Wall street is set to join that Global Equity selloff at the open plus, th juan falling to a more than ten year low versus the dollar China Central bank denying it is devaluing its currency shares of apple, theyre down, like everything else, or more, ahead of the opening bell. Which trumps tariff threats could mean for that technology giant. And potentially for the costs of the iphone we start, though, with the Broader Market stocks under pressure around the globe as u. S. China trade tensions escalate. Chinas yuan, which has now breached the 7 level for First Time Since 2008 is certainly a focus this morning in response to that move, the president tweeted this morning, quote, china trdropped the pric of their currency, called currency manipulation, are you listening Federal Reserve, this is a major violation which will greatly weaken china over time so, jim, were back in the concerns about china, of course, this following the decision last week by the president to put 10 tariffs on the 300 billion in imports from that company starting september 1st you know, we went from june and it seemed like the focus was on the fed. And we got the rate cut and now the focus is back on trade right last week, i thought that the president was going to raise the tariff it felt like it from his yes get a sense sometimes. Force of one action, look at the article today, who is really driving this thing both advised the president not to and navarro saying do it and he did it. Larry is king dollar. Right larry kudlow. And what i think is going to happen is theyre going to go to 25. You do . I do. Here is the plan as i understand it, want to take all the tariffs up and then they can cut them. Thats they dont want to be in a situation where they have to keep raising and raising. They want to get to where they are and then hold out, look. Were going to keep these tariffs up, American Companies are going to continue to leave china. You can do whatever you want with your currency, big capital outflows it is amazing the market isnt down more. Why would you think it would be down more there are a lot of people who feel that once you get into a currency war, there is going to be lots of different repercussions. I dont think thats the case. I dont want the u. S. To beat the value of the dollar. That would be a bad signal to europe i think that im focused on hong kong now there is a great deal of unrest there that continues. What happens . Yeah. Should we not be more concerned about hong kong . Given the fact that it just doesnt seem to stop taiwan, were ratcheting up the pressure on china with taiwan. Were ratcheting up the pressure i think the pla has been in charge of china the whole way. Things with china are worse than they have been, fair to say . Were going back to when we had pingpong diplomacy. Even a back and forth today about did they or didnt they pull back on promises in terms of buying agricultural products, some stories saying that they did, in fact, but they come out that that is the Chinese Government said no, were sort of were doing exactly what we said we would president obviously differs with that as well did switch their soybean buys to brazil, which is why a lot of our our seed companies, our anything involving ag what is interesting is that, you know, we had a decent earnings season. We had a focus on the fed cut, which came, and we have an economy that we all know is, what, 70 driven by the consumer which remains strong as ive been reporting for some time, and you and i both know, we talked to plenty of ceos, in terms of making decisions about how to allocate capital, you may pull back. Thats going on for a while. Yes because of the concern about trade or the uncertainty, there it is again, that word, about how the world is going to look or what exactly the return is going to be and how you want to use capital if you or can you if you dont know what the tariffs are going to look like or what the Playing Field is going to look like but that hasnt changed. No. And you look at lets take cocacola. James quincy, fantastic, right the company is not really all that exposed to china, worldwide company, it is going to be yielding, geez, twice what you can get for say, seven some of these companies with yields are of and with currency, they dont care. Those yields, jim, now with 17 on the tenyear. You squcout for 3. 5 . Who had the best of the telcos verizon. You had great coverage. I finished, the place to go. The place to go, 5 yield. It is rock solid not about china. No. Rock solid. Not a bit at t, see that, when people say the market is over, the market does not apply to one of the Largest Companies in america. So watch verizon if that gets oversold, thats terrific opportunity it is not a fossil fuel. I went through the utilities i like dominion, it yields five. They are doing a very difficult transaction, very difficult takeover but i regard i go over all these stocks that have good yield that have good Balance Sheets and i want to buy them, david, if theyre domestic if they are domestic. I also think that at t was the second best. I thought at t 6 s p yiel 6 yield. They have no granularity about stocks the s p is awful look at the s p there are individual stocks. It is made before there was a basket of stocks and 1984, used to pick stocks right and at t is all about showing us and telling us how they have no trouble making that dividend cash flow generating, will not be just to pay down their enormous debt load, but plenty left to continue to pay the dividend. No growth, verizon has decent growth. 1 is not exactly amazing Earnings Growth is better. Top line growth at these companies is hard to come by. I like the merger with tmobile and sprint, will make us more competitive. But i know sprint more us by who us the u. S. . Got it. The president has an antichina 5g policy. Yes, he does. Theyre trying hard to disable it and you need european orders to ericsson and nokia because those companies arent doing that well. Ill bring that up and huawei continues to be sort of a by the way, they had incredibly strong sales in their home country of china in terms of hand sets, patriotism that may have helped, but market share went up dramatically, huawei were talking about. At the same time, it is unclear what you can and cant do as a u. S. Company because that has been lumped into the overall relationship or tensions between the two companies, but into the trade talks itself even though it is separate im glad you mentioned many semiconductors felt they were doing the right thing and sold huawei, provided it was hand set and not infra watch xi lilinxxilinx they may be under the gun into what they can sell into china. Im looking at the list qualcomm is at the top micron, broadcom, texas instruments. Apple, you know who is the big winner who Samsung Samsung is a huge winner because apple raises prices on hand sets samsung can keep the price the same because theyre not affected at all by the tariff. It is an unintended consequence that the white house was unaware had they did this. It is always worth pointing out that while supply chains have changed, it is not as though there is a rebirth of manufacturing back in our country. No. It is not as though people are moving supply chains or companies are moving them back here, theyre finding other countries from which to import the white house is as lets say happy with a any company that leaves, even if it is to vietnam. Theyre happy with that. Yes they rather that than vietnam gets logistics together it is going to take a little while. There is plenty they got to do before they can