hi, everybody. good morning. welcome. you're now watching "street signs." i'm louisa bojesen. >> and i'm nancy hulgrave. these are your headlines. >> a tempered first hour of trading for european stocks. the shanghai composite finishing in the red. losses in china racking up to $1.8 trillion in year. >> and apple swallows the slowest iphone growth since its creation as ceo tim cook sees signs of softness in china. this weighing on european suppliers. >> investors not turning a blind eye to weakness at the eye care

division. the unit's underperformance weighs on fourth quarter results. the ceo tells us it will return to growth. >> we don't expect it to be a quick fix. it's probably going to take us mid year before we see a turn on that business, but we expect to exit the fourth quarter with low to single-digit sales growth. >> rbs stumbles out of the gate after fourth quarter profits will take a surprise hit to cover litigation costs. >> hi, everybody. good morning. middle of the week. >> that's right. >> and it seems like every day we've started off on a similar vein. markets have just kind of reversed a little since the initial calls. we were called a little lower. we opened a little lower. we're currently somewhere flattish to just a tad lower. we're evening out by the looks of things. it was a mixed session when

looking at our asian markets overnight. yes, you did see some weakness continuing in, for example, the shanghai composite. down some 3% or so. you saw a drop of 6.5% in yesterday's sessions. we're off these massive amounts since the beginning of the year. the nikkei higher by almost 3%. the bank of japan meeting coming up friday. but today we're all sitting tight, waiting for the fed. >> here we are waiting on the fed. >> to look at the language. >> people will be digging in to the actual statement they release as janet yellen will not be giving a press conference after. the guessing game is on when we talk about the rate hike path for the rest of the year. but we're putting the focus back on the earnings picture. it's the busiest week for u.s. earnings. apple reporting after the bell yesterday. shares falling about 2.6 after

hours as investors took the decrease in revenue. apple's massive cash horde reached $216 billion during the quarter, and that was up 21% from a year ago. joining us now to break down these results is the investment director at gam. thank you for joining us. we talked a bit about the iphone sales. you could say the growth is slowing. however, it was better than some expected for the full year here. not a huge surprise. you said the results overall not too hot, not too cold. we'll call them the goldilocks report, if you will. what about china? a lot of people saying we saw tim cook changing his tone on china. >> for me, china was the really big surprise. 14% growth year on year. that followed on from 99% growth year on year in the previous

quarter. an incredibly sharp reduction in growth. it really wouldn't surprise me, given his comments on the call about january, he said they really saw a softening occur. given that comment, it's possible we'll see sales decline in china in the next quarter. >> and what about going forward beyond that? is this simply a blip, or is this a new normal for apple in china? >> this is the big question. i think the bar was already reset for the forthcoming quarter. they've guided for 50 to 53 billion in revenue. that's in line with where the market whispers were. so the question is what happens beyond that. i think that we will find that china will continue to be difficult for them and that in general i think the high-end smartphone market is pretty fully penetrated. apple has a high price point. >> how big a portion of those sales actually come from china? i know it's a big market, but it's also a market where it's a

recent market for many of the larger western corporates. you can't anticipate to have 99% growth every single year in china. it's reasonable to expect some type of a tempering. >> that's true. about a quarter of their sales come from china. in the last quarter, previous to the one just reported, approximately two-thirds of their growth came from china. so china is very important as the driver of growth for the business overall. a fall from 99% to 14% is very unusual. i agree, you see the growth rate temper, but you see it temper over a period. you don't see it go from 99 to 14. >> how much of it had to do with currency fluctuations? you had tim cook talking about how the extreme conditions unlike anything we've ever seen before just about everywhere we look. he mentioned a couple bigger things we're looking at on a global basis, including the currency fluctuations, which seemed to have taken a big chunk out of their earnings this time.

>> currency in china was about three percentage points, so 17 percentage points local, 14 in u.s. dollars. not a big hit there. apple mentioned the macroeconomic environment no less than 12 times on the conference call. i think that -- to me, they're obligating responsibility a little bit to what's going on in the macroeconomic world. there's a bigger problem for them. that's the smartphone world is highly penetrated. they have a very high-priced product, and it's becoming harder to sell it. >> what happens from an investor perspective? is the stock cheap at this level? i think the big question on everyone's mind, has apple gone from a growth stock to a value stock? >> i think you have to look at it as a value stock. you could argue it's been a value stock for some time. it really only had a kind of growth blip when the 6 came out. now it's back to being single-digit top line growth at best.

