hello. welcome to today's edition of "worldwide exchange." i'm ross westgate. >> and i'm kelly evans. >> here are your headlines from around the world. spain's gdp contracts for a sixth straight quarter, down more than initially expected as its most troubled lender posts the country's biggest ever loss. and the finance minister raises taxes on top earners rather than cut spending in an election year. and the eu moves to clamp down on big paychecks in the banking sector, looking to cap bonuses on a banker's salary as early as next year. >> announcer: you're watching "worldwide exchange," bringing you business news from around the globe.

>> okay. we're back. you're mobiled up and we have some data. >> yes. it's such a mobile world, isn't it, in many ways. let's first talk about what's happening with the german unemployment figures. we were waiting on these. it turns out 6.9%, that is the unemployment level for germany in january. the unadjusted figure is 7.4%. it's higher than expected. you can see the forecast was for 6.8%. the prior month was revised higher. the rate itself was unchanged. that's a right i think here in london or certainly in the u.s. they wouldn't mind seeing at this point. >> we've created a million private sector jobs. >> in britain? >> yeah. >> well, congratulations. >> there you go. that is the great conundrum, right? >> it's true. the different between -- well, and even with germany. the liesh market social security holding up, despite the sharp contraction in the fourth

quarter. although this will probably add to the sense that the german economy bottomed during that period. >> did i see any -- i haven't seen any, no. i think that's out a little later. plenty to get through on today's program. >> it's good to be back, by the way. >> biggest take away from the mobile world congress? what's the one thing you saw that you thought, oh, that is really cool. >> i go to a conference like this and i think, machine res taking over the world. >> that's the thing we talk about. i don't like those machine peps. >> exactly. so 50 billion connected-m devic. that's a figure thatjs -- some y the point is, it isn't just about you and i talking to each other on a mobile phone. we are well beyond that. >> we don't need a mobile phone. we're here, we sit next -- >> yeah, you see, there's less and less of this happening. i find it a little sad. there were a little of really cool goojts, it's just that i

haven't been much of a gadget head. >> nor me. we're talk to germany, talk about the risks of volatility. >> and bar a last-minute miracle, the sequester in the u.s. kicks in tomorrow. we'll get the views from the washington elite about the impact of those pending cuts. >> we'll be in dublin at the ibco conference. is the celtic tiger ready to start roaring again? we'll hear from the irish leader within the hour. don't miss out on that. >> it's budget day in india. the finance minister has unveiled a plan calling for tough choices and increased spending. how are investors reacting? we'll watch markets and get a view on that in particular. >> plus, in japan, abe's government has selected a flock of dove to head up the bank of japan. sixuan has more details for us

in asia. hi, sixuan. >> i thank you, ross. yes, it's official. the japanese government has nominated harihiko kuroda as the bank of japan chief. but the appointment is still subject to approval, but lawmakers in both the lower and upper houses. kuroda will ask for nominees. they will get their testimony in parliament in the coming days. this is good news for equity investors. kuroda has been pegged as an advocate of radical easing and a tough deflation fighter. he has been pushing for more aggressive bond buying and has the boj will be able to meet the 2% inflation target in just two years. the nikkei 225 opened up 1% at the get-go with the market fully

accepting these nomination peps it finished the day up a solid 2.7%. back to you. >> okay, sixuan, thanks for that. joining us now is masuki kitchikawa. thanks very much for joining us. with this appointment, what happens now? >> well, actually, the nomination of mr. kuroda is a best of choice in my view because he's a very strong performer for more aggressive monetary easing. but as a former minister in finance in charge of international finance, he has a very deep understanding of international financial markets, including frank change. also, he has a strong skill to manage the strong bureaucratic institution like boj. he's a best choice as the next

governor. >> does this mean it's more likely we might change the bank of japan law, as well? >> well, yes. the nomination was a kind of surprise and he haas has been a kind of proponent for revising the boj low. if the boj turned out to be slow to change, even after the new governor is inaugurated, i think that the prime minister abe would become more serious about changing boj low. so nomination is kind of message from the cabinet to the boj people. >> the market has priced in a lot. the nikkei has gone to more than 11,600. the yen from 78 up to 95 against the dollar. we've moved a lot on asset prices. i'm just wondering whether, you know, even mr. kuroda can meet the expectations that have been

priced in. >> well, i think, you know, under mr. kuroda's leadership, he would accelerate the spupdent as well as lengthening the maturities it would hold. it would have much more impact on the exchange rate. the yen could resume weakening to some extent. 10% exchange. >> exchange rate would lead to a 5% change in cpi. if mr. kuroda is able to sustain the japanese yen, it would affect the inflation from next year. >> and what prospect is there from the bank of japan to buy foreign assets here?

>> direct involvement by the boj is very unlikely because it is very dangerous. regarding a kind of sobering wealth fund type of scheme, to fit boj with supply and fund, there is some possibility of that. but probably trying adoption. >> all right. thanks very much, indeed, for that. >> now, speaking of weakness, the spanish economy has shrunk more than expected in the fourth quarter. the final reading of gdp shows 0.9% year on year basis. it's the steepest drop on domestic product since 2009. bankia has contracted worse than estimated in the fourth quarter. stephane is in madrid following this story for us.

good to see you again. and it's amazing that a company with a share price this low can still turn in a loss this large. >> yes. and there are still some discussions to fix the new price for the bankia shares because it has to take into account the impacts of the recapitalization and the bailout of the bank. madrid would like to set a new price at 10 cents per share, but the european commission according to some sources would like only one cent, whatever the scenario. it's true that the initial investor who both their shares one year ago will face a significant or heavy loss, their initial staple will be dilute d as 97%. so they're going to face a significant loss. the numbers out this morning is the record loss ever posted by the spanish company. 90.2 billion euros.

it was affected last year by some significant charge. one of them was due to the transfer of their toxic assets to the spanish bank, nearly 12 billion euros of charge. the bank took some -- to cover its potential losses. it was hit by 26.8 billion euros in exceptional items. the bank plans to return to profits this year and it's targeting a net profit of 1.2 billion euros for 2015. it says that the confidence is coming back, that the deposit, for instance, have been proved by 975 million euros in the fourth quarter and the bank announced this morning that it's forming loan ratio was up 13% at the end of december, up from 13.3 at the end of the third quarter. of course, it's still a very, very high level for the nonconforming loans, but the trend is there. >> stephane, just away from bankia, we just got the latest

current account deficit figures so that the december current account deficit, 4.87 billion euros, this is from the bank of spain we're now hearing. that means a 2012 current account deficit, 8.3 billion. it was 37.5 billion since 2011. they have made progress on that. their challenge, as we've seen, will be still hitting their deficit targets for this year. >> and there's no way that spain will manage to reach its deficit target without any economic growth. kelly just mentioned the gdp number for the fourth quarter, 078%. that was even steeper than the flashes, the worst quarterly performance since 2009 and last year the spanish economy shrank by 1.4%. it's the worst performer ever since the country returned in 1975. and, of course, with the economy in recession, there's no way the country can improve its labor market. there's no way the country could improve its deficit.