in any way meet the population alone is not nowhere near what what is amazing is i remember the days when we mined the high fung harbor. I wish benefit of wisdom in age, having lived through the war, with the draft number, 364, i can tell you that we are undoing eight years of what we did isnt it kind of crazy . Im starting to read a book about holbrooke, you know, richard holbrooke, starts in 1962 with the first assignment in South Vietnam operation rolling thunder. Became a Global Economy and markets out there. Lets get to negative yields for a second thats also extraordinary. You and i every so often sit here and scratch our heads and it is. 41 on the bund in germany. The entire bund yield curve is at or below zero. Why doesnt but because of buy mar, there was a deflationary wave, there was deflationary wave youre giving your money for ten years, getting back 95 cents on the dollar. Why dont they borrow 500 billion euros and put people to work why dont they what is the matter with they dont like you can get your head around that why would you do that . Why would any institution give them their money for ten years because the charters. Get back 95 . Charters all over the place say you must buy bunds that makes our ten year look like the greatest thing ever. It is it is. At a tremendous bargain. Im surprised the chinese dont start buying it. They would be the height of irony. When do we go against Chinese Companies raising capital now that they created that bogus exchange there is a you dont need any information. No public financials in that last wave. I dont know what youre talking about. Exchange in china you dont need to cant get any Public Information about a company. Thats just a great opportunity. All right theyre playing the music. Were going to be talking a lot more about what is this global selloff what we can expect this morning when we start trading. That is about 19 minutes from now. You can take a look at where the futures are pointing us, which is far lower a lot more squawk on the street for you, live from post mi rhtacthe nyse and were congigcreating the future. Nariee so, every day, we put our latest technology and unrivaled network to work. 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The card is being issued by Goldman Sachs and will use the mastercard Payment Network users will receive a physical card, but apple and goldman are hoping to store Payment Information in iphones and make purchases without having the card with you. Physically just be on your phone. Right look, there is a very easy tally of what youre getting back, i think that a lot of people feel there is a big discount. It is just so easy it was kind of a natural where was this all the time . Bo goldman bearing a risk great thing for apple if goldman bears the risk. The credit risk. Goldman feels that they have a very good system of finding the people who are going to be able to pay it back. It is algorithmic. In china, it is almost all algorithmic. There are banks with 80 people goldman feels they got it down i feel there is going to be too much demand and it is going to tax goldman. You do . Thats one reason why i think goldman stock fell faster than it is one of the most visible or going to be one of most visible reminders of the changes that are taking place at Goldman Sachs. Not as though it is no longer an institutional firm, it is. There is a lot of retail activity so to speak going on at that im glad you mentioned it institutional is probably not as strong as this broad mosaic. What does goldman want recurring revenue. Recurring revenue. Lifetime value of a credit card issuer now, apple is not thinking that way. No matter what you do, apple is not thinking about lifetime value. I do not know why that is. I have a Company Called live person on tonight. It is very much of a focus when youre a credit card company, youll youre trying to figure out is how much are you willing to lose to get a customer. I think goldman bets that apple will make it so they do not have to have the big advertising you might have if you had capital one. And thats a real god send so i think that it could be a win for everybody. I want to see whether there is too much demand and goldman is ready. Apple shares will be down today. No one wants to touch it. The media is so negative and frankly, there is an adjustment, apple does have to apple is hurt by this. Well, 10 tariffs will mean the iphone is included it is going to 25 you believe that. Yes. Soon . If there isnt something this was not what President Trump wanted this morning was to devalue. They knew on friday and totally expected on friday they knew it would happen theyre not theyre more perceptive than people realize we had a guest on this morning, smart gentleman saying long game china. Give me a break. Senator warren gets in there if trump loses. When we return, a moment of silence at the bigoa, brd remembering the victims of recent gun violence. N. Carrying up to 50 times its body weight. It never questions the tasks at hand. 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Were live from the Financial Capital of the world well have an opening bell six minutes from now well take you right to it we got a little time, of course, before we get there. The by the way, markets down this morning if youre just tuning in. This on continued tensions, in fact, increased tensions between our country and china. Certainly i guess that would be number one on the list, jim. Right. What is the key, though, as i like to ask you on these kinds of days, to this market. Sure. There is absolutely an excellent piece by Deutsche Bank about why target should go up. Actually mentions, look, minimal for tariffs, do not fret the tariffs. In it talks about how they really have gotten their act together, a lot of small form. I visited a beautiful one recently all the way up flat bush, the new the new template for urban, first one. One in manhattan as well. Yes, they embraced urban. They have five different store formats. Yield is 3 and change. Brian cornell, excellent job if that bottoms, and it is right now looking as much down as anything, if that bottoms, thats the key to you may actually have to start buying today, which nobody thinks. I already noted something from you, which is that you mentioned yield, any number of times today, which i would expect given that we have a tenyear yield of below 1. 8 youre noting all the Different Company stocks that yield well above that many double that. I was looking at ppl the other day, that used to be my utility. I liked dominion energy, 4. 83, with a very good Balance Sheet tom farrell at the helm, ive been recommending American Electric power, i got to cool it, it went from 4 to 3. In yield went from 4 to 3. Very quickly. I like the yielders, and thatter have verizon is so tempting. Thats something recommended for people to own because of the yield and the fact that the dividend is seen as secure and thats not a new thing. If you see me on the street and say, how you doing yeah, how are you doing and they say give me a stock. I always say, verizon. They know when i see that person again, it is going to be fine. Theyre not going to say you told me on the street, when you told me that adobe, i love adobe, but im not giving anybody adobe a guy comes up to me and says can i have your picture . My daughter is there, take a picture. Then two other people come up and say can we take a picture. I say, sure. I put the arm around the guy they say, we dont want you in the picture, we want you to take the picture. My daughter is like, dad, youre horrendous, youre a horrendous person, dad. In terms of stocks watching this morning before the open, not a lot of earnings, but tyson is a company that did report and the stock is going to look higher 1. 