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tv   Bloomberg Surveillance  Bloomberg  January 7, 2016 5:00am-7:01am EST

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♪ francine: trading in the 6.6 trillion dollars csi. shutting down of her less than half an hour of the markets. asding to a 12 year low chinese markets push crude to $12 a barrel. follow-up of the 2000 night crisis. still seeing 4 rate rises in 2016. i am francine lacqua in london, with tom keene in new york.
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we need to get the currency moves. the rand is weaker, the pound is weaker. at of eurozone, this is not too bad. economic confidence is rising. in: the markets have changed the last 48-travelers with tight correlation being the major theme. what i would suggest, francine, this morning is the tale is there is no dollar strength. the tell taleg, is there is no dollar strength. first, let's get to the bloomberg first work news. thank you. that's get going with the chinese stock market with the worst start in two decades and no sign it is getting better. they cut the reference rates for an for the worst since
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august, leading to a market shutdown 30 minutes into the session. the first four trading days of the year it is down 12%. the u.s. is pulling for new sanctions for north korea, hours 's governmentg-un tested a hydrogen bomb. they want to put pressure on north korea by imposing a tough package of sanctions. looking to play peacemaker between saudi arabia and iran. saudi arabia's foreign minister arrives today in pakistan. udies andsa iranians -- stormed the office of
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the satirical magazine charlie hebdo. five more were killed on an attack on a kosher market. magazine printed satirical pictures. i am vonnie quinn. the data on economics, finance, and investments. -50 on s&p. 17 intoear yield is to 2.14. a clumsydollar, number. crude oil, absolutely hammered. bringing in the currency markets, the vix is still good, it will be interesting to see p.m. the vix is at 4:00
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this will be our terminal chart in a moment. .rancine mentioned the yen the story to me within the correlation is the non-movement in the dollar. to see the dollar weaker is critical. francine, what you have? my data: we will get check correlated to yours. risky assets that we saw. 16.8.t a record low, european stocks the lowest since august. that is similar to what the yen is doing. they are benchmarking to last august after the huge turmoil from china. some of the at correlations, 47 charts to show. chart of a.
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we are flying around looking at so many charts. there's so much going on this morning. there it is, the german -- no, it is screwed up. we will lose the terminal. we will go to china. to german 2-year yield going a new low changing the mathematics for the central bankers. vonnie: the problem with the charts is what is happening in china. we don't know what is going on, but people are freaked out by it. francine: joining us from hong kong is the chief economics , enda curran. how concerned should we be that the market was halted? what a day on the chinese markets, the worst start in two decades. on one hand, the stock market opened and the selloff triggered
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them to stop trading for a day. we had an emergency meeting of regulators to discuss the situation. that ended with no action the taken. more intervention by the state with no clear solution insight. to bexing of the yuan weaker this morning. according to bankers, they intervene to support the currency. an hour ago, we had reserves added showing a record jump in china's reserves in december. that shows you how the challenges are piling up. what is the overreaching message from china, given what you have said? on the one hand the policy they have put in place and the market reaction? enda: the overarching message is the sentiment that china is
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fragile. there are question marks over -- theirkers communication and how they are trying to steer the stock market. and, what the ultimate plan is with the yuan. there is a silver lightning, there is a view that there is a disconnected with the underlying economy, which has shown some signs of stabilizing. the danger is the yuan, that is the wildcard. tom: it is an artificial construct. it ended in a normal market. what this is about is margin calls. is there such a thing as a margin call in china? week was selloff this driven by market-specific factors. it is linked to -- there was a lot of support for the mutual funds set her in december.
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there was speculation about the ban on large shareholders from selling that will be lifted, prompting people to rush into the market for the sell orders. then there is the circuit breaker threshold. too low. is that is forcing soldiers. s. that is forcing sell order tom: we appreciate you reporting on the fiction that is the chinese markets. i have no idea what they're doing in china this morning. francine: i could be said about a lot of central banks. we talk about the new normal in china. there's so many layers about what we doubt no, of course about gdp. is get to our guests. ubs wealth management investment director simon smiles. let's kick it off with george.
