you're watching "worldwide exchange." i'm ross westgate. the headlines, market shanghai, tokyo reverse early losses. they shrugged off data while the japanese business mood survey turns positive for the first time in nearly two years. nokia has agreed to merge with siemen's. analysts cheered the deal but worries about the telecom group's cash position. the opposition protests in egypt called on president morsi to resign.

you're watching "worldwide exchange," bringing you business news from around the globe. >> all right. welcome to the show. we had issued with the mikes. we have data out of the eurozone. manufacturing pmi. showing some signs of stabilization this morning. the final eurozone posting the index up to a 60-month high, 48.5 in june, but below the break-even 50 level that divides growth from contraction. some interesting numbers as far as this is concerned. spain up to 50. that stabilized easily.

that is still the 23rd month of contraction since the high in july to 11. factories also reducing head count last month, but at their slowest pace since march 2012. for germany, factory output risen. reached a six-month high, 47.9. into this, it made part of the number. we have a great model. we'll bring that to you as well. great pmi, 45.4 in june. it was 45.3 in may. and we've also got italian jobless this morning, also rising to 12.2%. it was 12% in april. let's get a wrap-up of some of this data. good to see you. thanks very much for joining us. your thoughts on the pmis.

what does it tell us? >> well, i think we knew the headline number which was released a week or so ago. i think it tells us two things. one, that the eurozone as a whole is gradually beginning to stabilize. i think that's obviously very good news. i think probably the more important part of the data is the split and the fact that we're beginning to see stronger pmi data in the likes of spain and italy. that may settle some people's concerns about the recovery in those countries. >> yeah. i mean, stabilization still means that the economy is quite below that peak gdp. what happens next for the ecb? they've got a meeting this week. do they stay pat for a long time? there's this chatter around whether they should or shouldn't talk about coming out with a statement about where rates will be. >> i would be doubtful if you'd get a formal statement as to where rates are going to be. i think the ecb has two conflicting issues here. one are the pmi data which is

showing a gradual improvement in the underlying economy. then on the other side, you have the increase in bond yields that we've seen over the last few weeks. the ecb has kind of a complicated position at the moment. i would very much doubt that it would actually do anything on the monetary policy side this week, though i suspect it will sound very dovish in order to try to limit any increase in market interest rates. >> all right. stay there. meanwhile, china, things not so easy for manufacturers in that country. the hsbc pmi data in june, the lowest in nine months. the official reading also slipped, 50.1, which was in line with expectations. new orders continue to shrink which signals weaker demand for chinese goods. richard is chief economist at bank of singapore and joins us now. richard, how much is the chinese economy slowing? >> it seems it slowed quite a lot. as you say, the pmi is the

weakest it's been in roughly six to nine months. i think it's not really the slowdown that's worrying the markets so much as the question of what's the government going to do about it? and i think there's much less confidence now than there was any time over the past three or four years. the government's going to be out there supporting growth any time soon. >> well, that's all predicated on the bank of china being a little bit quiet about the liquidity squeeze last week, is it? >> yeah, i think it's many things. there's certainly been repeated comments from the new leadership that they're not too worried about the growth rate slowing down. they're more interested in quality rather than quantity. there's a squeeze on access to credit in general. they're trying to obviously push some of the more speculative or less productive investment out of the economy. and so i think the feeling is that this is not just about what the pboc was doing last week.

it's a broader attempt by the leadership to tackle some of the structural problems facing china. >> yeah. look, how do they -- how do they sort of turn around -- i mean, i suppose they're doing three things. how do they turn around to the secondary banks and say, look, you need to get a grip. they've got to slowly deflate the housing bubble, and they've got to try and switch over to more of a consumer domestic demand economy. i mean, these are not easy things on their own. they're trying to do all three together. >> yeah, all three of these things are going to be very hard. and i think you could argue that no economy has successfully readjusted towards a consumption. driven system from having overinvestment anything like where china's been, so it looks very unlikely they'll be successful or very smooth about it. i think the sensible or encouraging thing, at least they're trying to do it today. if they wait another two or three years, then the misallocation of resources, the writeoffs will be larger.

at least they're taking the pain up front and as a result may be reducing the absolute amount of misery that's going to be caused as they try to readjust. >> different story in japan. manufacturing, positive for the first time in nearly two years. this is the sentiment survey. it shows the mood up sharply in the three months to june. it was minus 8 in the march survey. that followed six straight quarters of negative readings. richard, your yuling on this. how much of this is sustainable? how much of this is down to abenomics? >> i think a lot of it is pretty straightforward. if you smash the currency down 20%, exports improve, the manufacturing sector's going to be happier. you're certainly seeing that in the survey. it's not very surprising. and i think there's nothing else behind abenomics that gives you one or two years of growth. what's interesting is the nonmanufacturing side is surprisingly strong as well. they don't get any benefit from

the weak yen. it's really a question, do they really believe in the structural part of abenomics, or are they seeing the flow-through boosting wages, boosting consumption? to me the most surprising part was nonmanufacturing doing as well it is. manufacturing, that's obvious. anybody can figure that out. >> yeah. look, how long do we have to wait to see whether we get the third arrow working? >> well, i think your previous guest was saying, there's a lot of history against them. but from the end of this month when they've got a majority in both houses of parliament, they haven't got any more excuses for why nothing's happening. so i think if you reach the end of this year and, you know, they're making no progress on tpp, some of the other structural areas, then i think people will fairly quickly come to the conclusion that sure, it's a cyclical rebound that's a nice, solid cyclical rebound. once that fades, maybe there's nothing else behind it.

i must admit, i'm quite skeptical about it as well. okay, i think the threat from china has probably focused their attention more than it has in the past 10, 20 years. but overcoming these vested interests domestically i think is going to be very difficult, and i'm not convinced that abe really is committed enough to take that fight. >> okay. richard, good to see you. thanks. joining us from the bank of singapore. just to remind you, coming up on today's show, as egypt's president fends off violent protests, we'll speak to the chairman of the company's biggest private bank and what the unrest means for investor confidence. that will be from cairo in less than 30 minutes. we'll also be in subsaharan africa. we'll have analysis from chatham house. india's currency took another hit friday extending a slump fueled by fed tapering fears. where is the rupee headed? steven o'hamlin joins us. and a record heat wave is sweeping through the western

united states with temperatures nearing a 100-year record in death valley, california. we'll have an update from the weather channel in the next hour. plus, the rich keep getting richer. this according to the latest survey. find out which chiefs came out on top and which executives fell from grace. that full report at 11:45 ct. right now let's kick off today's "global markets report." the update from singapore. hi. >> thank you, ross. that surprisingly strong japanese report and also weaker than expected china factory pmi data sent out mixed signals. but most asian markets managed to end in the green. the nikkei extended a three-day rally finishing higher by 1.3%. a few exporter stocks showed weakness as japan is the second largest export market. lost almost 2% today, but japanese banking shares led the rally.

they gained around 3% today. the shanghai composite also reversed early losses to end higher by about 0.8%. some big banks turned positive in the afternoon session as short-term interbank rates eased to trade around about 5.5% today. and the property sector also had a volatile day of trade. they saw profit taking this morning after authorities dismissed market chatter about relaxing finance rules for real estate firms. but the bigger players such as china merchant poly real estate all managed to end in the green. moving on to china's big trading partner, australia, the underperformer in the region today. the asx 200 lost about 2% weighed down by political uncertainties at home and those china worries. miners dropped about 1% to 3% today and banking majors also lost ground. back to you. >> all right, we'll catch you later. thanks very much.

on the dow jones stocks 600, we start, of course, a new quarter after the first half of the year. we are down actually at the session low at the moment on the dow jones stocks 600. so the ftse 600 after dipping for june. this is how we started trading in july. just up one-third of a percent. we flip that over, you'll see where we've gone for the first half of the year for the ftse. they're up 5.8% in the first half, although in the month of june, actually coming back around 10%. the dax up nearly 4% for the month. the ibex up 4.5%. these performances were much better until we got halfway through may. now, as far as the individual gainers today, nokia, the biggest gainer in europe after it has agreed to buy up siemen's stake for 1.7 billion euros. for the automakers in france,

the industry's body warning new registrations are likely to fall to the lowest level since 97. this after posting a 9% decline in june. keep your eyes on bond yields. remember, we touched 5% in spain last week. pmis, stabilization. keep your eyes on spanish yields. you can see right now 4.68%. we are low again this morning. big week for the u.s. with employment report. july 4th holiday beforehand. treasury yields around 2.5%. gilt yields, 0.18%. dollar/yen, 99/55, a four-week high. pretty much on that mark. aussie/dollar, 91.61, just bouncing off a three-year low of 91.10 that we hit earlier. sterling is weaker, down 1.52. and euro/dollar.