that's the reason why maraano rajoy is asking for more time. the european commission was ready to give more time, but spain will have to give more austerity measures, meaning less economic activity, less gdp growth means more unemployment. that vicious circle is going to make it difficult to go out of this cycle. >> stephane, thank you for that. we'll catch you a little later. the dutch super market operator rhold saw margins rise both in its hold market and in the u.s. where it runs the giant stop and shop retail chains. >> it's catchy, that. i spent a lot of time there in connecticut growing up. >> okay. >> we'll take you there some day. >> take me to the local stop and

shop in connecticut. the company has decided to buy back 500 million worth of shares and raise its dividends 44 cents a share. >> which is interesting because we know grocery chains have not been the friendliest environment for them. we'll have more on this later on in the program. >> and we spoke to a ceo a little earlier in what prompted these moves. >> clearly on our free cash flow, we delivered record high 1.2 billion over last year. so that is why we were looking at share buyback to our performance of the last year and our performance cea divestments. does it work? i think it's working. it certainly improves the extra share. so both sides, of course, we do the right things. >> carolin did ask him about buying harris teeter. he wouldn't comment but said they were looking at way toes deploy cash.

we'll take a look at these numbers later on in the program at about 11:10 central european time. ross. >> thanks very much indeed for that, kelly. right. here we are. six to three advancers outpacing decliners on the dow jones stoxx 600. european markets are up at the session low. the xetra dax up 31, the ibex up 24 points. the ftse mib down 0.4%. let's show where you we stand with italian bond yields. post that well received auction, we've lowered on yields this morning, 4.768%. spanish yields slightly lower, as well. here is the one i was talking about, gilt yields. hosts that downgrades are low. 2.1497. we're up on the day. we were down around 9.145% during the program yesterday. currency markets, euro/dollar,

we hit that low, 1.3018 on tuesday. just above it at the moment at 1.3118. not much yen reaction to mr. kuroda's nomination to the bank of japan governor. 92.31 is where we stand. relatively unchanged as is sterling/dollar. off its recent lows of 1.51.71. that's where we stand in europe. now more back to sixuan for more on that asian session. >> thank you, ross. it's a relief rally here in asia as investors pick solace ask drag its comments on the eurozone. the nikkei jumped a stunning 2.7%. the nomination of the boj chief boosted sentiment. exporter stocks rebounded on bargain hunting. komatsu shares added 3 .7% today.

also a strong session for the shanghai composite up over 2%. this despite the pboc raining from its liquidity operations on thursday after draining from the markets this week. property developers rallied after the country's largest bank posted a 30% jump in its 2012 net profit as shares gained a whooping 6%. in hong kong, the hang seng chopped up a 2% gain helped by financials and energy plays. property counters lent support after final end posted an 80% jump in its first half underlying profit. the kospi gained over 1%. meanwhile, australia's asx 200 had its best day in seven months as resources continued to shine. that index had rallied 4.6% in

february and it's a 10% gain year-to-date. india's sensex, down about 0.8% while the country unveiled a bigger than expected outlay in this year's budget. back to you. >> sixuan, catch you later. back to you. >> now, we're going to take a quick break. investors appeared to be running away from safety into the far reaches of the risk spectrum. high-yield bonds which by extension are in the lowest quality are in the midst of a record year with 62 billion hitting the u.s. market according to recent reports. how long can the rush last? see what experts have to say at cnbc.com. also, following a decade of hugely successful gadgets like at this phone and ipad, apple could be facing an innovation crisis, much more profund than simply needing a new device. apparently china is partly to blame. find out why at cnbc.com.

75, ross? >> why stop there? right? i mean, keep going is what i say. the wait is over for one of india's more highly anticipated budgets. we'll be going over to mumbai right after this.

with the threat of a credit downgrade hanging over him, india's finance minister has pulled the wraps off a new budget saying changes have to be made. he ames to trim the deficit and raise tax on top income earners and having profits on large companies. but the budget boosts spending by 16% in a bid to boost growth. rindell has more from us live from mumbai. hi, rema. >> hi. thanks so much for that. largely, the union budget this time around has turned out to be a nonevent. in context to global markets, for this time around, the budget is not in -- including any big

reformist ideas. why would their expectations that there could be? it's presented by what was called the dream budget. expectations were running high and markets were betting on the man to alleviate the growth in india and come out with big bang reform. secondly, there is also some concern that there could be down to investments coming through the ruse. the tax residency or the drc is necessary, but not a sufficient condition for the ddea benefits. so there is a bit of concern coming out of the tax side with respect to more issues. so be watching out for that. but apart from that, he has met the target but this year it's time for the 5.2% next year. 4.8%. planned expenditure has gone up by 30% on a year on year basis. he's gone ahead and, taed the super rich, as well. there is a 10% surcharge on

annual income earners of over 1 clod. largely, it's a nonevent. on that note, it's back to you. >> okay. rema, thanks very much. let's pick up now with rahol bojoria. rahul, it's been said in the past india's consolidation during this near term boost. do you still feel that way? >> the budget was pretty pragmatic in terms of laying out the agenda on what's of need right now. there has been some fiscal consolidatio consolidation, but expenditure has not been cut. in fact, it has gone up significantly in order to boost growth. at the same time, consumption of luxury items is the one which has basically suffered and it seems that the numbers overall look pretty credible. >> pretty credible, i guess the question, though, becomes just how much fiscal wiggle room the government has here.

is it the best approach in your view to go to the wealth tax, increased spending route here? >> well, i think that was part of the calibrated populism ahead of the very important national election. however, it's not going to boost revenue specifically. i think the revenue uptick is essentially going to come through things like divestments which the government has set a very aggressive target for. if they're able to meet that target in the next six months of the fiscal year, i think the credibility of the current numbers will rise even further. >> it's not just revenue, they need to boost growth. it's higher taxes on the rich and on large companies, is it a way to boost growth? >> i think the finance minister has made it clear that this is going to be a one off tax. this is not the way to finance the fiscal deficit. i think, again, the symbolism is more to try and boost revenues.

just to ensure that the credit outlook of the company itself does not deteriorate. at the same time, they have given out some concessions to boost the domestic economy. so i think overall, it's been a fairly pragmatic, fairly balanced budget, although the gross pouring numbers did surprise the markets on the up side and they're taking it negatively. >> i was just going to say, we're seeing the sensex now down almost 1%. despite what you're laying out here, there's clearly some investor concern about what this means for india. >> well, i think given the 10% surcharge on corporation, there has to be a technical increase in stocks. payments have to be paid back. beyond that, i think it really -- the tendency has been to basically take off budget measure toes try and boost sentiment. that's been the modum operan did i of the current government.

because, again, the government has to meet its divestment targets and for that, it needs a buoyant equity market. >> presumably, we're going to have high gross borrowing and high spending. that will be inflationary. how will the rbi respond? >> well, i think the rbi has been doing a good job in sort of managing the liquidity and at the same time ensuring that it does not send out any negative signals in terms of monetization of debt itself. i think the rbi will probably look at the current budget with a pinch of salt, but still sort of probably take some comfort from the fact that it's not a populist budget as far as expenditure is concerned and that may ally some of the inflationary concerns. >> rahul, thanks for that. plenty more still to come on the program. >> that's right. we'll get analysis on the german jobless numbers. they were worse than expected, at least on the headline figure there. stalling for europe's largest

economy. >> plus, in a first on cnbc interview, we'll speak to the irish leader live from the ibec conference about the country's plans to re-enter the capital market.

japan has declared it wants kuroda to be the next bank of japan chief. india's finance minister chooses to tame the deficit by raising taxes on self-earners rather than cut spending in an election year. and the eu moves to clamp down on big paychecks in the banking sector striking a controversial deal to cap levels of salaries as early as next year. >> european equity markets today, slightly firmer. not by much. the ftse 100 up 0.5%. we are down 0.5% for the ftse mib. nevertheless yield, kelly, in italy and spain have been higher. >> and here is the question, will it affect bond yields more?

at the moment, spain is shrugging it off. 5.4% and 4.8% respectively. they are moving slightly higher. it is a different story if you look at the bond space versus equities this morning. >> yeah. it's not often you get that. you should probably be trimmed by what bond markets think. on the currency markets, pretty steady. no big movements from where we are on tuesday. dollar/yen, a lot of volatility. we're down in the low 90s. up to 94.77, which is a 33-month high. and not much reaction today. >> and look, we're back down at 92 after being near 95. we're guardianship giving up 0.1% and on a day when the nikkei was up almost 3%. this is the typical mirror image we've seen in the last couple of sessions. >> on monday, we hit the low 9 is. >> there is a real move here.