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words, he warned about market fallout in 2008. are we there? george: no, but we are right to be nervous. in an emerging market economy is china the equity market not the economy, but policymakers are trying to on theone big thing economy, which is manufacturing exports, spending toward consumer services. they are trying to manage the currency. we always thought they were great and managing staff and in control. thought --ly scary we are really scared that no one can be good at managing this kind of currency investment. can you have these feedback loops back into the economy? we are right to be scared, but
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scared does not mean it will happen. tom: the back loops, that is brilliant. will change. kit juckes has this tattooed on his left leg. this is a covariant chart, the math of the moment. i've seen the correlations block in hard. have you extracted that took more market pain in january? a point. from the weaker chinese equity market, i have falling equities in europe. i can rapidly moved to capitals diet out of china accelerating when i see foreign exchange. i can worry about that capital slide meaning typing and less markets. in financial i can worry that spreads around the world. soon i may have to give up a dry january and fetch myself a drink
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. i can easily extrapolate all this out. tom: with a covariant in the market, a pro-like you has a litmus paper. something you watch as -- something you watch. is it the ruble going to 75? mexico and record weakness? what is kit juckes watching? kit: the oil price. looking at it saying global demand for oil is rising. we are at a turning point in supply with things sort themselves out. the oil price is going down day after day, that is huge. that is a big standout. the second one, the south african rand. we spent a couple of years really kissing the most undervalued currencies in the world, the ruble and the real
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jump out. the were cheap in most of metrics, something like iran, we are whacking those anyway. 2000 being sold, because things are being sold. there is a wholesale loss of confidence in emerging markets. i worry. i need to find someplace where bargain hunters, people looking for value, return to the market. i have not seeing that, yet. that has to happen. francine: where do you see that? simon: it has been fascinating, but we have to take it back. it has been for days. it has been a nasty 4 days. but 11 million jobs have been added in the last five years. china?e: what about in we don't know what we are looking at, that's why markets are freaked out. simon: we don't know what we are
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looking at. we are in the process of i'm multi-decade transformation. they're moving toward a consumer-led economy. there will be bumps along the road. theyhave a lot of tools can use. again, we have to look at the bigger picture. the u.s. consumer is strong. anywhere you look, despite the fed going up high 25 basis points in december. these bearish for days, i think it is actually a pretty good outlook on a more medium-term basis. kit stay simon and with us. we will also be joined by the aberdeen management chief as that manager, anne richards. this is bloomberg
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"surveillance." ♪
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francine: you're watching french president francois hollande giving and a dress to the police and military on the anniversary of the charlie hebdo attack. a state ofder emergency after a terrorist attack in november. he will adjust the charlie hebdo attacks as well as think about recent events. tom: it speaks to the tensions in paris. passport lines are longer, and so forth. tom: let's brief you on the
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markets. we will follow through all of "surveillance" real carnage and linked carnage in the markets. juckes iles and kit with us. we will go to the movements in the markets. the correlations. there is a lot of stuff that hasn't moved. why isn't the dollar stronger given futures at -48 and a failed abenomics? is the primary risk-adverse currency. capital is exported to invest looking for attractive opportunities around the world. and things go badly wrong, that is when it comes back. they are going to be supported. the euro is not falling faster,
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that is relatively impressive. francine: what is your take on the yen simon:? and the euro. there is a high correlation environment where everyone is panicking and losing in one direction. it does not surprise me you have a strengthening yen and euro. francine: you must be worried about something wrong coming from china? optimistic, but given the baseline of the last 4 days with people being too potentialhere is the of china destabilizing the wider global economy, but we put it at less than a 20% of ability. if china has the tools to contain what is going on there. if the u.s. is ok, the fed is going up, it is not an awful environment. up the yen
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you say it is a proxy for what we are seeing. wants to get back to the redline. he did that 15-years ago with abenomics to make the yen weaker and weaker. the idea of upsetting the global what is the exposure of market participants to this volatility? did we settle up? were we not exposed in early january? will there be a lot of carnage out this morning? foreign-exchange market is more likely positioned in the sense that i don't know their speculative is a shining in dollar yen or dollar left. i think the carnage is an long-term investment holdings, some of the corporate's. are you feeling carnage if you
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are long-term investor in china that has a factory that is making things, that has retained capital in china for 15 years -- never bringing anything home because the returns were high. now you wish you could bring something back to midwest america or the middle of germany . that is where the carnage is being felt, long-term holders of emerging-market assets that were hoping that last year was as bad as it gets. their waking up to a hangover. reportng-term, the jobs in america on friday. equity markets in europe are weaker. more than that i the correlations within the market, particularly the dollar-yen. we will be back with kit juckes and simon smiles. this is bloomberg "surveillance." ♪
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tom: it is different this morning. the correlations are dramatically heightened across equities, bonds, commodities. one of our themes on bloomberg television andon radio. let's get our morning must-read. vonnie: time to look at the jobs report on friday. with all that happening you can almost forget that. bloomberg, this jobs
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pit against wall street. this carries an atmosphere of ambivalence. on one hand it accelerates the nation's healing providing a foundation for asset prices, but a solid employment picture would encourage the fed to continue hiking interest rates. i know you are looking for a second potential rate raise in march. how much would that hurt main street? think, thenow, i best thing for markets from the jobs report is another 200 something thousand jobs. fed --l prices down, the if we think the fed will go in
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march and the market does not move from thinking too or three rate hikes this year, that is what the market needs to comment it down.alm the scariest bit would be an acceleration and wage growth, something that makes us more nervous into this backdrop. still, that is good news. i would rather have that nine oh week u.s. jobs report and something else to worry about. hiscine: we will get thoughts on the janet yellen, jobs report, and tightening economic conditions through the world. coming up we are joined by anne richards from aberdeen asset managers. ♪ the only way to get better is to challenge yourself,
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and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. worldwide.come you the markets are correlated, moving lower.
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lows in u.s. equity futures. it is early in the morning, bit -53. a kids year attention. gets your attention. even the euro has proxy to .light, including the yen on the second screen, looking at , it hasn't moved. you wonder where we will be this afternoon. back toan two-yield deflation worries. the yen is the story of correlations. what is not moving -- the dollar. it has not done all that much. chinese stocks nosedived. it took less than half an hour for changes to stop. in 15 minutes of trading, the shanghai index fell 7.5%.