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tahrir square in cairo is the epicenter of mass protests with millions calling for president morsi to stand down. violent none strademonstrations to at least five deaths, seven in the southern part of the country according to media reports. yusef is there from cairo. yusef, deeply polarized egypt clearly here. how is this going to develop? >> reporter: well, plain and simple, ross. just to give you a little bit of context, i've not seep this many people on cairo's streets since the uprising in 2011. over the past 24 hours, the scenes and the atmosphere was, well, largely peaceful, but there were clashes, as you mentioned. this morning, again, the local paper underscoring the amount of people out there, saying millions hit the streets, and the opposition calling for president mohamed morsi to step down. now, where does this all go from

here? the opposition is polarized on the one hand. you also have supporters who say that president mohamed morsi was elected into power in a free and fair election. the army is still on the ground here, ross. they've taken up position. this morning when i was coming into our broadcast position, there was an army checkpoint with about four tanks and several soldiers. they were checking the cars, checking i.d.s. and it is the army that is the wild card here because if the violence escalates -- and don't be fooled by the tranquility in the background. that's typical for an egyptian protest. as the day goes on and people finish their work day, they'll hit the streets. if that violence escalates, that's when the army could step in and that's when the whole equation changes. >> what is it that the opposition want, yusef? there's no unifying figure here for them. they're just united on the basis that they're upset with the president. >> reporter: yes, ross.

as i just mentioned, the opposition is polarized. and it's a good point to underscore. they are united for the moment. and that is some of the concern that once the situation is resolved, that we're going to start disagreeing again. but that is something to look forward later on. the opposition insists that it has its act figured out, that they know how they're going to handle a post-morsi world. but that is still a long way off because the government is not budging to the opposition. president mohamed morsi made that clear in his speech last week and a press conference with the presidential spokesperson underscored that even further that they have the legitimacy, and they will finish their term. and that is leaving the opposition, of course, disgruntled. and that, experts say, is a bit of a concern because if peaceful demonstrations don't work, then the next desperate move would be to resort to violence. and so that is the source of anxiety, and that is the source of risk. >> all right. yusef, we'll catch you later. thanks very much indeed for now.

that's the latest from cairo. we'll be back there fairly shortly. meanwhile, over in the uk, mark carney's taking over as the governor of the bank of england. expectations are pretty high that the former head of the canadian central bank can turn around the british economy. ♪ >> reporter: today a canadian is going to become one of britain's most powerful men. after 319 years, the bank of england governor is going to be a foreigner, mark carney. like his hero, ice hockey legend wayne gretzky, carney has been billed as the great one, even the best central banker in a generation. but with uk growth stunted and banks still in turmoil, the incoming governor will have to put his game face on to thaw the ice. ever since the chancellor chose

mark carney as the new bank of england governor, he's been seen as the ultimate dove, happy to use and perhaps overuse, even if it makes us all feel a little bit too sick. back home in canada, the gloss has started to come off a bit. with the housing bubble caused by low interest rates and too much lick wis i had, the oecd have said that canada's housing is the third most overvalued in the whole developed world. in the uk, we've already had 175 billion pounds worth of free money poured into the system. and critics warn that we've all become a little bit too addicted. in the aftermath of comments from the fed, we've all realized qe could give us all a bit of indigestion. what he does have in his favor, apart from his george clooney looks, a uk economy that seems to be producing green sheets.

monetary flexibility and forward guidance are likely to be a big part of the bank's new toolbox. but with great expectations comes risk of great failure. and while canadian banks are some of the strongest in the world, british banks have been exposed to some of the weakest. finding recovery in a resource-rich nation like canada is one thing. reviving britain's limping fortunes might be quite another. lucky, then, we've imported our own former ice hockey goalie. he's really going to need to call on his competitive spirit because over the next five years, he's going to have to be able to do more than save a few pucks to rescue the uk's economy. >> fresh from her puck, she's with us on set. i hope you had all those waffles. >> i did. i did. i did. >> good. darren is with us as well, darren.

okay. mr. carney, the data's been really good, actually, in the uk. pmi's above 50. housing looking stronger than it has for a while. the fls is showing signs of life. he doesn't need to do anything, does he? >> well, he might be lucky and inherit kind of recovery in the uk, but don't forget that the situation here in the uk is very different to the one he had in canada. and i think our expectations of him are incredibly high here. let me give you a few numbers. in the last five years, canada's economy has grown nearly 4.7% while in the uk, it's shrunk 2.2%. likewise inflation in canada has been an average of 1.7%. here in the uk, it's been above our target at 3.2%. and the bank of england has missed its target for the last 45 months. i think the difference is although canada's 15 times bigger than here in the uk, it's actually got a tiny population, about 34 million people, while

here we've got 60 million population. and we've got a banking system that's really been hit hard by the financial crisis. compared to very stable banks in canada. >> darren, the first question for mr. carney this week is, does he want to be outvoted? >> i think that's a very good question because obviously, you know, irvin was outvoted for the last several mpc meetings. i think it could be quite damaging for his credibility from day one if he comes in and gets outvoted. in addition to that, there's no evidence, to be honest, that mr. carney is a big believer in qe. so even if he wants to see easy monetary policy, that might not be his chosen way of doing it >> okay. so he'll probably vote no the to extend qe this week. what about setting out rates will stay low for longer kind of forecast? >> i think the general idea there -- and i think i would subscribe to that -- is that that's not going to happen this

week. it's far too early. >> we're going to hear about that in mid-august, forward guidance. >> with the inflation report. >> so don't do anything. he's arrived. he's not actually going to do anything much. >> he's going to party in the canadian embassy tonight. >> that's nice. >> to be honest, i think that's quite reasonable. i think he inherits a huge task in the uk. i think to come in and, what, four days into your term of office to announce huge changes is asking way too much of anybody. >> i mean, don't forget, he's got a pretty full job. he's got to replace two deputies as well. so there is a lot for him to do. most importantly, are the measures-- is forward guidance going to do anything to help uk growth? i mean, as you said, we've seen some green shoots, but it all depends on the next couple of months. >> he's got to make sure we reach some sort of escape of velocity, doesn't he.

he's also got to run the fpc. is he going to do anything more on funding for -- i mean, we've expanded funding for lending. is he going to be slightly more creative on that side, do you think? >> well, i think the obvious one which we've already talked about is forward guidance. i think the big focus will be on just how strong that forward guidance is going to be. if, for example, he says we're going to keep interest rates low for two years, that's a wi wishy-washy form of guidance. if we get something more aggressive such as i'm going to keep interest rates low until we see the unemployment rate at 6% or until we see normal gdp growth running at 4.5, 5%, i think that's very aggressive. >> don't forget what he's credited for in canada is not just cutting interest rates really early, it's also how he dealt with the banks and the bank of england now has prudential regulation under its arm. so i think we are hoping that over his term, i don't know if

it will be this week, ross, but over his term of five years, he's going to be more creative in the way he deals with banks. remember, banks kicked off last week about leverage ratios, saying how can you, on the one hand, want us to lend more, on the other hand bring in more regulation that really stymies any lending? so i think he's going to have to get to grips with banks and hopefully have a better relationship with the banks than the outgoing bank of england governor. >> yeah. he's got to be much more cyclical. we'll get manufacturing data for june in just seconds' time. we're talking about canadian british exports. i thought of greg ruzetsky was one i thought of and lennox lewis. can you think of other famous canadians who have been exported to britain? probably not because i could only come up with two. get in touch with us.

