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Italy's Prime Minister Giuseppe Conte (L) shakes hands with the President of the United States Donald Trump on the first day of the G7 Summit.

 Leon Neal | Getty Images

Italy’s Prime Minister Giuseppe Conte (L) shakes hands with the President of the United States Donald Trump on the first day of the G7 Summit.

There could be fresh tensions over NATO contributions with Italy’s defense minister suggesting the rules should be changed on how countries contribute to the military alliance.

Members are obliged to spend the equivalent of 2 percent of their own gross domestic product (GDP) on NATO. These payments are used “to meet the needs of its armed forces, those of allies or of the alliance,” to pay pensions to retired military, to contribute to NATO-managed trust funds as well as research and development.

However, Elisabetta Trenta, the defense minister of the southern European nation, said in an interview that this rule should be broadened out.

“There are parts of our spending that are related to defense but are not in the defense budget,” she told the Financial Times in an interview published Monday, suggesting that areas such as cybersecurity should feature in the target. A spokesperson for Italy’s defense ministry was not immediately available for comment when contacted by CNBC. A NATO spokesperson did not want to comment on the interview.

Contributions to NATO are a highly sensitive topic. President Donald Trump has often criticized other NATO members for not respecting the spending rule. Speaking at a NATO summit in 2017, Trump said: “Over the last eight years, the United States spent more on defense than all NATO countries combined. If all NATO members had spent just 2 percent of GDP on defense last year, we would have had another $119 billion for our collective defense.”

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Yield curves predict ‘absolutely nothing’



Fears are rising that a recession looms after a closely watched market metric flashed a warning signal, but one strategist told CNBC the supposed indicator “predicts absolutely nothing.”

The yield on the 10-year U.S. Treasury briefly broke below the 2-year rate on Wednesday stateside. That so-called inverted yield curve has historically been regarded as a precursor to an economic recession. U.S. markets fell following the inversion, with the Dow Jones Industrial Average losing around 800 points. The rates inverted again in the morning of Asian trading hours on Thursday.

Nevertheless, Viktor Shvets, head of Asian strategy for Macquarie Commodities and Global Markets, brushed off those concerns.

“My view has always been that yield curve predicts absolutely nothing,” he told CNBC’s “Squawk Box” on Thursday.

“What it does tell you (is) that you will have a recession if you don’t do something about it,” Shvets added.

The yield curve inversion, he said, may demonstrate that the global economy is slowing down. That’s because of a lack of liquidity, absence of reflationary momentum and a de-globalization of trade and capital flows, according to Shvets.

“If you reverse those elements, then the yield curve will respond very quickly,” the strategist said, adding that, to him, “recession equals policy errors.”

Central banks ‘never run out of bullets’

Weighing in on concerns that central banks may not have enough fuel in their tanks to make their policy count, Shvets said that notion was “nonsense.”

“It has to be made clear: Central banks never run out of bullets, ever,” he said. “There are so many tools that central banks can bring to bear, (other than) just looking at interest rates. “

Asked if he is worried that the markets and economy would become numb and weaken the impact of central bank action, Shvets had questions of his own.

“Would you rather have a deep recession? Would you rather have closures of factories? Would you rather have banks going down and people losing their deposits?” he asked. “If the answer you give me is ‘no,’ then there is no choice but to take various forms of drugs.”

Taking the analogy further, he said: “One of the things we’ve been suggesting is that there are drugs that have lower side effects than monetary policy. And I think we need to brace those other drugs, not because they are fixing the problem, but because they are extending our life.”

While fiscal responsibility and structural reforms are good ideas in theory, they almost never work in practice because “people are reluctant to embrace” them, Shvets added.

“What people would like to see is a perpetual growth machine. That’s what we got used to, for the last 30, 40 years,” he said. “To break away from that is almost impossible without really gut-wrenching adjustment.”

Given the choice between resetting the system and finding new ways to extend growth, he said most would choose the less painful option.

“It just can’t go on forever,” he said. “But we can extend it for another decade or longer.”

— CNBC’s Thomas Franck and Eustance Huang contributed to this report.

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E-commerce, cloud to provide growth



A monitor displays Alibaba Group signage on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Jan. 7, 2019.

Michael Nagle | Bloomberg | Getty Images

Alibaba is expected to show slowing revenue growth after years of blockbuster earnings when it reports fiscal first quarter earnings on Thursday. Its profitability, however, is likely to be improved.

Here’s what the market expects for Alibaba’s June quarter:

  • Revenue of 111.73 billion yuan ($15.93 billion), according to Refinitiv data. If realized, this would be a 38% year-on-year rise, but slower than the more than 61% growth seen in the same quarter last year.
  • Non-GAAP diluted earnings per share (EPS) of 10.25 yuan, according to Refinitiv estimates.

Alibaba’s core commerce business, which includes its Tmall and Taobao shopping platforms, is expected to be the biggest growth driver given it’s the company’s biggest division.

The Chinese giant has been expanding the core commerce business internationally through the Singapore-based e-commerce platform Lazada which it majority owns, and domestically by pushing its products into smaller cities.