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the currency is at its lowest mid point rate in four years. other regional markets and currencies tumbling. china might be weakening the strugglingp it exporters. oil levels following to the lowest levels in 12-years. meanwhile, there is no sign the glut is ending oil stockpiles in the u.s. ofrisis radio be a because the worst drought in 50-years according to the united nations. ethiopia will need money to buy food for 18 million people, 20% of its population. for the first time congress has sent president obama a bill repealing much of obamacare. president obama said he would and there arere
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enough votes to keep republicans from overwriting the veto. or billion dollars will be covered by insurance according to an insurance broker. tornadoes and flooding in mississippi caused much of the damage. i am vonnie quinn. new year,it is the same fears. joining us is anne richards from aberdeen asset managers and simon smiles from ubs wealth management. it is nothing new, but they are creatingt once, mayhem on the markets. anne: generally speaking you don't have a good year for equity markets with a brutal
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january. that isn't always the case, but it is quite often the case. perhaps it is more positive than we feel. we are only in the fourth trading day of the year. there are benefits. the chinese economy will benefit from a weaker currency and that you will see the back -- see the export sector which has been hard hit. there will be some positives coming out of the mayhem. can see animal spirit sentiment has taken a battering. francine: looking at the price of oil, it is not optimistic, but it is less doom and gloom. worrys the one thing you about the most? central bank policy mistake or a spike in oil? anne: it has been interesting to couple ofhe last months a decreasing confidence
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in the effectiveness of any kind of central control over anything . the effectiveness of central-bank policy. we have seen chatter of our central banks losing their power to direct central markets? that mario draghi we do anything to solve the world's problems was believed to years ago. you can argue the same is true with oil prices. opec has been trying to drive sentiment in the market around oil prices, but has not managed to do it. there is a loss of confidence in how much they can do something to control. tom: a lovely talk about confidence and the correlations. that spring up on formula thursday, the formula of the day. anne richards, this is the covariance of the markets. our fragile
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confidence, rationalizing where we are. do we need a cathartic moment to to oil and yen to revert normal pricing, and to get the fixed income markets to move to a more normal yield? you need to believe that stuff has gotten cheap enough. mathematical stuff, too. i'm an engineer at heart. things have not gotten cheap enough to suck in the buyers. that is what we're waiting for in the market. tom: this is critical. and simon, are you building cash as we go down? simon: no. is compelling risk return. tom: that means that simon is
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medicated this morning, right? [laughter] a reason the correlations should be high is that it is about central banks. and not about economic fundamentals. correlations are high, but it doesn't seem to be consistent. central banks are losing their efficacy, so we have to focus on diversions. every banker was talking about 2016 and diverting world's. under 2% growth in the eurozone. .hina growing at 6% the central banks having less of a role of wrapping things up. side.d take the opposite looking at it implied correlations on the s&p 500, the first 92nd percentiles. i would be shorting that. francine: what currency do hold it in? what it depends on
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currency or liabilities are in. always the first question, what are the currencies of your liabilities. your currency liability is the first question any investor should ask themselves. about denver jets -- about the policy direction between europe and the u.s.. you have a late cycle u.s. and an early cycle europe. in terms of the interest rate policy, we do not have too many ntstances where a diverte interest-rate policy has worked for europe. with maisie a consequence of the turbulence in the market taking interest rate rises in the states less likely rather than more likely. it will slow the u.s. economy and make it less likely we see rate rises in the u.s..
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that will gradually seep through into stabilization. tom: in our control room is 200 the onethey will find chart in the server. very good, how quickly they got that up. the new normal with g7 regards the new mediocre meaning no nominal gdp and tepid revenue. how can i have confidence in the markets if my top line growth globally is not there? anne: what that chart poses to us is to what extent do we need to adjust ourselves to a lower growth rate for the economy? i think we are hooked on aggregate measures of growth. the japanese example, you have seen a more challenging demographic over the last 20 years. the gdp growth has been g, but the gdp per
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capita growth for japan matches the u.s. in that context, you can say we need to change some of the metrics we use to decide if the economy globally is doing the right or wrong thing. point the other obvious is you don't buy an economy, you buy a stock or credit market. they aren't the same. we think the dollar has done most of its strengthening. to some degree been forced to come to the end of its divertent quantitative easing policy. we actually have the euro at roughly these levels after six months. i think that is good for u.s. businesses. last year everyone underestimated the drag that lower energy prices and a
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stronger dollar would have on u.s. earnings. this year the tailwinds should wash through. on thiswill continue important morning with market stability, even in the carnage of the last three hours. they'll futures, -408. we are thrilled to bring you of atopher whalen, author wonderful one volume on american baking. chris whalen and the future of wall street. ♪
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francine: european stocks tumbling after a cut in the chinese yuan. the yen, the classic safe haven.
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145:67.d, longer term, we know the data referendum. pound, 1.4567. longer term, we know the data referendum. richards and simon smiles are here. when we look at the pound, nervousness, manufacturing is lower. you have the brexit overhang. anne: there is a sense the u.k. economy could be about to snatch defeat from the jaws of victory. you have seen growth accelerate the eating expectation. manufactured beginning to pick up.
