welcome to "worldwide exchange." i'm julia chatterley. here are your headlines. markets back in the green in europe after yesterday's drop triggered by portugal. bank your santander suffers losses as the family company don't compromise the capital position. shares remain suspended.

israel helton brokering a cease-fire as the death toll in gaza rises. reports suggest lebanon has now fired rockets towards israel. the world cup winner will be revealed this weekend, but who won the sponsorship battle? we're joined by the ceo of puma later in the show. >> announcer: you're watching "worldwide exchange," bringing you business news from around the globe. >> a warm welcome, again, to "worldwide exchange." what a difference a day makes. you can see losses in the gainers in today's session, seeing a bit of a bounce across the european markets. stoxx europe 600 up around 0.4% in the markets today. we closed on the day yesterday by pulling back some of these gains today.

remember it was a confewence of factors, weaker industrial production from italy, weaker industrial production from france. we also saw peripheral spreads in the 10 basis points. we've taken back eight basis points of those stable trading, specifically under the 400 levels. we have seen a bleeding out of some of those spreads yesterday. just to give you a bit of a perspective, let's give you a look at the two-year chart. there you go. need i say more? quick check on the foreign exchange markets this morning, the dollar under a little bit

of -- in yesterday's session, relatively ignoring the situation on the broader asset classes yesterday, until the u.s. markets and investors got involved yesterday. is 1.36 the figure. we're just trading above that now.the we did see a bit of yen strength. 101.30, also the level to watch there. but what about asia? let's kick in sri in singapore for the asian market wrap. sri. >> hi there, julia. we are seeing risk aversion over here largely because of what's been happening in your region and these concerns about the banking sector on the periphery and the clear and present danger, of course, is portugal. benefiting from the safety bid as were u.s. treasuries.

so the flight into gold, helping some of the aussie miners, the banks having a reasonably good day today. that is fairley well from what is going on externally. now, in terms of stock specific fast retailers releasing disappointing guidance altogether, so that was a big weight on the nikkei. we're going to be watching greater china markets quite closely next week. we get a big date of second quarter gdp. industrial production and retail sales. we're looking at signs of stabilization. remember, julia, i was warning you about this yesterday. there seems to be some complacency in the markets.

a little bit of post election euphoria which seems to be misplaced, giving the political uncertainty. remember both camps jakowbi and prabowo are claiming victory. in the interim period, some volatility and a bit of a correction in the markets as i was predicting. u.s. lenders up by more than 4 had%. they got a message from the stock exchange, really, and explained the notice asking why you saw such successive gains in the stocks, so question marks there. overall, a fairley risk averse session with a xu exceptions as we head into the weekend, people

watching the portugal situation julia. >> thanks so much, sri. have a great weekend. also on today's show, seeking permission from u.s. regulators to test the unmanned aircraft near seattle. more on that story later on in the show. and the new york stock exchange could have its arrival sooner rather than later. reports suggest alibaba could kick off its ipo process by the end of the month. serbia's prime minister insists the nation is not on the group of bankruptcy. we head over to bell grade as we wrap up our tour of emerging europe. plus, pum ma's 150 million pound deal with arsenal goes live. we speak to the sports designer's ceo about the new era for the brand. banco espanio shares were

suspended after falling 19% in trade yesterday. it remains suspended in trade today. the sell-off hit lenders in northern eu banking sectors. this morning, those stocks have pared the losses. steve is in lisbon. can we go to the price action in the markets yesterday, down for the sheer complexity. confusion created by the ownership and the holding company above it. >> yeah, absolutely. something i've been trying to look at all morning is that we -- our job is to decipher complex stories. i don't think we should do that with this story. it's so convoluted at the core

of the story. you have espirito international, which is opaque and based in luxembourg which owns another company which owns esfg which then owns 25% which is 15% of cagr and at the root of this, you have a family. i'm right in saying this is a complicated story. as julia pointed out, it is at the root of the problem. >> it is less complicated. it is very complex with the companies and -- >> no, no. so it's leverage, at the end of

the day, they're overstretched. performing well. but at the end of the day, it's on commercial paper. which are really aggravated by the stocks. >> okay. let me -- >> that's important. they lost trust on the bank, on the family, and they are now selling off rapidly. >> you said to me the family controls not only this, but other assets, telecom, as well.

how do we separate the bank and the portugal telecom company from what is going on at esi? why is this a portugal problem? >> it's absolutely the right issue. they control portugal telecom. and they were very successful on selling off the takeover by the group. they've created a complex. this is a large exposure to commercial pipeline issued by

company companies. bank of portugal, for exposure. in the case, people are overreacting. they are not really as bad as some people. >> lots of confidence, the rights issue, the money was raise the at 65 euros, now we're trading under. why isn't the problems of the group so widely a portuguese problem, given the fact that the financial group, which is the next tier up, said they're on the hook for tsi for 5 billion euros. banko espiritos are on the hook, as well. why isn't it a broader

portuguese problem? on the other hand, it will basically lose significantly on the trade on the merger with the brazilian camp. that is why isn't the problem a wider issue? given the fact they have to raise money and given the fact that there is such an enormous

corporate debt behind us, as well, 255% at the portion of gdp in the country, as well. if they're struggling to raise money, why isn't it a broader portion for the gdp and the economy? >> it is not a systemic problem. gdp has been declining. these banks are looking at the oversight during the program. so i wouldn't expect to see many major problems. it's too much to avoid taking government money. they've been housing some problems for too long. the other banks opened their books. >> just to cover ourselves, thank you very much indeed for giving us a bit of education on this story. julia, let me hand it back to you. a very convoluted story, but

according to this guest, at least, it is not a countrywide issue. joining us on the phone, alberto from credit rbs. alberto, banco espirito came out and said it's exposure for retail clients and commercial clients, as well. can you give me a figure of a worst case scenario and how much are all these provisions going at the bank with these levels? >> good morning. i think what they said today, they have 2 billion extras, it provides a very large buffer. if you take exposure to the esa and the essg group companies and also the loans which are not guaranteed by the state and the group exposure, you can lose 1.5