>> more and more people are talking about the 20,000. >> the key thing is if the retail funds really -- they have been so disengaged and there's now reports that brokers are getting calls from the japanese investors and saying we might be reengaging in this market. >> on average, japanese pension funds have like an 11% equity exposure in their portfolio. they increase that by a couple of percentage points each. >> and retail, as well. you have to watch it. the irish wcco conference is under way in ireland. of the eurozone countries hit hardest by the debt crisis, the country is now on track to exit its international bailout

program and return to the market later this year. but can ireland really grow its way out of years of financial and economic crisis? jules is in dublin. how sustainable is the progress we've seen? >> well, it's a good question, ross. what we're seeing actually ireland expected to be the strongest growth throughout the euro area this year, around 1% to 1.2%. so the stories have been boosted by exports. it's been a huge jump in competitiveness, a 17% drop in unit later costs, knows at 10-year highs. there's certainly a good story there and perhaps that belie tess fact that we've got a weakness in domestic demand. very low is this weather. they can balance the two in for the irish economy. is it now time to step away from the austerity program? and perhaps introduce a bit of stimulus, of course, to -- it's a very important year because the bailout process is due to

end. can they step away from that? can they get market process? and that perhaps could derail that. those are all questions i'll be asking ender kennedy. >> we won't ask you to spell that. because that would be too mean. it's going to be a great interview. >> at least she got the pronunciation right there, tishuk, meaning being irish or galic for prime minister. >> yeah. anyway, as you heard from jules, endar kenny is going to be joining us here on cnbc. >> not in galic. going back to japan for one second, on the news front there, we are hearing that all nippon airways, the airline that was initially at the center of the boeing 787 dreamliner issues says it will appoint a new ceo in april and the in you ceo will

be hold ago briefly on friday. the w.h.o., world health organization, is saying that fukushima raised cancer near the plant. not surprising, but giving us some initial detail as to just what health risks people are sxoed exposed to. >> do we know the hit yet from all the grounded boeings -- for nippon airways. >> oh, from the grounding. i remember that they said something. >> we'll find it. we'll find it. >> on it. identity. >> she's on it, ladies and gentlemen. the jobless total in germany has dropped less than expected in germany. the number people out of work fell by 3,000 compared to the 5,000 estimated by economists. the unemployment rate stays at 6.9 mers. >> yeah. the former italian prime minister sylvia berlusconi says italy needs a stable condition.

in a video message, the leader of the center right said no party can ignore the value of government stability at this stage. and markets certainly aren't. aels where, premier mario monti met with jose mamuel barroso last night saying italy is undergoing an ambitious reform process that, if fully implemented, will significantly raise its growth potential. >> the ides of march, julius ceasar, right? >> yes. beware, beware, the ides of march. it's so perfect, isn't it? >> and the man hoping to become germany's next chancellor has been snubbed by the italian prime minister after he called sylvia berlusconi and beppe grillo clowns. he made the comments on tuesday

at a campaign event. >> i am a35u8ed to two clowns, one professional clown who is not upset that he is called so, grillo. and another one who definitely is a clown with a certain testosterone boost. >> now, those remarks led georgeo nepolitano to cancel a dinner with steinbrook last night. napolitano said the meeting was no longer possible and what's interesting is napolitano is supposed to be meeting with angela merkel for lunch today, i believe. >> no clowning around at that lunch. >> well done. i wish i were a fly on the wall for that one. >> it does make things extremely awkward ahead of that meeting. >> there's nothing quite like, you know, all the stereotypes that people talk about.

there's nothing quite like when somebody comes out and proves stereo typical -- >> confirms that sense, contactually. >> mario draghi indicated his intention to keep the euro going, saying we are far from having an exit in mind. >> at this point in time, economic policy remains cognitive because we are far from being in a situation where we can actually start having an exit in mind. we see that inflationary expectations are very well anchored. if anything, inflation is going down. and we foresee for next year a significantly an inflation which is significantly lower than 2%. >> if we're going to see

inflation significantly below 2%, it's being suggested there's room for them to do more, isn't he? >> possibly. i think for the most, the ecb, i think everything more or less plans out as the ecb expected. we had good sentiment data coming out yesterday and i think more importantly, we have seen the euro depreciated again. and then i think that takes, of course, a little bit the downward pressure that we are seen on inflation, potentially lining up fo for next year. i think that has come down now significantly. so i think for now the ecb is well advised to keep its key policy rates on hold and maybe, you know, keep that gunpowder which is more symbolic gunpowder that they have less maybe if things turn out to be worse than expected later on. >> tobias, the ecb is tightenling its balance sheet at the time when most other countries, tus auto, japan, for example, the uk are expanding theirs or at least contractionary. so can it afford to stand pat when by standing pat that

amounts to policy action? >> i think we have seen that the the euro exchange rate has mostly become a risky asset class for now. so i think it's probably more driven by events, politics that we have seen and an uncertainty in the markets. so i think that kind of slippinging of the balance sheet was in the genius. as the ecb always says, it was driven. i think that after all will not have that impact on the euro exchange rate and, hence, i think inflation and domestic output. so i think the ecb can do that, can allow it. i think as we just heard, he wants to make sure that they are far away from exiting. >> yeah. and just on reflection, the italian election were clearly a rejection of the brusseled led reform package, without which, of course, the omt can't work. i'm just wondering if this continues and we don't get back

on the reform agenda as required by brussels, at some point, people will question, well, does the omt bank stop exist? will we see the rules for the omt be loosened, relaxed? >> this i can't see. but you're right, it's certainly a concern we all have. simply the omt only works if there is a government that is willing and able to request help and to get and then activate the ecb's omt program. and the kern we have, i think this is still what markets believe and in that case, things would hopefully think yields should stay contained. but if we are heading towards new elections, there will be no government. then i think we might very well end up with the same situation we had in greece last year where the concerns in the markets are that the more radical parties

will win the second round and hence i think the ecb's own program may not work any long ir for italy, at least. still it's capable of containing contagion. we know there's a government in spain that can actually ask for help. >> thanks for that, indeed. we had comments out today for mario monti said that the eu must accommodate economic policy. >> it's a lot of rhetoric, but we still need to see the action follow up on that front. we're going to take a break. straight ahead and, yes quarterback first on cnbc, we'll speak to the irish prime minister enda kenny live from dublin about the country's plans to re-enter capital markets. stay with us.