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suddenly, brexit fears come out. sterling is hit. there is a broader global growth picture that is not good for u.k. exports. i thought i would going into 2016 with momentum in the economy. here are the fears from brexit starting to worry companies about investment plans and starting to play out on the currency stage with the weakening sterling. wrapping a lot together, you think this will not be the easiest of the years in an economic sense for the u.k., or from a currency point of view. simon: vivid how fragile sentiment has been and what we have talked about, when you have osborne talking about a dangerous cocktail of 2 interest rate hikes on the bank of england. then you have fisher is saying the rate hike this year. that is an environment where
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does not surprise me it is weakening. chart ins go to the table. this is 20 years, of to two dollars per pound. i will call that the normal churn since 2008. in this recent rollover, i was suggest anne richards caught everyone buys prize. respond governor carney to a weak sterling? anne: i wonder the extent to which he will respond. i think he is reluctant to is not to change interest rates for 2016. that is what he wants to go through steadily. i think he will resist the temptation to do that. a weaker sterling does benefit some substantial parts of the u.k. economy. if we want to build a midterm
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growth trajectory, the margin of a weaker sterling is beneficial. it willrns into a route help the exporters. the other thing is that will make u.k. assets cheap from the perspective of foreign, particularly u.s., investors. they want to counter the brexit investments, potentially by getting volume of investment from overseas. there is a balance. tom: it is about the flows of big money. oil, we had a 32 handle on west texas intermediate. little bit of stability in 10 minutes in the markets. wall street, we will be joined by ralph folstein. worldwide, bloomberg radio.
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stay with us. ♪
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tom: your headline, a correlated move in the markets with some stability. a reduced level for trading with -420.s -51 l futures let's go to our bloomberg/. vonnie: moore a cost cuts as barclays plans to close most of its cash equities business in the asia-pacific-region. the operations are not considered profitable and competitive enough. the ceo of marks & spencer is stepping down. is going to be succeeded by 20 seven-year veteran of marks and spencer. same-store sales fell in the past year. closing in on its goal of the covering the first global
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online television service. they went live in 130 new countries including india, russia, and singapore. howard a bit of it -- tch nailedididivi this. do with ouras to retirement plans. anthony dwyer has been right about the courage to be in the market off the lower left corner of the chart. he joins us this morning. off of s&p futures, down 9.4%. how do you pulled your equity volatility into what you see in the other asset classes? when it is correlated, it gives you high anxiety, which
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historically we have been waiting for indicators to get into the by zone. there.ll certainly be i can, this is a common sense game. it will be tough to stabilize the market without stabilization in the yuan and oil. to day sector analysis with oil getting cheaper. i was thunderstruck exxon mobil is not pulled back. is there value in hydrocarbons? tony: i've been underweight materials for the majority of the home market. we made a mistake at the end of last year to lean toward there. when the fed raises rates, over the last four times you have had a three-month to six-month drop in the dow that has helped hydrocarbons and commodities. so far, the drop in the dow is not giving you the push and
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commodities. typically we believe that will happen in the first half. we are saying that is probably a good short term move. tom: a lot of companies are adjusting. macy's is having to adjust his amazon competition. how do you take the news flow coming out? is it an opportunity when companies announce, or is it something you have to get out of the way of? tony: it is an opportunity. at the end of the day, we focus our positive or negative opinion on how inflation is relative, relative to economic act to the. -- economic activity. those are in a positive zone. we have deteriorated economic news in the survey-based data after the crash in august, that the data was good and we are
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expecting a better employment report on friday. we think it is nasty, but we have been waiting for a correction. the indicators we use show us you are pretty close to the end of it. tom: a rough calculation, down 9%. when you factor in the futures drop of 48 points this morning. francine: you are talking about correlation. it is great to have the u.s. respect with. perspective. it is crazy to think we have such a positive policy from the ecb. trading inl gauge is lockstep with the u.s. when will it break free? anne: the tourism is one markets go down, it goes up and correlations. this is a good time for a long-term investor not to try to trade. not to try to call bottom.
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buystuff that you wanted to three months or six months ago, still trading ok, they are cheaper now. you should be thinking about averaging in. francine: in europe? eurozone equities and japanese equities have currency hedged. we now have high correlations, everything selling off together. take advantage and get to the other side of you have a supportive central bank in europe. francine: is it rubbish? simon: it is still -- is it dov ish? simon: it is still underweight. the support of the ecb, the ecb is buying out anything with yields in europe. i look at the wealth management this morning.
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i see a lot of wealth destruction. what we end up saving more? are we talking about a single digit world, and putting aside more money? simon: i think we're talking days ofnasty first 4 the trading year. we have many more days, and hopefully they will not be as vicious. there are still compelling investment opportunities. eurozone equities, particularly for long-term investments. take a longer-term. tom: we have to leave it there. thank you. whalen.p, chris stay with us for more data checks on bloomberg "surveillance." ♪
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♪ ♪ there is correlation in the year this morning as oil
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continues its dissent and chinese authorities shut down their stock market. abenomics is crossed by the flight to the chinese yen. expect many things on expected as central bankers are anticipating the jobs report. this hour, can do for whalen on the state of 2016, american finance. good morning, this is "bloomberg surveillance." thursday, january 7. francineacqua. in the markets is different than what we have seen in the last year. and i love that we are talking about relation because you think about china and oil. look at europe. sucked into the
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problems of the world. we will delve into that deeper. tom: the plans could change and chris whalen and other special guests will be with us. right now, to our first word news. china, let's begin with the worst start of the year in two decades and there's no sign of a turnaround. the central bank cut the reference rachel the yuan the most since august which sparked a sell off and sparked an automatic market shut down. the chinese market plunge 7%. it is down to chant for the year. the u.s. is asking for the united nations for new sanctions on north korea after their latest bomb test. north korea claimed they exploded a hydrogen bomb. propaganda broadcast will be broadcast from south korea
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across the border starting tomorrow the ceremonies in france are being held to remember the charlie hebdo attack. they killed to the appropriate five more people were killed by the islamic extremists. issue includes cartoons lampooning fundamentalists. president obama will take place a nationally televised town hall on gun violence tonight. it's a follow-up to executive heers he issued tuesday and wants to extend background checks and enforcement of current laws. it will air tonight at 8:00 p.m. eastern on cnn. el niño is getting keller's headaches. californians headaches. is gettingco affected as well as southern california.
