welcome to "worldwide exchange." these are your headlines from around the world. >> stand ard chartered shares raise but they report u.s. regulators are irate about the probe. ing tells cnbc earnings are likely to be significantly lower long term as they miss the mark with second quarter numbers. $16 billion spending plan in attack despite a steep fall in profit that narrowly beats profits. and measurven king is expec

to lower expectations when he gets the rates earlier. are we looking at a possible rate cut sdm? welcome to today's program. the startling news that yorkshire has now high in the medals table than australia. >> yorkshire in. >> yes. >> is that a -- i don't -- >> yorkshire a county. they're quite proud, quite proud people. >> and they now have a medalist? qulo they have a lot of medalists. >> they would have beaten australia? >> i know australia hasn't done as well as hoped but last night huge gold medal with the 100-meter hurdlists. >> that was huge. and plenty more updates on the olympics to come. >> and a bit of financial news,

too. >> we might dip into that. we'll be in spanish holiday. julia is there and she'll catch us up to day. a new report says emerging markets like brazil in 2016 will see the real money and we'll tell you why. plus, we'll be out in los angeles after the avengers movie helped lift quarterly profits at disney. we'll find out what the company has up its sleeve fort rest of the year. bank of england set for latest inflation reported. we'll be live at 10:30 local time to see what governor king has to say about the state of the economy. >> i like that. meanwhile, dutch financial group ing missed forecasts by taking a hit by cutting exposure to spain. posting a 2 % net drop in the

period. the firm lost more than 200 euros by bringing down exposure to spain mainly by selling off securities and selling bonds. the cfo warns they will continue to suffer. >> we've given a range for what we expect longer term, significantly lower than where we currently are, 40, 45 bases points through the psychal normalized and we're at 70 now. difficult to project the future but will they be linked to economic activity. >> ing also under investigation earlier for similar allegations that standard charter is under investigation for. they say the fine is paid and the issue is behind them. >> shares in standard chartered are trading higher. yet they got down whacked. down in 23%.

today trading higher after posting record losses. up 6%. hong kong shares are slightly lower. decision by city's financial regularity to take action against the bank. they claim treasury and federal reserve believe the accusations of illegal dealings with iran undermine talks over a potential settlement related to the transactions. the white house has confirmed the treasury is in, quote, close contact with authorities on the matter. adding the administration takes sanctions violations extremely seriously. standard chartered joins a growing list of similar u.s. investigations. in 2009 lloyds tbs coughed up $350 million. the same year credit suisse agreed for similar allegations and abn amro paid $500 million.

hsbc is under investigation by a number of u.s. agencies for possible sanctions in antimoney laundering violations. that's quite a list. joining us for more on this story are simon nixon, european editor of european wall street journal and mark oswald, strategist at monumental securities. simon, first to you, we rattled off all these uk banks, global banks, part of this probe. is this developing into a u.s./uk fight? gli don't think it is. first of all this accident is an antiiran issue standard chartered walked into here. it's about u.s. foreign policy in the first place. clearly, and obviously it's not just the uk banks. you rattled off swiss banks and dutch banks. this started with abn amro in 200 was the first bank where

there was -- where this issue of u-turning, trying to clear iranian transactions first came up. i think this is -- it's evolving into a u.s. versus uk spat but that's not where it started. >> editorial saying maybe they should take a look at u.s. banks. do you think that's overdone? >> there were regulatory lapses in the u.s., which is where the financial crisis started. there's an element of -- the uk is feeling under siege from the u.s. at the moment. i don't think this particular instance is about the u.s. versus uk but i think it's turning into that. >> this about a new regularitor isn't it? isn't this about a new regulator coming out and breaking rank and using extraordinary language

in -- >> they called standard chattered a rogue institution. there's suspicion this is a rogue regulator. the way these situations normally work is regulators and investigation work behind the scenes, come to an agreed set of facts, and they took standard charitied by surprise and -- >> took markets by surprise. simon willis, you think this creates a buying opportunity for bank. >> i do. on the one hand, you couldn't say with any certainty the stock won't go lower, on the other hand what i thought was quite telling in standard charitied's statement yesterday was robust and language was very strong,

they have a dispute, they describe as fact of law over interpretation of allegations from the new york regulator. but, yes, i still believe that standard chartered is one of the best run banks in the world. an emerging bank. it had issues. 20 years ago it was known as banana skin bank. whenever there was a ba nan nan skin, they slipped on it. under mervin davis and -- i think it is a well-run bank. >> we aresided libor, misselling, hasn't that patterned -- >> it's been wiped off forever. yes looking at the target stock price or buying level, the -- two things. firstly, you take a view on the impact of the fine on the net

asset value. i value banks price to book or price to net value. double whammy of the d-rating. standard was higher than hsbc, higher than european banks for good reason. has that gone forever? possibly, yes. the derating at one point price to book that's happened in the 24% stock fall. it's now about the nav scale of fines, reputational damage, does it impact the business seriously going forward? the most telling thing in that respect is the comment about coming out of the other federal regulators and the treasury, it did look like new york regulator has taken a flier. >> mark, what's your view or thought? >> i mean, there seems to be -- when the new york regulator talks about $250 billion of transaction, this reminds me of that austin powers moment where he makes a demand and there

isn't even $100 billion in the world economy. it sound far-fetched, gotten out of line. what worries me is contextually, it's about ten years from enron and it's the implication of having the accountancy fraternity, apparently allegedly involved in this. they obviously deny it. surely we should have moved on by now the lessons of enron should have been quite harsh. i find that disturbing. >> where are you going next with the story? >> i think we're very interested in this territoriality, the u.s. rich runs through the rest of the financial system. the issue -- the issue for standard charitied is it's threatened with losing it's new

york banking license, which a very serious situation. they're certainly putting a pretty robust defense back now that, you know, new york regulators is completely out of line. $250 billion refers to all the transactions that standard chartered was clearing with irans. it was actually legal to do that. there was this rule, completely legitimate for banks where they were allowed to get access to u.s. dollars. >> and it was the stripping, the stripping. standard charitied say only $14 million of those $250 billion were improbable. they say they weren't improper because they were doing business on the sanction as list, clerical errors, the rules are complex. i think there is probably a lot more to this than we can judge at this stage. the market is right, when people talk about losing u.s. banking

license, the u.s. market is bound to take that very seriously. i think it's too late at this stage. >> all this regulation is threaten the new york banks -- >> it would threaten their clearing operations. simon, a quick comment because it's likely this isn't the last we'll hear from u.s. regulators on this issue or whatever else. how do you invest or not invest in the rest of the sector as a result? >> you can look for value plays but that's all to do with the work out banks, rbs, so on. for me on a fundamental view, you have to play standard charitied charter chartered. i would see this on a one to two year view. >> thank you for joining us. mark oswald will stay with us. plenty more to come. >> he's got to run, like all the

other stories in the last five years. roughly 2 million people have been evacuated as typhoon hit china. 210 miles an hour, wreaking havoc on transport system and causing floods. hundreds of flights at shanghai have been grounded. the typhoon is expected to move northwest later this evening. china's weather administration issued a red alert, the highest so far this year. japanese government bonds slipped for the third straight session on disappointing data, sparking fresh hopes the boj will stimulate growth when it meets tomorrow. japan posted biggest drop in surplus since 1985. while merchandise trade gap widened to a record deficit. the world's third biggest economy has been battling strong yen, expensive fuel imports and weak demand from europe. mark oswald, curious what you make of the situation in japan.