47, they did, versus 1. 44. A lot of things are robust talking about the chicken season being terrific they sold their 6 of beyond david, when do we go beyond beyond i still see people just totally hooked on the beyond story and i think at a certain point we have to start thinking maybe there is more to the market than beyond like mcdonalds. Beyond has come down from a high of, what, the 220, 230s to secondary done at 160 160. Now, a lot of people who are short beyond are into me and my twitter feeds. Phony price, phony this, phony that what is phony . What is phony . They placed it with big institutions 3. 2 million. It didnt let up on the short at all. Is the stock too high at 11 billion . Look, yes, but, david, you have true believers. You do. True believers, like tesla. You did say, yes, it is too high and we have seen stories so many times in the past. Eventually, well, often, not always, not always, because there are times when people just misunderstand dont have an understanding of the true possibilities, i guess i can go back and remember whenever it was shorting amazon because, come on, it is market cap is more than all the books a bookseller they dont quite get it. Right and beyond has got so many things in its pipeline it is extraordinary. Look, i had beyond meat. I had it with tacos. I had the sausage. I like it. There is no accounting for taste. My wife spit it out. I think she was wrong. I think she should have given it a chance she didnt slather condiments on it i think beyond is here to stay maybe i think there will be a continued questioning of whether the Health Benefits are really there, whether it is just a statement about not eating meat in the sense of saving the planet. A dead cow situation. Right and cows are the enemy because they produce a lot of methane. Millennials hate cows. The cow is as sweet as can be. I do always think about giving up meat, but then i just dont do it. My daughter is a vegetarian, shes come back with a vengeance. There will be a beyond meat steak within the next six months. Steak steak put it on my grill and grill it up . I may be a little premature, but steak is coming, david. Really . Yes and when steak comes, i think people will start saying maybe ethan brown is a visionary he could be a visionary. What else is coming is the opening bell. The elon musk of burgers. When do you start to think about potentially buying some stocks on a day like today gold, people want to buy gold and barrett is the value stock if you insist on buying gold opening bell. Real Time Exchange back at our headquarters were going to have a lot of red on the board when we see how off 500 the s p components at the big board, amtd international, celebrating the ipo today. We should talk to them about what they see. At the nasdaq, horizon bank, serving indiana and michigan some people are buying the smaller bank stocks. Brian jordan has done a remarkable job, taken a lot of costs out. Is it a place to go . I see brian who is on the show recently would say yes 3. 5 yield i am fixated on yield when i see the ten year and i think if you dont think of the ten year as something to factor into, got to factor into it the collapse in yields is pretty extraordinary i mean, we were at before the fed move, 2. 07 thats not that long ago that was last week. Remember people were down remember 1. 77. Remember the discourse, this day, last week, it was the economy is so strong, can he really can he really cut with this kind of employment . Now we look now we have forgotten it did cut how about this how about jay powell had a sense he did the right thing and can do it again . How about i come and praise of jay powell and i came to bury him, for most of last year, now everybody thinks the guy is a lightweight. I think hes a heavy weight. You know the charts making the rounds now, the economy, tariffs, the economy weakens, fed cuts, economy strengthens, more triariffs, economy weakens. Remember what the president s view is, the president says you cant cut tariffs until you raise them until you implement them, of course he was hoping that i dont know what he was hoping, we go buy some cheerios. Come on. Theyre not buying cheerios. Theyre lowering the yuan. Now, david, 1. 5 say versus 10 tariff. In terms of the move in the will hurt wind, will hurt las vegas sands, which i always call macau saundnds. Wont hurt pinterest pinterest, good quarter you were not here on friday to celebrate the pinterest numbers. Pinterest is an interesting play at 30 look, remember, no one wants to hear about individual stocks, so transfixed im not transfixed im looking for opportunities because everything is being thrown away. Everything well, we got the s p down, little over 1. 5 the nasdaq down more than that, given it does feature some of the companies with the largest exposure to china. The autos are so bad. Were down less than europe most of the European Countries and were hit far harder pretty interesting isnt it just an underlying bid for u. S. And, again, i think it is because you have to reorient and start buying cocacolas because theyre just too juicy you get a 3 yield on a growth stock. I still wonder what you do if you are a ceo or a cfo now in terms of making your decisions, Capital Expenditures michael corbat, dollar below tangible book. Buy it back 8 , he will buy 8 , 65, with 3 yield holy cow he will buy 8 of the company back this year 8 , david. He says, when you see him, sell it to me sell it to me. I want it. It is additive people cant think like this theyre so transfixed on the averages, so scared. They dont know what to do david, we have seen august where there is such fright, and this is this should not be a moment were frightened. The next thing we do, the next thing, we take it to 25, right we have to get it to 10 first. It hasnt gotten to 10 cant add on 15 until step one look for step two. 24 hours later. We could say, listen, now it is october. If you believe that they are going to apply 25 to the absolutely. Based on your reporting. Yeah. Look, people dont think i do what am i supposed to do i know people for 40 years. Why would anybody want to buy stocks now thats not going to be seen as a positive there is a search that is not possible. Youre not benefiting as much the Mortgage Rates the mortgage bonds are not responding the same way as the ten year if youre going there to refinance, because ive gone through this recently it not as good as you might anticipate. How about this. Dr horton, starter homes, two points from its high, mortgage is the arms. The arms just reset lower. Did you ever think an arm could reset i have an arm like a fabulous deal now even more fabulous deal. I have a great arm Adjustable Rate Mortgage is what hes talking about. Ignore the sounds. The soupy sales thing. Im from philadelphia. Nobody knows what that is they think youre having a stroke no, im not. Dont do that. Lets talk about intel. Last week intel, stock went to 55, 56 on the news that they were selling their modem business, they reported a quarter. Thats another stock thats a stock that is really on the red hot griddle. Will yield three if it keeps going down im on a three yield hunt, the hunt for it is like hunt for red october. I have a feeling i know what is going to lead mad money tonight. Im feeling it already. Dont give it up. I didnt. Im just telling oh, my talking about giving it up, lets look at cars. Com. Thats suboptimal