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global news 24 hours at day powered by our to 200 journalists and 150 locations around the world. tom: let's get right to the data check. there is a little bit of with the carnage. the euro is stable. -- food -- nymex food - crude. vix, you wonder where that will be in a month. headlines strong in my item is the dollar does nothing which speaks of the correlated tendencies. this is the picture
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for european stocks tumbling to a three-month low. you see correlation with crude oil 33. you mentioned the japanese yen. it's about safe havens and it's playing out in treasuries. we need to spend a few moments on china. things have changed the last 24 hours. what is different this morning for market authorities in china than it was one day ago or a week ago or a month ago? >> good morning, i think there is a growing sense of caution amongst market participants that they are not confident that policy makers in china are on top of things. today, thenutes stock market shut down for a
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second time this week. we had the pboc cutting the yuan to its lowest level but it came back in and intervened and sent it back up. there is a sense that authorities are almost too scared to step away from the market. one of the things you learn is that markets can shut down and stay shut down for many days. is there any indication that chinese authorities are thinking not hours or days but weeks or months? we had an emergency meeting of the stock regulators in china today but we did not get any detail out of that meeting. we were told no action was taken. all options must be on the table. isre is a sense of solution a long way off before the circuit breaker comes in. there he orders hanging over the
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market and a ban on large shareholders from selling. there is no sense we are near turning a corner just yet. tom: thank you so much. it was a research call of the fourth quarter of 2015, stephen major at hsbc with a house call of lower yields. he is joining us on this tumultuous morning. we see a flight to quality come is that what we need to get to your one .5% u.s. treasuries? yes, i thinkng, the biggest fear i have is that we might hit our target earlier rather than later. that call is based on the fourth quarter. the way things have started this year, we could be there by the second quarter. a forecast like 1.5% in treasuries, we think something is wrong in the world. it's difficult to predict for the next fault line will be exposed.
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currently it's china but it could be easily be somewhere else next week. tom: i agree with you strongly on the exogenous shocks that could be out there. is the market movement and the new correlations enough to change central bankers actions in a 30 days? >> let's hope so. leading central bankers have consistently underestimated the inter-linkages between the markets the various regions of the world. furthermore, they have not recognized the debt levels have been going up in the last six or seven years when they were supposed to go down. the unconventional policy that have introduced has not really worked. the marginal utility of each additional policy seems to be fading. i am quite worried. the european bond markets are pretty lucid compared to treasuries.
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where will they go from here? >> bond yields will go down everywhere in the major bond markets. that may not be the same for em because the fault lines are being exposed in various parts of the world and it makes credit somewhat vulnerable. if you got risky asset classes suffering, the flight to quality tends to go to the same old boring government bond markets of the u.k., germany, u.s., canada or australia and even japan. it's not the fact that the yield is low. the yield on germany looks low. in a years time, you will have your money back. if you put it somewhere else, you may not. tom: thank you so much. mr. major wheno we are in london and dollars the next couple of weeks. the next couple of weeks.
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is with us and he has one volume inflated on the american financial system. it is most appropriate to speak to him this morning. "e title of the book is inflated." it's a good book on the history of our system. we have seen this before, what's the outcome? >> the outcome is uncertain because the central banks are more aggressive and more actively manipulating markets than ever before. thes listening to description about china limiting the opening of the stock market and we do the same thing here. what was striking yesterday about the fomc meeting was they were fretting about two percent inflation target but the fed is instigating debt deflation. you have an asset bubble and you have to deflate it you see it in energy and commodities and china but it's across the board. i don't think central banks
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understand the impact of their policies. they are creating this volatility. jamie dimon and others within american banking have to think constantly about a correlated set of what ifs. to what?ated if you manipulate interest rates too low and a la marginal companies to raise money in the leverage debt market, surprise, when we have to unwind them. tom: this is the formula of the day. chris whalen memorizes 42 years ago -- this is a clear and present math. the ax isfrancine: the amount of coffee we need every day. i don't know if you want to comment on that chart.
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when you talk about central banks not realizing that volatility is something they've created but what is the alternative, they need to address inflation and make sure we don't fall into recession. >> that is the keynesian handbook. i think the central bank should have done nothing. they should've looked at the congress and their counterparts in the eu and said it's time for you to act because it is wrong for central bank to get involved in the fiscal side of the house. that is the problem. they are well-intentioned but they have gotten way too involved in the global economy and that is the problem. they are causing the volatility. tom: we will speak about the future of america's wall street. we will talk about oil. will the equities catch up with the decline in west texas? ♪
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tom: some stability in the market which is good news for new york which wake up to global market turmoil if it was ugly and hour ago by a little stability right now. yahoo! is planning to cut jobs as of its turnaround plan. sources are not saying how many workers might be cut. arevist shareholders looking to overhaul management and sell assets. united airlines a says the ceo will be back at work after receiving a heart transplant. he had a heart attack in mid-october more than a month after taking a job. he is 57 years old.