is the country increasingly vulnerable here? >> in the sense that a narrowing current built surplus and the constant erosion of its savings base as population ages rapidly and as they look basically to compensate for the fact that the economy is not really growing. the problem with japan is it has this 200% debt to gdp ratio. . in the long run, unless someone arrests that slide, unless they can weaken the yen, actually do something to give the economy some structural improvements, address the issue of rapidly aging population, which for them will are to address a very difficult cultural issue in that japan has never been particularly keen on inward migration, they are in very, very deep trouble. when we talk about the eurozone

crisis, debt crisis, it's equally applicable to any of the other g-7 countries, all of whom have very high debt levels. >> all of whom have their own printing press. the widowmaker's trade has been to short them, when do you think that works? do you at these levels think japanese government bond yields are headed higher? >> not significantly, not for the time being. there is always that threat the boj could act. i wouldn't expect it to deliver anything tomorrow. but there is still the threat of more action. there is the threat of more intervention. in the long run, yes. in the short run, where one would want to institute short is in the yen rather than jdbs. >> japan's political paralysis has been a big stumbling block to growth and now opposition parties are threatening to derail the country's all-important sales tax bill. we'll have more on this story coming up later in the show.

let's bring up to speed on european stocks. an hour into trading day. decliners are outpacing advancers for once today. hasn't happened for a few sessions. seven to three is the ratio on that. european indices after gains. ftse 100 up 0.5%, standard charitied down 16%. the cac flat, just down four points after 1.5% gains. ibex down 0.75%. we'll be keeping eyes on gild, and standard coverage uk viewers. italian below the mark. spanish yields nudged up back towards 7% mark.

we'll keep our eyes on those. we did see a lot of support for shorter end because ecb said if they act, that's where we'll react. euro/dollar, we hit the four-week high on monday. 1.2370 is where we stand. aussie/dollar backed away from the highs but near 1.0560. and euro/sterling up a bit. that's where we stand in european trade. let's update you with what's happening in asia. joining us from singapore, sixuan li. >> they hope for policy easing from central banks in the region and abroad. shanghai posted modest gains up 0.2% of 1%.

gains in property developers were accounted by weakness in utilities and steel makers. hang seng lost a bit of steam down by a touch. shares of prius dropped as they look for clarity on the new ceo's plan to turn the business around. standard chartered added 1% after they tumbled 15% yesterday. nikkei gained for a third day in a row up by 0.9 of 1% helped by shipping and metal companies. sharp shares rebounded on reports that hong kong is committed to investing in the company. kospi closed by 0.9 of 1% led by gains in financials. rumors about apple's new iphone are sending shares of korean chip makers higher. aussie market climbed 0.5% helped by i.t.

india's sensex up by 0.5%. chilling new, "50 shades of grey" the best selling book in britain of all time, according to publisher random house. a movie deal for all three bookdz in the series could raise the profile even further. this morning as we discuss other high profile series, we want to know what do you think will be the next big publishing or film franchise? what are you reading right now? let us know on "worldwide exchange." e-mail us at worldwide @cnbc.com or @cnbcwex. is this the best selling uk book of all time? incredible. >> extraordinary stat, isn't it? i don't know. i mean, if it is, it is. there we go. we'll talk about it. that's still to come.

we'll head out to spanish summer resort with julia.

another great day of action at olympics. chris hoy claimed his sixth olympic gold medal, beating max millian levy of germany. >> most for a briton, right? >> most, incredible. >> final of 100 meter hurdles saw the usa's dawn harper looking to retain her title but australi australian's sally pearson won by 0.02 to take gold. >> and nigerian was the one to watch getting off the blocks, and makhloufi left them in the dust and won by a comfortable margin. >> china is leading the gold medal table.

34 golds. the usa a close second with 30. the total medal count is also quite tight, 73 to usa's 70. team gb has surpassed the total haul from beijing with 48 medals. not too shabby. >> and it's hit the total target set by sport england. key events for today include quarterfinals of men's boxing tournament. from the olympic stadium, finals of the men's 110 meter hurdles as welas the women's 200 meters final. just want to bring you some news here, earnings news we've been on the lookout. india's mahindra said june quart profit was above forecast, 600 rupees. they say sales were 2.5 billion. first quarter net profit is a "b" for mahindra.

spain's tourism industry generated almost 16% of total gdp last year but spanish confederation of hotels say domestic bookings fell by 30% in july. julia is in benidorm and joins us from the tourist city. julia with a sense of what's happening on the ground. >> reporter: thanks very much. i'm in benidorm on the east coast of spain, third most popular tourist destination behind barcelona and madrid. tourism, essential part of this country's gdp, over 15% and also important for employment. employs around 12% of the working population here. now, demand for tourism is broken down into domestic demand and foreign. it's around 55/45% split. local businesses and economies are very concerned about how

resilient foreign demand has given the weakness we appear to be seeing in domestic demand. the question is, are tourists feeling any impact? we spoke to some over the last 24 hours to get their view, particularly relative to what they saw last year as many come here frequently. this is what they had to say. >> translator: i don't notice any changes. you can still go on holiday. >> translator: i'm going to be honest with you, personally i don't see any difference. have where you go is filled with people, beaches, cafes, bars. it's true other people tell me things are not the same. >> translator: not really, but then again we don't work in the tourism sector. you notice less traffic, a lot less. >> reporter: a local tourism body here saw 2.5% increase in demand from foreigners in the second quarter. that on to some degree is upsetting weakness we see in the decline in bookings in july. the tourist body pointed out that august is the key month.