situation. Thats not good if youre just joining on us on that, you may this say company that was in the midst of a potentially selling itself, or had beenexploring strategic alternatives, interesting decision this morning by the company in which they say they conclude the Strategic Review process, focusing on their Strategic Plan many times youll get a one paragraph press release from a company. In this case, they basically give you something that reads like the background to the merger agreement and proxy they werent obligated to do that as you are in a filing along the likes of when you do a deal they give go through phase one. Phase two. Or should say stage one, stage two, and stage three in terms of explaining all the scenarios, giving full transparency the fact they did everything they could to explore and go down various roads and sign ndas and telling you heres what happened meanwhile, what happened was they didnt sell the company, and in fact they have now lowered their guidance, 148 million versus 160 million and the stock is just getting crushed. Not where you want to be right now. No. Look for many things to buy and thats probably not on the list, david. No. This was a starboard holding or is a starboard holding. Theyre very good semantic has not gone particularly well. Give it some time life lock, b to c, doing incredibly well. Life lock is a very good franchise. Stock is back to 20. Im a buyer. Im a buyer. Just this is where they bought a ton, if you remember. Who bought a ton . Starboard. Of what semantic. At this level yes im a buyer where theyre a buyer. Thats a very attractive situation. See, if you go case by case, there are interesting things if you say, down 470 on the dow, no by the way, the president doesnt want to see the dow down he regards the dow to being we talk about Algorithmic Trading or quantityively driven strategies and how much money is in them. And there are algorithms we cant necessarily fathom being written by guys who know nothing about the stock market, but got ph. D. S in physics or rocket science, literally, working up the street, a few blocks from here. I was taught by mnuchin, by coach mnuchin at goldman, who happens to be the father of secretary mnuchin. Yes and there are other ways to do it. Besides my point is, what are they seeing this morning, and what are the relationships theyre exploring. Theyre seeing commodities other than gold down, theyre seeing theyre looking at frankly the ten year and saying, stocks have to adjust to that and they have to go down and thats what theyre set like that theyre set like economy is weaker, so lets sell. Oil under 55, lets sell they dont think they just act. It is not been a great i think this is really a great opportunity to take a look at individual stocks. Look at individual stocks. Lets look at individual stocks were going to come back and do that lets get over to bob to look at some of the major movers this morning on the market. Bob . Happy monday, everybody not so happy monday. We see the markets here, Dow Jones Industrial average down 1. 8 want to review what is going on overseas we have a correction going on here hang seng, shanghai down 2. 8, 1. 6 theyre down 15 from their recent highs this is not recently, we hit their highs way back in april here nikkei, italy, germany, all down the whole world is down 1 to 2 here in the United States, obviously, semiconductors, extremely exposed to china there is your weakness right there. There is your mca, in china etf, energy is getting clobbered again as oil is down, even Domestic Energy companies down gold miners doing well, gold and gold miners, utilities, flattish, Consumer Staples, slightly down. Utilities more defensive stocks, generally doing a little bit better the big question now is this like may, is august going to be like the month of may that led to the month of june, things turned around. Lets review what happened in may. Trade talks broke down, sound familiar u. S. Hiked china tariffs 10 to 25 . China retaliated, putting tariffs of its own on. We had the huawei ban, some conflict with mexico as well a whole lot of nasty stuff happened what was the effect of all of this, more tariffs, the mark its were weak, s p down 6 in may. Crude down 16 the ten year yield dropped to 2. 1. What was that, some nostalgia, sound familiar this is all a pattern we saw in may. Remember what happened in early june, people started to believe that somehow some kind of deal or truce would be made at the g20 meeting and indeed markets rose in june and thats what happened on june 28th. There was a truce. And now that truce is kind of gone away. And now the question is what happens from here . We dont have a g20 meeting coming up and china letting its currency move like it did today, thats a sign they may be stealing themselves for a longer conflict the question is what can you go into what is safe for the markets for people to buy now. Look at some of this stuff Telecom Stocks, this was a safe play back in may these stocks, at ts, american, tower, they held up reasonably well maybe thats a safe area to go in how about healthcare that was another sector, if you look what happened in may, like the hospital stocks, for example, put that up there, you see some hospital names, tenet, hca, centene, united health, these held up reasonably well in may. Beyond that, beyond some utility stocks, it gets very, very difficult. So some people were arguing how about Domestic Energy stocks, how about some valero and refiners they got clobbered in may. All of the big Exploration Production companies, hess, pioneer, all domestic oriented, the Global Markets dr dropped, demand for oil dropped, the companies all went down. This is not just because theyre domestic, lets buy them didnt work in may thats for sure. How about other things there was arguments out there, lets buy Home Builders. The Home Builders dropped in may. It was down about 5 how about Aerospace Defense . Turned out that was that dropped too. Sold the overall market. People said lets buy some select areas of the Overall Technology area like cybersecurity, for example, Many Companies have most of the revenues in the United States. And they dropped as well so whats the point of all this . There are some areas of safety, some healthcare, some telecom, some utilities, but overall, the market is expensive right now. Even Consumer Staples that are considered to be defensive are very expensive so there is not a lot of places to hide when the market is this pricey, not a lot of stuff that is dramatically down 10 and still has complete domestic exposure i think thats what the market is telling us right now, that the choices for investors other than just pull back, rotate is a tougher game to play when the market is this expensive david, back to you. Bob, thank you. Bob pisani, covering that Broader Market listen, apple shares, jim, down 4 not yet. 4 . Not yet. No . Stock is about 5 , 6 lower than it was a year ago. Regarded as being smack in the middle now the next piece of news will be credit card. But it might not be enough to offset what is a genuine panic in the stock believing that apple is the one that is targeted now that last quarter not without good reason the price of an iphone is going to go up they manufacturer them, secondly you wonder about chinese response that is not necessarily proportional or that is right. Dollar for dollar kinds of tariffs. Tim cook is supposed to say, listen, were leaving china rapidly. Cant do that. No. He can do whatever he wants i dont want to put words in his mouth. There is a situation where we got