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the apple executives were paid $25 million each last year. tim cook received $10 million in salary and bonuses and stock worth $64 million. francine: thank you so much. this is the feature a lot of the asset markets. but crudebeen falling oil is 31.6. there are chinese concerns on currency movements but also safe havens like the yen. let's cover some of the oil price ofand the actual the barrel of oil. mmel joins us now. when does oil actually find a floor? process withficult
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the market that's oversupplied. there is one million barrels of oversupplied could we are looking at price levels that will have an effect on existing levels. -- on future levels. francine: why would you hold one equity and oil. >> i don't think you necessarily have to for the next six months. we will get a better balanced market in the last half of the year and the equities will start working. we want to be in defensive names. we like chevron because of the strength of the balance sheet. tom: there is the basic idea that oil equities have not come down like the underlying commodities. bring up the exxon charge. we are using them as a proxy. it's not down nearly what you expect. do the equities wait for oil
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recovery? >> i think the equities will wait for an oil recovery. the issue is that you're looking at a one-month contract when you look at wti. i do think these equities are still pricing in somewhere in the mid 60's to low 70's in terms of equity value. this is critical about the one-month of view of the commodity future contract versus the net present value of analysis. idea of at, is the terminal value. what is your confidence of a $60 barrel terminal value? >> i would be highly confident that oil over the medium-term will be north of 60. i think the oversupply situation will correct itself within 6-12 months. you are currently getting cheap barrels and the market that were unexpected.
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as you absorb those, you need to tend to more expensive sources of oil to keep the market balance. that will be north of 60. looking atou are mostly equities but are you looking at the debt of these companies? which would you recommend? i am not a debt analyst so i would not make recommendations. i think the balance sheet of companies will be more important as you evaluate these securities. from the equity side, we want to the most resilient names and that will be chevron and perhaps shell. the next round of refinancing, we will look at these options again? >> this will not affect the big integrated oil companies. they can secure debt based on their corporate abilities. i think this could be an uglyre-
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determination process in april. i would want to stick to the highest credit quality companies. the market consensus seems that oil keeps going lower. the shock is that it spiked higher in the only way that happens is it's big geopolitically or the companies you cover are cutting back on investment where two years from now, we cannot extract oil out of the ground. what is the likelihood of that? >> it's already happening. we are setting up for an under supplied market into-three years. it is not reflected in the price today but most of the data is coming out to the negative side. it's from the demand side. is chinese economic data below 2% and that will weigh on the price. tom: thank you so much.
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finding a bid. 40s stunning to go from $223. we will talk about the need for mergers and acquisitions and on bloomberg radio, we say good morning to new york, boston, san francisco and washington. ♪
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it is different this
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morning, futures -40 to play but they were negative 53 an hour ago. the flight to quality and nymex crude with a 30 to and early this morning. -- with a 32 print earlier this morning. south african rand on mexican peso are challenged. let's get to the morning must-read. you been in with different immediate commentary on the market this is from regan. chris whalen has seen this before and the psychology whether it's the panic of 1870 or 1907 is as you get there, you rationalize the process. >> you do.
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a systemic event is when markets are surprised. i don't think there was too much so as in terms of commodity prices. to sleep after the central banks said they were in charge. we are finding the reality now in his lower demand and lower prices. why are big bank equity shares elevated and sustain given the cars we see in other areas? quality. flight to there is a dividend there and they figure they are big. there is liquidity and they will survive. smaller banks are doing better. the spreads are better in terms of net interest margin than the larger institutions. francine: when do we get the rate hike and when does it depend on? >> i hope we get it at the end of the first quarter because bankers are paying for higher rates. they need to recapture margin. they are not making money on mortgages anymore.
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that used to be one of the biggest sources of revenue banks but it's not there. they are leaving that market so they have to make money. any more constructive outlook on bank of america? >> they are slowly making the changes they need to make. the stock price tells it all. jpmorgan is a bit over one-times book and that tells you what you need to know. tom: we will speak about american wall street later this morning. coming up, the eurasia group top risks and we will look at some of the challenges out there. stay with us. ♪
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the only way to get better is to challenge yourself, and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20.