e-mail us, tweet us,@rosswestgate or even helier. which is @heliabrahimi. can you think of any? >> i'm not big on canadian exports. >> shania twain. she stayed in canada. keanu reeves. >> celine dion. >> she stayed there. manufacturing. here we go. talking about is mr. carney's job getting easier? british manufacturing courting its strongest growth in more than two years this morning. pmi, 52.5. it was a revised 51.5 in may. the poll was 51.5, the highest since may 2011. positive signs in services, construction suggest at least 0.5% quarter-on-quarter gdp growth in q2. this is amazing, isn't it.

mr. carney, he's been in office one morning. look at the impact he's had. >> i guess he could get lucky. >> is he going to get lucky? >> i suspect not. i think the pmi data is very welco welcome, obviously. it fits with what we've seen from the eurozone. i think the big question, just how poor the growth performance has been over the last few years. it's not about a couple of months of decent economic data. it's about a much more vibrant, sustainable recovery. >> new records, 54.7. that's all right for manufacturing. >> it's fine. it's good news. >> how many more months of this do we need before you change your tune, darren? >> before i change my tune? >> yeah, before you change your tune. you're sounding, look, the data's nice, but, you know, it's not -- it doesn't mean anything. so how long before this data means something? >> so we got gdp data last week which showed it's 4% below the peak of the last cycle.

which if you take out a few of the periphery countries, it's the worst performance of any country in the world. >> we didn't have a double dip, at least. >> it depends on how many decimal places you go down there. the performance over the last four or five years has been terrible. four or five months of decent data isn't going to change that level alone. >> good to see you. thank you very much. what do you go back to? i'm confused between you eating the waffles and the ice hockey. >> i don't go anywhere without a few pancakes these days. >> pancakes next. all right. catch you later. that was really good. thank you. still to come on the program, india's rupee is rebounding after suffering its worst quarter in ten years. we'll discuss the country's economy after the break. plus, we'll speak to the chairman of cib, egypt's biggest private bank, in an exclusive interview. this is greta. she works in quality control.

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performers in europe. it's agreed to buy out its venture with siemen's. it's cited worries about the telecom group's cash position. the opposition that is leading protests in europe has called on president morsi to reresign. the death toll has reached six. and carney takes the helm at the bank of england. this after manufacturing pmi comes in better than expected. we've also got more data out of the uk besides those pmis. mortgage approvals, 58,242 for may. that's the highest since december 2009. consumer credit up 0.7 billion versus 0.6 billion as well and net consumer lending was up 1 billion in may versus april's

1.3 billion. the mortgage lending there is the standout number. just a little higher on the back of all that data comes on pmis. manufacturing pmi improving as well. now, it is also, of course, the end of the first half. let's remind you how we've performed some of these markets. the nikkei is up -- i can't read that -- up 1.28% for the month. for the year, though, the nikkei has been up 33%. year to date. now, as far as the ftse is concerned, one month is up there on the right, down 5.4% on the month. and for the year, it's up around 5%. but, of course, we have rallied a little. we've wiped out the 10% gains. the s&p doing pretty well over the course of the year. down 1.5% on the month of june. but year to date, up over 12%.

and gold seeing some of the biggest falls, of course, down 10% on the month of june. and for the year, down 25%. now, the troika returns to athens to resume talks with authorities over its next 8.1. it comes after a breek over which the government nearly collapsed. the stakes are high for today's talks. if they fail, the imf could withdraw from the greek rescue to avoid violating its own funding rules. celebrations on the streets of croatia overnight as the country also became the 28th member of the eu. president of the european council was amongst those in the capital, zagreb, to mark the moment. it's currently in its fifth year of recession with the unemployment rate around 21%. and the ecb could adapt a u.s. style approach to forward

guidance. in an interview with "the times" newspaper, ecb executive board member kerr said it was too early to say if the central bank would take a step in that direction, but that policymakers needed to be ready to cope with more negative scenarios. meanwhile, japanese companies are more upbeat about the economy because of abenomics, at least it seems from the survey. our reporter has more from us in tokyo. hi. >> hello, ross. this survey was the first taken after the boj implemented monetary easing in april and showed confidence among manufacturers was up 12 points and returning to positive territory for the first time in seven quarters. the weaker yen and demand in the u.s. market have made big producers of cars and machinery optimistic and it's reflected in their forecast. they're predicting another six-point hike in sentiment. nonmanufacturers were also hopeful as the index rose to 12

from a 6 in the previous quarter. but it was the capital spending outlook that got many excited and large firms expect to raise cape ex by 5.4% this fiscal year, a big improvement from declines predicted just three months ago. what's driving the surge in spending? companies are looking to replace aging facilities and also may want to beat the consumption tax hike coming next april. small and medium-sized businesses were more downbeat, but sentiment there, too, rose for the first time in six quarters. the chief cabinet spokesman, suga, said the effect of abenomics is starting to show. the test will be whether this optimism will actually boost hiring and wages which is critical for a sustained economic recovery. that's all from nikkei business report. back to you, ross. >> thanks for that. india's factory activity picked up its pace as well in june just a little bit. the pmi reading edging up, but its order books contracted for the first time in four years

which points to underlying weakness. analysts blame that on sluggish domestic demand as india battles with prices. the rupee has lost its biggest sing single-day gain after suffering its worst quarterly performance in ten years. 59.26. steven o'hanlon joins us now. steve, good to see you. is the pressure still going to remain on the rupee, do you think? >> certainly in the short term. the discussions about tapering in the fed and just general liquidity concerns globally will certainly put pressure on the rupee given its current deficit situation. however, we feel some of the macro situations in india have improved slightly. inflation has definitely come down. we've had a current account deficit numbers looking slightly better than expected last week. so in general the situation seems to be stabilizing and on the margin definitely getting stronger. >> do you think with this backup

in bond yields we've seen in the u.s., has all the hot money gone out? >> not yet. i mean, clearly there was huge flows for a long time through qe 2, 3 and infinity where we saw local bond markets being driven by flows out of western low-yielding environments. but certainly going forward, that will have to rebalance itself as real yields pick up in the west. and the question is how strong domestically are these countries, and what reforms has india done to basically mitigate against the outflows that we're going to see? >> yeah, does india have much reliance into its bond market or no? >> no, this is the big key for india as opposed to other large bond markets, is the fact that india has a very small percentage of foreigners in the bond market. that's why in 2008 indian bonds were the best performing and that's why we had a serious credit crunch in the emerging markets. i would expect indian bonds to once again be the best performing. >> much will depend on the pace of reform and restructuring in

india. are we any clearer on that? >> look, they've been doing a lot over the last 12 months. i think the advantage for india today is the fact that reforms were put in place back in 2011, 2012 when india had its crisis. i think the rest of the em world is seeing more of a crisis today where they're looking more closely at reforms that need to be brought in. we're talking about china, for example, where they're doing reforms in the banking sector. india has tried to bring reform certainly on the capital accounts side, for fdi, more fi coming in. so i think india is on the path. however, the crisis that comes today is a little early in terms of those reforms coming into real hard numbers. i think the markets are obviously just focused on the current account deficit where it is today. however, if you look at the transition and where it's coming from, the improvements that we're already seeing, they're pretty dynamic compared to pretty much the rest of the emerging markets where current accounts where getting worse.