billion. so you would be be above the minimum 8% capital ratio. so to me, it is a revenue problem, it is a capital problem, but it's not a solvency problem for the bank. there are inch vesters that are afraid. some investors have sold. it's liquidity is relatively low across markets and this has created some concerns. t not a solvency problem. >> eats also raised concerns about corporate governance. can you ask or answer whether we should be concerned about what else is going on in the portuguese business sector? could you envision a situation

where the portuguese government themselves have to step in? >> we have to keep in mind during st imf program, portugal carries out a review of its banks. but they did several inspections of banks' books. banco portugal is already on the case from over a year ago. the some issues have been pressed forward in time rather than being addressed immediately. portugal still has 4 billion to 5 billion in bank restructuring funds that it borrowed and hasn't used yet. so there is a buffer to absorb any scenario where the portuguese government may have to step in. i don't see that happening because i see a recovery in

spain which drags up portuguese gdp, as well. so i don't see a worst case scenario where there is a state intervention in the banks. i think the portuguese banks, most of them have been able to raise capital in the past and i think transparency needs to be restored. if that happens, investors will go back to the banks again. >> alberto, great to get your perspective, head of european macro credit research at rbs. we have to take a quick break, but coming up, u.s. tobacco giant reynolds, looking at a possible deal. we'll take a look after the break. stay with us. we needed 30 new hires for our call center.

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president obama has offered israel a offer to help broker a cease-fire deal. he said thursday he could help with negotiations with hamas, a militant group that controls the gaza strip. reports suggest rockets could fire at israel.

jonathan is on the phone with us now, adviser to benjamin netanya netanyahu. you are obviously very close to the prime minister. can you tell us me what he's been thinking? >> he's thinking what he's been thinking from the start. that is that our main goal is to put an end to the rocket fires in gaza by hamas and the other terrorist groups. and restore peace and quiet to israel. you mentioned the fire from the north thisng. course, we're not taking that any more lightly. >> he says he wants to bring an end to the violence, an end to the killing. how do you do that when the message -- to the wall and we have nothing to lose? >> their backs are against the wall because they put them

against the wall. hamas had every opportunity to put an end to this immediately by stopping the rocket fire. that's how this start and had that's how this will end. >> how do you mean that's how this will end, by rocket fire? >> i mean it will end by their stopping the rocket fire. the key to this is the rocket fire. hamas rocket fire is what started it. stopping the rocket fire will end it. >> do you think israel's response to this has been proportionate? >> i think the response has been appropriate to the threat. let me describe to you what's happening in israel, if i may. you have the majority of these populations running back and forth into bomb shelters where there are bomb shelters. in response to the rocket fire. just now as we spoke, a siren just went off in the ischol area

in the south, which in that area, people have 15 seconds to get into a bomb shelter and that can be the difference between life and death. >> i understand the situation is incredibly difficult. israeli officials have been talking about a possible invasion by ground forces. how quickly could we see that? >> i'm not going to speculate in terms of the timing of that. that, of course, remains a possibility. our cabinet authorized the mobilization of 40,000 reserve soldiers the other day. we'll continue to evaluate the situation and do whatever we need to. >> do you see that the u.s. has a role here in brokering a cease-fire and peace? >> we welcome the president's

offer to help return to a state of cease-fire, but right now the less said the better. >> jonathan, thank you so much for giving us your perspective. >> this week, we've been speaking to some of the most important pollsmakers in europe. now louisa is in bell grade on her trip. really interesting country balancing relationships with the eu and relationships with russia. how are they managing to find a balance when countries like the ukraine, moldova are struggling so much?

>> he was saying it's very important you take care of yourself, look out for your own interest and then look out for how your relationship is with your neighbors. that was really important. i want to give a summation about the country, as well. the country is in dire straits. meager growth, almost nonexistent at the moment. if they're lucky, they're looking at a growth rate of 1% by tend of the year. it was pointed out to me that we're looking at a very large gray market. that you have to take into account, too. they've got record deficit levels, too. and it's the pace with which these levels have been reached. that's a worrying part. so when you look at the countries that we've traveled to over the past week, whether it be slovakia, serbia, the red line through all of t reform and how reform has to be continued to push through with. i spoke earlier to the prime minister of serbia, alexander

rocic. he was talking precisely about reform. take a listen the. whenever you try to do any kinds of reforms, it doesn't matter whether it is croatia, bosnia or serbia, it's going to be very difficult. but i'm absolutely dedicated to that, absolutely determined to that, and i'm sure that we'll be very successful. our goal is to finish our homework within three or four years and then everything will be up to the eu member states to decide whether to accept it or not. coming back to your initial point with regard to relations not just in the neighboring area but relations with russia, given that they are in talks now to join the eu, will they be able to maintain these closelings that they traditionally have had with russia? and what does it membership mean to them, too?

>> first of all, we need to think about serbia. i understand it is normal that a big country like united states and russia, they have their own interests. and how much we are ready to fight for our own interests that is the most important for this government and any other government. we can play games. and i think we don't need to turn 100% on one side or the other side. but we need to think first about serbia's interest. >> if you ask me what is the first option, first option is very simple. this is part of the united of 500 million people. where we already have the

access. if you're living in the building, your neighbor, doesn't matter which nation it is, it is the most important for you. first you need to be in -- with your neighbor. our neighbor is -- and then after that we can discuss about china or united states or russia, whatever. first be good with your neighbor. >> yeah. talking about how important the relationship with your neighbor really is. just kind of, again, summarizing, we've been to three different countries, slovakia, croatia, serbia. very different stats when it comes to growth. slovakia seeing 3% growth. here, we're just teetering. the prime minister thinks we're headed in the right direction. so it will be interesting to see a couple years down the line with these reforms pushed

through, what will the real result be from these reforms and how will these countries look? julia. >> just taking you through the number of countries, the number of cities that you've been in over the last five days or so, incredible. incredible journey. are you going to get some time to do a bit of sight seeing as you go or is it straight back to the airport and back? >> we've been in transit mode pretty much the whole week, so i'm probably going to have to leg it to catch a flight. so if i'm lucky, i'll see you in the studio. otherwise, i'll be here. still to come on the show, portuguese stocks have pulled back some of the lost ground from yesterday, but what will be the long-term damage? stay tuned.