welcome back to the program. turkey's central bank has faced increased criticism over its tactics to manage the country's economy. last week, the bank inched down interest rates by 0.25%. also put measures in to curb bank lending. in an exclusive interview, we caught up with the central bank

governor. what did he is, hadley? >> hi, kelly. i did get the chance to sit down with the governor boshi. you have prtal and mobile elections coming up just a year from now. and the prime minister and akp party are quite concerned about the economy, quite concerned about growth. they look at those numbers, 2.5% in growth and they're wondering what more can be done. they're putting pressure on the central bank saying he needs to put his foot on the gas. he thinks that the strength of the lira could be a problem for growth. here is what he had to say. >> a stronger lyra in turkey emulates domestic demand. a weaker lyra slows down domestic demand. so we should talk about rebound and not growth. so we don't want overly strong

lyra for rebalancing. we want correction in the rebalancing to continue in the future. we don't want excessive volatility in currency. >> so, again, the central bank governor refusing to get into a tit for tat with the government on its monetary policy, but keeping a close eye on exchange rates. he talked about exports, export markets. it's good to switch places he says in the next year. they're going to be focussing on exports to iraq and that will become the number one export market. kelly. >> hadley, thanks very much for that. european bankers could see a cap placed on their bonuses as early as next year. a preliminary agreement has been

reached between eu country representatives and the european parliament which seeks to limit bonus toes month more than the annual salary. the city of london, seen as a major loser in this deal. it has an estimated 150,000 staff potentially affected and i just have to say, i keep thinking i'm missing something on this story because if this actually happens, ross, the impact would be -- it would have a major impact on the city, especially at the top. what does it mean for the banks? what does it mean for the potential returns when you look at comp and return on investment for, you know, return investment capital for some of these financial names? >> look, if you're freezing pay bonuses at one times salary, which for the investment bank is quite a dramatic change, what will the reaction be? obviously, a lot of people leaving banks or you'll see -- which i suspect you'll also get

an awful lot of complex pay deals coming up. >> that, too. >> and there's a lot of ways to try and get around it. >> credit suisse and some are trying to pay with derivatives. there may be different kinds of comp. but if you're talking about the best and the most talented, you could argue about that in the banking sector always. but those employees, if they're basically looking at this saying, i can go to singapore, hong kong, new york and get my traditional bonus structure that i want, why wouldn't they do that? >> or what you might get is a lot of people spinning out. just spin out of the banks. >> can britain opt out of this? >> no. they only need a majority vote. >> to be signed off. >> by the way, over at dartmouth partners, they've put out some information on comp, which basically shows -- and this is, again, at the junior level, not at the very top. so let's take the associate

level. you know, you've got a mean base salary of 65,000 pounds with a bonus of 23,000 pounds. so not a big deal as far as this is concerned. but once you get up to the vp level, mean base salary 79,000 pounds. >> clearly it will be a problem if they press forward with this legislation. >> it's quite a hard buy. i think you need 75% of shareholders to agree to put that up. still subject to final signoff, but it's basically on the table. there you go. >> and there just hasn't been -- i think the reason why i find this all very interesting is we haven't heard a lot about this. even if it was proposed, now even with the latest that we've heard. what i would love to know is whether there's a sense that -- oh, there's no way this is going to happen, or whether it will happen but we don't think it's a big deal or it is happening, it

is a big deal. >> and it's been far the strict camp anywhere in the world with the financial institutions. so it is an amazing deal. >> is this really the time for europe and britain? i understand it's a political winner. >> i'm not sure it is much. >> does the average person on the street really care whether they cap it at one to one or -- >> no. i don't think they do. let's remind you of some of the other stories we're following today. >> that's right. rio tinto has tapped bhp bil billiton to be its new chief. his first task? helping rio chop $5 billion in cost and finding ways to keep spending in check at mining mega project peps. >> we're seeing proof in a slight pick up in data. manufacturers surveyed by the government expect the up trend to continue in the next two months. a good sign for the economy.

the south korean companies are less upbeat. south korea's january output is shrinking unexpectedly. might put more pressure on the new government to do more to boost the economy. headquarters rejected a patent lawsuit over mobile devices filed by samsung electronics, ruling instead in favor with its rival apple. samsung says lit take the necessary steps to protect its intellectual property rights. samsung and apple battle to win more market share in the smartphone face. boeing's commercial aircraft chief met with regulators today to fix battery problems on the 787 dreamshriner. we've just learn ama will be put ago new ceo in place in april. ray conner met with the new

president earlier today. still, connor says there is no such dispute over the fix. shares in boeing today, yet again, up 1.2% regardless. in fact, they're still up over the past three months, which goes back to before we learned about these battery problems in the first place. >> yeah. deciding they're going to get through it. regulators are stepping up their probe of suspicious trades ahead of the $23 billion takeover of heinz two weeks ago. reports suggest they're focusing on a complex derivative bet. the "new york times" says the sec is looking at a so-called contract for difference which let's investors bet on changes without earning the shares. it is popular in britain. the s.e.c. has frozen assets of unknown traders in a goldman sachs account in zurich. now, if you want to know, ross, whether today the dow

jones is going to break through its 14,000 high, if you want to know whether stocks generally are going fare better than they have so far -- >> i do. what's the secret? >> all of this can be answered by this tooth fairy. in good news for the u.s. economy, the tooth fairy index found the average giver is up 15% to 2.4 billion in 2012, signalling the american economy apparently, ross, is on an upswing. some unfortunate pictures there. >> teeth. >> just looks a little bit painful. right. the tooth fairy index. is there anything to it? >> so hang on, because the price of teeth have gone up, the dow is going to go through -- it's actual correlated trades? >> yes, yes. you can take this one to the bank. how much do you get for a tooth? is that a thing here, as well? >> yeah. i'm in the middle of -- we're

right in the middle of tooth fairy. >> how much do you give the kids? or does it tooth fairy give the kids? >> i think it's a pound. >> okay. what's happening in the u.s. is more and more people are getting $5 instead of $1. >> you don't have a $2 note, do you? >> we do, actually. it's not that common. >> this goes back to the issue -- >> how about a dollar? put a dollar coin underneath the pillow. >> but you know why britain has a dollar coin -- >> we have a dollar coin? >> i mean a pound coin. back in the '80s, the paper currency was falling apart too quickly. not hyper inflation. when there was more double digit, i should say, inflation in britain. the u.s. never went that route. but now, actually, u.s. dollar bills, because there's no inflation, are holding up pretty well. so there's not really any need to go to the dollar coin that might hold up better. is that interesting? that's your economic indicator.

>> you put dollar coins -- pound coins are useful. up to two parking meters. it's useful. >> true. but there's a sense that people don't like the -- i think they think this will degrade the dollar. there's such a strong dollar feel in the u.s. americans don't want their dollar to be a coin. >> so what would you like to say under your pillow? are we really asking that? is that what we're really asking? what you want to see under your pillow? we can come up with -- i'm not sure we want answers on that. anyway, you know the drill. if you do want to answer that -- do we want answers on that? >> no. @cnbcwex. maybe you can share your thoughts on boeing instead or something. >> yeah. or does the tooth fairy index matter? it's a shoo-in. don't tell me what you want under your pillow. european stocks are up 0.5%. they're pretty much near the best levels of the day.

as far as the currency markets are concerned, euro/dollar, 1.31121. not much reaction on dollar/yen, either the. >> no. but euro/dollar has been falling a little bit. we're going to watch this and see whether it takes european markets with them. bond space is still steady. >> and a first on cnbc will be joined by the irish prmt enda kenny live from dublin.

welcome back to "worldwide exchange." i'm kelly evans. >> and i'm ross westgate. >> the white house and congress are talking, but not to each other. the day before billions of dollars in automatic budge cuts are set to take effect. france government confirms its wants kuroda to lead the next central bank chief. spain gdp down more than initially expected as the most troubled lender hosts the country's biggest ever corporate loss. and the eu is going to cap bonuses at the level of salaries as early as next year. >> announcer: you're watching "worldwide exchange," bringing you business news from around the globe. >> all right.