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it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. francine: we are following breaking news -- there is an attack on police records in libya with 50 killed by a bomb carried by a vehicle at a
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training center in a western coastal city. no claim of responsibility so far. chinese stocks nosedive today in a took less than a half an hour for circuit breakers to kick in and close the exchanges. shanghai index fell nearly 7.5%. thechinese central bank set currency at its lowest mid rate in four years and that sent other regional markets and currencies tumbling. china might be weakening the yuan to help exporters. president obama will quickly bill tophil -- veto a vote down obamacare. toocrats have enough about keep republicans from overwriting that veto. a sheriff in oregon says it's time for armed protesters occupying federal property to go home but there is no sign that authorities will flush them out. they seized buildings at a
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wildlife refuge. news 24 hours a day powered by her 2400 journalists and more than 100 50 locations around the world. tom: it's roughly 100 miles from zleiden where this bombing occurred. part of the top risks of 2016. we have a european focus and it means of their hollow alliance. we need to talk immediately about libya because back to the fractious nature of the middle east. you don't know where it's coming from. >> libya is extreme because it has to competing governments and the attempt to reconcile them are ongoing and maybe a while. is a middle east that is badly fractured and the fact that the saudi's and iranians are going head to head is going to create conflict around the region, less in libya but in
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syria and iraq and those proxy conflict will get worse this year. tom: please explain the map on the cover of "the new york shia andt'ws sunni and all the rest are microscopic. do you assume that distinction and tension between those two alls of islam is throughout of the middle east? is it more localized? is more localized around the persian gulf. shias sharply outnumber in the middle east and around the world. only two major governments haveshia that outnumber sunni - iran and iraq. attempt to destabilize of that alliance and with all its implications is driving a lot of the tension between saudi arabia and iran.
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attacks by islamic have militants on libya also spread to some of the oil tankers or the large oil storage. do you expect these kind of attacks on oil facilities to increase? these attacks might be groups that have affiliated themselves with isis. nigeriaseen that from to the philippines, groups pledging allegiance and imitating them. in some areas, they may be competitors. oil infrastructure is a big target. in libya, the oil infrastructure is more vulnerable than saudi arabia. we will see more of that. one of the things that people worry about the most is the lack of a concrete u.s. foreign policy for the middle east. who can step in and mediate? >> that is the issue. we have seen some, call offers.
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the russians offered to mediate and that's silly and the iraq these -- francine: it might be pakistan at this point. >> you will not get someone that they will agree to mediate this conflict. francine: what about the u.s.? whatere is a limit as to the obama administration will do in the middle east. they will keep bombing ices but obama will be protective of his legacy the last year in office. we've got the shock of a question from chris whalen. if these countries were committed by british engineers, isn't it inevitable they would break up and form different states at some point? don't know of its inevitable but it's useful to think about that when you look at which states are more vulnerable and which states are less. turkey is an exception. it inherited its borders from the ottoman empire but a country like iraq we will discuss four
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years. it used to be three separate provinces. maybe it's not one country. maybe it's three. libya is another good example. risk is read by everybody on the street. within your risk analysis has to be a prescription for the next president of the united states and their foreign-policy. what is that prescription? >> we are careful not to prescribe. help me here, i'm asking you to prescribe right now. >> i think the transatlantic alliance matters. thenumber one risk is hollow alliance because we have received for that alliance matters less than it used to. there are more divisions of opinion between the u.s. on the one side and europe on the other on china. how to handle vladimir putin,
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what to do about the middle east -- the first thing we might suggest to the next president is to go back to the transatlantic alliance as the basis for a secure policy that could contribute some stability increasingly unstable world. francine: what can you expect from vladimir putin in 2016? i know he is a wildcard. we had up the wristers 2015 from russia to >> we are expecting less but there are unthinkable leaders and vladimir didn't and that is later at the top of the list. vladimir putin once in europe and sanctions lifted which means ukraine is liable to stay quiet we hope. whatever the russians will do in syria, they're hoping to push this to the europeans as an effort to stabilize syria in a way that will slow the fall of migrants toured europe. -- the flow of migrants toward
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europe. vladimir putin is listing himself as a cooperative person who can play a cooperative role. -- who can play a positive role. vladimir putin does not ignore provocations. we saw that with the issue with the russian airplane shot down by turkey and he is not going to ignore provocations this year. lower oil is is is bad news for the russian economy and there will be times where he will need a foreign scapegoat them tom: thank you so much. christopher whalen is this as well. we are looking at the markets and -45. are looking for the bombings reported moments ago in libya. will beday, ted cruz with us later today.
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futures are -45 and dow futures are negative 74, stay with us. ♪
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tom: an exceptionally busy morning. we had the news of the bombing in libya. riyadh where we look at of theitical turmoil middle east and how it relates to oil how do you link this bombing in libya to the fragility the saudi royalty faces in this 2016? >> i think it describes the agility of certain parts of the middle east.
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in libya, it's the case of a gateway to europe. if libya continues to be unstable and volatile, it will fuel instability into europe. within the instability is the track of migrants. what is the vector on migrants? will the more to europe and more unsettled moments or can it diminish this year? going to shows there is greater instability into the middle east and into parts of the middle east and will accentuate the aivide between sunni and shi but it will strengthen the ability of the saudi royal family to continue to provide stability for the saudi's. the citizens will ask if we want libya or a stable royal family. they will opt for the royal family. tom: thank you very much,
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wonderful to get your perspective. great moments this was with inner interviews the report from the brookings institution and i was thunderstruck at their caution on the future of saudi arabia. do you ian bremmer share that? >> absolutely, there is a consensus that oil will stay low for a little while. is a country that is getting 75% of its governor revenue -- of its government revenue from oil. the used to have more reserves. they still have plenty for the time being. this is a bad trajectory and we're are heading for infighting within the royal family itself. there will be a much more disputed process may be in the next year or two than we have seen in the past that creates the anxiety that your last guest mentioned within saudi arabia about stability.
