With losses on the s p, not to the russell 2000. In the last halfhour come a little bit of a recovery in the major indexes. The story overall is one what we are still looking for direction. Romaine a lot of the small caps are starting to catch up. Scarlet lets dive deeper into the market action. Abigail i have got volatility on my mind. The skew index that we have been looking at recently up a fourth day in a row. Surge going all the way back to january. Here is why it matters. In white is the skew index. In blue, the s p 500. In yellow, the vix. , near alltime highs, at alltime highs last that investors concerned it was a corrective nature. Thevix had caught up to skew index. Point the s p 500 near alltime highs. The skew index going sharply higher. Over time, this may be something to think about, some sort of corrective action. Probably at some point later in 2020. There was a time lag when this appened last time. Luke talk about why the skew has been a little high. Equities are really jumping, making a comeback. They are at their lowest levels since may less than a month ago and they have surged recently. Toand this week relative upside calls. The yellow line, the implied correlation really made a jump up. A macro market where everything can indeed move together. If you think about the catalyst clarity as to whether they will be tariffs. Flagged Credit Suisse something that bears watching. Implied correlations within sectors rising the most is health care. She said, look out for next weeks democratic debate. Taylor the Consumer Discretionary sector ears have been changing your today. Strategists are pointing out something, making them a little nervous about the sector. This is a ratio, the Consumer Discretionary relative to the s p 500. In bank, the s p 500. Morgan stanley strategists saying it is underwhelming given this is an early cycle sector. They are thinking this is a sign that the Consumer Spending is about to slow. Joe romaine thanks to everyone on the markets team. Still with us, george from investment group, macro strategist. And, bloomberg across asset reporter sarah ponczek. Going on here. In, andwanted to jump joe is rolling his own chair over to the set. Andnted to touch on the vix volatility in general, what kind of read we can take the possibility sarah it is uncommon that you see the vix and the s p 500 move in the same direction. They move in opposite directions about 80 of the time. Rising, you may be actually and for some volatility. I think what it is telling us is that you do have this event coming up on sunday that really could make or break a lot of different asset classes. You think about stocks year to date, bonds your today. Much of that is predicated on a fed on the sidelines, decent economic growth, a trade deal getting done. Heading into this, yes, we see the vix rising, because people feel they should be hedging potentially. Get yourge, i want to take on positioning. It is ticked up a little bit but still fairly low, volatility seems mild. Our people all in on this rally . They totally believe it . Or do you see some lingering skepticism out there about risky assets . George i think the two data points would be if you look at retail positioning and volatility products. Retail is excessively long, and has been for a long time. Exchangeaders using traded notes and Exchange Traded funds are very exposed to the vix rising as opposed to falling. You will see them use that as an argument that there is a large speculators at against volatility, that it would hurt speculators. Thee speculators are taking other side of retail. It is kind of a pick your poison. In our view, that retail positioning is really what you want to look at. Traders are overwhelmingly long, and that suggests that positioning is not offsides on the market rally. Massive outflows on a rolling 52 week basis or rolling three month basis from equity funds. We have not seen large inflows into the types of products you to participatel in the rally. Everyone is in the market come everyone is fat and happy, enjoying this rise in equity prices, that is not how we are seeing it at all. Does not mean we cant have a sellout, it just means to us that the stock market is not over owned by Retail Investors. Gamestop crossing the wire, shares plunging after hours. Company comp sales down, the estimate was for down 14 . Adjusted loss, . 49 per share. Scarlet doubledigit decline for gamestop. One story that caught my attention this morning is that basically watch bonds. If bond yields move, that is where you want to follow the bond proxies. More than anything, that is what investors are taking their cue from. As we try to parse out what the rotation looks like, you dont really have to go into equities, you just look at what bonds are doing. I have heard that over the past few months. The driver behind this was the reese deepening of the yield curve. Yes, you can come in, maybe look at the bond market. At the same time, if you want to get the equity trade right, you have to get the bond trade right. They will continue to be steeper or we will continue to see a reflattening defending depending on what happens with growth and the fed. I do want to pick up on a point that george pointed out, the amount of Retail Investors on the sidelines. I have been looking through all the 2020 outlooks. 