minister says he'll ask eu leaders to stabilize markets as he says spain cannot continue to fund itself at high yield on a long-term basis. it comes as eurozone finance ministers plan to hold a conference call on cyprus and spain this afternoon. they've apparently already spoken this morning. no euro bonds as long as i live, that's the vow from angela merkel, as we were just discussing. the german chancellor is widely reported to have made the comment for parliamentarian from her free coalition partners in a closed meeting in berlin. she'll meet with francois hollande in an attempt to forge a united front ahead of the summit on thursday. we know this is a vast difference in agreement she and

sarkozy would reach. italian auction results. they told 9 billion six-month territory bills. 2.957%. it was 2.1% for similar auctions. bid to dovr ratio, 1.62. is similar to the 1.61 on may 29th. just remind you, the six-month treasury bill average yield, 2.957% versus 2.1% on may 29th. the bid to cover pretty similar, 1.62 versus 1.61. dawn smith governor of bond strategist at imeicap. yields going higher. i mean, less for italy. what's your conclusion ahead of the auction tomorrow? >>le, it's no surprise that the t-bill auctions was covered. we have a big redemption coming through at the end of the week.

big focus is on the level, which was covered somewhat higher than expected. there were indications that crane market was hovering around 2.7 to 2.8 level. a little higher, highlight what is generally happening across the eurozone, which is -- in spain particularly, these markets are on the back foot. these are very significant financing costs, given the short terminate of these offerings. just highlights increasing pressure on these markets. >> eric, how does this set up for auctions tomorrow, which i understand will be auctioning off a little longer term debt and how is -- how is italy, broadly speaking, how is the length of its maturity profile changing in the wake of all this? >> the news, though, is bad. the news is a sharp increase on the yield in this short data, italian government debt. i think that's likely to be

pattern tomorrow and in the future, too. refleck this is innocent my lifetime story we were talking about earlier. i would be spooked slightly by that. i think if merkel really means that, if she really means what she says, not in my lifetime will there be any debt sharing across the euro, we're witnessing the end of the euro now. >> i think we're in a position now where there's a sense we're moving -- people have said this so many times before, but into some kind of end game or at least the beginnings of an end game for the eurozone. every auction for spain and italy will become a crucial litmus test of market demand especially for the government debt in question. in some senses, a vote of confidence in the viability of the euro going forward. so, these auctions tomorrow are, again, crucial for the market. the longer the maturity of the auction, of course, potentially the more difficult it is for the

government of the sovereign in question to get debt away at reasonable levels. >> you say it's crucial. so, we got five and ten-year tomorrow out of italy. what is a yield that is going to be a bad result? bearing in mind we're in a period of elevated yields. >> yeah. well, you know, in a sense of the auction itself, we couldn't expect the significant jump away from current prevailing market levels. the market will be looking at cover, you know, for these auctions. with regard to italian auctions, you know, there is so much domestic demand for this government debt that it's almost -- it's more -- much more difficult with regard to italy to get a true measure of broad international demand for the government debt. but when we start moving with regard to italy towards 7% yield level, of course we're a long way away from that at the moment, but these were the yield

levels where approximately at these levels, above which the market starts to get extremely edgy about the viability of these sovereigns within the euro itself. still a good way away from that in terms of, you know, certainly italy at the moment but the direction is concerning for the markets. >> yeah, the 7% point is an important point. markets are focusing on. i think if it comes out north of that or even close to that, we're in trouble. the reason for that is 7% yield on italian debt means the government debt burden in italy is explosive. >> in november, we survived that. >> sure. 8%, those levels triggered actions, right? actions were taken bit ecb, et cetera, and the view was, all right, finally they got it, they finally understood it. we're in a much better situation but now that we're right back up at that level, which was --

which was, you know, predicting, if you like, the end of the euro. >> don, briefly on this point, what's going to keep italian ten-year debt from reaching that 7% or even 8% level again? >> that's a really good point about what happened in december last year because the ecb stepped in. had the ecb not stepped in with the lcro at that point, there was a real risk at that time that the whole eurozone sovereign debt crisis could have unraveled spectacularly. now we're moving into a situation where the ecb is stepping back. it wants to put more pressure on politicians to use year end as a vehicle to provide support for peripheral governments, hence the coming summit. so, as we approach or we move towards the 7% level for italy, without further support from the ecb, then, you know, the risks of a major fracture across the euro escalate pretty significantly. >> don smith from icap joining us to recap italian debt