motorcycles back in the green in europe after yesterday's drop trigger by portugal. banco espirito santo, shares remain suspended. president obama offers israel help in brokering a

cease-fi cease-fire. the death toll in gaza from air strikes rises. reports suggest lebanon has now fired rockets towards israel. plus, the world cup winner will be revealed this weekend, but who has won the sponsorship battle? we're joined by the ceo of pum ma later in the show. european markets this morning, unwinding some of the losses we saw in yesterday's trading session. the cac 40 up 0.5%. the ftse mib in italy up by 1%. portugal just up over 0.2%. similar story as far as the risk sentiment is concerned in the bond markets right now. portuguese widened by around 42 basis point so far this week. we're seeing it pulling back around 10 basis points in the session today, firmly beneath that 4% level in the european session in yesterday's trading session. now, banco espirito santo

expressing the lending didn't satisfy the bank's own capital requirements. investors were scratching their heads as to how exposed the bank and its external shareholders are to the troubled holding company. earlier on, the ceo of the bank of cyprus gave us his view. >> i think it is unfortunate that we have not got this confidence. it is unfortunate to have such stories emerge. >> steve is in lisbon. steve, do you think ultimately it's going to come down to the reputation and damage done here to banco espirito stando and the financial implications of this

issue? >> i think you could be right. from everybody i've been speaking to on the ground, the government, the bank of pore tu fall, the broader banking sector, banco espirito santo itself, they're trying to say this is a family problem and those problems seem to be deep rooted and very complex, as well. it is not a banco espirito santo problem, it is not a bank of portugal problem. if they can convince people of that, it changes the situation. and you and i have spent enough time, julia, in these crisis centers to know how important it is to iron out those issues, especially whens, as you know with your conversation with the prime minister reerntly, they are trying to put together what is a very tenuous recovery.

they still have enormous debt. they still have 15% unemployment in this country. you have corporate debt in the nonfinancial sector at 255% of gdp. so there are problems, but they were hoping that a banking crisis was not one of those, as well. so they are pained to say this is a specific family problem which is being investigated by investigators in portugal and indeed in luxembourg, as well. of course, they are making some great strides. one thing we haven't talked about is the fact that the deficit has come down significantly. the government deficit last year was 4.9%. this year it's been at 4%. next year, it's almost the plan, it will be 2.5% by the end of the year. they are pulling stren usely to get that austerity back on

track. they're having problems with the constitutional court every now and again says you can't do that. that is to gain the constitution of this country. so there are multitudes of this problem. what is going on is an exercise across europe. the problem is, mr. sap tan na lopez who we just spoke to said look, there is the company where mr. santo is stepping down. we don't have the new ceo until tend of july. you have almost a vacuum at the top and a vacuum in terms of regulation. yes, we're getting esm. we're getting banking supervision from the ecb. yes, we're getting more of a union. but this is all still to come in many cases and that leaves a bit of a vacuum in the meantime where we don't know shareholders and bondholders, it could be still the state. that is something others are absolutely, julia, at pains to prevent.

they do not want a family issue convoluted as it may be affecting the broader economy. and this tenuous recovery which, of course, way may 17th? the big fanfare? they're out of the program and yet still enormous problems. >> absolutely. and as you quite rightly point out, that's why the ecb wants all these things wrapped up before it gets anywhere near involved. steve, we'll come back to you in half an hour's time. the spider's webb of influence of ownership not just in portugal, but over into france. credit agricole had a 13% stake. stephane has been following that angle. stephane, take us through the details here and the involvement in credit agricole. >> you see this exposure to banco santo is not good. but credit ago recoal has a 14.1 is% stake in the portuguese bank, which is worth around 420 million euros.

this is based on the share price at 51 cents. and that is to compare with a value of 860 million euros for credit agricole. this is really an announcement that is manageable for the french bank. credit agricole recently had a 20% stake of in banco espirito santo. so it's stake is reduced to 14.6%. what is happening in portugal is part of the strategy for the french bank. last year, it sold its remaining share in the bank and it's reduced its stake in banco espirito santo. it has a shareholder agreement.

it must keep the stake for at least 180 days starting from the capital increase in may. clearly, as you can see, the market is not extremely worried about the situation. yesterday we had a 2% decline on the credit agricole share price and we were trading a bit lower this morning. but now the stock is bouncing back. credit agricole is up more than 1% at the french market. over to you. >> thanks, stephane. peter, i wonder whether it was a confluence of factors, the data we got from italy, also the german economy minister acknowledging weakness in q2 yesterday. there were a number of elements here. where does that leave us as far as the equity markets are concerned in europe? >> yeah, i think you're right. there were a couple of effects in portuguese equities and we

have the same volume in the summer market and you had the weak data coming out. but there are ohm a few in a whole sea of economic data. and our view is that broadly the economy in europe are healing. also in european countries and the economy is doing quite well in the u.s. and is healing in some countries in asia. so we are very constructive and optimistic on equities and we think what happened yesterday in portuguese equities in banco espirito santo won't be an expectation. the portuguese banking sector is not connected enough to the rest of the european banking system to make a big impact in a negative way. >> we've regained 2% of the 4% we lost in the portuguese markets. do you still see there being upside in the portuguese market more broadly? >> yeah. there will be a bounceback. however, more longer term, it's that portuguese equity res among the most extensive ones in the

world, among the 44 equity markets that we track. so that is much more value to get to other markets. but as a short-term practical trade, yeah, there are more upside. >> what do you make of the market reaction yesterday, initial jitters and regaining after the european markets closed? >> yes. this is just a tale of two stories. investor sentiment is so strong in the u.s. that at this point they don't care that much about what happens in europe. europe is selling the crisis any longer, that has been contained. the latest numbers you have seen from the u.s., there was a bid on the opening, but it came back and as you look at the u.s., it's a very positive story all along.