if you're just joining us stateside, welcome to the start of your global trading day. plenty to get through today. we're waiting for an interview with the irish prime minister. it will be a first on cnbc interview, as well. a little bit of inflation. mario draghi has been talking about there is no inflation problem in the eurozone and, in fact, they're going to go below their 2% target. >> and eurozone january cpi fell 1% on the month. it's up 2% on the year. now january cpi forecast, that is right in line with forecasts. so core cpi was down 1.8% on the month and up 1.3% on the year. so if you want to play the core game, we're significantly below that 2% level. ex tobacco, january cpi was down 1.1% on the month and just shy of 2% on the year. i did just talk earlier about how there's no currency -- how u.s. paper money is holding up relatively wall because there's not inflation.

what i should say is there's no monetary velocity. there's plenty of inflation in other forms, but not much of it showing up at least in the eurozone january cpi figures. take a look at markets. we'll see if there's any reaction to this. generally speaking, some key levels for the major indexes in the u.s. were hit yet. the dow closed above 14,000. the real test will be whether it can close at 14,000 for two consecutive days. s&p is within 50 points of its high. for now, futures are pointed higher, but european markets have been a little bit mixed. generally higher, adding 0.3%. it's double that for the xetra dax. same in spain. the mib is underperforming and there's been concern about the euro/dollar giving up some of those gains today. >> that's about the best levels of the day. bond yields in the peripheral has been going down and they were leading the way earlier. italian yields, 4.74%. we closed down nine basis points

on the day yesterday. we got down to around 4 -- sorry, 4.8% is what i want to say. we're lower in spaen, as well. treasury yields lower at 1.88% on the session. as far as currency markets are concerned, euro/dollar, 1.3117. pretty steady. and dollar/yen, 92.12. very little reaction to mr. kuroda has been dmom nated as the next bank of japan governor. >> and, again, an important point that we're seeing on a day when the yen is strengthening, the nikkei jumped by almost 2%. the mirror image that we've seen, at least initially since november where the nikkei does whatever the yen does and vice versa, today and this week it hasn't been holding up quite so much. now, president obama and republicans are digging in their heels just one day before the sequester kicks in. the president will host congressional leaders at the white house tomorrow, but expectations are pretty low the meeting will result in a deal to avoid the $85 billion in

spending cuts. those would be phased in gradually. gun reducing costs are telling employees how furloughs would work. most federal workers require 30 days before they can be furloughed. for more joining us now is robert. welcome. just on this point about the u.s., we've seen markets not just holding up, but, in fact, doing quite well ahead of the sequester. why is that? >> well, i think there's an underlying -- there's real underlying evidence of the strength in the u.s. economy, which is partly allowing markets to look through what are clearly concerns about tightening in this economy. >> it's one thing that the u.s. is leading the recovery, perhaps leading this leg of the expansion. is it important in that sense? >> of course, the u.s. economy is not much bigger than japan,

so it's always going to be more important in terms of what's going on. later in the year, we are expect ago further acceleration in the u.s. economy and that's one of the reasons why we like the u.s. stock markets. >> and just how much do you like it? are we going to take out those nominal highs? >> we're still looking for the u.s. stock market to make another 7%, 8%. i think we've bitten off quite a big chunk of the returns. there's quite a bit left for investors. >> is this a fed driven rally? is it fundamental? what's the story here when it comes to the performance that we're seeing? >> i think it's partly a reaction to better economic data that we've been getting in the u.s., the results season hasn't been too bad. i think generally people are now start to go think the u.s. economy is being managed fairly well. it doesn't feel like it when you look at the sequestration debate. the u.s. economy is being managed pretty well compared to what's going on here in europe.

>> why aren't we seeing the impact of u.s. politics? >> i think politics is always important to balance out against the other elements of financial policy in the u.s., but the other elements, the financial policy are helping to account for the difficulties on politics. >> clearly, we were a little too sanguine about italian politics. >> sure. the big difference between america and italy is america controls its own interest rates and italy doesn't. that's a giant difference. >> what about britain where obviously they control their own interest rate, but there's a sense that the economy is weakening instead of strengthening. >> sure. the story in the uk is slightly different. it has a more viewer style management of the currency management of monitory policy. but the evidence that it's actually working isn't as clear here in the uk as it is here in the u.s. >> and just go back to, if as you say there's maybe 7%, 8%, say the individual investor is nerve why is about exposure. why are the other markets around the world that offer opportunity

in your view? >> our two favorite markets are australia. we like selective parts of the emerging market universe from the emerging markets is an area we like quite well. the china story is stabilized. we wouldn't be chasing japan, which i know a lot of investors are doing right now. >> i was just going to ask you about japan. people are now saying, look, there's the sense that maybe japanese pension funds and retail investors might start engaging as they see the moves, robert. why wouldn't you engage? >> i'm always sxishus of currency devalued performance in stock markets. there's an old line that we veterans use that the uk had 50 years of devaluing sterling and ended up with british layland. germany had 50 years of appreciating deutsch mark and ended up with bmw. so i think devaluing currency is

a bit of an easy get out for the corporate sector. i prefer to see the corporate sector responding to a strong currency. so we're suspicious of the rallies that we see being driven by currency wars. >> they're all nominal has another guest once told us. robert buckland, thanks very much for joining us. >> we'll take a short break. still to come -- >> straight ahead on the program, in fact, we're going to speak with irish kishook, that's galic for prime minister. we're going to speak with him live in dublin about the country's plans to re-enter capital markets. stay with us.

corporate news have announced an increase in share dividend that came just ahead of estimates. margins rise both in its home market and in the u.s. where it runs the giant and stop and shop retail chains which i think kelly is very fond of, apparently. the company has decided to buy back 500 million euros worth of shares and raise its dividends. speaking earlier on cnbc, the ceo promptexplained what prompt move. >> on our free cash flow, we deliver record high of 1.2 billion over the last year. so that's why we were led to

share buyback to our performance of last year and not to the bca divestments where we are in the process. does it work? i think it certainly is working. it certainly improves the earnings per share. so on both sides, of course, we do the right things. >> all right. joining us from hong kong is rahul sharma. wherever you are in the world, rahul, we'll tracking down. thanks for joining us. look, is it stating the state pressures as other retailers or is it like -- it was deal here? it seems to be doing slightly better. >> i think ahold u.s. is in the northeast which is wealthy. and you haven't seen the same encroachment by walmart and the likes of the dollar.

i think wellness, more .more people care about food providence and none of them have catered to it. which is why whole foods is doing so well and eating them for lunch on the other hand. those that are cash strapped and looking for value, also lately people are willing to go to things like the dollar stores to buy attitude, as well. and they're losing share on that front, as well. both at the high end and at the low end. >> rahul, do you then stay away from the whole sector? what's the investment case here? >> i think, to be honest, if you look at the charts of many of these names over a decade, traditionally the u.s. super markets that sells the story and a really bad one. these companies have, over time basically destroyed value. they missed the bust of combining food and nonfood. walmart came into that cap and decimated the margin in the

business. you've seen whole foods come in and take that opportunity. life isn't about to get knit easier. what i will say is generally speaking, valuations have fallen quite sharply for the sector and you're starting to see what's the return of some inflation. and i think that's probably likely to lead to some m&a as such in the sector, particularly for some of the smaller players. as the big players think they can add a bit more scale by buying something, that larmgly st your case. i would say someone like kroger has a balance sheet to do deals, a little better positioned, but that's about the best it gets. >> it's quite interesting, just compare the giant walmart with whole foods. walmart stock up 22%. we just saw whole foods up 4% in the last 12 months, rahul. is that -- why is that such a big outperformer between the two when they're both best in their niches?