auction. thanks very much. eric briton, director of fathom consulting is here with us for the rest of the hour. in the u.s., durable goods are out at 8 a.m. at 10 a.m. we get may pending home sales. those expected to jump about 2.3%. of course, expectations higher now on the back of some better than anticipated housing data earlier in the week. on the earnings front, results from general mills, lennar, mccormick, monsanto and paychex. and still to come on the show, we're live in madrid where prime minister says he'll ask eu officials to stabilize markets at thursday's summit. [ male announcer ] trophies and awards lift you up. but they can also hold you back. unless you ask, "what's next?"

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you are you are watching "worldwide exchange" this morning. these are your headline. spain's prime minister says the country cannot fund itself at current yields for much longer. >> merkel says she won't approve the idea of euro bonds for as long as i live. the california city of stockton is set to file today for one of the largest municipal bankruptcies in u.s. history. and spanish prime minister

has warned the country is unable to finance itself at too long for current level. we have more on that story from madrid. >> absolutely. the prime minister warned parliament it was for spain really difficult to finance itself given the current level, that the country would not be able to finance itself on long term. he made it clear financing was the main priority for the government now and will be discussed at european level. he wants the european leaders to use existing instruments to stabilize the financial markets. he would like also a political statement made clear that the euro is here to stay. it's not clear, however, what instrument he was mentioning, whether or not he would like the ecb to intervene in the market or he would like to use the efss to buy from spain and italy. the budget ministry in spain

working on additional measures to limit the deficit, the public deficit for this year after the government announced yesterday that the central government deficit at the end of may was nearly at the level set for the full year, which means that madrid isn't able or likely to be unable to reach its public deficit target this year without additional measures. the finance ministry could raise the v.a.t. rate in spain, change the category of some products. officials in spain, the v.a.t. in spain is 18% but plenty of products of reduced rates at 8% or even 4%. so, this is what the finance ministry is working on and we should have an announcement in the next couple of days. back to you. >> thanks. december already seems to be the new june. eric, i'll put this question to you, our guest host for the hour. you hear a lot of policymakers talking about the december meeting of the eurozone minis r ministe ministers. forget what's happening this weekend.

but does spain have the luxury of time? that's going to be more of a problem for banks going forward than anything else. >> right. and the fiscal measures that are about to undertake, fiscal tightening, so on, if they do increase v.a.t., so forth, will just make that worse, will make the downturn in the economy even stronger. spain is in a lot of trouble. the question, does it have enough time is a really good question. the hope on the part of the ecb and politicians, they can always park it, push it down the road, as they say, that analogy, that cliche kick the can down the road another few months and not have to grapple with what the problem is, which is bad debt that has to be written off. until now -- >> that was a key point. we had a guest on earlier this morning who talked about, this has been one of the fundamental problems. the irish taxpayer still paying out for irish bondholders. they've never -- bondholders have never taken a hit. the irish taxpayers have to foot that bill. until there is some bondholder

loss somewhere -- >> correct. >> -- we can never restart this program. >> correct. so, you know, the not in my lifetime quote, the choice she faces is not burden sharing, there has to be. no avoiding that. the choice is whether that's done in a managed, even-tempered way bond fire of these cross-border debt obligations in europe or a much more damaging con flig rags that will kurt anyway. she can't choose to not -- she can't wave that -- >> can states afford -- i mean, can the eurozone afford for states not to bail out their banks? >> no -- >> i mean, what i'm saying is can you just let bondholders take it on the chin and then step in to repair whatever the damage is? i mean, there is a big concern, of course, not going to impact

on the insurance sector. >> that would be the analogy of lehmans. people understood lehmans but not aig. there's the bondholders direct and underwriting, which who knows how large those obligations are. but what cannot be avoided is a writeoff of the bad debts, right? that's the big picture. you have to step back and keep remembering -- >> who's paying for the rightoff? taxpayers or debtholders? >> ultimately it has to be taxpayers because you can't let the banks fail. the debtholders are the banks to a large degree. the banks cannot be allowed to fail and systematic bank crisis is -- >> and those bad debts will get worse if the underlying performance of the assets and economy continues to get worse. that's the problem with can-kicking at the moment. erik stays with us. >> what's coming up. european stocks ahead of the

u.s. right now. well, we're sort of flat, essentially where we're at.