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with iran coming up under sanctions, pumping maybe one million barrels additional, the saudi's are becoming increasingly anxious and insecure and increasingly difficult to predict in the middle east. we talked about some of the rogue states. there was north korea and saudi arabia and iran and vladimir putin but nouriel roubini was saying he worries about europe the most because of the refugee crisis. he says angela merkel is becoming weaker. put that in context. up, it region blows could be the biggest concern for 2016? >> absolutely, it may not be as bloody and violent europe is dealing with so many problems at once. the micros pose a fundamental challenge to the future. entireportant for the
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european economy. angela merkel is in a vulnerable position and is taking a gamble by refusing to set any upper limit on the number of migrants germany's willing to accept overtime. we sought more than one million enter europe last year and we're talking about a bombing in libya. no reason to expect that will slow down. we areb still one in the onrexit. we don't think it will happen but we don't know. we began with an incident in germany where there were as many as 1000 people involved in an ugly incident. people are already blaming this on refugees. europe is important to the global economy. is a story to watch even while china and the middle east continue. tom: this is the chart i use on oil.
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it goes from october, west texas is down 33%. i refuse to believe after reading your book that this decline does not affect our financial system. into americanplay banking? >> it affects it quite a lot. number of service companies are being forced to essentially accept linkage in revenue because the customers don't need the services. you are seeing less production and less drilling. over time, the banks will have to rationalize the medium and smaller credits. good bit of loss especially coming out of the larger banks. we put out a piece this morning on canada which is one of the strongest credits in the world. the banking system, the housing sector and a number of other sectors are predicated on strong oil prices. tom: thank you so much for
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coming by this morning on short notice with your thoughts on libya. we will continue with christopher whalen and look at global wall street especially with the announcement of the barclays announcement. there are challenges of employment within the new wall street. futures are doing a little better. ♪
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tom: what a day, let's look at foreign exchange. frame onet out can't dollars 17 and $.57 much stronger yen versus the euro. the real story is the idea of no dollar movement. dxy does not advance. john farrow is in this week.
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>> it's all about china. if you are concerned about china, you're more concerned now that the shanghai composite 30 minutes into the session, circuit breaker, closed for the rest of the day of that will spill over into the european session as well as the u.s. session. 3293 wti, the lowest since 2003. we will make sense of this with evercore partners coming up on "bloomberg go." rebound.ttle bit of a martin spencer is stepping down. ae chain is considered weather for this retail.
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the company reports same-store cells fell almost 6% in the last quarter of the year. more cost cuts at barclays. theirlan to close most of cap equities business. their securities operations are not considered profitable and competitive. a shakeup and morgan stanley. for fiveill stay on more years in one of his main deputies is being promoted to president. that has led another top leader to leave the bank. tom: the bodies are moving around at the beginning of the year. christopher whalen is with us. is the author of an acclaimed book on our american banking system," inflated go we have talked about the change in banking. >> it's back to the future.
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the big banks are getting out of the business of risk and becoming asset managers in many respects. ubs, morgan stanley are obvious examples. over time, we will have to regrow the non-bank sector. people like mr. fleming will work at smaller broker-dealers to do the business. the shadow banking system is going again? >> don't call them shadow banks, it's the private sector. nonbanks are the private sector we should encourage them. tom: when i look at the banking what is the restructuring you see this year? is this the tip of the iceberg? shifts is a fundamental in the largest institutions globally.
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they are all getting into that business because they can, the larger thanks and the big have tove shops re-rationalize their operations because regulators are forcing them to. true in: this is very the european banks. you mentioned ubs and credit suisse retrenching to go after the asian customers. it will be overcrowded. >> it is, there's only so much business. if you are running one of these cost is first and second is where you get revenue year. francine: in terms of u.s. versus europe versus the u.k. versus asia, it seems the best of value is still in u.s. banks. >> i think so, our capital markets are thankfully very robust. we had a record year for
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issuance in 2015. we will probably see that this year again even with the expansion of spreads with concerns about commodities and oil. that is the boon for u.s. banks but not so much in europe. they had been trying to get there asset-backed security markets to come back because banks are the only source of credit in europe and net has to change. to wheres circle back we are in these markets. there was a wonderful observation this morning and we will share this with you.
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which way does this go? does janet yellin move away from the boldness of the recent weeks m or doesario have to look at the moon will force and adjust? >> i think it will be janet. they are three years late. continues and you will see increased volatility. you said they are three years to late because they had -- because of they race, savings would having complete. >> they should arguably be easing now it the idea that the ecb and federer diverse -- francine: are we headed toward a recession? >> i think so, i think you will see gdp closer to 1 rather than 2. tom: we have to go? our time is up. make a note that tomorrow
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morning, you and i will pick it up on mark carney. there is never enough time. francine: the third day the pound is sliding. tom: mi and london friday? yes! i'm bringing an empty suitcase. strong weekrd for there and howard davies join us next week among many esteemed guests. loverow, stephen sawell, having him on. stay with us, more on "bloomberg surveillance." ♪
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>> chinese stocks are plummeting again before circuit breakers shut down the chinese market.
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wpi is trading attitude doesn't -- wpi is trading at an all-time low. who can make sense of it all? ♪ ♪ to "bloomberg ." futures areng, s&p down 35 mins. david: of all days, i'm glad today you are here. ralphshlghted that ossstein >> is here. i will try to explain it. >> much more throughout the hour. the story begins overnight with china after the central bank cut its yuan reference rate


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