they've certainly contracted surpluses dramatically over the last year and a half. >> what's the rbi going to do? >> i think it's clearly going to stay pat for the moment. there's a couple key reasons. the most important thing for india is to get its investment cycle back in order. there's a couple of key things we need to do to see that. one, we need to see lower inflation, we need to see lower fiscal deficit from the government. we're seeing both of those things. we need to see real yields. if savings rates can pick up again, we've seen in the past, i know a lot of people concerned about the investment cycle in india, but a lot of the things that need to be put in place to create that investment cycle is starting to come through now. >> good to see you. thanks so much, steven o'hanlon. turning our attention to egypt, tahrir square in cairo is again the epicenter of mass protests against the government with millions calling for president morsi to stand down. violent demonstrations have led to at least six deaths. five deaths in the southern part of the country. this is according to local media reports.

chairman of cib joins us on the phone from cairo for an exclusive interview. thanks very much indeed for joining us. look, what's your view of these protests and what they mean? >> good morning, everyone, first of all. the biggest risk that egypt faced since the change that happened in january '11 was accepting the other. change in regime, all was resolved between different parties. and one of the challenges we had and we still have in egypt is how to live with one another and how to accept the other, the ideology and background. it's obvious that that process will take some time. it's challenging for everyone. both sides, secular as well as the religious parties, need to understand that those are egyptians as well. and polarization will not work, and both the liberal parties as

well as the religious parties, they have to understand that no one can alone, a country the size of egypt, and i think this was clearly stated by the government and clearly stated by the scenes we have observed over the last 12 months. >> meanwhile, what's happening to the economy? the president talked about 4,900 strikes, 22 calls for 1 million protests in his first year in office. has anything got better for the economy in that period or not? >> well, put that way, in egypt, there are two things are what you call kept the economy going. number one is the solid banking reforms that were done in the year 2003 all the way up to '07 that has kept the banking sector in a solid status even during the financial crisis of '08. and going into the change of

'11, the banking sector had enough liquidity that managed to carry on performing the way it has been doing over the last two years. in fact, banks profits are higher in the year 2012 compared with 2011. and this is due to the reforms. it's not anything more than the banking sector was overliquid. corporate egypt have gone through that reform as well. so we find most of egyptian corporates are, in fact, well underleveraged compared with the international norms. so the structural part was standing on solid ground when we went into 2011. the other part is that egypt has very stringent structure for its economy. in fact, we think that closer to 50% of the actual economy is a great economy. what i mean by great economy, i'm not talking about illegal

type of activities, but people don't pay enough insurance, don't pay tax, not declaring -- and few of the south european countries, but this is a larger scale in egypt, and it's about 50% of the economy. both combined together between the banking solid banking reforms and the economy has kept the country going. but this is not what our ambition is. egypt can grow by 6%, 7% and 8% a year especially after two years of stagnation and investments. it's obvious that the minute we have some kind of concession among all political parties and stability and forward looking, all that backlog of domestic investments as well as foreign will start to kick in. yes, it was challenging after the evolution of '11, but for

anyone who was taking office should have understood that there are a lot of challenging issues, including, for example, what we're doing about in terms of subsidies. energy subsidies. this has been a big issue over the last ten years. a decision has to be taken about this. 80% go to the wrong people. are you helping the poor or enabling the poor? the case is not. and we are burning out every year closer to 240 billion egyptian pounds. you're talking $20 billion a year going into energy subsidies. is that fair? it's not fair. >> no. hisham, thaw for joining us, calling us on the telephone from cairo. just back to china, the chinese ministry says it's formerly launched an anti-dumping probe on the imports of europeanwide. this seems to be in retaliation

to a solar imports into europe from china. meanwhile, asia's biggest budget carrier is planning to go big in india. the air asia ceo said he plans to add ten planes. it has a group with tata group called airasia india. the budget carrier is expected to start flying in the fourth quarter. big japanese lenders, meanwhile, have cut their holdings in government bonds as the central bank snaps up 70% of new jjbs each month. they've trimmed their holding by a combined 151 billion in may. but they haven't shifted their investments to risky equity markets as the bank of japan had hoped. instead, faced with possible headwinds, data showing the biggest banks choosing to beef you have their cash deposits with the bank of japan instead. not quite what they were hoping for. and on the agenda tomorrow,

australia expected to stay steady. huang song sales for the month of may. still to come on today's show, obama rounds up his trip to africa by traveling to tanzania today after setting out a plan to boost the continent's energy infrastructure. we'll bring you those latest developments from the week-long tour. more to come from "worldwide exchange."

the eu is demanding answers from the u.s. following reports that washington is spying on states including germany and france as well as eu operations in brussels. the national security agency has bugged eu offices and gained access to internal computer networks. the british "guardian" newspaper adds that america is also targeting a number of european and non-european so-called allies. america says it will respond through diplomatic channels. the french green party has urged the government to give snowden asylum, this after the president of the european parliament added his voice to a number of eu officials expressing outrage. >> i'm shocked in case that it is true, i feel treated as a

european and representative of a european institution like the representative of an enemy. is this the basis for a constructive relationship on the basis of mutual trust? meanwhile, the u.s. president is on his way to tanzania for the last leg of his africa trip before leaving south africa, obama unveiled a $7 billion initiative to help africa build more power plants with the aim to double access to electricity on the continent. whilst in south africa over the weekend, the president paid tribute to ailing former president nelson mandela by visiting the prison cell where he spent 18 years on robben island. joining us, alex, thanks for joining us. how important was this trip? >> i think it was pretty important in that during his first term, he only spent less than 24 hours on sub-saharan african soil. so this trip, significant, it's early in the second term of president obama, and it was a statement, the u.s. is

interested in africa. it wants to trade in africa. it's going to give more aid to africa. so important. >> i presume they've been squeezed out quite a lot by china over the last decade. >> well, in terms of trade, i think that has been something that's focused attention in washington. in terms of aid and security, the u.s. has been pretty prominent in africa and continues to do so. >> the question is what are they getting back for their aid and security? >> well, you're getting more stability in certain countries and some instability in others. but i think the big shift is that the u.s. wants to export more to africa. and that was very keenly highlighted in president obama's press conference yesterday in pretoria. >> he's also -- you mentioned pretoria -- difficult, not the easiest relationship with south africa over the last few years. are they patching that up? >> well, i think there will be a better platform of mutual understanding between south africa and the u.s. i don't think it will ever be a

lovey-dovey relationship. this ideology south africa also looks at itself as a member of the bricks as well as ipsur. it's looking at a different set of relationships of which the u.s. is still important. bear in mind, u.s./south african trade is the most important for both countries. >> yeah, which is true. what is it america's looking -- you mentioned they want to export. what are sort of the goods they want to export? >> well, president obama in his press conference on saturday in pretoria emphasized boeings, ipads, lots of consumer goods. he's got a serious point there. africa is the youngest continent in the world. there is a growing middle class. it's not unlike the chinese. looking at this as a potential massive market of consumers. so that's an important element of it. also, the u.s.'s energy hunger is changing because of the shale

revelation. the takeout to the u.s. is changing. >> from the africa program at chann chatham house. brazil stormed to victory last night. the perfect preparation for next year's world cup. they beat spain 3-0. expectations will be raised that the home nation can replicate that performance and reclaim their place at the top of world football. the celebrations overshadowed as well, a protest organized for outside the maracana stadium. protesters outside the venue which followed marches of peaceful protesters earlier in the day. this over discontent over holding the event. any thoughts or comments, e-mail us, worldwide@cnbc.com. still to come on the program, global markets have been rocked last week by fears of a china credit crunch. but our next guest says there's no reason to panic. we'll find out why right after

this. plenty more coming up in the second hour of today's "worldwide exchange." it's the first trading day of the new half. we'll be back in just a few moments. ♪ [ agent smith ] i've found software that intrigues me. it appears it's an agent of good. ♪

