Skip to main content

tv   Bloomberg Markets European Close  Bloomberg  August 14, 2019 11:00am-12:00pm EDT

11:00 am
european trading day. from london, i'm guy johnson. vonnie: in new york, i'm vonnie quinn. this is the european close on "bloomberg markets." guy: what a day. liquidity is light. you've got to bear that in mind, but nevertheless, the stoxx 600 now at session lows, down by 1.75%. the u.k. twos-tens inverted. there's a brexit factor in there, but we also had an inversion on the other side of the atlantic. we are still reversing yesterday's gains. vonnie: in the u.s. looking at an inversion, although we are back at positive now. the twos-tens spread just under two basis points. the dollar index is very close to 98. another currency today that is stronger is the japanese yen. most are weaker versus the u.s. dollar. the s&p 500 down. plenty of stocks dragging today,
11:01 am
including viacom and cbs. they are proceeding with that deal, but they are down 7% apiece. retail being dragged down lower by macy, which vastly disappointed investors. many other brands lower as well. guy: it is a tough market if you are long. it is not tough if you are long bonds, though. u.s.ections of both the and the u.k. yield curves invert. trade euphoria getting steamrolled by another round of disappointing global economic data, mainly out of germany and the united states. grant peterkin of man u life investment management -- of ,anulife investment management senior portfolio manager, joins us. seen the u.s. curve
11:02 am
invert before, and generally there is a portent for some recession sometime after that. are seeing the central banks have economies' back. we are keeping longer dated bond yields relatively bid because of the collateral out there in the world. if the risks around the geopolitical tensions, whether in hong kong, argentina, or the potentiallyhey are bigger problems for us going forward. guy: we talked about trade a great deal over the past few months, but we are now starting to see some of the effects may be showing up in the data. the german data, the rate of change seems to be accelerating. that is something to be concerned about. the real story in my mind is what is happening in china, where the data are beginning to slow down dramatically.
11:03 am
is that the area to focus on if you are trying to figure out what happens next? is it a delta on the chinese data that should be the big focus? grant: absolutely. china is one of the powerhouses and big growth areas of the world economy. in a world of deglobalization, whether from the trade wars or just a slowdown in economics globally, markets don't like uncertainty. the continuation of this trade war in a world of relative malaise from an economic perspective generally isn't particularly positive. from our perspective, we still like owning the ration in sovereign bonds because we believe central banks must step up to the plate, whether it is in europe with the ecb, or the u.k., and specifically in the states with the federal reserve, to make sure the global economy keeps going in the right trajectory. vonnie: how much our markets doing the central banks' job for them? grant: that's a great question.
11:04 am
given the fact we had a yield curve inversion today come bond yields have rallied pretty sick and lay -- today, bond yields have rallied pretty significantly. it was kind of positive for the consumer in the longer-term. people are getting to borrow money to buy property at much better levels. but that bond vigilante situation where the data is turning lower, especially in the euro zone, and germany specifically. in the u.k. we have brexit problems. they are putting the central banks to realize they need to do something relatively quickly. vonnie: what prompted the volatility, though? we are back up at 22 on the vix, not that that is the best metric in the world, but we seen a lot of volatility in the last few sessions. grant: that is the central he something we have to get a little more -- that is potentially something we have to get a little more use to, volatility over all asset classes.
11:05 am
everything that keeps the economy going. we are in a situation where potential geopolitical tensions start increasing and we start seeing more of that type of volatility. the risk for central bank policy is the tipping point between where equity investors are high-yield, or credit investors think more stimulus is on its way, and that's a positive thing against why the stimulus is on its way in the first place. guy: have we reached that tipping point? it is a really good point. two vonnie's question, we were talking about a midcycle slow down. we were talking about the fed managing that. we were talking about 50, maybe 75 basis points. have we gone beyond that? grant: i think there's absolutely a risk that goes to that uncertainty. central banks need to step up to the plate and do what is necessary to tamp the markets down. let's not forget, we are not massively off s&p highs here.