3950 on the s p 500. Gain. Ould be another 25 julian emmanuel. Romaine he is always pretty bullish. He is right kind of in the middle for his actual base case. 3950 upsideor that target is zero Commission Trading, you could see that potentially as incentive for retail traders to fall in love with the market. They are likely not going to go into bond funds. Was kind ofian pounding the bullish drama earlier in the year. He said, dont worry, the market will continue to find its way higher. Scarlet Commission Trading as well. Romaine thanks, charles schwab. Scarlet george, thank you very much. Bloomberg news cross at set reporter cross asset reporter sarah ponczek, think u. S. Will. Next, we head to washington whereas House Democrats are unveiling articles of impeachment against donald trump. This is bloomberg. From. E live bloombergs World Headquarters in new york. 500,ow, nasdaq, and s p little change on the day. Unveiled twoocrats articles of impeachment against President Trump. Titanium comes at a cost. My retailers are pushing back against apple card fees. Jay powell and the fomc expected to leave Interest Rates unchanged tomorrow. Why one person thinks an unchanged policy is absurd. Scarlet lets look ahead to tomorrows fed decision. Here with us is the chairman and chief Investment Officer at cumberland advisors. Great to see you. David it is nice to be here and see friends. We are all friends. Scarlet what is the message jay powell wants to deliver . Does he want this to be the most boring press conference as possible . David i hope so. For his sake and for all the tweets that will come blistering out no matter what he says. I think there will be a little message in the dot plot if it suggests Interest Rates goes up in the future. You will have a former feddy on soon. Romaine things for promoting that. David that is a good question, do you expect the dot plots to reveal anything we would not expect . Otherwise, there is no reason for them to have a meeting. Romaine a lot of the action we see in the market comes when jay powell starts to speak. I year ago, there was criticism about how he was communicating commuteriticism getting the feds strategy toward the market. David i think he is doing a good job. Byis hammered all the time the white house, by trump. Andwhile, he lets it roll he does not get into contact. The repoconcern about rate spike. Gsib is concern about the scoring of the big banks. There are issues. Whether those issues get addressed tomorrow, and we shall see. It would be better if the fed could message calm and said, we ,now there is a problem in repo we will not let september happen again. That would be a message markets would like. Joe lets talk about the other huge story moving markets, and that is trade. David trade is a four letter word now. Fair enough, and i agree. Do you think we will get something that is a deal . I dont mean comprehensive meaningful, anything that changes the relationship meaningfully, but are the demands on trump to do something that does not disturb the market into an Election Year . David i dont expect a deal. If we get it, i dont see much in it. He likes the tariff revenue. He likes to say the chinese are paying it. We know they are not. It is being collected by american companies, being remitted to the treasury, and the amount is about one fourth of the total interest bill of the United States on its role in, growing debt. Trump does not want to give up the money. He says it in his comments. 15 is good December Political sense. Expectations. Ny in a verywe are contentious longterm relationship with china for an entire generation. A phase onethere is deal any trump set up as a successful trade deal, in the whats next category, what is important . What can investors anticipate . David we are getting a positive thing. The final conclusion of the mexicocanadau. S. Scarlet although there is some dispute between the white house and senate right now. David yes, but it looks like it will glue together and have in this instance, nothing happens until it finally happens. The world is, in my opinion, moving to regional zones. Ae European Union really was been zoned for it was anything else. I dont know what you would describe south america, central america, the caribbean now except disarray. If you look in asia, you see zones. That is the new structure, i think. At least one, which is the most important one to us, canada, the u. S. , and mexico, are coming together now. Romaine that is all well and china, given the size of their population, the group in their middle class, that the u. S. Should in some way be a part of that . And yet we are creating a trait structure where our relationship with china will be strained to put it mildly. David i devoted much of my adult life to structures that sponsored interdependence, trade, dialogue, depression of belligerency. That is all being displaced with isolationism, protectionism both in barriers and money. It is a painful evolution to watch. I dont see how it changes. Isolationism, the growing tension between the u. S. And china, meanwhile stocks have just gone up. Is there a point where the rubber hits the road where you feel you need to take risk off the table, or do you feel this is kind of an abstraction . David one thing about being a money manager, you dont make the policy, you have to play in the policy that is handed to you. We have had a wonderful year and