i think that's what investors have bought into. >> does it show investor jitters, the fact that they looked at this and were like, yikes, do we put it down to summer markets, as you just said? >> our view is that that will always be a noise and yes, valuations are now around levels that our view is that the outlook is looking healthy and there could be some noise over the summer. volume is always low. if you had some catalysts, then it's the bid would always be weak on the buy side. that's what you saw yesterday in europe, too. we had that on the open briefing and then bias came back in and markets came up again. the outlook is quite positive for the u.s. and our view, very

technically, is that we will see interest rates normalized in the coming years. >> peter, i think your sigh when i asked that question said it all there. great to get your perspective. in corporate news, a deal in the tobacco sector is set to go up in smoke. lorillard and reynolds are finalizing a deal to combine two of the largest cigarettemakers. they had great on key issues including price and which brands to sell to apiece anti-trust regulators. the deal could know announced as soon as next week. imperial is set to buy some of reynolds and lorillard brands.

elsewhere, allibaba could b set to launch its ipo process by tend of this month. the chinese e-commerce xwient shared the information with investors in an e-mail. the financial sometimes says alibaba plans to begin its road show as soon as july 21st. the ipo could happen by early to mid-august. alibaba will trade on the nyse under the ticker baba. amazon is publicing ahead with the idea to use drones to clifr packages to your doorstep. last year, the u.s. designated six sites to test the droeps for

use. the drones could deliver packages in 30 minutes or less and one day seeing them will be as normal as seeing trucks on the road today. still to come on the show, indians have been promised better time the. stay tuned as we bring you an interview with india's new finance minister. we needed 30 new hires for our call center.

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wells fargo kicks off earnings season for u.s. banks today. wells fargo doesn't face the same capital markets trading drag as other big banks. mortgage pressures could weigh as the volume isn't able to offset the slump in refinancing activities. chevron expects its second quarter the company expects production to raise slightly as lower output overseas increases input domestically.

shares higher in india after the company beat expectations in q1 sparking a increase in quarterly profits. the business consulting says the tech jump is due to tightening of its costs and improving pictures in the u.s. and europe. staying in india, the country's finance minister has unveiled the first budget under president modi. >> internationally, they're giving us a second chance. they started looking back at india. therefore, i have to live out and -- which is directional. now other steps will follow in that direction.

we want to grow, we want creating abdomen environment to grow. we are not only opening our doors, and yet easing that, that's the message i wanted to get to everyone. >> i have no apology. >> if you were to -- >> i only tell them to be a little more realistic. 67 years and there has been pleased in the line of -- they expect me to find it in 45 days. what i have said is that subsidies are concerned, i will have an expenditure commission to look into everything including subsidies and,

therefore, apart from our subsidy problem, these are market related. in a few months, it will become market related. >> there are issues. particularly you can find an answer because garrison is used by -- and the building at the same time. so how do you dissect the two? the prime minister himself last week took a couple. and looking at various options, including a form, for a dvd. we've just taking over so the leading agencies should appreciate that these are areas in which they are require for more time. >> what would be the ideal stat as far as subsidies are concerned? >> i am not going to tie myself into figures itself.

there is a very large section. subsidies in general can become unkwaul quantified. they can relate to an unidentifiable section of people. but there are some people who need the subsidies. there are still 30% of people below the poverty line, around that figure. really to make sure that wanting them out, you have to have your policy alleviations to include the -- for subsidizing them. how do you rationalize them? >> just had some comments from the bank of portugal this morning saying depositors have no reason to worry. we've heard from the portuguese prime minister this morning, too, saying investors should not worry about the stability of the financial system in portugal. so some of the questions we've

been asking this morning about the situation as far as whether there's further questions to be asked about what else is going on in the banking system there. words of calm from the prime minister this morning. renewed worries over pore tu began banking system yet. it spurred investor demand for safe haven assets. joining us now, an analyst from tcs securities. the last 24 hours benefited gold. investorses have realized the value of gold, gold prices go up and it's good to diversify a

portfolio. so haven demand for gold has gone up. but the conflict in ukraine and followed by the conflict in iraq. people have realized that, you know, that there is a central scenario improving global growth that things can go wrong and gold is looking to diversify a portfolio to hedge yourself against those events. >> i get the justification more the broadly for why you choose to invest in gold right now. i'm looking at the detales of the gld, which is the biggest etf we have out there for gold. just last week, we saw the overall flow year-to-date turn positive for the year. >> absolutely. >> they've seen the heaviest volume all year? >> april april 2013 when the prices crashed. so it's stronger buying yields

of gold. >> we've got ukraine, the situation in iraq, we've got this lack of acknowledgement from yellen about the inflation outlook. the conversations are still out there and near not going away anytime soon so that's a reason to continue to buy here? >> yeah, absolutely. the lack of sort of interest rate rise trigger in the fed minutes meant that people will be content to continue buying gold. but, you know, the overarching things are investor jitters with this situation involving in portugal with the banco santo story. that shows that the banking and sovereign issues that are

intertwined just haven't really quite gone away yet. therefore, the fears that people have put in the back of their minds is coming back into the fore again. >> top side down side levels we should watch? >> i think 1400 is one of the trigger points.. >> okay. thanks so much for that. let's take a quick look at the u.s. futures ahead of the equity market trading session over in the u.s. a bit of a bounce in the u.s. markets yesterday. for now, we'll ahead to break and i'll leave but a picture of portugal. we'll head out after the break.

welcome to "worldwide exchange." i'm julia chatterley and these are your headlines. what a difference a day makes. markets back in europe. u.s. futures pointing to a higher open. banco espirito santo insist the losses held by the company don't

compromise the bank's position. shares have been suspended. israel's helton brokering a cease-fire as the death toll from gaza rises. reports suggest lebanon has now fired rockets towards israel. a smoking hot deal? tobacco shares trade higher as they snap up asset brand from larillo and reynolds. the two are very close to a merger agreement. if you're just tuning in, thanks for joining us here on "worldwide exchange." an interesting session in the u.s. markets yesterday. we saw initial losses when they took a look at what was going on in europe right now. but then after the european markets closed yesterday, we managed to pair back some of those losses. the momentum that we saw towards the second half yet continuing