11:06 am
there's just a little volatility based on tensions escalating potentially in hong kong, but more importantly, i think, economic data is worsening across the globe. guy: most investors are investors. they invest for the long term. they are looking at what is happening today, and think, you know what? there's a recession coming. i need to start preparing for that. normally you would buy bonds in this kind of environment. as we get towards a recession, the bonds are going to provide you with that safe haven. we are at -60 on the german ten-year. hsbc thinks we will go -80. you could get much more negative than that. our bonds going to provide protection if we get to a recession? .rant: yes, i think they will despite the fact we are in negative yielding territory and
11:07 am
x trillion dollars of global assets have negative yield, it is a situation where central banks need to think about where they go next. if you are in the belief that central bank policy does mean we must continue some form of quantitative easing, that we reduce quantitative easing and have another round of stimulus, then ultimately that is a positive for bond yields. , how do you do your job in an environment like this? where do you find absolute returns? grant: running an absolute return portfolio in a world whereyields a going -- yields are going further south and more and more negative is interesting. we are still of the belief that bond yields can go lower because we feel that if there is fiscal policy not stepping up to the plate, we heard germany talking this morning, and angela merkel
11:08 am
yesterday about the fact they didn't need to do anymore economic stimulus. the monetary side of the equation really needs to kick in and help the underlying health of the global economy. structurally, volatility is a positive thing for our type of absolute return products, and fits well within the other buttocks we have at man -- the other products we have that manulife investment management. vonnie: give me a little more detail on these products providing you with investment management return. on the yield curve will continue to go lower, but we feel that despite mario draghi leaving, his last meeting coming up, with lagarde joining, we feel that there must be some continuation of the monetary path they've taken to ease economic tensions while there is
11:09 am
no fiscal backstop coming. prime minister johnson has come to say they are leaving at the end of october, come what may. the bank of an led will make sure they sail through. guy: you bring up the issue of fiscal, and i appreciate germany being kicking and screaming in that direction. most people think it will in up there. brexit will probably end up there as well with some kind of fiscal stimulus. other parts of europe may or may not, depending where they are with their debt levels. if we get significant amount of fiscal spending and europe, the bond market is out of position for that. how out of position to you think it is? grant: if we have a large, concerted fiscal stimulus package across the euro zone, ultimately we see yield curves steepen into an inflationary
11:10 am
dynamic that will cause inflation expectations to go up, not just because of the issue insight, but -- the issuance side, but also the growth side. what brings politicians to the table to agree that fiscal stimulus is needed? the risk that i worry about is that if you don't get politicians generally and historically to the table until something relatively recessionary is at the table. guy: we will leave it there, but we are going to carry on. us.t peterkin staying with vonnie: while china grapples with economic and trade issues, it is also faced with the continuing protest movement in hong kong. joining us now is yvonne man, anchorerg markets: asia" , at the hong kong airport. what is the next play on the
11:11 am
part of these protesters? are they looking to escalate this in some way? yvonne: well, we are still seeing signs of that, not here at the airport. things have come a relatively speaking, gone back to normal operations here. police are still on guard after the injunction that was issued here at the airport barring protesters from entering the terminal here. only a handful of them came early this morning. some are still digging their heels and staying downstairs at the arrival hall, but this injunction has prompted protesters to head to other parts of the city. earlier this evening, there were clashes with police once again around the police headquarters. officers had to fire tear gas. we are still seeing unrest around the city, and still both sides are not backing down. vonnie: yvonne, thank you. that is yvonne man, "bloomberg
11:12 am
anchor, at hong kong airport there. in the dow, just one stock is higher, coca-cola. the s&p 500 down more than 2%. the nasdaq is the worst performer today, down 2.4% right now. this is bloomberg. ♪
11:13 am
11:14 am
guy: breaking news, the selloff in stocks is steepening. let's get some details. here with them, i've go too little. abigail: it certainly has turned risk off. the s&p and the nasdaq in the u.s. both down more than 2%. stocks really selling off, at session lows. we will put it in the context of the overnight futures in a moment.
11:15 am
, all of thisdown as we had some key yield curves invert. the asian session was green, even the hang seng with those protests in hong kong. let's take a look at the overnight picture for the futures of the s&p 500. we were actually positive, and then as the u.k. yield curve started to invert, we see very small declines. u.s. yield curve started to invert, the twos-tens spread, around 8:00. declines steepen, and investors just selling. in the past, this has been a precursor to a recession, it typically doesn't happen until a year or two after. what we are looking at, yield curves around the world are inverting. japan is slightly to the positive. u.k. is the one that is still inverted. the u.s. is no longer inverted, and yellow. it is bouncing up just slightly.