welcome back this welcome back this morning. there's a live look at times

square in manhattan. lovely there just before the sun comes up. you can see all the lights illuminated against the dark sky. 5:24 a.m. eastern time. so, let's check in on how u.s. markets are set to open. futures at this point are still looking to open slightly higher. dow jones trying to eke out a 14-point gain. s&p a couple points, nasdaq higher as well. we'll ee if they can hang onto those gains. >> follows a tepid morning today for european stocks. just about in positive territory, up a third of% for ftse after four days of decline, 0.1% of the cac and ibex up 0.6%. today's other top stories. news corp. says it's weighing a split decision saying an announcement could come tomorrow. my former employer. >> i wonder what it feels if they get taken out. >> i don't think you want to be in a 10% profit decision, you want to be 90%.

that's unfortunately the entertainment side. commerce bank plans to wind down shipping and real estate operations blaming the uncertainty in the eurozone and looming regulations on banks. is that an excuse? plenty of people saying the regulations at the moment appear in the next cries but we haven't dealt with the current one. >> an area no one want to see finance pulled back from. >> trade finance, we need it. >> huge issue. infineon shares tumble after they lowered sales and margin outlook. >> seems like we get one of these every few quarters from the semiconductor sector. see how this plays out for people's demand for -- >> and being a german company, again, these questions of whether the weakness is impacting the core. i don't think that's a question anymore. and sovereign wealth fund demand glenn core sweeten the deal for xstrata. >> shareholder meeting -- vote coming up.

not a lot of time. they may be able to wrangle more out of this. >> they're not happy with some of the payback awarded. standard charter says it sees corporate slowing but they say it's confident can meet target for 10% growth. we were joined on cnbc by the cfo who sounded an upbeat note. >> standard charter has very good dollar funning and is continuing to see very strong market share gains in many of our business units across asia, africa, middle east. >> so long a takeover target but no more. >> now flexing its own strength. we'll take a short break. still to come, we'll bring you the latest on apple's big win in their case against rival samsung. we'll discuss google's plans to muscle in on the tablet market. >> just the latest. >

welcome back to "worldwide exchange." i'm kelly evans. >> ross westgate. the headlines from around the world. >> spain's prime minister says the country cannot fund itself with current yields for much younger and will push eu leaders to stabilize markets at thursday's summit. >> the debate over euro bonds condition. angela merkel says she won't approve the idea for as long as she lives.

this is italian borrowing costs jump to the highest level in six months at an auction of short-term debt. and one california city has run out of options and is set to file today for one of the largest municipal bankruptcies in u.s. history. if you're just joining us, thanks for tuning in this morning. let's look at how u.s. futures are pointed. the colors misleading. if you take fair value into account we should be opening higher across the board. dow jones would be opening higher by 14 points. right now nasdaq pointed up by five. s&p 500 by a couple of points as well. the tone from overseas markets overnight has been kind of mixed. cnbc ftse global 300 up 0.2%. we haven't seen much movement here lately despite an auction of italian debt that went off with higher yields than italy's had to pay in recent memory.

the impact that's having across the continent, a bit muted. the ftse 100 up 0.3%. dax up.1%. the ibex in spain is holding on about 0.6% to the upside. as we look at the u.s. open today. we've already had quite a few guests on that have been telling us what investors should be doing. here's a recap. >> gold prices don't fall in the same way as the rest of the commodity sector has fallen as they did over the past probably 12 months. >> what we did do, however, recently in an allocation sense is close our underwriting performing very well for the second quarter and we have ended an overweight in equities.