as far as the futures are concerned. dow futures indicating higher by around 38 points. the s&p 500 around 4 points and for the nasdaq, to around 10 or 11 points higher right now. let's have a look at the markets this week. on track right now for the worst week so far in three months, we did see around 0.9% losses for the dow. this week, the s&p 5001%. nasdaq, 2% lower overall on the week. right now, they did take a bit of a wobble at the early positive session from what we were seeing as far as the european session was concerned. europe today, it's also down. 0.2% higher for the french and german markets. the psi, portuguese market where we were looking at the hety center of some of the tension in yesterday's trading, half of the losses we saw in yesterday's trading session, up 2% in the market. we did see that reaction happening in the bond markets, too, spreads in portugal, 40

basis points wider on the week so far. what we're seeing today is a snapback, too. right now, below 3.9%. we touched above 4% at the back end of the european session yesterday. let's take a look on the month. we have seen them bleeding. a whole host of wider issues yesterday, portugal, weaker data from italy and france. we have the experts over the past month, a bit of perspective here if we need it. let me show you the two-year chart for portugal. just about says it all, doesn't it? let's get straight to our guest, martin, from barrett yard advisers. martin, thanks for joining us here. what do you mistake of the u.s. price action yesterday? well, certainly the market has been in a bullish mode. it has been very strong over the last month. for there to be a bit of a setup

would be normal. the espirito santo situation was just a bit of an excuse for the market to take a bit of a breather. >> yes, we saw the large caps regaining some of the losses earlier on in the session. what was quite interesting was that the russell 2k didn't, it was still up more than 1% yesterday. >> well, you know, the day-to-day action of the huge interest to watch. it's a bit of noise. we're more interested in is looking at what the conventional wisdom is thinking and then to see if perhaps they may be wrong. everyone knows that there will be a correction and everyone is waiting for that correction and perhaps this is the beginning of one. however, the conventional wisdom is typically wrong and in the past we've had, you know, right now the people are saying there has to be a correction because it's been over two years.

but from 2003 to 2007, we went over four years with a 10% correction. in the 1990s, we went nearly seven years. so there's a press denies dent for us to rise higher without a correction. now, that's not to say we're raging bulls, but the other conventional wisdom that we are really mindful of is the fact that everyone knows interest rates are going up. and we think that investors have to challenge that assumption given the data and given the environment we live in. and if interest rates, indeed, are not going up and if what we're maybe seeing is a readjustment in the equity market and the securities market to a permanent level of zero interest rates, then that has huge implications for securities. you make a great point, too. yes, we have valuations, we can argue that they're expensive, but at the same time, markets can stay expensive for a long time. they really to rally if confidence is building in the markets right now and that does

seem to be the case, i guess. what should we be buying? how should we be positioned here? >> well, what we like are dividend paying stocks. we like companies that are growing, companies that pay dividends that represent anywhere from a 40% to 60% of their payout cash flow. right now we're finding blue chip companies yielding 3% plus trading at 17 to 18 times earnings. we think given the new reality, that's a good deal. also in singapore, there are wonderful companies yielding 3.5%, 4%, that we think are also quite attractive. and the reason why we're focusing on dividends is that yes, we believe that things have changed and that securities could stay expensive for a while. but if we're wrong, if we're getting a yield that is above the 30-year treasury yield, then that gives us a psychological

comfort in terms of being able to weather a storm. secondly, only academic studies show that something like 43%, 44% of the return on equities over the very long-term has to do with dividendes and a compounding dividend. so right now more than ever, i think investors need to really identify what their strategy is because we're kind of in unchartered territory with all of this quantitative easing and the zero interest rate world that we live in. but also to, at the same time, have a strategy in terms of the specific investments and we're going with the dividend of great businesses that have -- >> makes sense, martin. stay right there. we'll come back to you. for now, we'll get up to speed with some of the other corporate news today. a major deal in the tobacco sector set to go up in smoke. lorillard and reynolds american are xwiebing a deal.

they have agreed on key issues, including price and which brands to sell to appease anti-trust regulators. the deal could be announced as soon as next week. imperial tobacco is set to buy some of the assets. imperial tobacco, up 3%, reynolds american up 0.83% and lorillard up 7%. elsewhere, al by baba could be set to launch its ipo by the end of this month. the e-commerce giant shared a timetable in an e-mail. the financial times says alibaba hopes to begin its road show as soon as july 21st. with top executives in the u.s. and hong kong. the ipos could happen by early to mid-august. alibaba will trade on the nyse under the ticker baba. amazon is pushing ahead with

the plan to use drones to deliver packages to your doorstep. the company is asking the faa to commission test drones near seattle where one of its labs is working on the technology. last year, the u.s. designated six sites for companies, universities and others to test it for broader commercial use. but seattle is not one of them. drones could deliver packages in 30 minutes or less and one day seeing them will be as normal as seeing mail trucks o road today. >> more than half those polled economists think the fed will raise rates in the first half of next year. what's behind the theory? stay tuned. more information on that. we're back in two.

welcome back to "worldwide exchange." these are your headlines. european markets are you coupe some of the losses. president obama offers to intervene on middle east tensions. and two companies edge closer to a big tobacco merges. fed vice chairman stanley fisher says breaking up big u.s. banks would have little benefit. in his first major speech sips

taking over the position, he says it's unclear such a complex task would help stabilize the financial system. >> at present, we don't face any serious macro -- any serious asset price problems. i think there's a general concern about how strongly the equity markets are. but i think when you're dealing with equity, a stock market can do down would you say producing a financial criessy. fischer says some people are worried about leverage loan to businesses, but that is arcane. small problems can soon turn into bigger ones and they can use interest rates to pop bubbles if other tools don't do the job. i thought yellen said we weren't

going to do that. martin is still with us. martin, from u.s. banks to european banks, if we look at the tensions that were created more broadly in the financial markets over concerns about the portuguese banking sector, i want to get your assessment of how much of a risk you see still from the european banks and about the recovery that we see in europe. >> i guess the analogy i would use would be the world cup football, did anyone really think costa rica was going to end in the final game. and portugal is a country of 10.5 million people, part of the european union well north of 325 million people. so i think it's just a size issue and it's not something that would become a systemic problem. now, the french banks and the german banks, that would be another issue. but it seems as if from our