my point here is we need to watch very carefully the gross margin of the business. if they in any way try to compete on price or if the dollar becomes a bigger problem, then we could well start to see the e being the more difficult number. >> and competing with a smaller iphone at a lower price for emerging markets. >> definitely. you're writing in already. an active bunch out there on twitter and e-mail. one viewer says, show us some perspective. apple sold 74 million phones, made $18 billion in three months. still not enough? >> it's enough, but everything has a price, doesn't it? it's a $500 billion market cap company. there's a price for everything. i'm not saying apple is a bad company. it's a hugely successful company. it's a very well-managed company. but it's going to struggle to grow that further. >> okay. >> all right. >> mark, thank you very much. investment director from gam. now, delayed but not

canceled. that's the headline from cnbc's most recent fed survey with respondents telling us they think the next fomc move will be to hike rates again but not until may. 56% of the economists, fund managers, and analysts we polled think that current market vol volatility will delay future hikes and none think the fed will choose to file today. steve liesman filed this report on survey results. >> there's been a lot of criticism of the rate hikes. but the 40 respondents to the cnbc fed survey say overwhelmingly that the quarter-point rate hike in december was the right move 80% of the 40 respondents say it was the right move. only 15% say it was a mistake. in fact, they think the federal reserve will do more. 100% say no rated hike at this meeting. 88% say the next move by the fed will be to raise rates. only 10% say will be to lower.

only 3% say it will be new qe. rather than cancelling rate hie hikes, the panel believes the fed will delay them. here's the fed timeline. the next hike in the prior survey had been pril16. that's moved to may, as you can see there. may 2016. when will the balance sheet be allowed to run off? it had been december 2016. now that's moved to february 2017. what we call the terminal rate, when will the fed finally stop and when? it had been the first quarter 2018 at about 2.6%. now it's pushed ahead a quarter to second quarter of 2018, 2.56%. what about the path of the funds rate? you can see back in september 2014 we thought that the funds rate would be at 2%s in 2016. that's come way down. it's like baking easing out of the cake. now the belief is the end of this year the funds rate will be 0.88%. the end of next year, just 1.6%.

back to you. >> well, the fed funds rate path still the big question mark here. we're getting some help when it comes to predicting that path. the clever folks at deutsch bank have come up with a new way to decipher the mystery of what we call fed speak with, have a look at this. >> yep, that's the equation. no biggie. you may have to spend the break working on that one. >> we need to know what a and x are. >> the variables in question. nevertheless, if you can crack this equation, e-mail in. let us know. we'll reveal the meaning at the end of the show, so stay tuned for that one. the flu virus hits big. with aches, chills, and fever, there's no such thing as a little flu. and it needs a big solution: an antiviral. so when the flu hits, call your doctor right away and up the ante with antiviral tamiflu.

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hi, everyone. welcome back to "street signs." chip maker company has announced a global restructuring plan that

will see 1400 jobs cut. this is after the ceo of the italian firm said that the company needed to be fixed. shares currently rallying pretty strongly, up by more than 5%. >> let's also give you a check on shares of basf, because they've issued a profit warning, citing no other than the sharp drop in oil prices. the world's largest chemicals company expects earnings before interest and tax to drop by 18%. that's to 6.2 billion euros. basf added it expects the crude glut to last, which may result in a 600 million euro impairment to its oil and gas division. >> shares falling after the swiss pharmaceutical group posted income of $2.7 billion, shy of forecasts, on the back of a disappointing performance in its eye care unit.

later on the show, we'll be heading live to bizilj. also, zurich insurance has appointed mario greco as ceo. zurich hopes greco can lead a turnaround at the company after it issued last week its second profit warning. zurich second base once again higher. you can see zurich insurance up about 1%. well, let's bring in william hardcastle, director at 12 capital, joining us on the phone to talk more about this shuffling of ceo appointments. william, pleasure to have you with us on "street signs." when we look at the direction of the stock prices, seems to be a vote of confidence in mario greco, but it's quite a serious task he has facing him at zurich insurance. what will be the top task for him on the first day on the job? >> yeah, absolutely. the share prices are reacting

certainly in a very favorable way for mario greco. often happens in the insurance sector in particular as a new ceo, somebody of mario greco's stature comes on board, and it's expected to drive a business forward. clearly this shows there's some structural challenges at zurich. the hire greco almost emphasizes that to most investors, the reason being that mario greco's background and track record is really about restructuring. that's the job he's done extremely successfully at generali. he's clearly an excellent hire and one that investors like, but it's a hire that will signal major restructuring. for me, thinking about some of the concerns that investors have on zurich linked to the commercial insurance business, linked to the dividend and linked to potential cost-cutting programs, aig's actions yesterday were very interesting, and they're only going to intensify the pressures for any new ceo here to take material