theyre the one that is the most hurt. Is that going to be right . They have the highest Customer Satisfaction satisfaction extends, is it elastic or inelastic does that trump what whatever the level of interest in the phone. I dont know but you got some of the applerelated stocks just getting obliterated. Broadcom. Broadcom, a lot of exposure to china huawei. Remember, there are people within the white house that truly believe doesnt mean theyre selling that much, but the supply chain of various things that it is not just they sell this amount in china, we look at it but a lot of the revenues are connected to china. The one that if you want to get that granular, i dont mind getting that granular, star works is the worst do you decide, hey, barely down, do i sell it i think there will be Fund Managers who do that i think Fund Managers still are in sell mode particularly fossil fuels. Exxon and chevron were fine. Exxon doing a lot of good stuff in the permian no no but, david, i think if you lose hope here, all youre doing is taking the market down to where it was in europe were down as much as europe were star more hit than europe. Right. I think that the president is going to come out and what is his next move . Hes going to say i see the chinese moving i see them starting to move. Going to be do you know what the flashpoint is now . No. This is incredible. What . It is not industrials it is fentanyl. Fentanyl . Go back and read the president s statements on fentanyl. I remember. Thats important. Because when they met in buenos aires, she sa aires, xi said ill crack down on killer fentanyl it is easy to do because they already committed to it. The sign of good faith, i dont mean to dont get me wrong on this, 5,000 people were executed for white collar a few years ago. The sign would be a mass arrest and trial, really trials there, not really, to some degree kangaroo tools, peop trials, we fentanyl crackdown thats the sign you need for the fro president to say i see movement. Theyre not sitting there trying to poisonous the pla. You may see, well, pla is poisoning us, they love that i think it is an interesting m gamb gambit these are the signs im trying to give you. Theyre not what people think. Not necessarily related to the buying soybeans but important things that will get peoples attention in d. C. We talked about the move, of course, in fixed income this morning. It is an important one to Rick Santelli at the cme group in chicago for more. Rick good morning. Huge moves in sovereigns all over the globe and, of course, thats affecting all the credit spreads, which are starting to widen, something you want to Pay Attention to the big shouts from the pit are mostly underscored by volatility increases. Whether it is in treasuries, equities, as a reference by the vix. Now, lets look at some four day charts that start out on fed data 31st. Two year note yields, 161, now down ten basis points. And you see that starting on fed day, the volatility really started to pick up if you look at the same time period for ten year note yield, the move has been rather breathtaking and we are now sitting at the lowest yield levels should we close here right above 175 some october of 2016 you know, i was on just the other day, violation of 207s congested when we closed under 195. I thought it would be technically significant. 20 basis points in a couple of days lets look at bunds, we all know that world trade is a big part of what is going on at the epicenter of the increase volatility but what is continual to be pointed out is how all sovereigns, no matter what your underlying economys unique characteristics are, are all caught in this kind of cluster of downward pressure as you see bund yields for a while today look like they were going to test minus 55. They are now just on the negative side of 51 basis points and if we look at the dollar versus the yuan, which many say was the epicenter, the trigger, the catalyst of this, possible rising above that very significant 7 to 1 level, you can see on this chart it hasnt occurred since 2008. And finally, the aforementioned dollar index so many stories today about how hard it is to procure dollars, look at what dollars look at what some of these forward swaps look like. I get that but do keep in mind that we have started to lose a little ground. We are down almost now a half a cent this is the first kind of dent that showed up in the dollar index. You see it on the fourday chart. Even though its not far from some of the best levels its had in several years david and jim, back to you. Thank you, rick Rick Santelli, of course, running down so many of those important moves. Vix income markets verizon shares are up this morning. You noted that one i assume you will be noting more in terms of dividend yields . You dont want to you look at the yield i see where you can craft a basket of the good yields for people who are fixed income, who are looking for protection, and you come up with verizon 508, david you know what 508 is how much the market is down the day of october 1987. But can i point out, where the dow is now versus then, by ten. Yes, i remember that day well i was watching it on a tickertape. An actual thats what we still had where i was working. Yeah. Oh, man. Jim, as this day moves along, what are you going to be keeping an eye on to get a sense as to where sentiment is i think you have to look at the drug stocks. Drug stocks, we do not have they are being attacked by the democrats, okay . You look at a company like merck. You look at bristol, involved with the merger that i think is going to be very good. We have noted it many times is down this year over 12 given concerns about that deal. Oh, and i think that deal will be fine, but its delayed look at eli lilly. Dont look at pfizer because they didnt meet the numbers in terps mums of the companies h the best quarters, microsoft and alphabet those are ones to keep an eye on if you think there is a bottom i think some of those are down so much that it would not be wrong to pick. Really . Really. This is not union pacific, which is the railroad most levered at china trade, down ten points im talking about Companies Reporting outstanding quarters if people want to go by apple, down eight after a great quarters, you are waiting for someone to cut numbers, apple, off of china im taking down apple. You need to wait for downgrades for tack in order to feel confident. We did not have any downgrades today. I dont know why that is unless it really is Vacation Time where are the downgrades based on currents . Where are they and the answer is they havent cranked them up yet. You want to wait for the downgrades to do some buying. One name we dont often talk about, even though its a 500 billion cap company, it has an 88yearold ceo and 120 billion in cash. Brookshire hathaway. Brookshire hathaway the quarter was just, well, its always great. The quarter was fine. Stock has not done too much at this point i think the stake in bank of america has gone up again. He is not as sanguine about stocks i dont have a line to him there are many reasons to think that could be an opportunity you know, its funny. Any other company with an 88yearold ceo and 120 billion in cash and you might actually have activists show up and say whats going on here. Starboard. Can you imagine got to use it put it to work return it to us or put it to effective use. Whats your plan you know what stock has held up well and i didnt think it was that bad of a quarter . Ge its held up, yes. Although below ten but it has held up it is exposed to china and to boeing. Its