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this is "worldwide exchange." i'm ross westgate. a recap of your headlines from around the world. markets in shanghai and tokyo reverse early losses. they shrugged off some disappointing chinese pmi data. the mood in japan turns positive. business survey up for the first time in nearly two years. a warm welcome for mark carney on his first day on the job. britain's manufacturing sector grew. the opposition that is leading protests in egypt called on president morsi to resign. they've given him till tomorrow evening to go. local media report the death

toll in cairo has reached six. tough talk from e kurks officials demanding answers that washington is spying on its allies on both sides of the atlantic. you're watching "worldwide exchange," bringing you business news from around the globe. >> the best first half of the year for the dow since 1999, for the s&p since 1998. welcome if you just joined us to the start of your global trading day, and the second half of the year. right now the dow is above fair value, 47 points. the nasdaq is 11 points above fair value. the s&p about 3 points above fair value. it is worth pointing out despite the good start of the year in the first half, they are negative for the month of june, although up for the second quarter is u.s. markets. so how do we start as far as

europe is concerned? well, the dow jones -- sorry, the ftse is fairly flat. individual markets here in europe have tried to start the first quarter up a little bit. but just up 7 points for the ftse 100, 0.5 for the xetra dax. much better data out of the uk. uk pmi, stronger than expected, 52.5. we saw best mortgage approvals since december 2009, even less chance that mark carney will do anything his first meeting. for the year, the ftse 100, up 5.5% at one stage but have been down 10% -- sorry, we had been down 10% for the month of may, but we lost -- erased all the gains. the dax up 4%. the ibex down 5% in the first half of the year. cac up 2.5% in the first half of the year. in terms of individual stocks, nokia's been the biggest gainer,

this after it's agreed to buy out siemen's stake for 1.7 billion yur yeuros. more bleak news for the french automakers. the industry's bodies warned new registrations are likely to fall to the lowest level since 1997 this year. this after posting a 9% decline in june. we did see pmis for the eurozone coming in okay. some stabilization in spain. in fact, 50 in spain. so spanish yields a little low. 2.54. gilt yields also up on better than expected uk data, nearly 2.49%. on the currency markets, we keep our eyes on dollar/yen. up near four-week highs. the aussie/dollar has been down to three-year lows. sterling/dollar rebounded slightly. and euro/dollar, best levels of

the day. that's where we stand right now in europe. let's recap that asian session. with us, as ever, in singapore. >> thank you, ross. it was a mixed start for asian markets on this first trading day in july. despite the soft pmi data, china's shanghai composite managed to reverse morning losses to end in the green, higher by 0.8%. hong kong is out of action for a public holiday and will be back online tomorrow. in japan, the nikkei 2225 extending a rally ending higher by 1.3%. this as the boj's survey, a closely watched gauge on business sentiment, turned positive for the first time in nearly two years. big banks let the gain led ga n japan. it's different for midsize chinese lenders as they continued to lose ground despite reassurance from policymakers that there's enough liquidity in the system. but while interbank rates stabled as some bigger banks and

property players staged a rebound in the afternoon session. so that's why we saw a turnaround on the shanghai composite in late trade. in australia's asx 200 lost nearly 2% today. this no thanks to the weak chinese factory data and also election uncertainty at home. key miners such as bhp billiton both lost 1.3%. euro's jobless rate, 12.1%, 12% in april. it was, if anything, better than expected. it was expected to tick up to 12.3%. the jobless rate revised down from 12.2% in april. but that may jump slightly. not quite what we were expecting. we thought it would be even worse. eventually, meanwhile, europe's own set of manufacturing pmi data is up at a 60-month high for the sector. factory activity still in

contraction at a level of 48.8 compared to an earlier estimate of 48.7. outside the eurozone, british manufacturing is now at its fastest growth in over two years in june. 52.5, well above forecasts. but things aren't so rosy for manufacturers in china. the latest hsbc pmi data dipped in june, the lowest in nine months. china's official pmi reading also slipped, coming in at 50.1, which was in line with expectations. orders were shrinking signaling weaker demand for chinese goods. in a day of mixed data, manufacturing sentiment there positive for the first time in nearly two years. the business sentiment survey showed the mood amongst businesses improved sharply in the three months to june. the headline figure came in at plus 4, up from minus 8 in the march survey. and that data follows six straight quarters of negative readings. joining us for more, chief

strategist at citi private bank. steven, good to see you. interesting set of data we've got out. europe ticking higher, strong numbers in the uk. china, disappointing, and of course we've got the u.s. still to come. how does this play in at the moment to investors' fears about bond yields backing up? >> well, it's still a pretty messy global outlook, as you just noted, with pretty big divergences regionally. we think that this bond rout will probably take a pause here. but fundamentally, we still see bond yields as too low, particularly in the united states. we have a fading credit crisis. and you see very few signs that an actual credit crisis is operative in the u.s. market. it may be a little too soon for the rest of the world to absorb the higher u.s. yields. so there's been some disruptions across all asset classes. but we think that a year from now bond yields will still be higher in the united states. that fixed-income valuations are high. and we feel better about equity

valuations, even though all risky markets will tend to sell off while we make the adjustment. >> if you say bond rates are going to be higher, what are you forecasting? what sort of level in the year? >> well, a year from now, we'll expect ten-year u.s. treasury yields to be 3.1%. just north of 3%, to be rough about that. that implies a slightly negative nominal return. you know, coupons included in the u.s. treasury market over the coming year. in comparison, even though we expect short-term volatility, we think that equity returns or just global equity returns would be mid to high single digits on average over the next two years. >> as you say, the rest of the world will have to adjust. we've got to think about what high u.s. yields mean. certainly for this period, you think volatility will continue. what about for the rest of the year? we sit here with, you know, the s&p up 13% or whatever it is for the year so far. is that it? have we had the gains in this

first half? >> well, think that when we look at the back half of the year, we simply got used to a period of exceptionally low volatility. returns came too easily in the first five months of the year. 17% up with very little setback in the u.s. 50% in the japanese market in yen terms. extremely smooth. and things just don't work that way. in the past three summers, just in the u.s. market, you know, corrections have averaged 15%. and we still ended up with positive returns for the year. you know, the range, i think, was 9% to 19% for interyear corrections, yet it implied very little about this bull market continuing over the last few years. and we're not even talking about, you know, the first year of recovery from the credit crisis. the reasons for all of this have changed. this year it's concern about the end of easing and concerns about china. in previous years it's been u.s. growth scares and concerns about sovereign problems in europe. but if you think about it, this time around, you know, being

concerned that the fed would basically stop administering medicine to a patient who is recovering, you know, the implications are very different, i think, for the economy and for equities markets than for fixed income markets. >> all right, steve. we'll get more on what you think. stay there. because all that glitters may not be gold. reports now say david einhorn show gold fund has been getting pummeled because of the drop in the precious metal. the fund down nearly 12% in june. losses totaled 20% year to date. the gold fund had $920 million under management and 266 investors as of march. it offers a gold denominated share class which gives investors exposure through the investments and then reprices them in gold as opposed to u.s. dollars. steven, gold -- when gold was on the way up, everybody used to argue it benefited from everything. it benefited from deflation, inflation, it benefited from the weakness of the u.s. dollar.