action, whether that be on the commercial underwriting, which is linked to the reserve strengthening, or potentially cutting on profitable business or making divisions more accountable from an r.o.e. perspective. i think his initial impression will be what action needs to be taken, where can we put this business in a much stronger position. are there businesses we need to shrink, divest? >> william, i hear what you're saying, but at the same time, i'm looking at a statement that a spokesperson put out this morning saying, quote/unquote, the ceo change has no impact on our strategic focus for the remainder of the strategic cycle 2014 through '16. so what exactly is it that they're aiming to do if the strategy isn't going to change, even with a new ceo? >> mario greco's due to come on board on the 1st of may 2015. so the strategic cycle runs until the end of this year. that will give him plenty of time to put into place what he

views is the next forward-looking strategic cycle. so it really gives him enough time to focus on what areas we need to trim down, what areas are our strengths, and then the logic of thinking about the dividend. i think the key is what they put out this morning gives investors comfort that this year's dividend gets paid, but what happens to next year's? >> william, thank you very much. director at 12 capital. now, in corporates this morning, rbs shares have been slumping after it warned that full-year profits will be hit by provisions totaling around 2.5 billion pounds. the bank will pay over 4 billion pounds into its pension scheme due to policy changes. you've got to ask yourself, the government owns right around 73% of rbs shares. how can osborn go out and sell more shares back to the private

sector when shares keep dropping? we keep hearing about these increases in costs they have to take. >> absolutely. and when you read the comments coming from rbs, they're saying, look, we want to get everything out of the way. this was part of the cleanup process. however, investors not really buying it. the stock off more than 2%. and it really came as a surprise because a bit of the ppi we knew was on the table, but it seems like it keeps coming. we talk about this missold insurance. about 500 million of that. also this question of the u.s. bad mortgage loans. we just saw goldman sachs take a hit there. so long after the crisis. here we are still paying the price for litigation when it comes down to the european banks. this is not good news for some of the investors who had hoped some of the litigation was really out of the way already. as you said, given that government ownership, a political hot rod here. >> 73%. they have to get rid of it. we bailed them out, they said we'll get rid of the shares, but every time they sell, it drops more. >> not an entirely good day for the banks.

santander fourth quarter profits declined by 9% as they faced weakness in brazil. the lender's top line outpays forecasts, thanks in part to strength in the u.k. business. it's now on track to hit full-year 2016 targets. so what we have here is similar to rbs, taking another fine for ppi. however, overall their u.k. business did quite well and thank goodness because when we look at their business in bra zil -- brazil, looking good there. recession expected to worsen in brazil. one analyst said they expect nonperforming loans could double by 2017 from 2014. >> nonperforming loans, huge issue. in the u.k., even though they are doing okay, they still have to compensate customers for this misselling of the certain type of insurance, the ppi policies. their main u.k. rivals also experiencing that. but you could argue it's kind of

a mixed story for them. revenue growth, while that's been a bit stronger, their operating costs keep rising faster than anticipated. you have this higher regulatory environment as well, which isn't making it easy, not just for them, but a whole bunch of the banks. so santander flat, a little lower this morning. >> not altogether bad news. coming just a bit ahead of forecasts. that's the key metric everyone is worried about. >> and then let's talk about the nordic region. nordea shares in the red after fourth quarter profited posted below market expectations. that's a swedish listing you're looking at there. they further underwhelmed investors after they inched their dividend up by less than anticipated. the ceo is blaming the difficult macroeconomic conditions, but he at the same time pledged to push for the bank's full digital transformation in the upcoming years. >> and shares in aberdeen asset management are on the up,

despite outflows amounting to more than 9 billion pounds in the first quarter. the firm warned conditions will remain difficult and are likely to impact flows the remainder of 2016. aberdeen also announced its chairman is to retire at the end of the financial year. as you can see, shares up there about 2%. you have to wonder if a lot of this bad news tied to the emerging markets was already priced in before this announcement. >> in oil, shareholders are expected to approve a merger between shell and bg group when they vote later on today. norway's sovereign wealth fund, which is shell's fifth largest investor, said it would vote in favor of the deal. it believes the transition accelerates value for bg and is in the best long-term interest of share shareholders. shell needs the majority of support from its own shareholders and 75% of bg's in order to be able to move ahead. shares in both companies trading a bit lower today. an equities analyst from jeffries. good morning, jason. how are you?