>> i think the downside on gold is limited to about 1500. and i think by the end of the year we could easily see gold prices back to between 1800 and 1900. >> there you go. more bullish than not on gold. galaxy far, far away. samsung electronics has been banned from selling galaxy 10.1 tablet in the united states at apple's request. a california judge says samsung has the right to compete but not with products like this one that infringe on ipad designs. apple holds the lion's share of the tablet market and using patent market to fend off android rivals. >> how significant is this ruling? >> i don't think it makes a huge impact because it's an injunction.

apple had to deposit $2.6 million, which is the estimation of the potential damage of this infringement to samsung in case this injunction was wrong. $2.6 million is not a significant sum both for apple or for samsung. the impact at this point is not clear. i think it's not strong. we have to wait until the true court case will unfold starting this july, i think. >> does it just suggest the potential challenge, though, that samsung might bring to apple in this sector? >> intellectual property is very difficult to consider. this battle between samsung and apple is going to go on in several countries.

so every country has its own intellectual property law. so, i think we'll see this battle to go on for quite some time. >> yeah. >> don't forget that usually the top two in every -- yes? >> what i was saying, without getting into the patent -- whether we'll see a lot of patent disputes, i was wondering the fact this is a small amount and apple is taking it to court, does it show they're fearful of samsung products taking a much bigger market share in. >> i mean, i think it's clear that the signs much -- of samsung products and many -- actually, of many other companies strongly influenced by the appearance on the market of the iphone and the ipod. i mean, the ipod and iphone really changed the whole paradigm. also, the way these devices look. actually, some of the companies on the way out from the market.

the only two companies in this market, which make strong profits and apple and samsung. they are just battling on all fronts. the main front is not in the courtroom. the main front is in the stores and online stores and the consumers. so, the key is really that the consumers are happy. that's -- i mean, the court cases are important, but the main issue is really who makes the consumers more happy. >> speaking of apple and what's helped it win loyalty among a lot of customers, it's programs like itunes and itunes now expanding to parts of asia, including hong kong, where it wasn't before, which was news to me. how significant is that move? and what more would it take for apple -- for itunes to go into china? you know, how much of a need is there for it to conquer that market? >> okay. actually, itunes is in china right now. when you go on the apple website, you can see a very complex table which lists which

parts of itunes are available in which countries. as you know, itunes for apple, it's a very strong component of apple's business model. and itunes has many different types of offerings. so, you have -- for example, the app store, which says the applications. that is fully functional for itunes app store in china. what seems to be missing is some of the music and video offerings. i don't know exactly the reason for that, but sooner or later, you know, apple might come into china as well with music and videos. don't forget that when you look at the apple financial statements, you will see that itunes store and music is about 5% to 6% of apple's overall sales. if you consider that china is maybe 10% of the world economy, so the impact on apple sales would be, you know, less than 0.5%. overall, if apple goes full blast with all itunes offerings

into china, it's not going to make an impact on apple larger than 0.2%, 0.5%. so, it's not going to change apple's finances by a vast amount. >> gerhart, thanks for your time this morning. other tech you ins, google holds annual developers forum today in san francisco and is expected to show off its own tablet device. reports say that product has a seven-inch screen and will compete more directly with am sdmron's kindle fire. it will run on google's android software called jelly bean. is includes voice-activated system like apple's siri. google in frankfurt up 0.5. yahoo! inking a deal with

sp spotify. the deal expands spotify's reach to estimated 700 million people who visit yahoo! each month. spotify has 10 million active listeners, and 3 million pay $10 a month for premium service. yahoo! slightly lower this morning. >> google's new android software is called jelly bean? >> apparently. sweet. >> you could do sherbert dip. a software called sherbert dip. you like that. >> is that a product? >> right. we grew up on it. that's why we have such bad teeth in this country. that's one of the reasons. pong, you remember that? you're far too young. ed, you'll remember this. ready for a game of pong? for those under the age of 35, pong was a video game from the '70s that consumed the attention of many to a teenager.

the maker of pong, atari, is celebrating its 40th birthday today. oh, look. we all remember that. the company was founded in california in 1972. atari made other iconic ahead of their times games. we just saw this. asteroid, pacman, centpede. >> i played a lot of pacman growing up at pizza hut. it's one of the most dangerous cities in the u.s. and stockton, california, is one of the most indebted. we'll discuss the threat facing municipals like stockton after the break. ♪ [ engine turns over ] [ male announcer ] we created the luxury crossover and kept turning the page, this is the next chapter for the rx and lexus. this is the pursuit of perfection. 