11:16 am
germany is the best, even though all of their bonds are yielding negative yields. some of the big laggards in the u.s. session dragging on the major averages, let's take a look at those individual movers. macy's shares absolutely plunging after they reported their second quarter. the outlook on the full-year very negative. apple had been very strong on the tariff relief, that those were going to be relieved until december, but apple down now 2.3%, one of the biggest drags for all three major averages. a brutal selloff across each sector. no particular news on any of these names, but these are the biggest laggards in tech, financials, and chevron falling on oil, dropping in a big risk off data has accelerated as the day progresses. vonnie: it doesn't surprise me the gold index is the best performer in the s&p 500 now, up 2%. we are back with grant peterkin,
11:17 am
head of the absolute rates ifeurn team at manul investment management, and mike regan of bloomberg. does this start in the bond universe, or is this to do with yesterday's rally, taking that back? mike: there's not really one straight line down at any time to signal it was some news driven event. it just seems like it deteriorated overnight. i do think the yield curve and versions are sort of front and center, spooking people a little bit. as everyone has pointed out, who knows if this is a valid recession signal, a recession next year or the following year. really what is interesting is how long the curves have been inverted since march. that is sort of a typical. typically you see the twos-tens lead the way into inversion, or be coincidental with the other
11:18 am
curves inverting. it's a very confusing signal to interpret historically because of that long time lag between when the equity market peaks afterwards and when the recession starts. i think it is even more confusing because those shorter curves have been inverted, and there are distortions created due to quantitative easing around the world. it is very hard to take that inversion signal and know exactly what to do with it, but the response today seems to be a freak out a little bit. vonnie: grant, do you look to that as a recession signal, or has it changed in effect? grant: i think it is a good point that quantitative easing has changed the landscape for bond markets as a whole. talking about the curve inversion is a cast-iron signal of a recession is probably not correct. i think it is just a situation where bond markets are getting a little nervous about what's happened from a geopolitical
11:19 am
perspective globally. the flattening of the yield curve is obviously not helping the banking sector, but it's been flattening for quite a while. guy: mike, a couple of weeks ago we were talking about a midcycle slowdown. jay powell was saying we are basically delivering insurance cuts. we want to keep the cycle going for as long as we possibly can. i've asked this question to a number of people. are we beyond that point now? michael: today certainly looks like it. if you look at the pricing for the probability of a 50 basis point cut in september, it's really been all over the map. i think it is back up to a 30% chance today. it is really following the signals from the stock market and the bond market. at this point, they are starting to more and more price in the chance of a 50 basis point cut in september. still not above that 50% probability, but it is
11:20 am
growing by the minute as these markets sell off. the chinese industrial data, the german gdp data, with all week. we have a number of economic reports coming in between now and when the fed meets in september. i don't think they will make up their minds now, but the more risk markets selloff, the more easing is being priced in by fed futures traders for sure. puy: grant, the feedback loo between the president watching what is happening with stock markets and the president's attitude with trade talks. do you think the white house turns around and goes, you know what? we need to make positive noise about the trade talks, and that provides a circuit breaker for the downside on risk assets. grant: absolutely. we've seen from what's been happening over the last 18 months at the white house will
11:21 am
be reacting strongly to equity market moves. it is concerning from a negative feedback loop, of course, but u.s. data relative to the rest of the world has been relatively positive over the last quarter. that they will probably have to cut 50 basis point of the next meeting, and potentially keep the door open for more. it's really because of what's happened from a geopolitical perspective globally. vonnie: grant, is this disorderly? at what point do we decide it is disorderly? grant: i think we shouldn't get too carried away about things being disorderly or orderly. the markets moved aggressively up yesterday on the reduction of tariffs with china, and we are seeing a little bit we hadacement of that as