>> well, you? >> how is the oil environment? >> quite tough. >> what happens for these oil services companies? we were talking about yesterday whether or not -- when do you go bullish? how are we supposed to view the opportunities out there and when do we get back in? >> i think the first point we need to see is a balanced oil market. we're currently oversupplied by about a million barrels per day. i think that persists into the third quarter this year. that's about the point where we could see the equities beginning to truly perform because that's when their underlying financials are going to have a chance to at least dispel some of the concerns around dividends in particular for the integrated companies. >> how many of these companies do you think will just be kind of flushed out during this, some would say, oil crisis, given the moves we've seen? you would anticipate many of the smaller companies may not be able to survive. >> i think there's significant concern around that. certainly the debt markets are

nearly closed off to a big section of the companies in the u.s. i think that small service companies are also in quite a bit of problems there as well. i cover integrated companies. they're going to survive. it's just a matter of what the shareholder returns are going to look like. >> walk us through some of your preferred names among the integrated oil companies. i noticed you've had some rating changes when it comes to a few, downgrading others. >> the key that we're really looking for right now, nancy, is balance sheet strength. we want companies that are going to be able to do everything they can to preserve the dividend in the near term in order to protect shareholder returns. we're really looking for companies like chevron and total, who are seeing reductions in capital expenditures and a better outlook financially. we also like shell. i think that's because they're going to be able to do quite a bit after this merger is complete. >> let's talk about shell. we have this big shareholder vote taking place. there's been some criticism that this is no longer a good deal

for shareholders when you think of the prices coming down nearly 50% at one stage since the deal was first announced. yet, it's expected to get the approval. some say that's largely due to the fact that the larger shareholders hold both bg and shell. you're saying that actually this will put shell in a better position following the merger. is that right? >> i think it will. what we're really looking at is that free cash flow per share is acreted so long as you have a $50 oil price. i realize 50 looks a long way from where we're at right now, but i don't think that the market is going to be able to balance over any intermediate term with prices below 30. i think 50 is a level we could very well see by the fourth quarter. at that point, the market is going to appreciate some of the financial implications of the transaction. >> so you've got the balance sheet advantages on one hand. what about -- for so long people talked about it was key for the l&g resources. we've also seen natural gas prices falling off a cliff as well. what does that say about getting ahold of those resources? is that still a big benefit? >> i think it will be from a

strategic standpoint. i expect the market will be tough for longer than the oil market. it could be a three-year bear market in l&g. but i think that the positioning of bg and shell will allow them to be the most profitable within what could be a tough business. then longer term, it's actually high growth. >> you upgraded total as well. >> yes. >> why? in terms of value? >> it was a combination of value and the strength of the total cash site l on a move-forward basis. so total is seeing capital expendtures fall off. it's seeing production growth. it has preserved cash outflows with the script dividend, which we don't necessarily love, but it is a cash management tool. we think total will look good coming into an upward cycle. >> all right. jason, thank you for that. selectively seeking out opportunities in what could continue to be a volatile oil climate for oil prices. tdc shares have hit a ten-year low after the danish

telecoms group said it was expecting earnings to fall to 8.8 billion crowns this year. that's down 1 billion crowns from 2015. the firm also cut its dividend. this news comes ahead of the company's strategic business review, which could lead to the disposal of tdc sweden. meanwhile, swedish telecoms giant ericsson exceeded expectations. sales fell slightly below forecast, but ericsson noted business in china had picked up during the period. let's look at shares, off about 4.6%. now shares in weight watchers jumped by almost 20% in yesterday's session. oprah winfrey once again endorsing the program by unveiling her own weight loss. oprah is the company's second biggest shareholder, the largest individual shareholder. she added about $12 million to her vast fortune by tweeting she'd lost 26 pounds quite a while quote/unquote, eating bread every single day. you know what's going to happen?

sales of bread are going to go through the roof. >> everything she touches is gold. i quite like this story. i think gluten free is totally last year's fad. time to bring back bread. >> back in the '80s, you know, you're supposed to eat carbs. this is ridiculous. oprah basically making $12 million from one tweet about bread, which is just insane. when you look at the amount of shares, 6.4 million shares, it's around 10% of the stock she holds, 15% if you include options. the issue is whether or not she's able to help turn weight watchers around. >> they were in quite some trouble just before oprah came in with the diet fads turning the other way. looks like they've hit a winner in oprah. >> she put out only video a while back. you saw a share price reaction on the back of that. >> oprah speaks and the stock moves. >> any luck on this equation? we were showing this equation a bit earlier. or is it doing requester fed in? get it? doing your fed in, doing your

head in. we'll explain what this equation is all about very shortly. i think what's "a"? tell me that and we can work on the other stuff. >> phone a friend on this one. >> see you in a second.