got china all over the place. Sfwr yeah. I think people are getting i talked to big holders this weekend. Increasingly emboldened that culp has his arms around powell. Now, one of the things you want to i about culp, that was the least promised emotional, yes. He is so he is really underpromising i think he is doing a fantastic job. I have yet to find someone to say he is asleep at the switch i am not hearing that at all at all did you guys talk about lowes corp and the layoffs a little bit. Your friend marvin ellison. Taking no prisoners remember, they have the china problem in terms of some teams come from china. Not as bad as people think im excited. How are you feeling about your retail acronym . Watch yeah. Its a buy. Im waiting to be able to come out on the show and say you know what this is the level to buy costco. Believe it or not, we are not far from it. Costco is not nearly david, cost owe makes its money off the card for heavens sake the card. The card . The card. Got it. Do you think that apple would be able to make its money off the card i dont know. I dont know but its going to be interesting to watch you have a show tonight. I have a feeling i know what you will be covering. I am so excited i have a long absent guest irwin simon. And then this guy lo cci o we were talking about why we hate Customer Service in the wall street journal. This weekend, staggering how out of it i am staggering i didnt know that millennials the 21yearold millennial, 21, rose, rose, rose, rose. Okay. We have a lot more on the selloff, of course, when we return good morning welcome back to squawk on the street. Im sara eisen with david faber live from post 9 at the New York Stock Exchange Carl Quintanilla has the morning off. Looking at the markets, we are continuing to see stocks tumbling here. Check out these declines now the nasdaq down 2. 4 the s p 500 off almost 2 . The dow down 472 points, looking near session lows off almost 2 after china strikes back overnight in the trade fight with the u. S weakening its currency to a key level. At this hour we are keeping an eye on the white house we have a live picture from the diplomatic reception room. We are awaiting comments from President Trump following this weekends deadly shootings in el paso, texas and dayton, ohio we will bring you any headlines. Sticking with the markets and the selloff that is worsening. Yeah. S ps been down as much as 2 . More or less, we are at fairly weak levels. You know, one thing jim and i discussed in the first hour that much, of course your area of expertise, one of your many areas of expertise, currencies, and i know you like to focus on that give us a sense as to why this is important we saw the president tweet about the weakening of the chinese currency that seven band or that band that always had seven at the bottom, and whether or not that being in being breached is a significant moment. It is a significant moment. Its obviously the headline of the day. It sparked this entire move across markets the headline is that the chinese currency breached the seven level against the dollar why is it such a d big deal . Chinas currency is weaker, for one. That is seen as a line in the sand, a place china wouldnt let it go. That would signal something is really wrong in china or china is aggressively weakening it thats why there is so much angst. From oil to the mexican peso to the bond market to the s p 500 here is the big worry. China heavily manages their currency the fact that they didnt prop it up prompts worries cha the economy is weaker than the market thought and its reflecting the fundamentals, especially after President Trump added more tariffs, or that china is starting to weaponize its currency to fight the tariff, protect its manufacturers, marking a major escalation in the trade fight and creating what could be another round of tariffs from the u. S. The ultimate concern, what people are really worried about, if chinas currency gets weaker it could prompt Chinese People to pull money out of china. The Chinese Government has kept a close eye on the ability of their people to move money out of the country. Correct but once you have a wave of capital flight, thats something thats very hard for central bankers and authorities to deal with there has been a lot of borrowing in tolledollar dough nominat nomina nominate debt. It is very hard to get control of and there are a lot of sort of known unknowns i would say in this situation that we didnt think china would let it go to now we have to consider thats all in play. Right some of that goes to the thinking of my friend kyle bass, who joined us many times and has been short the currency there and in hong kong on this idea of capital flight, current account deficit, widening dramatically. He thinks the hong kong dollar is going to lose control. Thats pegged it to the u. S. Dollar as the u. S. Dollar is stronger and hong kong is weaker, it will take a lot of ammunition to fight. He thinks they will lose control. The massive protests and strikes happening in hong kong, Flights Canceled overnight. Jim jim thinks its possible with a currency deval iegs. It helps ease the pain. It keeps their exports competitive when doing trade with other countries it also is the ultimate trump card because its very hard for trump to do anything about it and it totally destabilizes Global Markets the fed cannot it is very hard for the fed to offset this with rate cuts its very hard, even the treasury through the fed to step into the currency market to fight it intervention doesnt necessarily work so all of these kind of worries are in play, and its clearly impacting the stock market mike is here what sort of sectors and companies are you watching it makes it painful for American Companies that do business there . It is a lot of the companies that have already been depressed, actually, a lot of the stocks already punished in this market had the exposure to chinese exports. I actually think right now the overall market is reacting to a little more of the global risk off move Financial Stress rising throughout the system. Obviously, stronger dollar is another headwind in general, whether its against the chinese currency or others and that yield move down well, well below 1. 8 now got down to the low 1. 7 this morning. Its sort of just showing i think its a spasm of risk off the s p 500 flirting with a 5 decline off its peak its not that dramatic when it comes to the index move just yet. Its showing it happened swiftly in a matter of six trading days. The yield move itself, you wonder whats linked to that we talk about Algorithmic Trading and the strategies that may be built on in part moves on the yield. We were at 2. 07 before the fed cut last week. Here we are at 1. 77. Right you have models that are built on the velocity of a yield move lower that says, okay, kind of back away from the markets and lower exposure thats what you see in place, at least as an initial move we are seeing in the reflexes by the way, the s p is sitting at the level that it traded up to in january of 2018. So that was that real big peak if you draw a line across, thats where were trading right now. Thats where the selloff initially halted. We have a little bit of historical precedent here. China has devalued in the past back in 2015 that shook the markets ultimately, how long could this last how badly could it hurt . And what is as a longterm inveo should you do . What it brings along is the big question remember 2015, you had a similar situation where the Global Economy was fragile. You had Industrial Production around the world was in retreat. But you also had oil crashing. You also had the credit market acting up a lot. It has to compound just this kind of, you know, repricing of the currency if this is where it stops to say that do we have a lot of muscle to cut into ultimately with the stock market where it is . Potentially. But i do think that right now it is in the context of a very long sideways trading range where we have a new high in the s p you have to see if this will compromise Overall Economic growth in the world. Its not just about kind of figuring out exactly where the capital flows go in the short term. By the way, ism nonmanufacturing forecast 55. 