11:22 am
european and chinese data come out more negative than the market was expecting. i think central banks ultimately will continue to do whatever it takes in this type of environment. vonnie: that might be the case for equities, but we had a 50 basis point move in the 10 year. is that not somewhat disorderly? grant: yes, it's been a large move, but over a relatively calm six months. it's been very slow and stable. volatility is still materially lower where you would expect some sort of disorderly move. we need to be looking at those types of volatility indices and metrics to see if we start seeing continuation or start getting concerned about market volatility as a whole. guy: grant, do you think draghi is going to have the bazooka out in september? grant: i think ultimately, he probably has to do something. guy:guy: what does something lok
11:23 am
like? grant: we think that they will cut interest rates relatively aggressively, and they will issue some fortis -- some sort of tiering for the banks because of that. we will have to see what else they can do from a qe perspective, but the tools the ecb has is rate cuts. obviously a major macro story today, several of them, but we also have things like earnings. macy's and the department stores are down 10%. did the likes of macy's get a gift yesterday from trade headlines? why are they getting so punished? michael: macy's numbers today not impressing anyone. i think that alone would be a little bit of a shocker to the equity markets today, all things being equal. data in's point, the the u.s. has been pretty firm, especially consumer data. if you look at the employment numbers especially, pretty solid. people might be hypersensitive
11:24 am
to any sort of cracks and that narrative, that if the consumer spending starts to look like it's responding to all the other macro things we are talking about, that i think will change the narrative a little bit. hate tobound to see, i call it an overreaction because who knows where macy's price will settle, but you will see dramatic responses to any sign that the consumer, that important leg of the u.s. economy, is showing any signs of weakness. vonnie: and we get retail sales tomorrow morning, so as that comes in good, we are all clear. if that is a disappointment, we are really not sure again, are we? grant: yes, and i think the fed will issue some form of statement when they feel like volatility, especially in equity markets or credit markets, starts going up, to make sure that the ship gets sailed straight through the concerns of the markets. guy: grant, where do i hide?
11:25 am
if we are going to see a few more days of the market risk assets being beaten up, gold is looking all right. what do you consider to be a safe asset right now? grant: i think you can't go wrong with global sovereign bonds from bond markets where you know the value. there may be negative yields, but at least you know that there's a cast-iron guarantee from a government to pay you your dues. that sort of change as we start to -- if the ecb goes big and we see more monetary policy coming out, and not not working, does that narrative change? does that front end still look as safe? grant: that's a great question. we hope that we don't reach the limits of monetary policy, given what's happening globally. central bankers are looking to try and reinflate the economies.
11:26 am
it is their mandate. they need to make sure they are continuing on the path, make sure the economies are continuing very positively. vonnie: that is grant peterkin. thank you for visiting us in studio in new york today. e assets manulif management's senior portfolio reganment there, and mike a bloomberg . guy: continental markets suffering more than most. the ftse made really under pressure. unilever, stocks like that, or where the safe havens are. this is bloomberg. ♪ this is bloomberg. ♪
11:27 am
11:28 am
at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity.
11:29 am
♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. guy: 30 seconds until it india regular training in europe. what a day -- until the end of regular trading in europe. what it day.
11:30 am
inversion on both sides of the atlantic. the stoxx 600 briefly positive, then the inversion came, then the market started to tumble. some european markets are down more than most. let's take a look at the individual forces around europe. banks are under pressure. that is a factor behind the ftse mib, down 2.64%. the dax is down as well. the banks are down. deutsche bank trading lower. the chairman may be looking for his replacement. the ftse 100 down less than most. still down 1.7%. this is a quick look at what is happening from the sector point of view. every single sector in europe is trading in negative territory. stocks like unilever are the superstrong proxies. every single sector is down.