hi, everybody. welcome back. you're still watching "street signs." i'm louisa bojesen. >> and i'm nancy hulgrave. these are your headlines. >> we've seen some volatile trade this morning for european stocks after another slightly tense to mixed session in asia overnight. the shanghai composite finishing in the red. losses in china now racking up to $1.8 trillion this year. >> apple, well, they're swallowing the slowest iphone growth since its creation as ceo tim cook sees signs of softness in china. this weighing on some european suppliers. >> investors not turning a blind eye to weakness at the eye care division as the unit's

underperformance weighs on fourth quarter results. the ceo telling us it is going to return to growth. >> we don't expect it to be a quick fix. it's going to probably take us midyear before we start to see a turn on that business, but we expect to exit the fourth quarter with low to mid single digit sales growth. >> a profit warning from basf sends its shares toward the bottom of the dax as the world's biggest chemical company deals with impairments in its oil and gas division. >> so what do you think? the fed later on. any indication is going to change the way that we view markets? >> another day, another day of fed guessing here. i think the fed will just leave more uncertainty on the table really because they're still assessing what's going on with the global picture. of course, we're not getting an actual statement from janet yellen. we'll have to read the printed statement to decipher what exactly is going on there.

we can't ignore the difference here between what the fed intends to do or they say they intend to do with four rate hikes this year, and the markets still factoring in just one. >> midyear, exactly. it's earnings instead we focus on, whether we're looking at an earnings recession. expectations are we should be looking at a drop in earnings some 5%. >> our guest coming up from rbc markets is quite bullish on the earnings picture. we'll talk about that in a little bit. meanwhile, let's give you a look at what u.s. markets are looking like today. they're called to open lower. the dow jones off about 90 points. this is a pattern we're seeing day after day. after a strong rally, we tend to get negative sentiment into the next day. if you look at the picture here in europe, we are down in negative territory, but the losses are fairly muted at this stage. again, investors taking their cue from the move in oil prices. we've seen both wti and brent crude moving a bit lower this morning. we'll get to that in a few

minutes. here we are. the ftse 100 off about 0.4%. same story for the cac 40. it's not just oil and gas. we have seen weakness in some of the banks as well. again, taking charges for ppi, missold insurance. >> louisa, back to you. >> let's talk about the pharma industry. reporting a year on year decline in fourth quarter net profits due to weakness at their eye care unit. let's talk more about it. julia has been speaking to the ceo. the message being what? one-off costs this time around? >> reporter: well w they're talking about cost consolidation, which is the same for all of these health care companies, as you quite rightly point out. what they say is ultimately they're going to be able to

strip cost out of around a billion dollars by 2020. so that looks pretty good. i think the outlook is important to mention here as well. they're saying look in terms of the operating profits and the net sales. it's going to be consistent with what we saw in 2015 in 2016. this despite their biggest selling drug actually rolling off in february. to be able to contain those two things and continue to match sales and profits, i think, shows a level of growth in the underlying business. this is actually what he was trying to point out to me, the ceo of novartis. the big question here is what's going on with their eye care business. it's around 15% of overall revenues. we were looking for a growth plan here. what will they do to increase the margins and profitability in particular. this is a question i picked up and i said, what is the growth plan here? listen in. >> the specific growth plan is we're going to focus the

business on that core surgical and cataract surgery business. that's the core of alcon. it will become a device business along with contact lenses. we're going to strengthen the base. what that means is really increasing our investment against the customer with better training, better education. we're going to surround that surgeon with the support they need. then we're going to invest for growth. we're going to invest behind some of the new products we have launching. we don't expect it to be a quick fix. it's probably going to take us midyear before we see a turn on that business. we expect to second quarter the fourth quarter with low to mid single digit sales growth. >> reporter: something that stood out to me from the conversation i had with him was his optimism regarding some of their drugs. their drug to combat heart failure, a lot of analysts were very optimistic if you look at the middle of the last year.

the lack of expectations met in terms of the ramp-up in sales, some optimisms come out of the share prices. down around 15% over the last six months, in fact. rather than being cautious, he was saying, look, we're still optimistic on these things. that was a bit of a contrast. obviously we have seen the share price under a bit of pressure today. that's more to do with the slight miss we saw on both net sales and operating profits. currency head winds there a real problem. guys? >> julia, we've also been watching the story this morning about mario greco leaving generali to go to zurich insurance. i know you have been watching generali for quite some time. the assumption here tends to be, sure, a real positive for zurich insurance. this could be a serious loss for generali, is that right? >> reporter: before i talk about this, actually i have to get novartis out of my shot. i'm going to step off my enormous box and hope i don't fall as i do it.