“We expect a solid June quarter for BABA, with e-commerce possibly beating revenue expectation thanks to Tmall’s strong GMV (gross merchandising value) growth,” Xiaoyan Wang, analyst at 86Research told CNBC. “We also anticipate continuous user growth even on such a large base, as Taobao and Tmall are successfully penetrating into low tier cities.”

New retail

Part of Alibaba’s core commerce business is its so-called new retail strategy which looks to fuse the various parts of its business from payments to bricks and mortar stores and food delivery together into one big ecosystem. Part of the push here has been investments in logistics, its Hema supermarkets and food delivery business

Investors will be looking at the performance of these new areas — particularly food delivery, which faces stiff competition from Chinese rival Meituan.


One of the most promising areas of Alibaba’s business, according to analysts, is cloud computing. The division saw 76% year-over-year revenue growth in the March quarter and has slowly been growing its share of Alibaba’s revenues. Though it is still only around 8% of revenues, analysts see a big opportunity for the technology giant.

“Cloud remains the key asset we believe the Street is focused on. Given the penetration of cloud in China, BABA has a major green field opportunity over the coming years on this front,” Daniel Ives, managing director of equity research at Wedbush Securities, told CNBC.

Alibaba is the largest cloud computing player in China by market share.


Alibaba’s investment into new areas has come at a price — falling margins. The company has signaled, however, that it will continue to invest, something that has so far not spooked the market. Investors will be watching the margin figure closely.

Another worry is the effect of the U.S.-China trade war.

“China e-commerce players have come under major pressure in light of worries around growth in the region and macro slowness. We believe … the bark is worse than bite at this point although this remains a major (‘prove me’) quarter for BABA,” Ives said.

Alibaba’s shares are up nearly 20% this year, but Wall Street thinks they can go higher over the next year. The average price target on the stock is $218.09, according to Reuters data. That implies a 34.5% upside from Wednesday’s close.

The Chinese e-commerce giant is also reportedly looking to hold an initial public offering in Hong Kong, which could raise as much as $20 billion. On Thursday, however, the New York Post reported that Alibaba was weighing whether to delay the listing, which was scheduled for September, amid the anti-China protests in Hong Kong. Alibaba declined to comment when contacted by CNBC about the matter.

Despite some of the near-term headwinds, Alibaba’s various investments should set it up for growth over the next few years, according to Thomas Chong, equity analyst at Jefferies.

“Alibaba has multiple growth drivers in the years ahead, in our view, with the core marketplace a strong cash cow enjoying secular momentum amid China’s ongoing consumption upgrade, thanks to solid execution and technological ability to digitalize the retail sector, thereby enhancing efficiency,” Chong wrote in a recent note.

“Its highly synergistic ecosystem enables it to ramp up easily in lower tier cities and local services. It has clear market leadership in cloud computing, which is the backbone of digitalization across different industries.”

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$10 billion wiped off shares following Q2 earnings



Tencent CEO and Chairman Pony Ma Huateng attends Tencent’s 2018 Annual Results Announcement on March 21, 2019 in Hong Kong.

China News Service | Visual China Group | Getty Images

Tencent shares slumped as much as 3.88% on Thursday after the Chinese technology giant reported a mixed bag of second-quarter results.

The stock later pared some losses and was down around 2.5% at 11:42 a.m. HK/SIN. That equated to around $10.5 billion of value being wiped out.

Revenue rose 21% year-on-year to 88.82 billion yuan ($12.92 billion, according to the exchange rate published in the earnings statement). That missed market estimates. However, profit attributable to shareholders beat analyst forecasts, rising 35% year-on-year to 24.14 billion yuan.

The company’s gaming division returned to growth, posting revenue of 27.3 billion yuan, up 8% year-on-year. Mobile games in particular were up 26%.

That was welcomed given that the Chinese government froze video game approvals last year, hurting Tencent’s business badly and wiping billions off the company’s market capitalization. Games need to be approved by the Chinese regulators before they can be released and monetized.

Gaming is Tencent’s biggest division, accounting for around 30% of revenue in the second quarter.

Another bright spot was the company’s financial technology and business services division, which includes revenues from WeChat Pay, Tencent’s wealth management product and cloud computing. That business was up 37% year-on-year to 22.9 billion yuan.

But management struck a note of caution for a number of areas. One was the advertising business, which saw a slowdown. Headwinds in that area are likely to continue, according to James Mitchell, chief strategy officer at Tencent.

“Our assumption is that the macro environment will remain difficult for the rest of the year and that the situation of the heavy supply of advertising inventory will continue for the rest of the year and potentially into next year,” he said on the company’s earnings call on Wednesday.

Tencent also reined in spending in the second quarter. Capital expenditure was down 38% compared to the year-ago period. Cash flow used for investing also dropped sharply in the first half of the year compared with the same period in 2018.

Mitchell said that was because the first half of 2018 had an “unusually rapid pace” of investment, but he did say the company was being more “measured” in how it deploys capital.

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