we have to wait and see what data provides. the other thing going on is the a.t. rise, and that will impact business as we progress throughout this year, too. for now, back to you. >> julia, i don't know. you look more cote du space jour, more glamorous than benidorm. can i say that? >> reporter: no comment. >> what have you experienced in benidorm? >> reporter: it's quite noisy and i didn't sleep all night because british tourists were singing and shouting all night. it's a lively place. >> how unlike the brits. >> that's a good sign, people are still there. julia, thanks much. we'll check in with jules as she gives a sense of what's

happening in spain. first funds are expected to go to nationalized banks in spain, such as bnakia. how important is this? >> it's very important, there's no doubt about it, but we have actually moved the sort of discussion of spain to a higher level about what -- what the eurozone as a whole can do for spain and for italy. the problematic with all that is being proposed is they are all short-term measures. we know what spain's problems are. financial sector is largely insolvent or too many problems insolvent. regional government has huge debts at current rates are almost impossible to refinance. and budget deficit is

escalating. >> is a bailout coming? >> i think a risk is very high but at the moment they seem to be playing cat and mouse with eurozone in some way investors would like that because in a pa bailout comes, they can step in with unlimited purchases. we get to bailout people may see it as a good thing. >> not really. there's a process here. if you're looking at any country which gets into enormous amounts of difficulties or even a company, what you're trying to do when you kick the can down the road is to restructure debt. by driving down short-term yield and driving up long-term yield, you're doing what they need. what we really don't need is for spain to be along with italy and france, gaining germans because

i fear the end game is that everyone gets backed into a corner, one person will leave and in most currency unions they say it's the strongest country which leaves. >> but then other countries get the devaluation they want. >> that and apocalyptic situation. coming up, the second bigger miner says it's not holding back on spending.

these are the headlines. a bit of reprieve as shares rise in london but scandal elsewhere. report u.s. regulators are irate about the new york probe. rio tinto keeps $16 billion spending plan intact despite a steep fall in profits that that narrowly beats profits. people are evacuated in china as typhoon haiku rips into port grounding flight in and out of shanghai. and mervin king is expected to lower growth forecast for uk

economy. will he give any clues on a possible rate cut? some news out of the bank italy this morning which says bank loans have slowed to growth of 0.2% year-o-on-year in june, although bank deposits accelerated to 2.9% year-on-year. a bit of offsetting data as people continue to try and figure out just how weak the italian sovereign is. meanwhile, european markets pausing after two weeks of a surge post draghi comments in london. ftse down 0.4 %. dax down 0.3%. the cac has been up over 12% and the ibex up even more. bond markets have shown relief in thor pif e eperiphery.

6.95 is what we're looking at there. in italy, a little relief as we're at about 5.85, 95, if i can read this properly. in germany gilts there. >> you can see trading at just below 123.70 at the moment. aussie/dollar, hit a four-month high, above 1.06. it's going to take more than a weaker first half report card to sway rio tinto from $16 billion spending plan. the world's second biggest miner says it will stick with investment strategy even as weaker commodity prices dent earning results. rio underlying earnings fell to $5.2 billion, well above market con sen ses. they are optimistic about

chinese growth, expressing caution about unserpt. we can see how investors are digesting the news. joining us for more, andrew dale. andrew, rio saying it's going to stick by investment plans but other companies have said they're pulling in the horns. what kind of an impact is that going to have on activity across the region? >> rio and bhp are very big contributors to the cap x cycle and sensible to keep investing in those. we're not seeing huge cap x cuts at this stage but with commodity prices lower, there is a risk you do see them come through. typical cyclical movement. what it really means is those that continue to invest in

certain areas of the market, at some point profit from that. rio, they're here for a long time. of course they'll keep spending on big projects. >> andrew, how can they afford to do on? is it ricky to keep spending at such a level when the global outlook, especially outlook for china and emerging markets as clouded quite a bit? >> what is important to realize the china story is seeing cyclical bumps and downward pressure at the moment. whether 7% or 8% is a debate. you'll see strong demand across commodities, whether it's steel or aluminum, et cetera. they'll continue to generate demand. i think short-term reaction to that is probably the wrong move. when it comes to their ability to afford it, they have been generating strong cash flows for the past few years. as you can see, i mean, profit

result today is still, while down, generating a lot of cash flow. i think they'll be able to afford it and given the low cost position of assets, it's important to realize rio does make money even at lower commodity prices. >> the big miners have developed so much in terms of production capability, yes, i understand demand side is questioned whether the supply is too abundant for whatever the new level of demand is out of china. >> it's a good question, commodity-specific. if you look at rio tinto we are looking at iron ore market. the reality of it is, with their iron ore businesses, incredibly low cost, very efficient. while they're adding capacity, what you'll see is high cost capacity out of areas such as china itself, will have to drop

off. what that means is we'll see profits come down to lower levels. however, when we're talking about maybe 50% growth assets, they're generating strong cash flow. i don't disagree there are question marks about total capacity and ability to deal with what is slowing demand environment, but i think large miners with low cost assets will be very well placed. after a period of adjustments in earnings, you'll see they will continue to generate good returns. andrew, thanks for that. andrew, head of research. shares of india's auto giant mahindra are surging following first quarter profit. up 4%, it looks like. >> very strong set of numbers, beating the street, sales gone up 37% year-on-year basis.

we thought it would be 35%. biggest impact has come at 11.8%, and profitability has seen a jump of about 25% on year on year basis. we thought it would just go up by 3%. mahindra & mahindra operate in two key segments. the value is in automotive segment where passenger vehicles are doing very well. tractor, other key business for them has seen a slowdown. now that might get accent rat a because of the job situation in india. outlook still cautious. the other one with numbers was m&m and net quarter down.

the problem has been increasing in network operating and operating cost in slip and business has been slow on all accounts. >> a lot going on over there. thanks for that. meanwhile, looks like a full on beer battle is brewing. asia-pacific brewery has rose to record profits. and new offer tops heineken's bid, mainly forcing dutch bid. i'm not sure who the thai company is. in japan, another snap election could be on the cards and could spell trouble for unpopular ruling party. we have the story live from

tokyo. >> prime minister noda and ruling democratic party of japan is calling an election in near future to save sales hike plan. it came after liberal party demanded a promise for an earlier vote in exchange for expanding the tax bill in the house. ldp members suggest the promise is too vague. they're demanding noda make a clear commitment to dissolve lower house immediately for a snap election. upper house vote on the bill to double sales tax bill -- sales tax by 2015 was initially scheduled for today. no confidence motions against noda and cabinet pushed it back. since it's seen as crucial to stop snow balling debt. that same concern encouraged some bond traders here to sell jgbs pushing ten-year yields to a one-month high.