different hat on now. so you're absolutely right. i think mario greco has proved what he can do at generali. i've tracked his progress since 2012 effectively. he stripped out 4 billion euros worth of noncore assets. he's boosted the capital strength. we've seen the share price almost double in the time he's been there. he's proved he can go into a business that's struggling and revolutionize, restructure, and target the soft spots and bring them back together. so if we look at zurich now, i think this has been in terms of looking at greco, it's been writing on the wall for about, what, over a month and a half. we saw martch the former ceo re the beginning of december. we saw a q-3 weakness in numbers that led to the abandonment of that deal. there's concerns about the underwriting business. they also said they were going to have weakness in q-4. they had that profit warning back in january. a number of elements. i think i'll pull up the comments about the general

insurance business. that is that they expect it to be weak in 206 and in 2017. they said, we've had a number of large one-off loss events. if you're going to start restructuring, then unfortunately you're going to have additional costs in there too. the reserve development has been choppy here. we've also got the backdrop of low yields, which is a problem for all of these insurers. i think to pull up one important point, that the acting ceo and chairman said recently, we want to be a con sol day to be and not a target. since the failure of the rsa deal, i think that's also something mario greco is going to have to look at. i think it's a boon for zurich here and definitely a loss for generali. >> julia, thank you very much. good to see you. julia live there out of ba zil. are you still wondering what this means? let's show you the equation once again. it could prove useful during janet yellen's press conferences in the future.

no conference today, of course. but all will be revealed after the break. keep scratching your heads. keep your tweets coming through, incidentally, what you think that x and a should mean. find us on twitter or on good old-fashioned e-mail. streetsignseurope@cnbc.com.

welcome back to "street signs." republican presidential front runner donald trump is skipping the next gop debate on thursday after calling foxx news moderator megyn kelly a third-rate reporter. the broadcaster responded saying trump is still welcome, but it would not allow any candidate to, quote, terrorize one of its staff. trump continued to level criticism at the network, saying it was playing games and it would be interesting to see how

much money fox news makes at the debate without him. >> megyn kelly is a lightweight. this is not a reporter. this is just a lightweight. megyn shouldn't be in the debate. when megyn didn't ask me a question, she made a statement last time, i thought it was inappropriate. everybody said i won the debate. everybody said i won the last debate. they said i won all the debates. we've had six debates now. why should the net woks continue getting rich on these debates? >> well, joining us now is tracie potts from nbc news, joining us in washington. pleasure to have you with us this morning. here we are. the rhetoric once again heating up on the republican side with just days to go before iowa. and we have to wonder at what point is this going to backfire among the votervoters? >> reporter: well, it's a good question, but frankly donald trump's numbers are strong nationally. they're now even strong in iowa, where he's leading five of the six latest polls. he just got some key endorsements. he is the guy at the top of the

polls. so he seems to be willing and able to take this gamble to let everyone debate tomorrow night except for him. this is an argument we've heard from donald trump before that megyn has been unfair and that fox is making a lot of money, not just in general because it's the debate, but because he specifically is in the debate. so what we're hearing is he may be planning an alternative event to raise money for military families. it'll be interesting to see how much interest, if any, he's able to siphon off doing that on his own. and also, what happens when everyone on stage does not have donald trump to deal with? will we see a more substantive debate? will we see ted cruz or marco rubio or one of the other candidates gain some ground here, able to strengthen their positions without having to deal with donald trump? fox, as you said, has said he's welcome to do this, but they're not changing their moderator. they're not changing their

questions. they call this near unprecedented, having the number one candidate pull out of the debate just days before these caucuses. >> and tracie, you mentioned that without donald trump, it may give a chance for other establishment candidates, as they're so called, to have more of the limelight. we've heard reports there's some frustration within the gop that the establishment candidates haven't rallied around one candidate. what are the odds we see someone drop out following iowa? >> reporter: maybe not following iowa. perhaps following new hampshire. a lot of the candidates who may not do well in iowa are banking on doing so in new hampshire. if they can't have a strong performance in either one of those contests, we might start seeing some rethinking. i should also mention that ted cruz has challenged donald trump to a one-on-one debate, saying that the people of iowa need to hear from him. >> wow. a one-on-one duel. that's what it's getting down to, isn't it? tracie, thank you for joining us. now the health care sector has been facing issues of

pricing and valuation concerns. back in september, the democratic presidential candidate hillary clinton declared war on big pharma, unveiling plans to lower prescription drug prices. u.s. bio stocks have been the biggest victims. the nasdaq bio tech is down since last july. cnbc spoke exclusively to the london stock exchange. >> we're seeing exactly the opposite happening. in fact, we're actually -- in addition to the tech revolution that's happening in the u.k. and the fantastic track record of u.k. health care companies raising capital right here at home last year, 2.5 billion pounds of capital raised, primary capital. an extra 2 billion pounds of foreign capital. great success also of investors in the space. but we're also seeing u.s.