now there seems to be no argument for it. >> yes. during a ten-year bull market, you know, you find precious few reasons for setbacks. but the reality is, it's a risky asset like a currency. and we're not terribly comfortable with gold in a period of rising real interest rates and stronger trend growth assumptions for the u.s. economy. and just to be clear here, we think that the u.s. economy's recovery is very far from over. it's still much closer to a trough. even though profits are very high, we've had about 3% employment growth in the u.s. over 12 years. we've had an epic housing downturn and extremely low real interest rates. so i think when you look at gold, sure, we have derisked it greatly by the price declines. but there are plenty of problems, again, with some of the more speculative investments. >> all right. stay there, steve. when we come back, we'll get your views on how you think equities are valued at the moment. we're going to get the second quarter earnings starting next week because we'll have more to

come from you. meanwhile, it's a canadian invasion at the bank of england. can the new central bank governor deliver on the great expectations? we'll discuss that when we come back. i want to make things more secure. [ whirring ] [ dog barks ] i want to treat more dogs. ♪ our business needs more cases. [ male announcer ] where do you want to take your business? i need help selling art. [ male announcer ] from broadband to web hosting

to mobile apps, small business solutions from at&t have the security you need to get you there. call us. we can show you how at&t solutions can help you do what you do... even better. ♪

and a recap of the headlines, if you've just joined

us. asian equities shrugged off disappointing china pmi, also being boosted by solid japanese business data. not bad for a first day at work for mark carney as the bank of england's governor. british manufacturing sector grows at its strongest pace in over two years in june. and tough talk from european officials. they want answered from the u.s. following reports that washington is now spying on brussels. oh, yes. plenty of outrage in brussels about the eu apparently bugging them, or spying on them. more on that. meanwhile, there's a new man who's not english at the bank of england. mark carney's taken over as the governor today. as helier reports, expectations are high that the former head of the canadian central bank can help turn around the british economy. ♪

>> reporter: today a canadian is going to become one of britain's most powerful men. after 319 years, the bank of england governor is going to be a foreigner, mark carney. like his hero, ice hockey legend wayne gretzky, carney has been billed as the great one, even the best central banker in a generation. but with uk growth stunted and banks still in turmoil, the incoming governor will have to put his game face on to thaw the ice. ever since the chancellor chose carney as the new governor, he's been seen as the ultimate dove, happy to use and perhaps overuse quantitative easing even if it all makes us all feel a little too sick. back home in canada the gloss has started to come off a bit with the housing bubble caused

by low interest rates, the housing in canada is the third most overdeveloped. in the uk, we've already had 375 billion pounds of free money poured into the system. and critics warn that we've all become a little bit too addicted. in the aftermath of comments from the fed, we've all realized weaning off qe could give us all a bit of indigestion. what he does have in his favor, apart from his george clooney looks, is a chancellor that is on his team and a uk economy that seems to be producing green shoots. monetary flexibility and forward guidance are likely to be a big part of the bank's new toolbox. but with great expectations comes risk of great failure. and while canadian banks are some of the strongest in the world, british banks have been exposed as some of the weakest. finding recovery in a resource-rich nation like canada is one thing.

reviving britain's might be quite another. lucky, then, we've imported our own former ice hockey goalie. he's really going to need to call on his competitive spirit because over the next five years, he's going to have to be able to do more than save a few pucks to rescue the uk's economy. >> pucks, i think, is what you said. it's amazing because i heard that shoulder pads were back in, helier. clearly, i didn't know to that exte extent. >> well, i know you're quite keen on your fashion, ross. that's the way to go, really one-foot shoulder pads this season. >> joan collins' got nothing on you. mark carney, first day in office, and another better than expected pmi. all the pmis above 50. his job's done for him, isn't it? >> i'm not sure it's quite done, but certainly it's a good score on the first day. and we've had a series of

numbers, as you said, coming out of the uk recently that seem to show green shoots. we also had retail sales at better than expected 2.1% in may. so we have had got data. >> best levels since 2009. >> we did have -- we also didn't have a double-dip recession according to revised figures. >> but the economy much smaller than -- >> so for every step forward, two steps back, possibly. and remember that here in the uk, really to get growth going, that's going to be quite difficult. and while in canada, the banks are very strong on a global scale. here in the uk, some of them are really still struggling. >> what will mr. carney do for the first two months? he has a meeting this week. the former governor spent the past few months being outvoted for more qe. i don't suppose mr. carney will risk him being outvoted, will? i >> i don't think in a matter of four days he'll be able to

persuade those members that have been voting against more qe to turn around his point of view. it's unlikely that he's going to call for it at this point. what we're expecting is that in august he's going to let us know how he's going to give forward guidance. and this will allow the bank of england to become much more transparent, much more in the american and canadian style. >> all right. good to see you. helier, thanks for that. good luck on the ice. and if you've got any of those waffles left, that would be kind of nice. thank you. can you think of any other famous canadians exported? get in touch with us. e-mail us, tweet us or direct to me @rosswestgate or to helier. i was thinking earlier of lennox lewis. keanu reeves is apparently -- i didn't know keanu wasn't american. >> avril lavigne.

>> they now live in the states, i'm sure. still to come on the program, hundreds of thousands of protesters are calling for president mohamed morsi's resignation. but egypt's leader remains defiant as violence escalates. we'll have the latest from cairo after this. ♪ [ agent smith ] i've found software that intrigues me. it appears it's an agent of good. ♪ [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ]

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again the epicenter of mass protests against the egyptian government with millions calling for mohamed morsi to stand down. violent demonstrations have led to at least six deaths so far in cairo and five in the southern part of the country. this according to local media reports. yusef joins us for more from cairo. yusef, how would you describe the situation today? >> reporter: well, ross, as you can see in the background, traffic has picked up again. people are returning to work. but don't be mistaken. this is what egyptians usually do during protests. so you have heavy turnout at night. and in the morning people go back to business, and then it picks up throughout later on in the day. so keep a close eye on this space. the country is deeply divided between those that support president mohamed morsi and those who oppose him. you mentioned some of the violence that has taken place overnight in part of cairo at

muslim brotherhood headquarters was torched and at least six people have been killed according to some of the latest information that we have. the way out of this problem is for these parties to sit down and talk this out. but it doesn't look like it, ross. they seem to be further apart than ever. but again, those observing the situation including the united states are, of course, calling for constructive dialogue. >> yeah, the president has talked about nearly 5,000 strikes over the course of their first year in office. what is the economic impact of this latest demonstrations, and what has happened to the economy? >> reporter: well, ross, the economic story is a tragedy, to say the least. analysts that i have spoken to are extremely worried that the economy may not be able to handle a second bout of these protests to the scale that we saw yesterday. the imf just seized 2% of lackluster economic growth. important drivers of that growth

such as fdi and tourism have dried up and perhaps most worryingly, you have your foreign reserves which have been drawn up on to support the local currency, the egyptian pound, have dwindled. that gives the current bank not much ammunition to prevent what some see as an imminent. this orderly devaluation. in fact, capital economics put out in research last week, they say there's a growing risk of that happening and that the devaluation could be as high as 50%, and that in a matter of weeks. so you can see how tense the situation is. and of course, the potential impact of an economic fallout. >> all right. thanks for that, yusef. that's the latest from cairo. still to come on the show, the housing effect. our next guest says the sector's massive ripple effects throughout the u.s. economy and the market's recovery could be impacted by the jobs report, bond market as well as fed policy. we'll talk about that. as we do so, a look here at the futures. which are implying a high start

for u.s. equities on the first trading day of the second half of the year.

this is "worldwide exchange." a recap of the headlines today. markets in shanghai and tokyo reverse early losses. they shrugged off disappointing

pmi data. whilst japanese business survey turned positive for the first tim in nearly two years. a warm welcome for the new bank of england governor mark carney. britain's manufacturing sector is growing at its strongest pace in more than two years. and the opposition that is leading protests in egypt calls on president morsi to resign. they've given him until tomorrow to go. this as local media reports suggest the death toll in cairo has reached six. tough talk from eu officials who are demanding answers about reports washington is spying on its allies on both sides of the atlantic. you're watching "worldwide exchange," bringing you business news from around the globe. >> and if you just joined us stateside, a very warm welcome to "worldwide exchange." u.s. futures are pointing a

little higher after the first half of the dow since 1999, the best first half for the s&p since 1998, albeit, of course, june was a negative month for those stocks. the s&p right now is indicated just over 7.5 points above fair value. the nasdaq at the moment is around 19 points above fair value. and the dow at the moment is just under 80 points above fair value. all of these indices up for the second quarter. as far as the ftse cnbc global 300 is concerned, just up a smidge above 9 points. european equities mixed. the ftse 100 is up 5% for the first half of the year, just up 0.5% for this morning's trade. xetra dax is up a bit, the ftse minimum and the cac up 0.3%. manufacturing pmi coming in stronger than expected. mortgage approvals best levels

since 2009. so at the start of the first half -- second half i should say, what rinne vesters to do? here's a recap of some of the thoughts we've already had from guests today on cnbc. >> i think dollar/yen is the right long trade again. markets have calmed japan. a lot of sort of short-term has been washed out. i think the trend is going back to a stronger dollar, weaker yen. >> the obvious one where i'm feeling nervous is emerging markets. the seat for yields that were so extreme that you have countries which were, you know, turkey as an example have great imbalances. growth well below where they should be for nonperforming lows and all the other things. and you have money flowing in and driving real yields into negative territory. that's obviously an overbuy.