>> thanks for that. upheaval is one of the most dramatic consequences of the financial crisis over the last five years. we have a report. >> i have decided on my own counsel to step down as leader. >> breaking news. portuguese prime minister -- >> finally expecting to get announcement on new greek government -- >> italian prime minister berlusconi any -- >> we've heard ruling spanish party has just lost the election. >> reporter: it's been eurozone leaders that have borne the brunt, the first note worthy government transaction that took place in the midst of the financial crisis happened in britain. center left labor party's 13-year run came to an end, gordon brown, lost in the 2010 election. which led to formation of the

country's first coalition government in 70 years, made up of the center right conservative party and the liberal democrats, with david cameron settling into number 10 downing street. spain has also undergone a major political change. socialist jose rodriguez zapatero was replaced in 2011. they turned to rahoy, and he was forced to turn to the eu for a major bail outto refinance the banking sector. as a condition of aid, the government implemented harsh new austerity measures to get debt under control, spawning numerous protests. meanwhile, public unrest in italy led to dismissal of three-time center right prime minister silvia berlusconi any, forced out of office last november to be replaced by

monti. the most unstable of all governments has been in greece. 2009 snap election saw pasok leader george papandreou take office, which he revealed a shocking debt mountain. austerity measures were required, which led to enormous public outcry forcing papandreou to step down in november 2011. his resignation made way for a caretaker government of technochats led by lucas pap dame mouse. they saw greece on the brink of a default and euro exit looming. in june this year the public voted for a pro-bailout coalition led by conservative prime minister samaras. it was france that heralded one

of the most monumental political changes in the european union. francois hollande was the country's second socialist president with a campaign focused on growth instead of austerity beating party leader nicolas sarkozy to take hold of a nation which that lost its prized aaa rating. the financial crisis has driven the region through remarkable political shift, with 20 eu member states now under varying degrees of right wing governments and an increasing number of tricky coalitions. >> well, all this week we are asking our guests how far they think we are through the crisis. most seem to think we are nearer to the middle than the beginning or the end. let's ask mark oswald, still on set with us. where are we in the cries? >> we're still at the point where we are trying to deploy methods at both a political level and monetary level in

terms policy making which don't address fundamental issue. we keep trying to buy time with can-kicking methodologies. when unfortunately what we are to do is grapple with the issue, which simply too much debt. >> where are we? >> we're probably in the middle. we could be in the middle for quite a long time. unless we start to get to grips with the issue of restructuring and in many cases repudiating a lot of the debt which was created. just the idea that we can replace a lot of money, a whole lot of ious which got destroyed in the credit crisis is to forget the point the money that was destroyed was never there in the first place. therefore, the idea of qe displacing it is nice from the idea that it does buy some time, but unless people fundamentally deal with the level of debt and neither german method of

austerity nor anglo-saxon option of endless amounts of qe is a solution because it's not about debt servicing costs. it's about the size of the debt itself. until we actually get with it. also the structures which lie behind the creation of that. it's our belief in economics style -- >> five more years. that's what i'm hearing from you, mark. at least five more years. >> i would have thought so, yes. >> but i think what people do need to remember always in that respect is emerging world in asia, latin america, is going to be doing well. even if they have stops and starts, they will keep the world economy going. >> more with mark in a bit. >> we'll get his views. bank of england unveiling inflation report. we'll bring you the press conference in 45 minutes. 10:30 uk time. [ male announcer ] this is the at&t network.

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emotions high in uk from olympics but they say emerging

markets attract foreign sports. only 42% of eu share that view. joining us is scott barns. thanks for joining us. is that statistic just because actually in the eu there are a lot more mature developed economies, therefore, less infrastructure investment or changing investment to be made? >> i think that that is the reason. if you look at the survey, what it says is those emerging economies, business leaders in emerging economies value -- value big sporting events more than the developed economies but developed economies back sports but less than emerging economies. >> in rio, how much are they hoping the world cup and olympics -- well, brazil and then rio, i suppose, put it like

that, will lead to meaningful investment and change? >> brazilians are expecting for big value from those two events. if you break out analyses, i think bra glil yzilians expect 70%. >> are they right to think that? >> when you break out the uk piece of that, uk business leaders are saying, about 60% business leaders in uk are saying, yes, real value. how do you define what the value is? that's the big issue. >> you know what i wonder from sort of a visitor point of view, london actually being a developed city, having great infrastructure, so many have remarked to me how easy it is to get around the tube system. while it may be better for -- i know you're laughing, but it's true. >> many londoners don't say that.

>> yes, but compared to americans. while it's useful for economy, do you think the visitor experience will be as good in other places where they don't are the infrastructure already in place? >> that is a challenge in developing economies, if they haven't got the instfrastructur in place, it's more difficult to get around. in london, everybody said it would be trouble getting around but as you said, there's strong feedback about how easy it's been to get around london. >> we just need to get everybody out. >> the interesting thing is, one of the research overnight, everybody was saying people were staying away from london and not spending money. if you look at research around the credit cards from foreign visitors, massively up on -- >> yes. your own view on this, we saw the impact of the jubilee and how are you pricing in the impact from olympic games?

will it net out flat? negative? i mean, how do we know? when do we know? >> we won't know for quite a while because what we don't know at the moment is -- one of the figures quoted to me before the olympics is we would have displacement of normal tourists with a different type, higher end type tourists, particularly those from the continent of europe. that might increase spending. it's only really when we -- it's that sort of evidence that we've had from some of the credit card companies which tends to support that idea. net-net it will give the economy a boost. the problem is going to lie with the fact we know a lot of people who are working people in london are decided to stay away. what offset will there be from slowing output in all other areas from people not working. >> i wonder whatever the hit to output is, people will say, what

do we care? final comment? >> i think one shouldn't underestimate the feel good factor of something like this. if you look at surveys about business confidence and how important that is in terms of getting the economy moving, then if you have confidence arising from the feel good factor, that could have an impact. it's intingible to measure. mark, inflationary report today, what's going to be the key comments you're looking for from mervin king? >> i think really it's going to be what he's going to be suggesting about about funding for lending scheme. i know people are looking at a deposit rate cut. i don't think it will happen because it will basically give hospital pass through, building societies and more problems in the banking sector we don't need. what we want to see is what impact he would like to see on small business lending and whether he thinks it's actually

realistic because it seems to me that it's still hampered with a lot of things. that small business lending is still critical for the economy going forward. >> thank you both very much for joining us on set. let's take a quick look at what's on the agenda in asia tomorrow. a big day in china. key july releases including cpi, ppi, those about 3 :30 european time. a bunch of other data as well to follow. and we're on central bank watch, boj, bank of korea and we're here keeping an eye out for bank of england's inflation report right after this. [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

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welcome back to "worldwide exchange." >> these are your headlines from around the world. >> a bit of reprieve for standard charted as they rise but they say they are irate about new york probe. rio tinto keeps $16 billion spending intact despite a steep fall in profit that narrowly beat estimates. disney reports super sized profits thanks to "the avengers". >> and mervin king is expected to lower forecast for british economy when he gives us

inflation report in half an hour. will he give us any clue on rate cuts? after a string of positive days, u.s. futures are slipping back into risk potential. we see arrows pointed lower. the dow jones industrial average implied lower by 35 point at the moment. nasdaq lower by a couple points. s&p 500 lower as well. this does, though, follow kind of a stealth rally taking place that we'll speak with our guests about in a bit. take a look at what's been happening more broadly as we look to hand off to u.s. ftse global 300 is down about 0.1 this morning. we've been easing off levels throughout the morning. no major news drivers as of yet. a closer look at europe where we have also some red as we continue to digest news. standard chartered despite being

up, down. xetra dax, down, and ftse 100, cac, all down by about the same amount. >> stunning gain in those last two weeks since those monti comments. bond yield today, bund steady 1.44%. pan irbond at 6.94%. spanish yield below the 6% mark. they have been steady. bank of england releases quarterly inflation yields. we expect a downgrade in growth forecast. what else will he say about funding for lending and any hints about whether there will be any more policy. euro/dollar, 1.2444, week high.