7 was the estimate still growing. Coming off of a higher level so dom chu has been looking back dom, it proved to be painful for u. S. Stocks . The interesting part is, by the way, we are near session lows, off by 2 plus the interesting part about the moves today, first of all, we should point out when that surprised devaluation happened in the early mid part of august, three consecutive days of devaluations, deliberate devaluations, it dropped 1. 3 of lows it closed a percent or so off the end of the day we are further to the downside we will keep an eye on that. With regard to what happened with china, a different picture back then because at that point what china had to deal with was a steady appreciation of its currency now, that was a decent thing to have because china said they were trying to convert more towards a consumerbased economy, more services oriented, less dependent on exports. So they didnt need perhaps some of that yuan devaluation to make exports more competitive however, we did see a slowing chinese economy kind of like what we are seeing right now, but much more so in terms of magnitude. Things were slowing down markedly then. One of the things we saw because of that is massive amounts of market volatility to the down said in china. Thats the one thing we are seeing a little bit more of now, but not quite as much as we saw in 2015. As we put some of those bullet points in context with charts and the markets, the reason why its important is you can see right here that august 11 through 13, 2015, by the way 2015 charting of the chinese yuan versus the s p 500, you can see that moved higher. Did move a little bit to the downside for the overall s p it wasnt until a week or so later that things really took a turn to the downside the s p fell by around 11 at the trough levels of that move in 2015. It rallied back, but the big deal was, it was acting in concert with other market concerns it wasnt just china it was fear of Interest Rates in the u. S. And that Global Economic slowdown you have been speaking of. One of the other things we will put in context overall with the way that the markets are moving is this idea that if you take a look at the way the Chinese Market and the u. S. Markets have kind of moved, remember back then china hit highs going to 2015 and we saw all that downside market volatility the s p 500 did not have nearly as much of that kind of volatility, but it still, you can see that gap between the u. S. Markets and the china markets. The interesting part about this time around, sara, is whether or not the leverage is there from a market perspective from the u. S. Or china much you could argue that china is playing second fiddle to the u. S. In terms of market moves if President Trump feels the u. S. Market can sustain it, this might be a very, very big tactic to use with big consequences positive or negative, guys back to you. Was there any part of the s p, dom, that you have looked at that have been hit harder than the rest of the market or any safe spots within the s p when this whole devaluation was going on if you look at the industrial stocks and the technology ones, the cyclical factors took the biggest hits one of the things we look for this time around is whether or not those types of companies are. If the trading plays out over the shorttory medium term like it did back then and how it is this morning, we will see that same kind of action. I would note just about a couple minutes ago the only stock in the dow that was positive or the day was verizon. So as we talk about the idea that utilities, some of these communicatio Communications Services stocks, t if they stand out this time around, too, its playing out somewhat in todays early trading, but thats going to be something that traders will be watching, especially now the value and growth trade and then of course this cyclical versus more defensive ones as well. Dom, thank you. And mike travelers in verizon, the positive components of the dow. Apple down 4 . The worst performer in the dow a double whammy for apple. They do a lot of business in china. The weaker krnsy cuts into revenues and they are part of this next target tariff list if it goes through september 1st. It includes iphones, right there is one you can draw the story lane from china. I also would say the faang is down 2. 5 as well. To me thats not about exposure to china here we have a lot of profits. These are the liquid stocks we can sell and we want to turn stocks into cash thats whats happening. Join us to discuss what to do next, Credit Suisse executive, and managing director and senior economist. Good morning, gentlemen. Jonathan, reading the headline overnight, china lets its currency go past seven, what do you think is a u. S. Equity strategist to do next . Mike said the most important thing. This is a spasm. You went from a couple days ago with a vix of 12 21 the last time i looked at the tape you made the point about the tenyear when the tenyear is well below 2, its really signaling something bigger than this if you saw these moves, these were beginning even before this. You know, if it was just a trade discussion between trump and china, but its not. The cyclical data on a global basis is weak. You talk about the ism number which isnt as bad as it could be if you look in europe and china, is this a bigger problem and this one i dont really know does this embolden the president to push harder in china because this is a signal that they are feeling a lot of pain, or is this their counterpunch . Its hard to know. You sound a little less positive than is typical for you. I have been when the market ran through my yearend target, which sounded bullish the beginning of the year. I remember. Basically said are you moving it up . I said im not moving it up. The cyclical data is weak. The Earnings Data is weak. That was before this discussion around trade for trite now i think the market is probably sideways not only until we see the actual economics show a little more resiliency. Mark, what does this do to the economic picture i think that the big risk is for Large Companies and that they are likely to further put off major Capital Expenditures thats been one part of the economy that has been weak they may put off some hiring decisions. We really havent seen that yet. We have lost a little bit of momentum in job growth its still pretty solid. That would be one place to look. You look at the ism index, that goes to the previous conversation where some of this loss of momentum was already in place. And that was a softer number the headline number was softer we see the new orders come off in recent months and so we do seem to be losing momentum thats really the question, is how much more does this further that we have our own survey of Small Businesses Small Businesses say that this trade war is not really impacting their business even though they are paying very close attention to it, twothirds