>> i'm still of the view that equities are going to be better than bonds. i'm conscious i'm sounding like a broken record on that subject. i think there's going to be relative hi more volatility. i think there's opportunities in bonds in relative value trading, one set of things against the other. >> all right. that's some of the thoughts. what's on the agenda today in the united states? investors building up to friday's jobs report. although it's a holiday-shortened week with markets darkened on july 4th. today we get the final reading of pmi. then the june manufacturing index and construction may spending as well. joining us, chief economist at metro study. also still with us, steven wheating at citi private bank. steven, thanks for hanging around, and brad, welcome to you as well. look, it's a big week, albeit we've got the holiday on july 4th.

there's a bit of a strange week. how's this going to play into our thoughts about the fed? >> well, as you said, we have a lot of important numbers coming out about the economy. everyone wants to know whether the fed's going to take away the punch bowl or the kool-aid bowl, some would say, rapidly or gradually. all of these things are going to affect the economy as a whole. one of the things that i watch the most closely is the housing market. and the interesting thing about mortgage rates and interest rates is as rates go higher, what happens sometimes is the buyers will increase their buying activity, at least accelerate their buying decision ahead of rising interest rates. but longer term, it's an affordability issue. and it starts to imping on what people can afford. and so they go and look for houses in more remote locations or older homes or smaller homes. >> yeah, just explain that. so we've seen this spike up in mortgage rates because of the

backup in yields. you say in the short term that has the impact of people rushing to get more money, does it, because they figure, okay, get it while it's still relatively cheap. >> well, and it's also a split in the market. in other words, the low end entry-level part of the market is affected one way. the higher end is affected another way. the higher end of the market, the move-up market, as we say, is actually that market that says, you know what? i am going to buy this year instead of waiting another year to buy that home that i've been wanting. whereas at the entry-level portion of the market, they don't have that kind of financial flexibility. so what we've seen so far, just with the little uptick in rates, is that the low end -- the entry-level portion of the market has actually pulled back. traffic at the builders' showrooms has gone down in a lot of cases whereas at the move-up part of the market, people are accelerating and moving their decision forward and buying now instead of later.

>> so what does it mean for the builders, the construction firms? >> well, in the immediate term, the builders are feeling extremely optimistic. they're charging higher prices, and those prices are sticking. consumers are paying the higher prices because they see that the market has turned. there's a new urgency that's come back into the market. people are saying i'd better buy now before prices go higher. i've just barely missed the bottom in the housing market. if i buy now, i'm going to build equity. and it just feels like a good time to buy. we need to see these strong jobs numbers, the manufacturing numbers are coming out today. we need to see overall growth in the economy to really shore up consumer confidence. but as long as we see continued gruaimprovement in the economy, i think we're going to see continued improvement in the housing market. the other thing about housing that's really important to watch is household formations. household formation rates in the u.s. have typically run about 1.3 million per year.

it dropped to around 500,000 per year a couple years ago. now it's back over 1 million again. so we see this pent-up demand coming back into the market. and it's pumping up demand for new homes. >> steven, if you take what brad is saying and thn put that into the equity mix, what does it mean about the housing sector's investment and also this economic recovery, you know, where are equities valued on it? >> well, for the first part of this, we've had an epic housing downturn. we just had the first above-50 reading on the home builders index in six years. this is not going to be the last. we probably will take a bit of froth off of some segments of the housing recovery from this pickup. we've had dramatically higher housing turnover in the past and much higher interest rates than this. credit conditions are different. they're not going to be anything like during the bubble period. but in general, i think that we can continue a pretty solid housing recovery. and you know, as our last guest

noted, it can be an snept tif to just see, wait a second, this is not a chance to wait again for an ever-lower rate. so i think there may be elements of the housing recovery which have been, you know, really strongly skoun lly discounted i market markets, but lots of derivatives of that, all sorts of things like housing-related durables. these purchases will be stronger. there's probably a good segment of the auto industry that has been impacted by not just the housing downturn but, you know, dramatically higher energy costs for a decade. and i think all of these things can, in fact, improve in a recovery going forward. you know, the equities -- i'm sorry. >> i was just going to come on to the final point here. bear in mind, we've got earnings coming out next week, steven. how are equities valued at the moment? and are you better off in cash for the next few months, or can you find some value? >> i think the question of cash verse equities over a couple months is very difficult with strong rigor to answer that sort

of question. we've said, you know, as a firm, our targets imply, you know, single digit but solid single-digit returns over the second half of the year. but one standard deviation move in equities is 13%. so there's simply no guarantees over short periods of time. but the equities market just in the u.s., for example, is at a 6.75 earnings yield. if you look at other developed markets in other places of the world, it's in some cases even higher. so in terms of real yields, even those we averaged in a recession into the earnings numbers, they would be significantly improved relative to bonds. so for this one to two-year outlook, we would feel much more comfortable with equities, even in a fairly slow earnings growth. so essentially the one thing that i don't think has been discounted has been persistent economic growth and persistent earnings growth, and that's where we feel positive. >> gents, thank you both. steven whiting from citi private bank and brad hunter from metro

study. meanwhile, a record heat wave is affecting parts of the western u.s. with no relief expected until at least midweek. temperatures hit 117 degrees fahrenheit in las vegas on sunday. 119 in phoenix. and 128 in california's death valley. just shy of the record 134, which is recorded in 1913. that was the hottest temperature ever recorded on earth. the heat coupled with strong winds is also stepping up the threat of wildfires. 19 firefighters were killed sunday whilst battling a fast-moving blaze around 85 miles north of phoenix. so what's going to happen next with this heat wave? joining us for more is the weather channel's reynolds wolf. hi, reynolds. >> hey, good morning. unfortunately, we're going to see more of the same in parts of the desert southwest, especially in places around phoenix. the latest we have on the fire you just mentioned is very dire at this point. 0% containment. acres burned, about 2,000.

and for those of you that are neighbors, if you're wondering how big an acre happens to be, it's about the size of a football field or so. again, we're talking about quite a bit of area. and it's still burning as we speak. conditions not conducive to stopping it. still triple-digit heat for days to come. and there's a reason why we've been seeing the extreme heat. it's due to this big "h," or rather what it represents, an area of high pressure. and that really gives it kind of a compressing effect on the atmosphere. and that result is going to be extreme heat again. triple-digit temperatures from las vegas to palm springs, even in phoenix and where they've been fighting that fire. and it won't be just a one-day event. it's going to extend through tomorrow. and as we make our way later into the week, we should see more of the same by wednesday. so just brutal stuff. behind me on this map, you happen to see parts of the western united states. and you see something else. some parts of the map that are covered with this orange spots here or there. tan in others. those are heat advisories or excessive heat warnings. it's where you have very low humidity, at the same time extreme heat. fire danger is all but a

certainty for other parts of the west, and the heat should continue through at least late week. back to you. >> reynolds, thanks very much, indeed, for that. that's the latest on the weather. now, we've had reports over the weekend about the u.s. government spying on its allies in europe and on the eu. it's outraged a number of politicians in brussels. the german spokesman is now calling for clarity on the allegations over the nsa. the spokesman says europe and u.s. are partners and they need some trust. spying on friends is unacceptable. the cold war is over. so the german foreign ministry is going to summon the u.s. ambassador about those reports concerning the nsa. we'll see what happens there. still to come, top pay for top execs. a new report shows ceos are still being rewarded even amidst calls by some to rein in the size of their paychecks.