aussie/dollar pulling away from the 1.06 level, week high. now that's where we stand ahead of 9 u.s. open. to recap events and asian action overnight, we're joined by sixuan li. >> asian markets extended gains from central banks in the region and overseas. shares in shanghai posted their fourth straight session of gains, up by 0.2%. investors took cautious positions ahead of inflation. industrial production data due out tomorrow. hang seng took a breather after recent gains, down by a touch. shares of pri holdings dropped 12 12% as investors look for more clarity. hang congress added 0.8 after

the stock tumbled 15% yesterday. nikkei gained for a third day in a row helped by shipping and metal companies. sharp shares rebounded on reports taiwan's is still committed to investing. kospi closed higher by 0.9%, led by gains in financials. rumors about apple's new i phones are sending korean chip makers high. kospi up and india's sensex trading up by 0.4%. >> thanks for that. disney's third quarter profits rose 31% beating forecasts. they saw revenues were a little shy due to deferred affiliate fees at espn. profits at disney movie studios rose six-fold thanks largely to "the avengers" which has made $1.4 million worldwide.

and ceo bob iger says strength in company brands outpacing weakness and shares reflecting that positively, down about 0.7 in frankfurt trade. coming up in about 15 minutes' time, we'll break down disney results with ron grover, l.a. bureau chief for reuters. >> a long time since i went to the movies. >> i haven't seen anybody -- i thought you got -- it's the guys i hear who are going to all these movies and franchises, keeping them going. apparently not you. >> yeah, probably the unmarried guys with young families. >> that's probably true. . >> i think that's the inhibitor. >> you know the next big blockbuster series, maybe you could get some women in theaters, is supposed to be "50 shades of grey." we've been asking viewers, what are you reading now? what's the next big franchise? random says "50 shades of grey "is the best selling british book of all time.

>> it's going to limit slightly the number of people you can get through the door. i don't know how you segue from "50 shade of grey" to ing. we can move on. ing missed forecasts in the second quarter after taking a hit by cutting exposure to spain. posting a 22% drop in net profit in the period, losing 220 millions by bringing down exposure to spain mainly through selling of mortgage-backed securities and covered bonds. the cfo warned earnings will continue to suffer. >> we've given a range for what we expect longer term, significantly lower than where we currently are, 40, 45 basis points through the cycle normalized. we're at 70 now. as i say, difficult to predict future but they will be linked to economic activity.

>> ing was under investigation earlier by u.s. for similar allegations similar to the one standard chartered is facing. the cfe told us the fine has been paid and the issue behind them. clearly that's where standard chartered would wish this issue was. >> this morning their shares are responding positively, up 6%, just shy of 6% level after a sharp selloff yesterday. in fact, one of the record days for that stock. this as press reports suggests a fight has erupted between new york regulators and washington by new york's regulator to take action against the bank. it's claimed the treasury and federal reserve believe the accusations of illegal dealings with iran undermine talks over a potential settlement related to the transactions. the white house has affirmed the treasure have i in, quote, close contact with authorities on the matter, adding the administration takes sanction

violations extremely seriously. >> i wonder who the guy next to benjamin is. he's looking pretty -- with the red tie and -- >> intimidating fellow? >> yeah. u.s. markets are extending gains to a third day on tuesday, closing fresh three-month highs. s&p 500 is back above 1300. nasdaq above 3,000, for the fi time in four months. the dow is now just 110 point away from closing at highest trading level since 2007. on that note our next guest says we've been talking about the same stories for the last few months. europe's debt crisis, u.s. economic woes, but some positive things have gone unnoticed. joining us chief income strategist. thanks for joining us. we've seen the numbers in the stock market telling us we've, in fact, had this stealth rally going on. you've seen the same thing in the corporate bond space. >> absolutely we track corporate

bond spreads. in the u.s., high yield and investment grade spreads are trading at near 2012 tights. despite this frothy discussion that's come up in the market over the course of the last several months, particularly even last week's ecb, no decision, the markets clearly aren't all that negative on the overarching environments. i think this beneath the surface rally really suggests long-term fundamentals or long-term technicals within financial markets are sound. >> what i wonder, because when we get to these levels, like high yield junk bond spreads, whatnot, people say this is the way the recovery is going, we're seeing signs of life, the new normal but they tend in retrospect to be a top, at least short-term top. why shouldn't we take these key levels to be more conservative instead of more optimistic? >> that's a good point. we're cognizant of the risk factors.

one thing we look at fundamentally speaking, corporate bond markets, is the fact liquidity is extremely low. corporations that need to borrow money to refinance loans are very much able to do so. moody's publish a published a n topic saying they reached an all-time low. this cataclysmic type of events that tend to drive a company out of business in the short term aren't present in the markets. fundamentals, when it comes to corporate bond r relatively solid, even though prices are at their higher levels. >> are you seeing investors increasingly sell investment grade to buy high yield? is that trade happening more? >> absolutely. this is a trend that started in 2010 when rates hit their long-term lows. but what we've seen is, i like

to describe either yield-chasing behavior or down quality migration. those investors that traditionally may have been aa bond buyers to single as, and that resulted in more demand from high yield side of the equation. when you look at our institutional clients in particular, we have a lot of buyers of high yield bonds right now. virtually no sellers. that kind of balance in the market really suggests where the cash is moving. >> can i have you on? plenty more to come over the course of the rest of the program. >> as we were just saying, "50 shades of grey" is the best selling british book of all time, according to publisher random house. a movie deal for all three books might raise the profile further but we might want to know what might be the next big film or franchise? it's important for publishers. it'semarkable this book has sold more in the uk than harry potter but that apparently is the case. at least on an individual basis.

get involved in the conversation here, let us know what you think. e-mail us at worldwi worldwide @cnbc.com, tweet us @cnbcwex and many of those book sales are e-books and harry potter wasn't originally sold at e-books. reach us individually as well. >> it's extraordinary. i'm sure that's not the case if you lumped up all the harry potter bookdz together. still on come, mervin king is revealing inflation report. will he tell us anything about policy moves as well? we'll bring you that in just over 15 minutes.

you are watching "worldwide exchange." these are your headlines -- >> shares of standard chath chartered rebound in london trade as reports suggest discourt between u.s. regulators involved in the probe. disney reports super hero quarterly profits thanks to "the avengers". bank of england is set to slash growth during their inflation report for the uk. spain's tourism entry generated 16% of overall gdp in