11:31 am
the real action is at the bottom of the market, where we are seeing the auto sector under pressure. the banks coming under pressure. technology not a big sector, but down 3%. the mining sector is trading lower. gold-mining not so much. chemicals and cyclicals trading lower. banks down 2.61%. that is look at the close. vonnie: equity markets down in the united states as well. the dow is just one component. coca-cola is higher but it is bonds where the action is. 10 spread barely above one basis point. the dollar index is very close to 98. also seeing strength to the yen and the swiss franc. let's take a look at how the
11:32 am
internals of the market are performing. the s&p 500 is down 2.1%. viacom and cbs both down more than 7%. trepidation about the deal. the kbw bank index down 3.5%. it is obviously a global phenomenon with yields going lower. department stores having a negative day. , including many of the department stores, including nordstrom and kohl's. guy: let's get back to the inversion you are just mentioning. i'm not sure what is scarier, the inversion or the 30 year low. dan, let me start with you to get his take on what your view of the world is. which is carrier? the fact that we happen inversion or the fact that the 30 year is a record low? yield is at aar
11:33 am
record low. the problem is you have a stronger bid then you have on offer on the long end of the treasury market. thatave a lot of buying once to get long and state long and be called protected, high-quality, and marketable. there is one place you can go for that. that is treasuries. that is what is going on at the long end of the market. what is going on with stocks is obvious. what is going on in high-yield is pretty much a bid only an investment grade corporate are following treasuries but not to the extent, except when you get call protected, only 10 year, corporate are calling treasuries a little bit closer. there is demand from the liability measures. i do not understand or stand --
11:34 am
i do not understand the whole thing but it seems some people have to buy long. some version of the liability match. guy: there been lots of guests talking about the fact that they are buying durations and buying the long end of the curve. your read on the price action? reachingically, we are something like a moment of revulsion or catharsis. there are many of the classic factors of an investment bubble in what is going on in the bond market at present. do i know when it is going to end? i don't, but the momentum is strong. people have long since put aside concerns about valuations and what we are likely to see is a continuation until we get convincing catalysts that people should do otherwise. the big problem we have when it
11:35 am
comes specifically to the is that a yield curve inversion is not just a market signal recession might be coming. this is one of the situation where moves in market do have an effect on the real world. it is a specific track on the real economy and adds to the reasons to be bearish about the economy. vonnie: our last guest mentioned that bond vigilantes are peeking their heads out. is that what is going on? how will it impact what the fed does? dan: i do not know if it is vigilantes or who. will it impact what the fed does? yes. i'm sure the fed is looking hard at what is happening with stocks . i am sure they are looking tremendously hard at the geopolitics right now, which
11:36 am
seems to be at least partially responsible for a lot of this. ,e are dealing with markets moving markets right now. the fed is looking at it and saying markets are busy doing their thing, but why and what is happening with the flow of funds around the world and politically around the world, geopolitically? it is not just hong kong. that vilifies what is going up -- that vivifies what is going on. money goes to safety and it goes to the dollar and when it gets there at once the safest issuers for the longest period of time. that is what is happening. to get a piling on on the corporate bond market side, you get a piling on -- recall that the middle of the market with corporate bonds is much thinner now than it was 11 years ago. relative to the size and in
11:37 am
absolute terms. the dealers are not warehouseing risk. they are serving as agents. that is very different type of market. it makes it hard to transact. even in treasuries, although that is a highly liquid market, the difference between the and asked with any amount of size is widening from insignificant to significant. you do not see that very often. morning.ednesday it is a thin market. that is worth keeping and i on. vonnie: dan, you've been bond bearish. have you changed what you think the bond market will do and how are you repositioning in your portfolio? bearish on certain parts. mostly on the credit side.