>> it's all about expectations. whole foods came into this year over the last 12 months with high valuation and strong performance into the numbers. business is still firing on all cylinders, although it's slowed a bit very recently. but as a result, i think walmart came in from being a much hated stock. if you look at the period before that, whole foods v has done exceptionally well. so there's a little bit of catch up happening. but generally speaking, walmart is struggling, too. whole foods is flying in the business. >> and a fascinating point, ross. rahul, thanks very much. these are your headlines if you're just joining us here on "worldwide exchange." the white house and congress are talking, but not to each other. a day before billions of dollars in automatic budget cuts are set to take effect. the japanese government nom names harihuka kuroda has bank of japan governor chief. and coming up after the break in a first on cnbc, we'll

speak to irish prime minister en dey kenny live in dublin. stay with us. [ male announcer ] this is not my home.

there. i said it. they don't have pictures of my kids. they don't have my yoga mat. and still, i feel at home. could it be the flat screen tv? the not so mini fridge? ♪ the different free dinner almost every weeknight? or maybe, it's all of the above. and all the rest. am i home? nope. but it almost feels that way. homewood suites by hilton. be at home. mario draghi signaled his intention to keep the central bank's current monetary policy stance. speaking in munich for the first

time ahead of the italian elections, the ecb said we're far from having an exit in mind. >> at this point in time our monetary policy remains cognitive because we are far from being in a situation where we can actually start having an exit in mind. we see that inflationary expectations are very well anchored, firmly anchored. and if anything, inflation is going down. and we foresee for next year a significantly an inflation which is significantly lower than 2%. >> and we did see some of that in the inflation data out this morning. now, former italian prime minister silvio berlusconi says italy needs a stable coalition before parliament convenes on march 15th. in a video message, the leader of the central right says no party can ignore the value of stability at this stage.

march 15th, potentially telling there. elsewhere, outgoing prime minister mario monti met with jose manuel b arroso. the pair saying italy is undergoing an ambitious reform process that, if fully implemented, will significantly raise its growth potential. mon at this out this morning saying the european union must carry out their policies and reform. so he's still chatting, isn't he? still sharing his thoughts. >> what else is he going to do? >> still exercising his influence on the eye tall yash deny. >> he doesn't have a lot of influence on the italian scene. >> wasn't he president obama's favorite european leadtory speak with? >> meanwhile, the man hoping to become germany's next chancellor has been snubbed by the italian

president after you called sylvia berlusconi and beppe grillo clowns. he made the comments tuesday at a campaign event. >> translator: i am appalled that two clowns, one, one professional clown who is not upset if he is called so, grillo. and another one, who definitely is a clown with a certain testosterone boost. >> it hasn't gone down very well in italy, as you might expect. those remarks led the italian president to cancel a dinner with the leader last night. he is facing a task of appointing a coalition government. he said he had spoken to steinbrueck on the phone but that the meeting was no longer possible. and napolitano will meet merkel this afternoon. they have lunch scheduled. >> no clowning around in that lunch.

it will be a very serious meeting. the u.s. senate has confirmed jack lew as the next treasury secretary. he's expected to take the lead in talk wes congress ahead of the next two major fiscal deadlines, march the 27th. we get a continuing resolution to fund the government and may the 19th, that's when the u.s. hit the debt ceiling. again. >> can i just offer a heavy sigh. >> can we get rid of the debt ceiling? >> no. you know what happens when you raise this issue. >> i know. but it's so much easier to get rid of it. >> we're going to have to bring in a couple of guests to tell you why the debt ceiling needs to stay. and it is forcing fiscal prudence. >> is it? >> i think we need to get rick santelli on the phone to argue that case. i think he would be happy to. >> but it's clearly not. >> well, that's the issue. whatever it's meant to do in concept, the reality is we know it's messy policy making, wasted

hours, distractions from important issues and no long-term reform. check, check, check, check. >> you just argued my case for me. >> yes. >> let's take a look at what's happening with indexes. we have seen futures come off a little bit in just the laugh half hour or so. the dow is still trying to open positive. if it can do so and close above the 14,000 level it will be the first two-day consecutive stretch for doing that. the s&p is within 50 points of its nominal high. >> european stocks have been ticking up towards the best levels of the session. it doesn't mean we've had big gains. up 0.25% for the ftse 100. the ftse mib down 0.1%. straight ahead on the program, the white house says every facet of the u.s. economy will feel the impact of the sequester. how much damage will it inflict on growth? we have a panel of guests to debate that issue. >> plus, we are still waiting and he's going to join us, i assure you. enda kenny, about the country's

plan toes re-enter the capital market.

this is "worldwide exchange." i'm ross westgate. >> and i'm kelly evans. the white house and congress talking but not to each other. a day before billions of dollars in automatic budget cuts are set to take effect. japan's government confirmed its wants kuroda to lead the country's deflation spike as the

next central bank chief. spain gdp shrinks for its sixth straight quarter down initially more than expected. and eurozone cpi runs at 2% in january. stoking talk of a possible rate cut. surely not at next weeks's ecb policy meeting. >> announcer: you're watching "worldwide exchange," bringing you business news from around the globe. >> the ecb might cut rates. don't count it out entirely. >> they might, on the other hand. >> they might not. president obama and republicans are dig in their heels just one day before the so-called sequester kicks in. the president will hold congressional leaders at the white house tomorrow. expectation res pretty low the meeting will result in any deal that would avoid the $85 million in spending cuts. those cuts would be phased in gradually and government agencies have begun reducing

costs already telling employees how furloughs would work. most federal workers require 30 days' notice before they can be furloughed. a majority believe the sequest ser a bad idea and the fight in washington makes them feel less confident about the u.s. economy. we went out into the streets of los angeles to get the pulse of the people. >> i think it's a political fire. it's a very small percentage of the enormous debt that we have and is they're trying to exaggerate all the worst circumstances to make people think, oh, my gosh, we can't do that. actually, we should cut about 10% of the budget for the next five years and we would still have a lot move money. >> if they couldn't do it with the budget last year, why do you think they can do it with more money this year? >> i'd rather have the kindergartens down the street running congress right now. >> not a great verdict there on the u.s. government, but we

actually want to talk briefly about what's happening in ireland. >> yeah. the ibec conference is kicking off today in dublin. economic growth is at the top of the agenda. the is country on track to end its international bailout program and return to markets later this year. can it grow its way out of years of the financial economic crisis? jules is in dublin for us. >> thanks so much, ross. i want to quickly show you the front page of the irish times talking about the recovery in this country. two consecutive quarters of growth. that's where i want to begin my discussion with the irish prime minister enda kenny. is the recovery firmly entrenched? >> the headline is very welcome. this administration was elected just two years ago and we had inherited a situation where 250,000 jobs had been lost in the private sector in the three years prior to that where we had

neither credibility nor integrity interinability. so we set out with a clear strategy to deal with those issues. this is all part of a plan we have to get our deficit down to 3% gdp by 2015. in respect to our relation wes our european colleagues and the wider world, it's all about creating jobs, growth and is stability. both here at home and to translate those principals into acceptance and vault at a european level. so this is the welcome headline. it's the welcome fact. what we have a set of enormous challenges ahead of us. and so why there's a lull at the moment that overtook europe for a number of years, there's no room for complacency and no room, no time to waste in dealing with these problems. >> you've negotiated the