2011 but the spanish confederation of hotels says domestic bookings alone fell by 30% in july. one of the key holiday towns in spain is benidorm where julia has gone. this region you're in, it's the most important for tourism outside of madrid and barcelona. what's been the impact of not only the slowdown in spain but also the regular international tourists? >> reporter: absolutely. it's a split between domestic demand and foreign demand. the split is about 55% to 45%. they are very reliant still on domestic demand. benidorm where i am, they are more insulated because they see a lot of foreigners. tourists we've been speaking to say they haven't seen much difference. it's a different story where businesses are concerned. i wanted to show you what they've been saying about just

how business has been impacted and what it's like compared to last year. >> translator: in terms of the number of people you can't say there's a huge difference however you can tell they're spending less money. before people would come for two weeks and now they only stay for a weekend or five days. plus, i work at a disco and can tell the difference. >> translator: the truth is there's been a gradual decrease each year in regards to tourism and possibility to work. in the past year the change has been very obvious. >> translator: with the crisis things have changed a little but overall i'd say it's okay. >> reporter: confederation of hotels did a survey showing 75% of businesses believed domestic demand would decline this year, to give you some idea of the level of concern. the other thing, of course, is the v.a.t., austerity program introduced by spanish government. 2.2% increase on leisure activity.

one body here suggests every percentage point increase will cost the industry a billion euros and up to 9,000 jobs, in a country where unemployment's almost around 25%. the tourism body here in benidorm says what we have to look for is august figures. they believe it will be pretty much similar to 2011 but this month is going to be critical. for now, back to you. >> julia, thanks for that. the first 30 billion tranche of funds to be given to spanish banks is likely to start coming in the next few days. first funds will go to nationalized banks like bancia. the funds will flow to spanish banks. is that enough to get private investors interested again in the debt? >> i think when it comes to spanish banks, there's a big

split between the smaller and more regional lenders and that split is not going away. certainly among our clients and our firm, that split is in large part psychological. the snugs that have a lot of business outside spain don't have the same major overhang. i don't think the recapitalization will be enough to bring private debt investors into the banking sector. >> we see the ten-year, 6.96. a reminder we're not seeing that much relief priced into the curb. meanwhile in italy a report that italian banks are doing more and more of the buying. as we look at sovereign debt, at what point do you think those expectations look stretched or conservative? >> one thing worth saying is there's nothing magical about this 7% number. it's not like a country suddenly needs a bailout as it crossings

the threshold. what it depends on is largely what the schedule of coming bond maturities is. for pain we are a sizeable bond maturity coming on september 15th or so. i think that time frame is the critical period to look at in terms of what the spanish government needs to sort of propose before then in order to get private markets fairly comfortable with it. i will say one thing, the ecb, as they showed last week, while they have the power to really decide or solve, if you will, probably the wrong word, but support borrowing cost among sovereigns, they have passed the ball on to fiscal policy makers. i think right now it entirely depends on the ability of very dispirit interests to get together and work together. >> does that mean we can sort of relatively speaking, get through the rest of august without any big upset? >> yeah. we're tracking the event

calendar very closely here. i think the next big watershed date is september 6th, the ecb's next meeting to understand whether they'll provide liquidity support. there's no major spanish event that provides that potential oh no moment. yesterday italy's gdp release, slightly better than economic forecasts suggested provides one of those potential major events. and it passed without a hitch. that's a positive thing when it comes to italy. >> we'll be back with you after this. also still to come on the show, disney reports record profits as people are still flocking to its theme parks. will europe's financial crisis make a dent in the magic kingdom? we'll break down results next. [ female announcer ] want to spend less and retire with more? then don't get nickle and dimed by high cost investments and annoying account fees. at e-trade, our free easy-to-use online tools

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disney's third quarter profits rose 31%, beating forecasts, although revenues were shy due to deferred profit at espn. "the avengers" made $1.4 billion worldwide. disney already has a sequel in the works. strong performance at cable networks and theme packs helped boost earning reports.

ceo says strength in the brands appears to outweigh economic weakness, even in europe. >> we've seen a consumer that is willing to step up and pay for product they believe in, they know they'll get good value from. they basically see as high quality product. when we invest in that, the cruise ship business, the recent expansion and additions to our theme parks, we see increased business. >> well, ron grover is the l.a. bureau chief of reuters and knows a thing or two about disney. thanks for joining us. what did these results say to you about the strength of the company? >> it's a very strong company, alleges has been, and as iger says, as you had him saying, brands carry the day and they've created a lot of good brands. they bought marvel, they bought pixar, built out the theme parks. they have brands in a time of economic hardship, brands sell. >> i wondered what they said over theme parks. it's surprising that people are

still going and that the company still might raise profits further here and they still have room to do so. >> it's a shock to us all that those prices keep going up and people see -- keep coming. there has to be a top to it. i don't know what it is. it's like clock work. they raise it every year. >> despite weakness in europe. ron, i mean, what to are you are the real pressure points and worry spots for this company? >> well, the one that was acknowledged by the market, there was some aftermarket trading in which the stock declined, was espn. espn is usually a really strong driver of this company, has been for over a decade. for the first time in quite a while, they weren't quite as bullish. they talked a little bit about the affiliate fees being moved around, they weren't able to book it. they had -- the advertising was soft, close to the olympics. for the first time in a long time, the market started thinking, what's going on at espn.

i don't think anything is going on at espn but a little hesitancy. >> what's going to be the driver for this company? is it still going to be this sort of new franchises they've bought? >> well, yeah. you know, they have all these marvel franchises. they've got a thor movie, another avengers movie. the avenger movie did $1.5 billion in worldwide sales. they'll even make a tv show on it. they're hot on this particular brand right now. >> i wonder, shares when we last looked in frankfurt trading was down a little bit. they might have something to do with the espn weakness you saw. despite being on such a good run, is it risky to put faith in the fact they'll be able to keep turning up wins, especially given that high profile stumble of john carter? >> well, yeah. that shows you what happens when you rely on hit films. they don't always go up the way

the avengers has. that's the thing they have to worry about more than anything else. they only have so many pixar films they can make, so many marvel films they can make. every once in a while you get a loser, like in the case of "john carter" soaking up a lot of their earnings. >> we know in the this business you get hit and -- it's hard to know which is which. thanks for joining us. particularly at a very early/late time on the west coast. >> it's a pleasure for you guys. >> we appreciate it. thank you. still to come on "worldwide exchange," we'll bring you the bank of england's inflationary report and ask if u.s. markets can continue their rally this morning.

latest inflation report from the bank of enland is out. we'll go straight to mervin king. >> and a gradual recovery in output. nevertheless, we are navigating rough waters and storm clouds continue to roll in from the euro area. output has contracted in each of the past three quarters, but the underlying picture is probably not as weak as headline data

suggests. the extra bank holiday in june is likely to have reduced outputting q2 by around 0.5%, an effect that should unwind in q3. a large fall in construction output in the first half of the year, which seems like survey data, is unlikely to be repeated. even looking through those erratic factors, the underlying is that it's been broadly flat over the past two years and continually disappointed expectations of a recovery. in contrast, the labor market has remained surprisingly resilient in recent months. private sector employment has grown robustly and unemployment has edged down wards. the resilience of employment combined with the weakness of output means that productivity growth has been unusually low.