welcome back to the program. stockton, california, is set to become the largest u.s. city ever to file for bankruptcy. officials voted late tuesday to adopt a new budget plan to allow the city to pay for day to day prayings. this seen as the last step before filing for chapter 9 protection as soon as today. stockton has 300,000 residents and is $700 million in debt. it's been hurt by high retiree costs, big spending on downtown revitalization project and falling tax revenues resulting from the u.s. housing slump. randy warren cio at warren

financial services and joining us now. is this the start of the muni default flood gates we should be expecting? >> good morning. yeah, it's hard to say exactly whether that's going to be the beginning of a new crisis here by the united states. i kind of doubt it. munis have a very, very low default rate over time. i doubt that will be a cries. i think investors around here and the united states and around the world really are more worried about what's going on in europe and maybe there's a fiscal cliff here in the united states. if all those things or some of those things are going to happen, what am i supposed to do about it as an investor? chain my portfolio allocation, rebalance? how am i supposed to go about redoing these things. >> muni issuance has been stronger than expected this year. it would imply there's a lot more demand for this kind of debt than people expected given the high profile concerns about it. >> yeah, there is a lot of

demand. i think people are running for safety. when it comes to anything that's government-backed, if uts muni bonds or treasuries, people are running to that safety. that may not be the best strategy, considering where the debts are at the government level, the corporations are in better shape than the government is today. most of the american fortune 500 companies are doing quite well, producing a lot of profits and have a lot of cash on their balance sheets. they've never been stronger. you know, people are kind of running in the wrong direction a little bit right now. >> i want to pick up with that now. what about this earning season coming up, though? i mean, you talk about strong profits but are we going to see more warnings? >> yeah, we probably will see some more warnings. i don't think america can escape what's happening over in europe. there's a problem over in europe. there's a recession probably going on. and it's going to affect a lot of the -- especially the very large corporations. so, what investors should be

thinking about now is maybe i should be looking at some of the medium sized corporations. maybe i should be looking at some of the smaller corporations. what we've done at warren financial we decided that we need some kind of an index to tell our investors, you know, is the event that's occurring, called a train wreck or whatever over in europe, is it actually going to happen? is it something i need to take action on? so, this event horizon index we've created, we're going to launch that in the next coming days on forbes.com. is that event going to occur? that's what investors really need to know. okay, there's a problem. it might be in muni bonds n europe, various places around the globe but this event occurring now, is it going to become such a crisis it will destroy my portfolio like 2008 or is it a type of a situation where i need to manage my risk? >> okay. let's just pause. we got news on bank here.

>> that's right. the eu commission temporarily cleared a state aid for bond kia calling on spain to present a restructuring plan for the lender within six months. the eu also okayed aid to malta for air malta. lots of headlines coming along here. >> final word from erik, we talked to randy about stocks in california. i mean, i suppose it's like cyprus, you know, to the eu. it's not a big deal. probably a big deal if it was california, but the -- the difference is, when a section of the united states gets into problems, it is part of the united states with a brady bond and that's what we need to recreate in europe, right? >> exactly. nobody is talking about this or the fact that california is in -- bonds are in default at the moment. nobody's talking about that as presenting a risk for the dollar. that the dollar will collapse as a result of that. that's why the flight to safety means essentially a flight into dollar denominated assets, which is benefiting munis and a

variety of other dollar assets as well. that's exactly the problem in europe. we don't have that feeling that the whole structure is underpinned by a set of arrangements that mean there is no circumstance in which the euro will collapse. which is how markets perceive the dollar. there is no world in which we can see the dollar breaking apart into individual states and currencies. that's what the euro needs to achieve. >> thank you for that. randy sticks around for plenty more. >> you're watching "worldwide exchange." these are your headlines this morning. spain's prime minister says the country cannot continue top fund itself current yields for much longer. merkel says she won't approve of the idea for euro bonds for, quote, as long as i live. and the california city of stockton is set to file today for one of the largest municipal bankruptcies in u.s. history. a couple other stories. ♪

-- pennsylvania and colorado. but voters sentiment overall is still negative. nearly two-thirds say the u.s. is on the wrong track. ahead of tomorrow's supreme court ruling on president obama's health overhaul, 37% of americans are in favor of the justices striking it down. 41% say the law was a bad idea. he's over here, isn't he? >> he will be. try to get him on the program, governor. >> try to sit down with him. best buy could be headed for a buyout. founder is considering a plan to take the retailer private. working with credit suisse on a possible bid. he resigned earlier this month saying he was pondering options for his stock. reports suggest if he's successful, he wouldn't return to run the company.