we are worried because we are professional worriers. Where could this market go . It could go higher. What are the alternatives . That is always the question. Quantitative strategy sold in the middle of november and it is completely in cash. Our structure in our other strategies favors health care overweight because it is domestic u. S. It favors a little bit of the energy sector. Where it ends, i dont know . It is a bewildering time. Scarlet be sure to tune into our special coverage has the fed decides as well as chairman powells latest remarks at 2 00 p. M. Eastern time. We have breaking news out of chevron. Chevron says they will cut funding to various gas related opportunities. It is evaluating opportunities. It sees an aftertax impairment to 11of 10 billion billion in the fourth quarter. It is going to cut funding for various gas related opportunities. This is all in its exploratory budget for 2020. This is bloomberg. Will bes Holiday Season butfirst for the apple card it will have retailers feeling anything but cheery. Premium plastic levees higher fees than traditional credit cards on each swipe or tap and it is the merchants left in. Lets welcome it finance reporter michelle davis. So if i go and buy something with an apple card, the merchant pays more. Michelle they could pay . 50 more than a traditional transaction. We deal with credit cards every day. It is part of the consumer experience, the fact that we are getting extra points, somebody has to for that. It turns out the merchants are in for that merchants dont like when you card but it is wellknown that for some of these cards, it is actually more expensive than it is for them on a typical credit card. Scarlet some of these merchants are pushing back and saying they dont want to accept some of these cards. The visa and Mastercard Network set the rules and say, if you are going to accept visa cards, you have to accept all the tears. Some opting back, saying that is not fair because we are shouldering the cost of all these rewards. Say thatoger last year they were not going to allow visa cards at their stores. They ended up coming to some agreement with the network. It of ahink about Grocery Stores are some of the lowest profit margin businesses. We saw data that shows that the average profit margin for a Grocery Store is 3 . 1. 75, that is half the profit. Somene it seems like, at point, could we see consumers start having to shoulder part of that 1. 75 . Some of these cards already have pretty high annual fees. Michelle the annual fees dont have anything to do with the interchange fees. That is something you pay the bank so they give you the reward. Banks love when you use rewards cards because every time you swipe, they collect this high interchange feet. If this huge lawsuit ends up in the retailers favor, that means they could have more say over which cards they accept. It also could mean, in the next administration, they could put caps on interchange. Joe it could also be an antitrust issue. Visa and mastercard, then who . Romaine discover, american express. Joe it is a pretty concentrated market. One could imagine in theory using that approach to crack down on some of these practices. Michelle it is something that visa and mastercard have been called out on before by banks and retailers. Scarlet does apple have anything to do with this or not . Michelle well, in the sense that they issued it on one of the elite premier tiers. Scarlet after this, their hands are tied as well. Michelle the reason they can justify the higher interchanges because they say that people use these luxury rewards cards and spend more. Romaine we will have to leave it there. Our thanks to bloombergs shall davis. Coming up, the u. S. Mta getting the goahead from congress but still facing hurdles in the senate. We had to washington to talk about that next. This is bloomberg. Mark im Mark Crumpton with bloombergs first word news. In jersey city, new jersey, a Police Officer and multiple other people have been killed in a shooting. Several others were wounded. Police say two men fired from inside a building. Sporadic heavy gunfire rang out over the course of at least one hour. Swat teams, state police, and federal agents responded to the scene. Police blocked off the area in new jerseys second largest city. Authorities do not believe it was an act of terror. Secretary of state mike pompeo said today that any foreign interference in american elections is in his words on acceptable. He warned russia and others that the Trump Administration will protect the integrity of the vote. Secretary pompeo made his comments during a joint press conference with the visiting Russian Foreign minister at the state department before meeting with President Trump at the white house. Of interference in the 2016 president ial election were repeated. He said the conclusion by the u. S. Intelligence community was baseless. His visit to washington was the first since may 2017 that was overshadowed by the introduction of ukraine related impeachment articles by the house and President Trumps complaints about an internal Justice Department watchdogs finding that the fbi was justified in opening an investigation at the 2016between mr. Trumps president ial campaign and russia. Senate Majority Leader Mitch Mcconnell says the chamber will not finish the new u. S. , mexico, canada trade agreement this year. The senate will take it up after impeachment proceedings are finished. Asalso said the deal is not good as he hoped it would be. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Im Mark Crumpton. This is bloomberg. Romaine a remarkable day on capitol hill today. House democrats announcing articles of impeachment against president donald trump. Barely one hour later, they reached an agreement with the white house on one of the president s key legislative priorities. That is the new usmca trade deal. The House Committee on the jaziri introducing two articles of impeachment, charging the president of the United States, donald j. Trump, with committing high crimes and misdemeanors. This is a day we have all been working to and working for on the path to yes, there is no question of course that this trade agreement is much better than nafta. Now withjoining us more analysis from washington, isaac, director of policy research over at Compass Point research and trading. Lets start with his general idea that you have an impeachment process getting ready to move into the more formal stages. At the same time, you still have a congress that needs to work with the white house to get major legislation passed. Including the usmca and budget. How do these things coexist . Good afternoon. I am not sure what i normal day in d. C. Is anymore, but i can tell you today was uniquely abnormal. The juxtaposition of an announcement regarding the usmca right alongside articles of impeachment made today a different one in our course of governing. Beeneality is we have careening to both of those outcomes for weeks. With ands to only work deadline. The end of the year is the deadline that catalyzed action on both of those. First, the usmca. My view has been and remains that moderate centrist House Democrats, roughly the 30 or so who are in congressional districts that the president won in 2016, were going to demand movement on usmca because they want something to take home to their districts beyond the impeachment vote, which we are going to have pride the end of the year. Joe are those really usmca voters . Isaac look. I think part of the reason those 30 or so got into office in 2016 was health care. I think that was one of the driving forces. I think when we look at the legislative accomplishment of the year, this is one of the only things you can take back. Congress has not produced much. I think they wanted to bring back this one accomplishment to say be governed on this issue and we also did our best in oversight of the president via this impeachment. Scarlet a lot of people say the usmca contains a lot of provisions that democrats had always been pushing for. Is that why perhaps Mitch Mcconnell sounds a little less enthusiastic about passage of the usmca by the end of this year . Saying that he does not see it happening and perhaps it is not as good as he hoped. For my reading too much into that . Isaac look. I think a fair amount of this is lipservice and procedural. There are going to be republican senators who say they did not get everything they wanted. Part of that is just the reality. A true compromise should leave everyone somewhat unhappy. The way to describe this to my clients is this is not a wholesale revision of nafta. This is really just tweaks and a modernization that was necessary given the changes in our economies over the past decades. This is really a marginal shift. It is not a seismic shift. Toaine isaac, we still have deal with obviously the u. S. China trade relationship. Obviously, some of the finer points of that going to the trade representeds office and the white house but presumably congress could interject itself in that. Assuming thee negotiators strike some sort of a phase i deal, we can see that disrupted it anyway by what is going on in congress . Is noti think congress in many ways going to sidelined itself shortly into the new year. In terms of process, the way i think this is going to go down is the house will impeach the president around christmas. We will have the trial in the senate. I think it will be a relatively quick trial. I think the senators want to do just enough so the centrist republicans can say they did their duty and end it. You will see a few of those Democratic Senators when he for president want to make sure this is as quick as possible so they can get back to New Hampshire and iowa. I think that will be quick. The usmca will be passed before valentines day of next year. As for how congress impacts china, they did the one thing that could have materially impacted the conversation, which the hong kong legislation earlier this year. Chinas relatively benign response leads me to believe we are going to have a phase i deal. What i tell my clients is this phase i deal should be viewed as nothing more than a do tot. This is a timeout in a much broader battle. Joe do you expect when that will result in an acquittal having any bearing on the election . Some polls show maybe trumps approval has picked up a bit but others saying not so much. By the time next november rolls around, will that be ancient history . Isaac we are 11 months away so if anyone tells you with confidence they know what will happen, they are not telling the truth. My view is it will hurt some of those 30 democrats in swing states. As for the rest of it, i think ultimately this election is going to