that continues a patent of weak output and productivity growth that is difficult to explain. we cannot be sure how persistent that weakness will be and that's one reason why the committee has lowered its forecast for growth. a major concern for the committee in recent months has been the rise in bank funding costs related to the euro area of crisis, which has fed through into higher rates for domestic borrowers. the new funding for lending scheme, a joint bank of england and treasury initiative, was designed to reduce those pressures. the scheme provides incentives to banks and building societies to lend more to uk households and businesses. the design takes into account before the scheme a number of large banks planned to reduce their lenning to the real economy. the funding for lending scheme is bigger and bolder than any initiative so far tried to get

banks lending again. although its overall impact is uncertain, the early indications are positive with some great banks cutting their loan rates. by the time of our next report in november, it should be possible to say more about the initial effects of the scheme. the economy will continue to face headwinds over the forecast period, from the fiscal consolidation and the tight credit conditions at home, as well as from the difficulties in the euro area and a broader slowing in the world economy. the recession in the euro area is damaging demand for our exports. a black cloud of uncertainty is hanging over investment and the weakening euro is a further obstacle to the adjustment we need to make in our net trade position. our efforts to bring about a rebalancing of the uk economy will require patience. the committee's overall judgment

about the outlook for four quarter gdp growth is summarized in chart one on page six of the report. as usual, it's based on the assumptions, bank rate follows a path followed by interest rates and size of asset purchase program remained at 375 billion pounds. in the near growth, growth is subdued but further out the recovery gradually strengthens as some headwinds abate and stimulus announced in may takes effect consumption is lickly to be supported by real recovery in take-home pay as external price pressures fade. and the funning for lending scheme helps to ease credit conditions. the overall outlook for growth is weaker than in may, reflecting downside news in the near term and in the medium term the possibility that the weakness in output and productivity growth persists.

gdp growth is more likely than not to be below its historical average rate in the second half of the forecast period. cpi inflation has continued to fall from higher 5.2% last september to reach 2.4% in june, and is expected to fall further this year. twice in the past four years, inflation has risen above 5%, as the result of external price pressures. on both occasions the committee said inflation would fall back. and on both occasions it has. over the past three months, commodity prices have fallen and as a result, the outlook for near term inflation is lower than in may. the committee's best collective judgment of the outlook for cpi inflation is summarized in chart three on page eight of the report. it's based on the same assumptions about monetary policies as chart one. inflation is likely to fall further from current level to be

around or a little below target for much of the forecast period as the impact of external price pressures eases and domestic cost pressures remain subdued. at the forecast horizon, the risk to inflation around the 2% target are broadly balanced. unlike olympians who have thrilled us, our economy has not yet reached fl fitness but it is slowly healing. many of the conditions necessary for a recovery are in place and the mpc will continue to do all it can to bring about that recovery. as i've said many times, the recovery and rebalancing of our economy will be a long, slow process. so, it is to our olympic team that we should look for inspiration they have shown us importance of total commitment when trying to achieve a goal

that may lie some years ahead. thank you. i would be grateful if you could identify yourselves before asking a question. plenty of you here today. in the interest of getting as many as people possible the opportunity to ask a question, please do limit yourselves to a single question. obviously, if there's time, we'll then start going around again. ed, would you like to take first question? >> ed from sky news. governor to clarify, you have cut growth forecast for this year but you're expecting a rebound over the following quarters and years. this is what the bank of england has been forecasting in previous years, ever since 2008, you were forecasting a big bounce back for the economy and you've been proven wrong. isn't it fair to say, to borrow your olympic analogy, the bank of england has really fallen off

the medals table entirely when it comes to its own forecasting record? >> no, i don't think that's true because if you look back as i said over 20 years, this isn't stop the ball contest where you're trying to hit one point on the picture. in is a question of assessing the balance of risks. we've seen exactly why growth didn't pick up in the way our central paths would have suggested when we made it two years ago, but we are assessing the balance of ricks. we know why growth didn't pick up. it's largely to do with the developments in the euro area, combined with have sharp and unexpected rise in energy and commodity rises which led to the biggest squeeze in take-home pay for almost a century. those things explain weak growth in the past. looking ahead, those factors don't continue. enormous uncertainty about the euyou'reuro area, which is why not forecasting a particular number for the future.

we don't do that. we're assessing the balance of risks. the squeeze on take-home pay is coming to an end. we think it reasonable, therefore, the continues adition place for some gradual pick up in consumer spending and pick up in output. it's more likely than not that growth will be ahead through three years, meaning a continuation of low growth for quite a long time. >> we will stay with it. peter, chief european economist joins us now. a slight pick up as we talked about. talking about inflation, just to recap on that. inflation rate is below target for mid-2013 to mid-2015. as they look at the impact of scheme for funning, they just

launched another bout of qe. >> i think they're leaving the door open for future easing. i think my expectation is that they probably will do some more qe in november once this current 50 billion batch is done. they don't know how effective this funding for lending will be. qe probably isn't as effective as first round of qe was. people have been talking about the possibility of them cutting interest rates but i think they've always argued that's going to undermine banking sector at a time they don't need that. i'm not really expecting an interest rate cut. i think that's why the market has been a bit disappointed because the market has been pricing in interest rate cut. >> certainly, we expect that or the market seems to expect that from the european central bank. to what degree do moves of ecb and fed play into what the bank of england do in. >> they play into it, but mervin

king always makes a big play how we look at what's going on in the uk and respond accordingly. he won't be second-guessing. >> he says the biggest risk to uk outlook is the eurozone crisis. >> they misforecast, yet again, because the crisis has turned out more gloomy and more serious than people have been expecting. i completely agree with him. the reason the uk economy is struggling so much because of the huge clouds of uncertainty that are hanging over the uk because of the sovereign crisis. >> key phrase is projections, more stimulus to keep it on target. >> exactly. if you look at key chart to see what are the chances of inflation being below -- i haven't seen the chart exactly but it's going to be slightly below 50%, which means the chances are that they're going to want to do more work. >> what's remarkable, some other

comments he's make being how it will be 2015 before the economy is back to represession levels, we're still well below potential. given that, is the fixation with that narrow band with targeting overdone? >> well, that's the means to the event. i think the point he made that was interesting as well is that he made the point employment is doing much more than you might expect, given what's happened to gdp. he made the point that productivity is much more -- much lower than people had been expecting. that suggests production potential in uk is lower than previously thought. there's been a permanent knock of the ability -- >> they're also saying official figures of gdp have exaggerated underlying weakness because they're particularly focusing on construction. we've had a big -- construction has been a big component of weaker numbers. doesn't reflect the employment -- employment figures don't reflect gdp numbers. maybe they're suggesting construction is out of line with the surveys? >> yeah, i think it -- i think