what do bananas and euros have in common? they're both not a-peeling to everyone. >> oh, my god. >> i didn't write that. chiquita says options will allow it to hedge about half its euro-based revenue for 2013. had you to hear the groans to believe it. >> i'm delighted you read that one. u.s. investors get ready for may durable goods. are big ticket items like planes, trains and automobiles still in demand?

ahead of u.s. open, european markets just about above the flat line at the moment. quarter% higher for the ftse. ibex up 0.5%. >> durable goods out at 8:30 a.m. eastern. demand for big ticket items is expected to rise 0.4%. 10 a.m., may pending home sales expected to climb 2.3%. of course, following stronger than expected housing reports this week, expectations have been pretty high. earnings front, look for results from general mills, lennar, mccormick, monsanto and paychex. here's how u.s. futures are pointed so far this morning. i believe we're still in the grown. hanging onto it. a couple point higher, though. no major moves across the indexes. we'll see if that changes again. take fair value into account, that pushes them into the green. dow up by 13 points, a couple points for the nasdaq and s&p.

randy warren, cio at warren financial service is still with us. what is going to drive the trading day in the u.s. this morning? durable goods, housing? >> well, certainly those numbers are important. all the economics are -- numbers that come out are important. you know, typically five minutes or 30 minutes after the number comes out, it's already forgotten. probably what's going to drive the day is what's happening in europe. you know, om of the earnings that are just now starting to come out will become much more important as a couple weeks go on, the second week of you'll. those earning numbers will become very important to the markets. maybe the united states can temporarily put aside what's happening in europe and focus on, you know, our own numbers that are coming out of corporate america, which probably are going to be a little weaker but have been strong over the past couple of quarters. >> if going to say, maybe now isn't the time to focus on earnings in america. there are suggestions corporate profits have, in fact, peaked, that this earning season may be

the first after 11 straight we see a decline. what's your view? >> well, it's -- there's no question that profits have -- are at a peak in their cycle. they may start to come down. valuations are also very low. so, you've got super high profits and very low valuations. you know, those two things need to come together, both of them. both of them need to move. prices need to come up on the s&p 500 as well as profit -- profit-making potential for the corporations is probably going to decline a little bit. but, you know, it's hard to tell exactly. what's going to happen in. >> it's hard to see price going up if profits have peaked. i can see prices going up. profits, absolute sense of value in terms of dollars are going to be continuing to climb, even though the potential has peaked. they're at a very high level

right now. what's going on in europe, it's hard to imagine profits are just going to continue to soar here in the united states. >> certainly we could see multiple expansion if the fed comes back into the market or something, just like we saw at the end of last year. randy, do you expect another round of quantitative easing? >> no, i don't think we expect another round. i think it's been pretty clear from the federal reserve that the last round of quantitative easing didn't have a tremendous amount of effect on the markets. it had more of an effect on commodities and maybe on the s&p 500. than it had on the economy. the only way we'll get more in united states is if there's more in england, europe, places like that. the dollar doesn't want to get too strong. so, you know, the united states needs to keep the dollar from getting too strong. >> we've seen the impact it's had on corporate --. >> except the stronger dollar here is going to help with oil, isn't it, and lower gas prices.

there are some offsetting benefits here. the one thing that will help corporate profits and consumer is lower gasoline and oil prices. >> yeah, lower oil prices are great. it's been a real boone to the economy over this summer. i mean, they peaked somewhere back in april and they've been coming down ever since. consumers are benefiting at the pump. as a matter of fact, the united states with all the additional oil found in the u.s., "the wall street journal" had an article out early this morning just saying that by 2020 the dependence on the middle east will be cut in half. >> right. important. >> china's now the biggest exporter for markets for saudi arabia. it's amazing. good to see us. randy warren. that's it for today's show. "squawk box" is coming up next. >> yes, it is. we'll see you back here tomorrow. [ male announcer ] this... is the at&t network.

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good morning. another day good morning. another day and another important debt auction in europe. yet we've got a little bad news italy's six-month treasury bill hitting highest level since december. cashing out, one of the first traders to call attention to the jpmorgan debt gone wrong has liquidated his position. we'll talk about it. plus, a new nbc news/wall street journal poll, the race fort white house, as close as ever. june -- what date is it? we don't have the date in there. it is wednesday. "squawk box" begins right now. good morning, everybody. happy june 27th. welcome to "squawk box" on bc