exchange on the note. the suggestion on the local media here in the last few days is perhaps you'll use of the leeway given on that to cut back on the austerity. is that the plan now? >> well, the promissory note was a welcome agreement by the ecb after walking up the arrangement between ireland central bank and the ecb. the impact is that that will require 20 billion less to be borrowed over the next ten years. that's been reflected in international market sentiment, indeed by some of the rating agencies looking slightly different at ireland. but also a continuation of a very strong line of interest and investment from abroad. now, we're only six, seven weeks into the new year. so it's much too early to reflect on the budget for 2014. government obviously has its strategy and its plan and we want to follow that plan because the two pack has now been grate agreed at a european level. that would mean that budgets will take place a little earlier

for 2014 than applied last year. so the government in its own time will reflect what it is that we have to do for 2014 to continue with our plan, to continue with strong investment, job creation and effective change of the way we've gone about this. we have restructured our banks. discussions have taken place and been concluded between management and trade unions with the labor relations commission document about public pay talks and that's a matter that's now being discussed and will be voted upon by unions. but these are signals that are important about ireland being serious about its business, about ireland having a trust and belief in itself. there's a demonstration of people walking with government, you can actually follow a strategy to restore prosperity, put order in your public finances and the most fundamental thing of all, to create jobs and opportunities for our people. when employment is much too high, that's reflected in the decision of the european council

to put 6 billion available for youth unemployment which is a european if a nonno more nonwhat that's to be dealt with and it had can only be dealt with by strong decisive action. >> are you expecting to get any kind of decision on the extension of the esfs loans? >> well, there's a working group that was set up by the -- under ireland's presidency with the irish minister chairing that. the extension that was given to greece is a subject of a motion that was put forth by the portuguese along with ireland. and will is a working group considering that temt mop. i can't prejudice the outcome of where that would be, but it would be another step in the right direction were that to be approved. it's too early to say that yet. >> but it's only fair if you do get it. >> it is a matter that's being discussed. we all considered that because ireland had to borrow 64 billion and the tools and the mechanisms

that are available now were not available then. so we considered that the level of debt imposed on our people was unfair. in that sense, the promissory note was important. but it's important now that the decision of the 29th of june last year to break the vicious circle between a sovereign and bank debt be broken and that the decision of the 29th of june actually be implemented. >> are you frustrated? are you frustrated with the progress on the banking union? >> well, i'm frustrated with lots of things. we don't actually have any time to waste here. but, of course, when you sit around the table with 27 other leaders or 17 from the eurozone, there are always very strong differences of opinion. this is a case of being able to demonstrate that you're serious about your business. but also also a level of trust and truth and belief, both between leaders and governments because it won't work otherwise.

and in that sense, the situation in ireland can be a model for others to follow, but it's very challenging, both for people and for government to exit a bit of the program which has been of enormous challenge to our people here. and, yes, being pragmatic about this, these problems have to be sorted out and they can only be sorted out by strong, determi d determined, political decisions that are in people's interest. >> would that be the message for italy at this point, then, that they need to do this? because you've been through the process. they have to do the same. >> well, certainty is very important in politics and certainty is very important in international relations and certainty is very important for an international finances. now, i'm not going to comment upon the decision made by the italian people. and it is a matter now for the leaders of the various political parties in italy to reflect on the decision made by the people and provide them with their

government. and i hope that they do that. we have had this -- in this country over the yooes years, but it's very important that there be a clear strategy, a clear plan and that it be followed so the people can see the timeline and the signpost being achieved, like your headline in the irish times. it's welcomed. it's a very small part of a very challenging plan. and we have no time to waste and will should be no complacency at all about the scale of where we are. i might say that as presidency, what are the issues that we recognize is the importance of lifting economies in a positive way? and that's why the international trade agreements being followed now by the irish presidency and one of those is clearly the impact of the potential of free trade between the u.s. and the european union. now, i spoke to president obama about this after i congratulated him upon being re-elected as president. now, the european commission i

expect will make an early decision about giving the irish presidency a mandate to talk to the united states about this and there is a mechanism and a procedure to be followed in the states. but i would hope that in the course of the irish presidency, that that mandate and that platform can be arranged so that those discussions can take place. in time, it would result in two to three million extra jobs and the capacity to lift the gdp of europe and indeed the space by about 2%. >> en dey kenny, we are going to leave it there. kelly, i'm going to throw it back to you. >> thank you so much for that interview with enda kenny, the finance minister of ireland. also he talked about -- and this is where we want to pick up some comments from barroso out of the european union, talks about how there can't be a delayed with regard to european policy making and ireland getting the help et needs to prep forward.

>> ross is here. you were shaking your ahead when it talks about the other issues. >> well, no. there's nothing out there. i think the reality is there aren't that many barriers between trade between the u.s. and the eu, anyway. most of it deals with whether your car headlamps are one shape or another. it's likely to have a positive impact, but the u.s. wasn't that keen to engage in it in the first place. >> and we're coming out and saying, eye already, the other slightly issue is they're going to hold ireland up as the poster child. it's not very easy to transfer out of countries, not easy to transfer out of countries and make it work in spain. >> exactly. portugal deposits are down 10% on the year.

still, no easy answers when it comes to what european leaders have done trying to solve this fiscal crisis in ireland. and in those other countries where it wasn't government overspending, it was the property sector that they shunted on to the taxpayers. >> european stocks are trading right now. we are up not by much, 0.2% for the ftse 100. 0.5% for the xetra dax. 0.25% for the cac 40 and ibex, as well. >> and we're coming off the highs as we did see u.s. futures falling back a little bit.now it looks as though the dow will barely open higher, maybe by one or two points. we're looking to see if this will be finally the two-day close where the doubt will drop. >> so what will investors do? >> trading will be probably a

little bit more. i'm not necessarily calling for a low ur voe/dollar. here we talk about 1.25, but, anyway, it's probably going to be under a little bit of pressure. >> taking place, fiscal austerity, it is much more of a positive backstop. even though in the short-term have an issue, longer term, back into the more cyclical pes of the financial, these are the sort of sectors i'd be in. >> as we talked about in the earlier sectors, in trade the terms we are not far away from long run averages. and it's not really an issue, necessarily. >> much to discuss. coming up on the program, the eu

has come up with a deal to cap salaries and bonuses. coming up, we'll discuss just what they might mean. ♪ (train horn) vo: wherever our trains go, the economy comes to life.

norfolk southern. one line, infinite possibilities.

otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪ right. one of the big stories that happened late last night in the european parliament is they laid out a law. still has to be signed to

basically cap bank bonuses throughout the eu to one-time salary is what they're talking about. bonuses capping at salary. there is a clause that has been inserted. mainly the uk was arguing this point. that if you have shareholder approval, you could raise that bonus at two times pay on shareholder approval. but you need something like 55% of shareholders to approve. at the moment, this law is due to start in january 2014. it's not automatic because it still needs be effectively signed off by eu heads of state or eu finance ministers. as it's laid out, the european parliament in conjunction has decided this is what's going to happen. it is the far restricted cap on bonuses in the banking sector anywhere in the world. >> and london can't opt out, it sounds like. >> though. >> so if this moves forward -- i don't know what other levage, at

a time when the uk is talking about renegotiating its rip with the european union. this seems like one area where it comes into focus. >> and it still has to be officially signed off. but at the moment, that's what's laid out. >> i just wonder if mayor bloomberg in new york is going, yeah, go ahead, guys. guys, if you want your bonus, you can come right over here. >> they're all looking at this thinking, this is good for pus. >> the other story we're following this morning is the sequester. fitch has said it could prompt negative ratings action. not because of the sequester itself necessarily, but because of the politics and the way it was handled. head to cnbc.com to read more about that story. ross. >> meanwhile, president obama and republicans are digging in their heels, just kay day before the so-called sequester kicks in. the president will host congressional leaders at the white house on friday. but expectations are low that the meeting will result in a deal to avoid the $85 billion in

automatic spending cuts. those cuts would be phasing gradually, not all right away. governments have begun reducing costs and are telling employees how furloughs would work. most federal workers require 30 days notice before they can be furloughed. rob is still with us, chief economist at ing. and ben from politico. thanks for joining us, guys. this has been described as a slow motion car wreck. just how damaging is it going to be if the whole thing kicks in over the next few months? >> well, that's the big question. i mean, the only thing that can really afford to deal is if there's a big impact from these cuts. you've obviously seen the market not reacting at all with the dow near an all-time high. there's not a lot of fear in the markets, not a lot of fear among big businesses. i don't think the impact will be huge right away. even the administration has said they don't see stuff happening

on saturday. people having a huge line to the airportes and real problems with our defense sector. it's going to take a little bit of time to kick in, if it does, and people really feel the heat from it. then you'll get the sides talking again and get a deal later in march. >> the question is, when is -- is anybody going to feel the heat from this? is it like boiling a frog or actually is the impact going to be minimal? >> well, the sequester, obviously, it's not going to come in overnight. the first of march we're not going to see people going out and the claims numbers spiking. i think there's a degree of complacency, we are going to see those people laid off, furloughed, people losing their jobs. we're going to see the money going to them. we're going to see shorter working weeks and big businesses aren't that worried about it, but i suspect the average person in the street is more worried thans the perhaps the people you showed earlier. there's the payroll tax cut going on, as well. take it altogether. there's a significant drag from fiscal policy coming through and the next couple of months, it

will talk about people, president dennis lockhart is saying, the next couple of months i think we're going to see the u.s. economy pick up. well, dennis, no. i think the data will be soft the next couple of months and ben bernanke are going to look quite sensible for a while. >> ben, what about this releasing of detainees? is this to make a political point or is that something that's really going to happen as the sequester kicks in? >> it's hard to say. i think they're going to be releasing dangerous criminals on to the streets and you've had the administration get in trouble a couple of times. yesterday they talked about teachers getting pink slips and they turned to one specific example of that. it turns out it had nothing to do with the sequester at all. then their case for opposing a lot of big budget cuts gets weaker. if you can cut the 58 billion out and you don't have a lot of impact, republicans' hand is

strengthened. contrary to that, if there's a huge amount of impact, that drives the president's argument that we need to have a balanced approach, both tax increases and spending cuts. >> and the president has been campaigning hard. what impact is that having on the republicans? >> they don't like it is the answer to that. their argument is we're having this meeting on friday, which is the day that the sequester goes into effect. why didn't we have it a week ago, two weeks ago when we might have crafted something. the white house counter to that is you know where we stand, you know what our argument is. okay, we want to get our deficit and debt under control, but we're not going to do it all with cuts. there's sensible ways to raise the priority, get rid of oil and gas loopholes and tax incentives. but they don't like him going out there and hammering him and taking the message to the

people. but that's what presidents do. that's part of the job. >> where do we end up? we have the debt ceiling coming up.in the summer. then what happens? >> i think what happens is we don't get any deal ahead of the sequester. that kicks in. and then you will get a deal by the end of march to extend the continuing resolution funding the government. neither side really wants to see a government shutdown. the question is, do you want the sequester cut altered in that deal? maybe you do. maybe you get some of the defense cuts come out and they make a more sensitive approach to cutting that spending. and then on the debt limit that is technically may 19th, there's a couple of months of treasury moves that can make to extend that to august so the potential for another summer debt limit spike. i don't think that's going to happen. i think they figure out a way to get past that. republicans took a big hit from threatening the full faith and credit of the united states. they will come the an agreement on that. the point is right, there will be a sequester drag and i think

the fiscal cuts stay in. >> ben, thank you. we'll have more in rob in just a second. if you're just joining us on the program today, the white house and congressing but not to each other a day before billions of dollars in automatic spending cuts are set to take in effect. >> japanese government nominations kuroda as the next bank of japan chief. and eurozone pmi drops to 2% in january and that's ahead of talks about a rate cut at next week's ecb meeting. ry year. go to e-trade and find out how much our advice and guidance costs. spoiler alert: it's low. it's guidance on your terms, not ours. e-trade. less for more for you. [ male announcer ] this is not my home.

there. i said it. they don't have pictures of my kids. they don't have my yoga mat. and still, i feel at home. could it be the flat screen tv? the not so mini fridge? ♪ the different free dinner almost every weeknight? or maybe, it's all of the above. and all the rest. am i home? nope. but it almost feels that way. homewood suites by hilton. be at home. shares of groupon fell after hours losing a quarter of their value as the company posted a fourth quarter loss.

revenues were up, but it was below analyst forecasts. sacrificing profits in order to attract and keep customers. it's also seeing a sharper than expected drop in post holiday business and projects first quarter revenues will miss analyst estimates. can we look at how they're trading in frankfurt? yes. 23%. so just barely coming off the low point from last night's session. >> jcpenney's reports another bigger than expected loss in the fourth quarter anticipates revenues fell nearly 30%. that caps a year of losses that missed analyst estimates. the department shore chain began its turn around plan that began ditching sales and coupons in every day low prices. the eceo is overhauling the strategy once again. jp penny will offer sales in stores every week instead of just in holidays and other special periods. shares there down 14%, currently down 12% in frankfurt. >> and weekly jobless claims are

expected to rise in the u.s., revisions to fourth quarter gdp they're expected to show growth instead of the initial decline. chicago pmi is out at 10:00. we get earnings from kohl's and sears holdings, barnes & noble, domino's, gap and salesforce.com. ron, final thought from you, what's the most important thing to watch for in the session today? >> any comments from any of the fed members. we're getting a lot of stuff troubling out at the moment. >> do you think it's bernanke's comments that have changed attitudes in markets lately? >> he has been suggesting that recently one of the things they were going to do in the exit strategy was sell down the balance sheets of the federal reserve. that would have to take place well ahead of any rate hike and i think that was spooking people. now he shifted his ground on that. >> gdp has to come in at, what, 0.5%? >> it was clearly nonsense. we have to see. these numbers are very bad when they come out first time around.

this time, it will have some substance to it. we'll get a better idea of what's going on. >> well, it sounds like expectations are fairly high. when i look at markets today, there's a high bar for them to show anything like the performance we saw yesterday to maintain some of these high levels here. >> yeah, typical. actually, since the beginning of the year, the question has been why have stock markets been so -- the bond market recently was looking for an sclus to sell off. that seems to have had a rethink, maybe the near term isn't going to be so great in terms of the data know and we've suddenly added more risk on to the european rate. >> and sweer seeing that play out in the session a little bit today. euro is down a little bit. rob karnel. thanks very much for your time. >> "squawk box" is up next. have a great day. see you back here tomorrow. impact wool exports from new zealand, textile production in spain, and the use of medical technology in the u.s.? at t. rowe price, we understand the connections

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