perspective that the european policymakers are very aware of the issues that clearly the european banks need to prop up more capital. but all things being equal, the european banks are not that bad in shape. and, you know, there are all these systemic issues, but i think this will month over. >> from an investment perspective, do you think there's juice in some of these european markets, particularly in the periphery? >> well, it's always -- you know, the analogy that i've seen in terms of investing in the peripheral countries is like driving your car with a hand brake on. so it's difficult, at best, always. so, you know, the confidence has returned to the peripheries. remember, just two years ago, i think it was, the yield on the

portugal bonds and the greece bonds, you know, were well north of double digits and they've come down significantly. so investor confidence has been restored if you look at it from that point of view. and this is perhaps just a bit of a hiccup. >> martin, we love your analogies. quickly, argentina or germany, who wins the world cup? >> well, you happknow, i guess have to go with argentina. >> i thought you were going to say the european club in germany. thank you so much for that, martin, chief investment officer and port foal your manager at barrack yard advisers. wells fargo kicks off earnings season for banks today kicking off results at 8:00 a.m. eastern. wells is forecast to earn 1.01 a

share. mortgage pressures would weigh if the volume of new loans could offset the slump in refinancing activity. the share expects broader profits to rise in q1. the number two u.s. oil company expects production to fall slightly as lower output overseas offset a modest increase domestically. shares still expect full second quarter results on august 1st. in the german trading session, up 0.3%. warren buffett joins forces with bill gates and sheldon alderson to scold congress for failing to act on immigration reform. in an open et, they say the u.s. is being short changed by lawmakers who won't put the country's best interests firsts.

broader security thrust into the spotlight recently by a surge of child migrant social security suspension in america. even though the politics differ, you don't have to agree on everything to cooperate on matters about which you are reasonably close to an agreement. it's time this brand of thinking finds its way to washington. next on "worldwide exchange," pum ma leaks on a trading deal. the arsenal kick that kicks off their partnership. we speak to the ceo right after the break. the cadillac summer collection is here.

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lease this all new 2014 cts for around $459 a month or purchase with 0% apr and make this the summer of style. welcome back to "worldwide exchange." the futures are shaping up ahead of the u.s. equities trading session. the dow jones higher by 38 points. the s&p 500 just over 4 points and the nasdaq gaping 12.2. yesterday at one point, the dow was lower by 180 points at the end of the trading session. it ended up down just sw 4% for the dow, 0.4% for the s&p and 0.5% for the nasdaq. we're seeing a bounce in the european markets.

the russell 2k is still down 11% and looking at shaping up to big the worst work for these majors in three months. pum ma struck a deal with arsenal. that partnership kicked off in london last night as they launched the club aups new kit for the season. joining us now is jon gruden, ceo of pum ma. great to have you on the show. so the signed a deal with arsenal, 150 million pound dole. do you think this is the right team to be sponsoring given that they haven't won the premiership for more than a decade? >> of course it is. it is a global team. it's the perfect fit and we're very, very proud toby their partner. >> they signed alexi sanchez. this going to be a game changer, do you think? >> i think the planning of that

signing was gate. i think it makes some very, very strok contenders. >> we conveniently had nike walking away from man chester united and one of the justifications was that the cost right now isn't justifiable to shareholders. do you believe that we've lost a sense of reality in the financial side of these deals? >> we can only say that financially image wise and valuewise and, again, any brand has to do the analysis of what they should and shouldn't do. and we are convinced that signing up for long-term is a very, very good move us and for the club. >> what does it makes for the bottom line? do you quantify on a monetary basis? and the fact that you're seeing as a business sponsor?

>> also, for me, the more expensive, the more happy i am because in order to be successful. so in many ways is doing the calculation. our clak at arsenal makes it a profitability. >> ultimately, the semi final was about those two brands. the final is all about adidas. how do you compete with those two giants? >> well, we started the tournament with 18. we had four going to the round of 16.

unfortunately a little bit unlucky. they didn't make it into the next round. we were very, very happy with the way we looked, the tight fitting technology. i think the female -- what do you say -- spectators looked at our team because they looked very good. you know, also the boost made a lot of interest. we got a lot of attention and very happy. >> it's all about the tight fit for the women. can i also talk to you about soccer in the u.s.? >> yes. >> a lot of excitement in this world cup about the potential future for soccer in the u.s. do you see this as a pivotal moment of liftoff as far as soccer sport watching in the u.s. is concerned? >> soccer is the fastest growing sport in america. if you look at the number of players that are playing it, it is the biggest move in the market both male and female. you know people watching it live

and form fans, i think it's something and hopeful that it will transfer into keeping the interest in the american league and going it. but, you know, every fourth year, people say this is the time in the u.s. as a major sport. let's hope that happens. >> the future actually is not having sponsorship for the teams in the finalists. i can ask you would is going to whip, argentina or germany? >> it's going to be germany. >> is it? >> yes. >> one or two people i think agree with you. thank you for coming on. now, many u.s. economists are churning the second quarter gdp forecast. the latest survey by the national association for business economics finds mostly there's a less than 10% chance of that happening. the poll was taken after the june jobs report. more than half economists think the fed will raise rates with

many saying the first hike will be in the second quarter. let's give you a look at what's on today's agenda in the united states. a monthly statement out at 2:00 p.m. eastern. we have a trio of fed officials speaking throughout the day at rocky empty in jackson hole, wyoming. we have second rt quarter results before the opening bell. we'll be talking all things wells fargo right after the break. stay with us.

welcome to "worldwide exchange." i'm julia chatterley and these your headlines from around the world. what a difference a day makes. markets back in the green in europe after yesterday's drop triggered by portugal. u.s. futures point to go a higher open. bank your espirito santo experienced losses and says the family's holding don't compromise the capital positions. president obama offers cease-fire help as reports are

the death toll increases in gaza. a large tobacco plan is potentially in place. lorillard and reynolds american are reportedly in talks of an agreement. >> announcer: you're watching "worldwide exchange," bringing you business news from around the globe. >> if you're just tuning in, thanks for joining us here on "worldwide exchange." you're looking at the u.s. equity markets. futures we're seeing indicating higher in the session. the dow higher by around 42 points. the s&p 500 four points higher. the nasdaq indicating higher, just shy of 14 points containing or continuing the momentum that we saw in the latter stages of the trading session in yesterday's performance. recovering some ground here in europe, too, and that's the story. finally, we're unraveling some of the details of the situation with bank your espirito santo.