be determined by the economy. Joe great stuff. Really appreciate your perspective, isaac. Feds up, rethinking the policy framework. We will be speaking with the former minneapolis fed president , next. This is uber. This is bloomberg. Romaine time now for a look at what stories are trending across the bloomberg universe. Terminal users are reading about blackrock, which is pouring cold water on equity bulls, saying this years doubledigit returns will be tough to match in 2020 as Central Banks pause monetary easing. The worlds biggest asset manager is joining investors and analysts believe sticking with risk assets into 2020, the games will be far more limited. Bloomberg. Com has a story on a dam that has plunged to its lowest levels, raising for the plant. F a power water levels at the Worlds Largest freshwater reservoir is down to 10 of usable source, which is worse than the 11 storage level recorded during a drought in 2016. Russia has been banned from hosting olympic and world cup events for the next four years. The World Antidoping Agency Committee Voted Unanimously on the Ban Following the doping scandal doing between 14 so during thepics sochi olympics. You can follow these on quicktake by bloomberg. Joe the Federal Reserve has spent 2019 reviewing these strategies, tools, and Communications Practices they used to pursue its mandate of maximum employment and price stability. The review is not over yet, but when economist is not expecting any big changes in how the central bank carries out its business. Former president of the minneapolis fed joins us. We do not know what the results are going to be, but you are skeptical there will be anything major. Some people talk about the need for more tools for the fed. But on the other hand, currently , we have examples of the fed raising rates prematurely, such as the rate hikes that had to be reversed this year. Within the existing approach that the fed takes, is there something the fed could do better to avoid mistakes such as the ones that it made . That is a good question. Thanks a lot for having me on. Yes, i think that throughout the and even into last fed is think the motivated by trying to normalize Interest Rates. That has been the third mandate, as it were. I think that desire to normalize Interest Rates, normalize policy, it lies at the heart of the temper tantrum, the decision to raise rates in the end of 2015, even though inflation remains low, and it really is responsible for a lot of the outcomes we have seen where unemployment remained high for as long as it did and inflation remains above target. If the fed can get away from thinking that we really want Interest Rates to be normal, i think that would be very helpful. Scarlet ok. In this obsession to normalize Interest Rate and Monetary Policy, does that mean the fed is correct in swimming off the idea of negative Interest Rates . President trump brought it up several times. He looks at it through the prism of a Real Estate Developer where he is a good credit risk and therefore he deserves lower Interest Rates so the nation is a good credit risk so it deserves lower Interest Rates. Should the fed say we will not touch that . Narayana you know, i think that is another great question. I think i brought up negative Interest Rates before President Trump. So i will sign on myself as being somebody who you do not want to be in a position where you have to use negative Interest Rates, to be clear. But given the outcomes we have seen of unemployment being above 5 for eight years, inflation remaining below target, the fed should be willing to keep all the tools in its toolkit that it can. Negative rates is certainly one that i would want to see them not swear off right now. The other thing for my saying that is i believe that if we have unemployment at 8 to 10 and we have Interest Rates at zero and we have already bought a lot of assets, the fed is going to explore negative Interest Rates at that time. I think trying to swear them off at this point is a mistake. Romaine even if they do not necessarily swear off of it, the concern is you happen inflation target that has not been met. You have experiments with negative rates in europe where they still have inflation targets that have not been met. What do negative rates actually achieve, what is effectively their mandate . There is i think that a couple ways to talk about this. One is that i think in a lot of places you see negative rates in inthey are being used a lukewarm kind of way. Were to use negative rates, you want to be sure not to treat them as an emergence tool of some kind. That is why i think it is dangerous for the fed to make statements at the last minute to say we all agree we dont want to use negative rates. That means whenever you go around to using them, you are sending a strong signal that we think the economy is truly broken. That is why we are turning to this tool. You want to avoid that as much as possible. The other thing i want to say is i would explore ways to go very deeply negative with Interest Rates. The economist miles kimball, who is in the university of colorado, has known a lot of ideas along these lines over the last seven or eight years about how you may be able to go more deeper negative than europe or japan has been able to do. I think being able to go more deeply negative would definitely provide more stimulus than