11:38 am
treasurieslong in last november. i wish we had done more of that. some investment grade corporate. we been keeping a high amount of liquidity in the account. in a suitable market environment, that liquidity gets used to buy attractive yields called protected, which means once you're in corporate you once distant -- you want discounts. you want to feel comfortable with the credit trends, particularly considering when many of the industry categories we look at now are probably in for a slow or week period ahead. when you deal with markets like , you have to do your buying
11:39 am
carefully is the best way i can put it. you do not go in on the buy side and say i will take a dozen of those, a dozen of those. that doesn't work. you have to wait until the market needs a bid. these days that is rare because of the etfs and others, but we are in one of those periods right now. guy: john authers, have we reached a point where financial markets are signaling that monetary policy is done? i am wondering that because if you look at the prospects of fiscal expansion at this point in time, they seem fairly muted. the market has not price that. are we reaching that point where the market is saying jay powell is talking about a midcycle slowdown but we are done. the fed is probably going to have to cut more but nevertheless it will not have much effect? john: i guess that is inherent
11:40 am
and a lot of what the market is doing. the yield curve, the pressure you are seeing their is playing , trying to bully the fed into cutting more and faster than it was currently planning to do. is a senserms, there that monetary policy is not going to spark the growth that is needed. i suppose the other point you can see, and this is an important thing to bear in mind, we are talking about china in terms of trade a lot of the time. i think the overnight data in particular, the data on chinese loans which suggests of the big reasons for bullishness about the economy, the bearishness about bonds was there was
11:41 am
another big chinese stimulus coming up. at this point, if you look at the 12 month average, yuan loans are declining. there is a sense it is not just monetary policy that is done but the sense we can rely on china as the stimulus of last resort. the stimulator of last resort. it has now fallen by the wayside. guy: the deleveraging process has stopped. stick around. dan fuss and bloomberg's john authers will stick with us. a big market day. we will carry on the coverage. let's look at where european stocks have settled through the auction process. not much movement, but big numbers being posted on the downside by european equities as you can see. continental markets down over 2%. 3%.ftse mib down nearly
11:42 am
you can tune in for more coverage if you're getting in the car. dab digital radio. tune into the cable show at the top of the hour. we'll provide more market coverage. it has been a busy afternoon. you do not want to leave the action here. this is bloomberg. ♪
11:43 am
11:44 am
vonnie: the selloff continues and equities. the money flowing into bonds. we are back with dan fuss who joins us in boston and in new ,ork, we have john authers bloomberg opinion columnist and senior editor for markets. john, i will throw to you because i believe you have a question for one of those men who knows the most about bonds in the universe. john: knows very much about bonds than i do. you were talking earlier with
11:45 am
what i would be tempted to turn british understatement, but maybe it should be bostonian understatement. are there any bonds you would feel comfortable holding for the long-term at this point? is it your impression people are buying with that classic bubble psychology they're going to be able to sell for more rather than do the math and assume they will hold it to maturity? john, you are a good historian. john: thank you. dan: you are welcome. you are right. you have a couple things going on. you get the instinctive -- people like me -- you say macy's is having a sale. let's go to macy's and buy stuff at a discount. i do not mean that about the credit.
11:46 am
it is an example. you tend to buy in periods like this. the market knows that. they will be careful with what price. , you run intoe the situation that is fairly rare these days, but nonetheless , we're in one of them are they say give me a bid. any bid? and they say yes, give me a bid. they are acting as an agent and they have a seller that once out for whatever reason. that tends not to be overly credit specific or item specific. if you are credit specific, item , it isc, priced specific a good time to be a buyer but you have to buy at your price. some of these things are more or less fake outs. you buy one or two bonds and
11:47 am
that is it. this is not one of those. there is an interesting bit of history right now, today. this happens to be the 119th anniversary of the day the european troops went into beijing, and it was not just european, it was u.s. marines joined them. contrary to popular opinion, neither you or i were part of but it is not lost on the chinese. they are aware of these things. what we have going on in hong kong, which is a significant financial market, is serious the rest of the markets. within the rest of the markets these days, you do have the structural things. with the money that can be in or
11:48 am
out, mutual funds being a good example, you tend to get to withdrawals and you tend to get the flight to safety in the short high-quality position. that is going on. that is going on right now. credit,ult, some of the you say he wants to own bonds -- good question? for specific reasons you will own bonds and as you get into the more specific risks that is entailed in credit and structure of the instrument, you actually get some attractive opportunities. they are not very liquid. john,s a market where -- you're doing a good thing. you are bringing a bid to a no liquid market. that is a good thing to do. this is one of those markets.
11:49 am
vonnie: dan, you are very domestic focused and you look at corporate credits in the u.s.. i am curious as what you think about yields below 3% in china as we are on the china topic? dan: oh boy. we have a lot of credit research over in singapore that covers this area. we do a lot of work in it. settingre the market that has got me worried. there are opportunities there, no two ways about it. but the geopolitical pressures are such that i think right now, you have to be very careful. pray that the current tensions that have evolved between china and the u.s. modified.