and the broader implications of the market. portugal regaining just over half of the losses. that index down by 4%. banco espirito santo itself remain remains suspended. banco espirito santo is thought to calm concerns over the bank. the troubles of the holding family do not compromise the bank's own capital requirements. shares in the bank were suspended after falling 17%. they remain suspended today. antonio, analyst at eurasia group joins us now. good morning, antonio. fist, can you quantify for me what kind of exposure we're talking about from the holding company and the ownership

structure above it. >> yeah. thank you for inviting me. so i would say to start with that that's what we've been saying for a while, for the last week at least. these problems are much smaller than the ones that the big holding company has. now the problem in the markets was what's going on, a lack of transparency. there is a complex conglomerate with share holdings and i think markets were fearing a bit what was really behind this. but this is not -- it is under quite healthy financial conditions and that's the point here to make. i think that overall, counting the different parts of the company, now including the esi, you know, including other parts, the financial part of the company, also then all this together will be more than 2 billion. >> 2 billion euros? >> yeah, in many case.

and this is a manageable amount for, obviously, for the government. and i even think that it carries a kind of system. >> do you think the government will have to get involved at some stage? >> that isn't without possibility. the good news for the government is that is there is some -- available. >> how far? >> basically, the government was under problem for three years. there was some money left here for financial problems in the context of the aqr and stress tests coming up. there's some problems with the merit. and the good news is that there is 6.4 billion available. that is important to take into account.

>> can i just ask you, because i think what was going on in the markets yesterday, beyond the initial fears, is that they were trying to understand whether this is something that could ultimately be systemic. is this an issue that we can contain within one bank the or do we need to start asking questions more broadly about the portuguese banking sector and actually more broadly about the european banking sector still? >> no. look, i think this is a minor issue located in a very small country and the banking sector of this country is quite small. this is very small system, as i mentioned. i don't think it was if things would go in the worst case scenario very badly. there is still room for the government to cover up any potential capital feeds. i don't think we will have -- we will have a major implications for the rest. that's the main message.

the portuguese banking sector had gone through a huge transformation. they raised capital. now i think the troubles -- fragile position. >> antonio, it's fap tastic to have you on. now joining us is matthew mccormick. matthew, what do you make of the reaction in the u.s. markets, both the initial sell-off, in fact, and the recovery that we saw to the latter stages of the session? >> i think the investers out there have had a great run. when you see events like what happens in portugal and the fact that gdp numbers aren't as

strong as many people expect, the narrative is changing for many people. they're starting to become more cautious, more risk averse. i think earnings season will be crucial to determine whether or not this market will rally and whether or not it will go in a different direction. people are looking for an excuse to sell. if economic numbers come in weaker than expecteded. >> what we also saw yesterday with the russell 2k still losing 2%, it's down, what, almost 4% for the week, are we seeing a different message from the small cap to the large cap, given the rally that we've seen in the last two months in particular? >> that's a great point. the russell 2,000 small caps in general are generally a signal of where the broad market is going. and i think when you look at where most of the pain has occurred, it's occurred in the smaller cap names as well as the nasdaq names. the companies with higher betas,

less strong, weaker balance sheets and the lack of dividends. and i think these are the type of stocks that have worked basically for two plus years, since 2012. and i think what investors are doing are taking some chips off the table. they're starting to, again, become more rick averse. and i think it behoofs them to do so. i think it makes sense to take some risk off the table, go to a little bit more conservative area. we think dividend stocks are the place to be. >> when you say dividend stocks, it's performing, but high quality isn't. can that trend continue? >> that is a great point. the high quality names haven't worked as much. the higher yielding, the bigger dividend names are starting to work. this is the second quarter in a row. i think that is an indication of where economic reality is. there is a disconnect for many people believe there is going to be a meltup in the cyclical low quality names. i disagree. i think investors are starting to move their positions into a

more conservative strategy, go to companies with stronger dividends, better downside protection. and i think the quality trade will follow up. at first it starts with dividends. then the quality. and i think it's going to be something if you see more geopolitical up rest, more concerns with europe, weaker earnings, weaker gdp, i think it makes a strong logical case that dividend paying stocks have more -- get ready for more volatility is my recommendation. >> some great points. fed vice chairman stanley fischer says breaking up big u.s. banks would have little benefit. fischer says the two big to fail sish hadn't been solved. in the q & a sess, fish r fischer says he doesn't see any major threat to financial stability. >> at present, we don't face a

very serious macro problem. there's a general concern about how strongly the equity markets are, but i think when you're dealing with equity, the stock market can go down without the financial crisis. some people are worried about leverage loans to businesses, but that market is arcane. however, he says small problems can quickly turn into bigger ones. that's in direct contrast to what we heard from yellen earlier this week. now, elsewhere, president obama has offered israel help in brokering a cease-fire with the death toll calmly rises.

president obama aild he could help. earlier, i spoke to jonathan, senior adviser to prime minister benjamin netanyahu. i asked for his thoughts that hamas statements say their backs are to the wall and they have nothing to lose. >> if their backs are against the wall, it's because they put them against the wall. they had every opportunity to put an end to this by stopping the rocket fire. tease how this started and that's how it will have to end. >> in the date for the year's most anticipated offering is seen as early august. we'll discuss, right after the break .

welcome back to "worldwide exchange." these are your headlines. european losses triggered by portuguese bank. president obama agrees to inter convenience on middle east tensions. and there's a big tobacco merger. a big deal in the tobacco

sector is set to go up in smoke. lorillard and reynolds american are looking as combining two of the largest cigarettemakers. the companies have agreed on key issues, including price and which brands to sell to appease anti-trust regulators. the deal could be announced as early as next week. the performance in the uk markets imperial tobacco, up 3%. reynolds american higher by 0.8%. lorillard up..7%. mark your calendar, reports say al by baba could start the upcoming ipo process within next few weeks. bertha coombs has all the details from cnbc hq. bertha. >> julia, not just of the year, alibaba's ipo is widely expected to be one of the largest ever.