people that have looked to this more carefully than i certainly suggests saying the surveys are pointing more at construction. when you look at construction, you look at jubilee holiday, both of those things are a downward push on the data at the moment. >> the bank here is sort of suggesting there may be room for more action. i mean, i suppose we're wondering whether we get some fresh action your side of the pond coming up in september. we're calling for a sort of little move, a talking down in the u.s., so to speak, with the federal reserve likely extending low rate guidance. currently the fed pledged to hold short term rates close to zero near end of 2014. there's the potential, better than 50/50 odds at this point, but not certainty, that we get additional asset purchases perhaps at november fomc

meeting. something in king's speech that struck me was a comment briefly that suggests their inflation outlook is a little more elevated than that sort of -- than the potential downside risk. he indicates risks are balanced. i don't have the chart in front of me but that was a poignant comment suggesting that similar lus over in the uk is by no means a given at this point. >> that's perhaps why we're seeing the stronger reaction in sterling than you might otherwise expect. just joining us on "worldwide exchange," these are your headlines -- shares of standard chartered rebound in london trade as reports suggest discord between u.s. regulators involved in the probe. >> disney reports some super hero sized quarterly profits thanks to the global box office smash "the avengers". bank of england cut its forecast for growth and inflation, signaling more stimulation may be on the way.

ibex down 2.3% but some markets down 10%. >> we've seen the ftse go down from 0.4% to 0.6%, maybe something to do with comment from king. take a look at what's happening to u.s. markets. red arrows after stronger stretch of days implied open for the dow 32 points, 5 and 6 for s&p 500 and nasdaq. still to come, wall street looks to run its current win streak to four straight. we'll see as we run through u.s. agenda and trading day, whether that will happen just after the break.

just tuned in, mervin king has been outlining latest quarterly report. they have cut inflation rate, one of the key phrases is projections says more stimulus may be needed. they're keeping the door open to more stimulus should it be needed at some point. they're also downplaying the success or the impact of the funding for lending scheme. risk to that are to the upside. >> among top stories we're watching this morning, disney's third quarter profits rose 31%, beating forecasts, although refuse news were shy due to deferred affiliate fees at espn. profits at disney's movie studios rose six-fold, thanks to "avengers."

disney already has a sequel for that movie in the works. strong performance at cable networks and theme parks also helped boost results. ceo bob iger says strength in the company's brands appears to be outweighing economic weakness even in europe. >>. >> we've seen a consumer willing to step up and pay for product they believe in, that they know they're going to get good value from. they basically see as high quality product. when we invest in that, the cruise ship business, the recent expansion in additions to our theme parks, we see increased business. >> elsewhere, dutch financial group ing missed forecast for the second quarter by taking a hit by cutting exposure to spain, posting a 22% drop in net profit. the group cfo warned earnings will continue to suffer.

>> we've given a range what we expect long-term, 40, 45 basis points through the cycle normalized. we're at 70 now. as i say, difficult to predict the future but will be linked to economic activity. >> they were under investigation by u.s. similar to the one standard chartered is under investigation. they tell cnbc the fine has been paid and issue is behind them. something i'm sure standard chartered wishes. shares are trading higher after posting record losses yesterday. up 7% now. press report suggests a fight has erupted between new york authorities and regulators in washington over the decision by city's financial regulator to take action against the bank. it's claimed the treasury and the federal reserve believe the accusations of illegal dealing with iran undermine talks with a

potential settlement related to those transactions. white house has confirmed the treasury is in close contact with authorities on the matter, adding the administration takes sanction violations very seriously. >> let's take a look at what's on the agenda today in the u.s. mcdonald's reports july same store sales around 8 a.m. eastern after recent weakness we'll look for a rebound there potentially. 8:30, second quarter productivity and labor costs. computer sciences, macy's, ralph lauren and sodastream will report before the open and news corp. out after the close. just happening, germany auctioned off 3.5 billion euros of ten-year bunds at average year of 2.14%, compared with 1.13% at last auction. that price was on the low end of the range. still with us, chief fixed income strategist. scott and peter, chief european economist at vanguard asset management.

your thoughts on how that german auction went over? >> it's a signal we saw ten-year bunds trading 1.45 half an hour or so so signal, strong safety demands. they're looking for higher quality names within the continent of europe. germany remains the gold standard. and i think we're going to see continued strong demand, continued low yields at auction for german bunds well into 2013. >> there was the thought, peoplpeople were wondering, when does burden sharing start impacting bunds but you don't see that coming into play any time soon? >> not particularly. when it comes to bank investments on the continent, relatively few alternatives. if you have a bank that takes deposits in euro dough he

denominated cash, they went to lend to euro dough nam natuedom countries. you just don't have that same level of strength and liquidity in any euro dough nominated currency right now. >> main event you'll be watching as we gear up for u.s. session? >> well, to be honest, today's calendar is pretty slim. we're kind of cleaning up after what's a decent but not spectacular earning season. i think what we'll see is more of a slow moving market today than anything else. not event-focused. >> slow moving. peter, productivity caught my eye. you were saying the uk's productivity may have set to a lower level. do you think the u.s. is in better shape? >> yeah, i think it is. i don't think it's set by the same headwinds the u.s. is because of the european crisis. this mood is uncertainty is effect affecting everybody and that's why we're seeing in the data across the globe a marked

softening in the fall looking data. i think that's worrying people. >> what is really responsible, you think, for this resetting of productivity? >> oh, well, resetting of productivity in the uk is very much to do with impact of the first financial crisis which has hit particular industries in such a way we're never going to get gdp back. that plays into the point about inflationary pressure in the uk maybe being slightly higher. if it was just demand that was lower, then that would call for stimulation. if the supply side has been hit, then maybe we'll see inflationary pressure coming out sooner. i think that's what the bank of england has alert to. >> what asset prices have done, particularly looking, you know, the cac up 12%, dax up 9%, since draghi comments, investor relief or reaction justified in fundamentals and yet the

challenge in eurozone? >> people were disappointed by draghi press conference last week. if you get down to it, the ecb have said they are now going to do something concrete once spain, perhaps italy, go to the sfc and make a request for funding. i think that potential for concrete action from policy makers is providing a little room for optimism. we're by no means out. woods yet but a light at the end of the tunnel. >> i'll be able to continue this conversation at some point. weert westerway from vanguard asset management. >> that's about it for today's hoe. for uk viewers we'll continue with bank of england press conference and get a wrap-up of that as well. >> we'll see you back here tomorrow.

good morning. today's top stories, the happiest place on earth is a little happier this morning. disney reporting better than expected quarterly results, saying consumers are still spending. but there are european fears, the bank of england warning the uk economy will continue to face headwind. its chief warns a black cloud of uncertainty is hanging over investment. it's wednesday, august 8, 2012. "squawk box" begins right now.