11:50 am
they will not go away, but at least they lessen quite a bit. on that basis, you have a good setting for investment and perhaps even broader than anywhere else. that is not the case right now. the tension, which are exhibited primarily at the moment in the trade talks are severe. they are alsoas top. -- they are also tough. hopefully that changes. when that changes, if it does come and i think it will, then you want to be ready to go into china with quite a bit of money on the fixed income side. there will be some enormous opportunities, and obviously on the equity side. we are not at that point. the direction has been the other
11:51 am
way. that is my summation. guy: ok. if we don't get an alleviation of the trade tariff situation, if we do not get an alleviation of the trade war and we head toward a recession, how low can the u.s. treasury market go in terms of yields? how high can prices go. there is some talk that he the united states to get negative in a recession. can you give me a sense of whether there is a floor in the u.s. and how low yields can get if we were to get a recession in 18 months? dan: certainly yields could go a lot lower on the treasury market. -- of thetting, if we trade war gets worse and the many other aspects of this cold war that has developed get worse
11:52 am
, we are talking about the wrong subject. something we no longer think much about. we have to cut it short prior to that. off-track, but it is not off-track. that is a fear. how this thing works out will definitely determine how the economy goes and how the markets go. it is the big issue we have to solve so we can solve the climate thing. markets.n the people know that. it is not popular to talk about it. it is more exciting to go into trading and listen to the ups and downs of the various markets, but right behind that and starting to control it is the geopolitics. i cannot stress that enough. authers, you you
11:53 am
admire so much just wrote his most recent column on that point, "game theory goes to china. go he says the latest -- let me put that to john and asked him what he means? john: we've been trying to use game theory to model the behavior of xi jinping. game theory is the notion you build an economic model by creating a notional game with the same kind of incentives on the players that you are seeing in real life. what we appear to be in at the moment is a version of what is known as the chicken game, which is where james dean and a friend of his drive their cars as fast as they can tour the clip, and the winner is the guy who swerves last and the chicken is the guy who swerves first. the problem is that by winning
11:54 am
you may have to drive yourself over the edge of the cliff, which is what happens in the movie. you have elements of great in theent on both sides china-u.s. conflict. what was interesting yesterday was that you had a difficult thing to do, which is reduce the tensions. obviously, people are not leaving this is a chicken game that has been resolved. dan: right. guy: we will leave it there. john, thank you for a much. john authers, and our big thanks to dan fuss. let's get a market update to get a sense of what is going on. emma chandra? emma: we are truly in selloff territory. taking a look at all the majors in the u.s., all down more than 2%. no let up throughout the u.s. session and we are plumbing the lows of the session. all of this in response to recession warnings we are seeing
11:55 am
in the bond market. that triggered by the port you go data we got out of china and -- the poor eco eco-data we got out of china and germany. let's take a look at the s&p 500. we should be able to show you the i met function that will show you the things on the sector by sector basis. that shows you how every sector bar utilities is in the red. we are looking at every sector in the red. we are being led lower by the likes of financials and energy. both of those being impacted by potential recession fears, also by potential concerns in the bond market. we are also looking at consumer discretion. this has to do with fundamentals we are seeing. we should be at the show you macy's. macy's down with earnings. they were making problems for themselves, even without those new tariffs, they were cutting their profit forecast and also
11:56 am
detailing the steps in their sales of women's apparel. back to you. vonnie: emma chandra, thank you for that wrap up. a big day. coming up on "david -- balance of power" with david westin we will hear from mohamed el-erian on those inverted yields. a couple points in the curve have become inverted. -10 spread is at one basis point. the s&p and the nasdaq both down 2.3%. this is bloomberg. ♪
11:57 am
11:58 am
11:59 am
12:00 pm
david: from bloomberg world headquarters in new york, i'm david westin. welcome to "balance of power," where the world of politics meets the world of business. there is only one big story today, and that is the ball in the markets. stocks drop, yields on 30 year treasury's reach new lows and the yield curve inverts. for an update we turn to abigail doolittle. abigial: we are looking at that risk off day you were just talking about. take a look at the major averages in the u.s. , the dow, s&p, and the nasdaq all near session was. a huge decline. the worst day in a week. you will recall august has been a bad month, the worst since may. lots of selling action. we have the vix soaring above the 20 handle, that fear index. if we take a look at a chart of the s&p 500 futures, around 4:00 they were positive. not a lot, but slightly. the s&p 500 futures?


info Stream Only

Uploaded by TV Archive on