reports say the chinese e-commerce giant plans to launch the ipo progress by tend of this month. "the wall street journal" says alibaba shared the timetable in an e-mail with current investors. the company is asking those investors to agree to a standard lockout period which would block them from selling shares for 180 days after the debut. the financial times reports alibaba hopes to begin its marketing trip, a trip for the deal as early as july 21st starting with meeting investsers in the u.s. and hong kong. that could make it possible for the company to hit its preferred dates. pricing shares on august 7th so they can trade on the 8th. number eight in chinese culture is a very ambitious number. it would ensure the deal gets done before bankers and investors head out on their late summer vacations. alibaba is still waiting for the s.e.c., which vets all new listings to give final approvals

for the ipo. the ipo market has been strong this year. the u.s. has priced the most deals by this point in any year since back in 2000. a number of other chinese tech companies have enjoyed success since their debuts here in the u.s. online retailer jd.com has seen its stock up 32% since its debut in may. the final price and valuation of alibaba's ipo will depend how much stock and the investors plan to sell. alibaba is going to list its shares on the new york stock exchange under the ticker symbol baba. baba. it's appropriate. >> bertha, thank you. have a great friday. now, amazon is pushing ahead with the plan to use drones to deliver packages to your doorstep. the company is asking the faa's

permission to use this outside of seattle. last year, the u.s. designated six sites to test for broader commercial use, but seattle is not one of them. amazon drones could deliver packages in 30 minutes or less and one day will be as normal as seeing mail trucks on the road today. back to one of our top stories, banco espirito santo is insisting in a statement late last night, the trouble at the family's holding company do not compromise the bank's own capital requirements. shares in the bank upper suspended after falling 17% in trade yesterday and remain suspended in today's trade. steve is in lisbon and has been there all morning. steve, it seems like the markets in portugal and more broadly getting to grips now with the size of the exposure and any potential systemic implications?

>> yes, they are. they are doing the intelligent thing which is going through the numbers and putting together the figures. i think from bnp paribas numbers, as well, which give us a total company and client exposure. but when you start scratching the surface, people start asking other questions. a lot of questions being raised here and among bank analysts and regulators about exposure such as areas to angola has a huge exposure. and the ultimate owner of those loans is bes. and whether there are sufficient clarities about who those loans are to, as well. so you go through these exercises and they're very healthy. you just wish the regulators were going through this on a more regular basis before we got to this situation going through them in areas such as luxembourg where the family holding company structure is completely

mystique. well get to the bottom of just what is the state of those finances because there are grave concerns about what it means, for one of the big families in holding companies for this country. now, i spoke to pedros santana lopez earlier on about the concerns that this would have contagion, that it will affect the government, the bank of portugal and will need some form of bail in from these parties. this is what he had to say. >> the position in government shall not enter in this situation. and this situation is of the espirito santo and there is possibly. fortunately, the governments, they will not pay for what is happening. other questions, it's in common work, we'll have some candles answer in this situation because

this is not a portuguese question. the problems in the different financial institutions existed in other countries. >> now, among the various structures within the spirito santo, the group owns 25% of bes, the company which is still not trading yet me have loeps at least 2.3 billion euros of exposure. the family, as well, portugal telecom has exposure to them, as well. is this family in trouble and does it have greater ramifications? >> we have the general assembly that work one week and a half and i think the decisions that will be taken as as soon as possible in europe, in portugal. of the of the companies halting

this situation assuming their responsibilities. >> julia, let's make two points here. one, we've had a great line of course or a -- for any bag bad news that can be a catalyst for down side risk. the other thing is, if the fundamentals in portugal were so great, if there was so much capital here, if there was better growth, less unemployment and less public sector debt, this kind of story about espirito santo would be swept under the carpet. it would not be a big issue for the markets. because the fundamental res still tenuous, that is why people get very worried very quickly. back to you. >> steve, we've had this conversation in many different countries and one of them is in one place and one in another. thanks for the update. great to hear from you. now, eps growth could help fargo's winning streak come to an end. the official earnings season

kickoff right after this break.

wells fargo kicks off reports today for banks. they expect this quarter to be a mismatch. talk us through your forecast. >> i think wells fargo is a great bank and i think they're probably the best of breed of the money centers. however, i think they're going to be light. i think they are a mortgage banking machine where about half of their loans in in that area. i think mortgages will be lighter than expected. i think when you look at wells fargo, even though i believe they're going to be light on eps, i think they're going to be the best release of all the big banks. i think banks in general should have a tough quarter and i think investors should lower their

expectations for strong releases from them. >> they're trading pretty close to their all time high. do you think it's valued and what kind of beat do we have to see to see this stock higher today? >> well, i think the consensus are many people believe that this would be the quarter that they do miss. they've had 17 quarters of earnings growth, as well. i think if they miss this period, i think it's going to cost some people to re-evaluate and take some chips off the table. i think the regional banks look better. i think when you look at the money center banks in general, they've had a great run, as well, since 2012. i think both of them, i think the money center banks and wells fargo in general look fully valued. i think it behooves people to take more risk off the table and have better valuations and haven't moved as much. >> thank you so much, matthew mccormick. that wraps it up for today's show and this week. i'm julia chatterley. thanks for watching "worldwide exchange." "squawk box" is up in a couple of minutes time.

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good morning and welcome to "squawk box." european markets did stabilize u.s. futures yesterday. that was a pretty good stand, if you watch. and they're higher today after surviving the portugal shock wave. who would you want to talk to? mark grant? well, we will. carl icahn thinks it's time to be cautious about the u.s. stock market. i'll tell you about my experiences with his calls. they go back 20 years. and three of the richest men on the planet are calling out congress for not moving on immigration reform. it's friday, july 11th, 2014, and "squawk box" begins right now.

why are we playing the theme for three's company? you'll see in a second. good morning and welcome to "squawk box" here on cnbc. i'm michelle caruso cabrera along with joe kernen and sara eisen. yes, two ladies today. but fist, the portugal bank and shock waves has been absorbed and now european are higher on the week. the futures are higher, the dow would open higher by roughly 37, 36 points. the s&p is higher by 3 points and nasdaq higher by 11 points. dow futures were down nearly 125 points. the dow did drop as much as 1830 points in the early trading and clawed its way back to finish down only 70 points. the s&p 500 fell briefly prosecute rebounding.