a recap of the headlines. asian markets reversed early losses, shrugging off disappointing chinese pmi, also boosted by solid japanese business data. not a bad day for mark carney in his first day of bank of england governor. manufacturing grew at the strongest pace in over two years from june. tough talk from eu officials who want answers from the u.s.

government following reports washington is spying on brussels. yeah, the german government is asking for the u.s. ambassador to go and visit and talk about those allegations about spying. meanwhile, it's still good to be the king. new data shows ceo pay is rising in the u.s. let's get more on this. seema mody is at cnbc hq in new york. hi, seema. >> hi, ross. that's right. compensation for the men and women who lead america's top companies is increasing, even as shareholders urge boards to rein in on pay packages. a "new york times" study done by executive pay research firm equular says ceos at companies with at least up 60% from 2011. the stock market returns was just slightly above that at 19%. at the top of the list, oracle's larry ellison whose pay jumped

24% last year to $96.2 million while the company's stock returns fell 22%. activision ceo is second at just under $65 million. the rest of the top five, les moonves of cbs, david zaslav and james crowe. the top woman on the list, yahoo!'s marissa maier. as you might expect, a cash portion pales in comparison with its value of the stock and options. equilal says the compensation was $5.3 million while stock and option grants totaled about $9 million. combined, stock and option awards made up 60%. their pay. ellison, for example, received $97 million in options or 94% of his total pay package. now, the so-called golden parachute is still envogue for ceos who choose to or are forced

to retire. equilar says the top package went to conoco phillips' ceo after a decade of service. he took home $156 million. much of the payout came from the market value of stock gains he received while working at the oil giant as well as a cash severance, bonus and additional retirement distributions. ross. back to you. >> all right. seema, thanks very much indeed for that. now, we've got more spying allegations. just to recap this story this morning, senior politicians demanding an explanation from washington over allegations in "der spiegel" magazine that the nsa, national security agency, spied on eu institutions. and this is also have more on this on the government as well. as a result, the german foreign minister is going to summon the u.s. ambassador to come talk about these nsa reports. they're not terribly happy. they'll discuss the reports with

obama soon as well. they still want the eu u.s. free trade deal. politicians in brussels saying we should delay this eu/u.s. trade deal until we get to the bottom of these spying allegations. also, the countdown is under way to the employment report on friday. important report for investors as traders prepare for a low-volume week with the july 4th holiday. so how will that number impact us? we'll get into that when we come back. with the spark miles card from capital one,

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[ crows ] now where's the snooze button? [ crows ] could save you fifteen percent or more on car insurance. yep, everybody knows that. well, did you know some owls aren't that wise? don't forget i'm having brunch with meghan tomorrow. who? meghan, my coworker. who? seriously? you've met her like three times. who? (sighs) geico. fifteen minutes could save you...well, you know. some of the other stories we're watching today. am onyx pharmaceuticals is exploring a possible sale after it rejected a nearly $10 billion offer from amgen. onyx has called its cash bid of $122 a share a 38% premium to

friday's closing price too low. estimate on its value up to $148 a share. onyx sells a drug which treats liver and kidney cancer. on its stock in germany, as you might expect, up strongly, nearly 49%. new york's financial regulator has reportedly asked lloyd's for details about dealing linked to iran. "the wall street journal" says this is part of a probe into 29 u.s. firms. benjamin lawski reportedly found evidence of three having shipments to iran in violation of u.s. and eu economic sanctions. as far as lloyd's is concerned, up 0.75%. lloyd's down marginally. the cable tv industry. reports suggest malone's liberty media is considering a deal for

time warner cable in which liberty owns a 27% stake would actually buy time warner cable. executives have reportedly met with investors but say they don't want to make a hostile bid. three firms involved. liberty up 0.1. liberty up 1.2%. u.s. futures are pointing to an upward move at the start of the first trading day of the second half of the year. the dow is currently just over 90 points above fair value. the nasdaq is 22 above fair value. the s&p 500 at the moment is just under 9 points above fair value. this after the best half for the dow since 1999. the best half for the s&p since '98, although they were all negative for the month of june. the dow for the year, as you can see, up nearly 14%. the s&p year to date, moving on. there you go. just up 12.5%. joining us for more, anthony

kudelli. anthony, thanks for joining us. here we are in july. we've got a lot of data coming out, a holiday. we've got the employment report on friday. what happens now after the volatility over the last few weeks? >> well, for technical traders, i think it's very clear what we're going to be watching. can the s&p 500 cash market have three consecutive closes above their 50-day moving average which right now is roughly 16.21 and change. if they can, then i think that we continue this grind up. and if they cannot, i think that we may roll back over and retest the recent low of 15.60 which was just about halfway back for the year at 1556 in the s&p cash. if it fails there, then i think that we're looking at possibly a test of the 200-day moving average in the s&p cash, which is right around 1510. >> okay. so sort of all to play for. today we're getting ism

manufacturing. how much will that set us up in terms of sentiment as we wait for even more comments from fed speakers? >> well, you know, right now i think for the technical side of the market, we're really just waiting to see what we can do around the 1621 area. anything else in between 1621 and this recent low of 1560 is all noise. you know, the markets -- i'm not in the business of predicting how the numbers will affect the market. i want to see how we react around certain prices. and 1621 and change in the s&p cash right now is key is very important for the entire market. if you go back to last october, we had three consecutive closes below the s&p cash. that's when we rolled over and tested the 200-day moving average. the 50-day moving average became resistant. that same thing happened a couple of weeks ago. everybody is watching to see if this is going to repeat history the way it did in october when we crossed back below the 50-day moving average and came up to retest it. and if we can cross above it and

hold above it, i think at least three consecutive closes, you want to see three because one or two could be a head fake. then i think we grind up. all the noise between, you know, who's speaking and numbers, it's all going to be about reacting, i think, to that price. 1621 and change in the s&p. >> anthony, good to see you. have a good day. have a good week. joining us from chicago. now, as mark carney has taken over as governor of the bank of england today, we've been asking about other famous canadians who have been exported to britain or perhaps indeed to the u.s. john tweeted canadian ben johnson was a world-class sprinter. he was apart from the doping side of things. he was pretty good. jeffrey baker from switzerland has written in to say it's not only mark carney's inauguration of bank of england governor, but it's also canada day. he mentioned another export is mike myers. he did a very good austin powers impersonation. that's it for today. coming up next, "squawk box." we hope you have a profitable

day. we'll leave you with a look at futures as we go to break.

wall street's second half kicks off the day after the dow has its best first half since 1999. there are rising tensions in egypt. hundreds of thousands -- maybe millions into the streets of cairo calling for president morsi to step down. and more triple-digit temps in the southwest. death valley expected to reach 130 degrees today. vegas, 115. it's monday, july 1st, 2013. and "squawk box" begins right now. good morning, everyone. welcome to "squawk box" here on

cnbc. i'm becky quick along with joe kernen and steve liesman. andrew ross sorkin is out today. as joe mentioned, the second half is upon us, and the first week of trading will be dominated by the jobs report due out later this week. by the way, it is an abbreviated week for the u.s. markets and for the rest of us. we have a half day of trading on wednesday and a full day off on thursday for independence day. yeah, that's the way we like to start the week. why don't we look at the futures now. here's another way the bulls will like to start the week. dow futures up by almost triple digits now. dow futures up by about 97 points. s&p futures up by about 9 points. and there has been some wobbling around this morning. they were up 90, then up only 50, and now back up about 97. you can see the major market averages across europe right now are also well into positive territory. the cac is up by about 0.3%, as is the ftse 100 in london. in germany, the dax is up. more from ross westgate in london in just a moment. more drama