we have seen in those locations. Joe what about yield curve control . The fed right now basically operates by sending various shortterm policy rates. What if it said we will set the tenure rate . We will set the tenure rate 10 year rate until x happens. Do you think that is more possible that perhaps what they are trying to japan . Narayana i would absolutely be on board in terms of exploring that. For me, the big picture is this. I think the fed goes into this review thinking we have done a pretty good job. We might need a little to coming around the edges. With aapproached it perspective that Monetary Policy has delivered terrible outcomes for the u. S. Over the last takee or so, and once you that in perspective, many things have to be on the table, including negative Interest Rates, including yield curve control, and something that was taken off the table right from the start, which is raising the inflation target. All these things i believe if you take the perspective that we really did not do very well over the past decade, once you take that perspective, all these things should be on the table. Scarlet maybe using more flexible creative approach than what we have had in the past. Thank you so much for joining us. Watch, dontto miss, the special the fed decides tomorrow. Romaine arent you the host of this . Scarlet i am. One of them romaine i will be watching. Scarlet lets move to brexit because brexit is the central theme of elections on thursday. We know Boris Johnson thrives on running for election. Actually movie that came out in 2003 that i did not see because my son was born around that time was very popular and inspired Boris Johnson this campaigning season. Look at this. I know you saw this movie, right, joe . Joe yes, but i dont we member it. Scarlet appreciate it. Romaine this is the Keira Knightley character. Boris johnson is reenacting when this guy showed up at her door to proclaim his love. He is proclaiming his love for brexit or something. Im not sure what is going on. Is this going to be a new tactic for politicians . Are we going to see Trump Holding a boombox over his head like john cusick . Am i dating myself . Joe i like that. Scarlet no. Im right there with you. Romaine most of our viewers are over 30, but joe i like that. Romaine do not steal that, donald trump. Scarlet we have a lot more coming up. This is bloomberg. Romaine now to asia ahead. Hong kong police found two homemade bombs at a school. They dismantled the explosive devices on monday evening. Citys bomb disposal officer said the explosives were fully functional and appeared to be intended to kill and maim people. Lets bring in shery ahn with the story. What do we know about this . We heard before of some sort of improvised bombs being planted around some of the areas. Shery yes, back in october. That exploded near a police car. There were no people injured. This time around, a cleaner found the explosive devices. Apparently, they were ready, functional, and could be controlled by a mobile device by a mobile phone. Schools puts students at risk, their parents at risk, but still not budging when it comes to the demands the protesters have put forth. Take a listen to what she said. If a particular demand requires us to deviate from the law, not to uphold the rule of law in hong kong, or to do things beyond the powers of the chief executive, i could not agree simply for the purpose of meeting peoples aspirations. Shery basically not budging. She has withdrawn the extradition bill. She is not willing to do anything else. Scarlet the homemade bombs thely show how the anger at government is very entrenched and will not go away anytime soon. That is what we are seeing on the ground in hong kong. On the ground in mainland china, you have this group of young women who are fully in support of china. Very nationalistic and driving and pushing china and defending china online. Shery nicknamed the fan girls because of the passion to defending china. Warriors getting out there and trying to defend their country. What i find key in this story about this group is not just that they are massive in numbers, but also that they are not being sourced by the beijing government to do this. They do it out of their own will. Scarlet fervent nationalism from more than a couple people in china. Thank you. For more on these kind of stories, dont miss daybreak australia. Coming up, you will want to tune into our special report the fed decides beginning to 00 p. M. Eastern time. Joe i will watch the eu expecting to announce something. Romaine more earnings tomorrow. Lululemon. That is all for whatd you miss . Scarlet have a good night. Joe this is bloomberg. Here, it all starts with a simple. Hello hi how can i help . A data plan for everyone. Everyone . Everyone. Lets send to everyone wifi up there . Uhh. Sure, why not . Howd he get out . a camera might figure it out. That was easy glad i could help. At xfinity, were here to make life simple. Easy. Awesome. So come ask, shop, discover at your local xfinity store today. Taylor im taylor riggs in San Francisco for emily chang, and this is bloomberg technology. Coming up in the next hour, check out performs. They shrug off the december 15 deadline for the tariff between u. S. And china. We will hear why. Plus, insight on inequality an unusual move
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