companies coming to the u.k. not only to raise capital but to share in the bio tech revolution that's been going on for the last couple years. >> well, george freeman joins us. he's the u.k. minister for life sciences. george, we're happy to have you with us this morning. let me just start with a basic question. you were reappointed as the life sciences minister just recently. it's a relatively new position as well. to my mind, i don't think it exists anywhere else globally. what exactly is it that you do? what's your angle in terms of the pharma industry? >> as the u.k.'s first minister for life sciences, i'm the minister of the department of business and department of health. first time we've done that. i'm responsible for the u.k.'s drug budget, for our regulator, for n.i.c.e., for our gee no, ma'amics program and all our health data. the mission is clear. we're committed to making sure

the nhs is the world's only universal integrated, comprehensive health care system, is a leader in the 21st century in research. that's why we're leading the world in gee no, ma'amics. we're funding the entire sequencing of 100 patients and combining it with hospital data. we're absolutely committed to making sure that in the 21st century as the world, america, europe, and increasingly countries around the world, need new technologies for remote diagnosis, precision medicine, new digital technologies. the u.k. is becoming a test bed for developing, proving, and putting them to work. >> george, let me ask, because i know that some people think that there's still a very, very large gap between this particular arena in the u.s. and what we see in europe, and in particular

in the u.k. in reality, we need to speed up our regulatory framework here in the u.k. to be able to match and compete with u.s. companies. >> well, that's right. some very exciting things going on. last year we raised over 3 billion until private financings for emerging companies here in london. we've attracted over $9 billion in the last 3 1/2 years into the u.k. sector. and we're growing some incredible and exciting companies. american investors are here, too. this is a global business. the challenge has always been in the u.k. great technology, great science. we've announced in this recent government funding. a five-year commitment to continue to increase science funding. the traditional complaint has been that the nhs has been too slow at adopting these technologies. and that we are tackling. through the accelerated access review i've launched, it's on par with the fda breakthrough designation of a few years ago. we're going to dramatically speed up the pathway so that

whether it's drugs, diagnostics, devices, or digital technologies can get into frontline nhs more quickly for proof of concept. >> george, you just touched on the importance of funding. i understand the department gets some funding from the eu. i have to ask you how the brexit debate plays into that. we executives warning it would harm the industry. then we have the business secretary saying that whether or not we're in or out of the eu, we will continue to be a global science giant. do you think that's a real possibility, or do you need membership in the e snuru? >> well, i'm leading a major reform agenda for enlightened regulation of bio science and bio medicine in the 21st century. we are ambitious for britain, in europe, and ambitious for europe in the world. this sector is global. that is the perspective that we should be thinking of. i'm in no doubt that the u.k. sector will be stronger in a

more entrepreneurial europe that's focused on global markets. too many european regulations have been in recent years anti-science, particularly some of the genetics. we need to make sure europe is looking ahead and global. i'm confident that when the prime minister sets out our reform package, that the british people will want us to be in a more global and competitive and entrepreneurial europe. >> sure. george, thank you very much for being with us. george freeman, mp, the u.k. minister for life sciences. >> let's bring you up to speed with some of the other top stories this morning. the fbi says eight people involved in the occupation of an oregon wildlife refuge have been arrested after shots were fired after a traffic stop. that left one person dead and another wounded. the group's leader was among those arrested. president obama has called for quicker development of zika virus research for the disease spreads to the united states in warmer months. this as a person in denmark has tested positive for the virus.

and the danish parliament proposed a bill to confiscate refugees goods to pay for housing and food costs. and google has stopped promoting google glass. twitter, facebook, and instagram accounts for the product are no longer active. a statement on google plus reads, hi, explorers, we've had a blast hanging out with you. the company declined to comment any further. all right. well, we've been asking you throughout the show to let us know what you think of this equation and what it means. now the big reveal. the master minds at deutsch bank, they have used quantitative analysis to create a hawk-dove score in order to measure changes in fed language. they say that the adjustments in the fomc statement, they've been an important leading indicator of actual policy decisions over time, which they have. they tend to kind of change the

wording a little bit. so "x" within each statement, they say they conduct a google search of the joint frequency with which "x" occurs with dovish and hawkish. essentially also they're looking at pmi to mean -- the pmi compares the possibility that two phrases appear jointly the probability they appear independently. so this way you'll be able to work out exactly what the fed is going to do next. >> well, thankfully we have another expert around the table. chief u.s. market strategist and managing director at rbc. joins us around the table. jonathan, a pleasure to have you with us here on your trip through london. we're talking about the fed today. it's one big focus. i want to get to your view, which is stop paying attention to the central banks in some ways because it's the real corporate fundamentals, the

earnings that should drive this market going forward. you've taken quite a bullish outlook on earnings so far. >> well, first of all, i have a reasonably optimistic view on earnings. if you look at what's happening this earnings season, it's telling you that we're not going into recession, that everything is okay. so here's what we're seeing. companies are beating expectations by almost 5%, which is a very healthy number. that means we will end up in positive territory when all of the results are in. more importantly, we know that the energy sector is an absolute mess with earnings down something like 70%. if you look at the rest of the market -- so the s&p, excludeing energy, it looks like it'll have something like a 6% earnings growth rate. i hate to throw out part of the market, but it tells you we don't have a broad-based problem that things are actually quite

healthier than the headlines. >> but is it fair to throw out energy and gas because of the broader impact it has? >> well, i think the answer is yes and no. so we know that there's a problem in the industrial sector. we know there's a problem in the material sector. it's not just one group. we also have a bunch of other areas benefitting. the airlines are doing well. biotech is doing well. internet retailers and media companies are doing substantially better. we focus on those areas that are problematic, but the reason i exclude energy, the real question is, do we have a broad-based earnings recession? is there something that's rotten across the markets, or is there one area that's in trouble and everything else appears to be largely healthy? if that's the question, i think it's important that you do exclude it. >> i'm sure i've seen s&p forecasts calling for a drop of some 5% in earnings. >> yes. >> for the quarter. isn't that kind of a broad based

slow down? >> to a certain extent, that's bad math. i'll tell you why. not that your comment is bad math. >> i'm just the mouthpiece. >> you were doing that fancy derivative work. i had to take out my calculator. but the reason it's bad math is that companies are beating by a really healthy level. so every quarter over the last several years was expected to be the worst quarter in the recovery. then when you -- what you're doing is including a quarter without the beat to a bunch of quarters that already had the actual results in. so when you get these results in with the beats, it should be not great but fine. >> given that you're a chief u.s. market strategist, are you telling clients buy? >> i am telling clients buy, and i'm not telling them to buy because i think the earnings are going to be the compelling driver. here's probably the most important thing. during periods where volatility

is spiking and investors are panicking or nervous or uncomfortable, whatever you want to call it, investing in those periods tends to be incredibly fruitful. we did a back test and said, if you bought the s&p only when the vix hit 20 or 25 or some elevated level, when volatility was high, and you were forced to hold no matter what happened for three months blindly and you were forced to sell on that day, how did you do? that back test showed you had results well in excess of 20% annualized and your hit rate, the number of times you had above a zero return, was an extraordinarily high number. the one key there is if you're going into a recession, then the strategy doesn't work too well. one of the things we put together for clients is a recessionary score card. these are the four, five, six things you need to look for to tell you that there may be danger ahead. and none of them are telling you

that we're going over the cliff. >> so your assumption is we're not going over the cliff, but you can't ignore the correlation with oil prices. given that as it is, where are you investing, specifically which sectors? >> in general -- well, let me start with we believe we're in a slower economic environment than we've been historically and this is not a temporary issue for the beginning of this year. but this is going to go on for years. it's about demographics. it's about china. we want to find companies that have fast growth that don't need a strong economy to get there. so there's a reason why facebook and apple and google and netflix and the biotechs are doing well, because good company or bad economy, those companies are going to do well. we also -- what we would avoiding --

good morning. happening now, apple shares under pressure. the tech giant selling fewer iphones than expected and warning it sees weakness in china. it's all about the fed. the global markets in wait-and-see mode as janet yellen and company wrap up a two-day policy meeting. a decision on rates due at 2:00 p.m. eastern. and new this morning, donald trump pulls out of the next gop presidential debate, but ted cruz has other ideas for a showdown with his rival. it's wednesday, january 27th, 2016. the gloves are comingoff as "worldwide exchange" begins right now.