say it hasnt impacted their business at all. If that changed with the new round of tariffs, mike, impacting go ahead. It might if we see higher price this is year we are not likely to see them this year because most of those goods are either here or already in transit so the higher prices would be well into 2020 i think a more immediate question is how does this market turmoil impact Small Business . And Small Business is much more closely tied in to the impacts of the Financial Markets the turmoil will likely bring confidence down. John, the consumer continues to be strong for the most part and earnings, the earnings season was fairly good versus the expectations, which had been lowered albeit if you are a Decision Maker at a company in terms of using capital right now, you may be holding back yeah, i dont think a Small Business guy is looking at todays headline and thinking he should do something differently. But if you looked at the jobs data, the weak point is these Small Business hiring is actually showing signs of weakness perhaps you are taking a little bit more of a hit there. And, yes, the consumer is in good shape it almost feels like 201516 where the cyclical part of the economy, the industrial part of the economy, i dont know if its in a recession, but its showing signs of weakness. And the consumer is in pretty good shop. Hiring is good wages are up people are spending. If you look at the gdp report, its not the industrial part of the Economy Holding up its the consumer. How does that resolve itself . Ultimately, i think that that it rights itself a little bit. Its hard when you have so much weakness in europe and abroad to have that cyclical part of the economy doing well until it turns 10 tariffs on u. S. Consumer goods and a stock market thats down every time, sara, we listen to the president threaten tariffs, we make the assumption that they were willing going to happen. You dont think he will go through it i would think the odds are this is more tactics than not. Look at his track record the last two years he moves us forward, but its a stop and a start he has clearly i learned that he seems to like tariffs thanks to the chinese and things ththinks it upper hand. I think the real story is if we believe we are waiting for the next g20 meeting or deadline for trade stuff to be over, this is a cold war. Its going to go on for years. Thats the most important story. But against that backdrop, he doesnt plow forward with everything he says he waits to elicit a response, freaks people out and then he extends or renegotiates. Thats the larger point of how are you supposed to make a decision as ceo of a Multinational Company in terms of how you want to allocate capital when you dont know what the Playing Field is long term, its difficult you can invest if inventory. But if you are making a tenyear commitment in a global business, very hard. I would just say 30 billion worth of tariffs, 10 of 300 billion in itself is not going to upend the economy, but i think what weve realized is halfway through this year it was a very delicate balance. Flat earnings. The rest of the world was a risk factor, not an opportunity we thought the fed with one or two cuts was going to be an inoculation shot against this stuff. Now a little bit of an example that the markets are not cooperating globally with that picture. And there you go so i think when you already realize you are back in a 2 economy, any threat or shock is not going to be taken. Mark, what about this idea of more rate cuts to come and this cycle that conceivably the economy weakens, we get a rate cut, the economy strengthens, we get more tariffs and keep going around and around . The message is we thought we were getting closer to the end of this if its a cold war and going on and on and on, it will be a long time to get that worked into the Business Plans and the fed is going to have to do more. Thats what the message from the Financial Markets, the bond market was this morning, is that the feds likely to have to do more than we thought its not going to be one or two and done or one and two and wait and see. Its probably going to be more than that. We have brexit in the background look at the german rates the economies that are most impacted by trade are where were seeing the greatest amount of we canness. I think we will see the aim thing in the u. S the areas of the economy most impacted by trade main street is not as impacted by trade in the u. S. As it is in other countries. So over the weekend a Research Note. He says its not impossible to think that the nominal yield on u. S. Treasury bonds could go negative ultimately, as mark was saying, mark the start of an easing cycle, not a one and done, not a three and done, and this was all before china retaliated overnight in a major way i wonder what kind of environment that sets this up for stocks if thats where the market is going now. Going now if thats where the bond mark market is implicit is thats in the range of possibilities down the road if a lot of stuff is last word were looking to the last words for this not forever. Dont worry. No. We are looking for the fed to like magically solve every problem. They cant what they are going to respond to is the fact that the yield curve right now going to be severely inverted if they dont move rates down. That is when they say data dependency, its not inflation its not growth. Its the yield curve cannot be inverted the way it is and have a healthy economy with the general level of weakness that we are seeing. If the fed doesnt respond to it, the market is not going to be happy by the way, we are also reacting to a 2 down day so we shouldnt overreact. But the environment is weak. Jonathan, mark, mike, thank you all for joining us seeing 2 declines across the major averages worst day for the s p 500. The nasdaq down now since may 18th. Sizing up the selloff in the sectors faring the worst, its technology and Consumer Discretionary down about 8 from their respective highs keep in mind these are two sectors that hit record highs in early july both of these sectorser relying on sales overseas and are vulnerable to the broader currency moves invesco saying there is no ea solution in the face of a stronger dollar. They can cut prices to compensate for the stronger dollar or risk the loss of customers to cheaper local competitors. As you know, cutting places has a big impact on profitability. In some cases may not be feasible we are looking at a number of the retail ners the consumer space lower. And take a look at shares of wynn resorts, on track for the worst day of the year. They are set to report tomorrow after the bell sara. Anything china related getting hit hard thank you. Stocks selling off with china tariffs still in focus as we were talking about a new round. Steve liesman joins us now on why economists believe this round of tariffs will be different and worse than previous ones. Economists have warned about the negative impacts of all the tariffs so far they say the next round threatened by the president is potentially far worse. Heres why first, economists say the tariffs will directly affect the consumer other tariffs were structured to avoid a direct hit whats left to be taxed . Chinese consumer imports second, the tariffs could hit around the time businesses begin to hire and order for the Holiday Shopping season. Third, a time of Global Economic weakness in part a result of the prior tariffs. It forces managers to decide if they are going to pass tariffs through the consumers or absorb the higher costs in process. Chairman Jerome Powell repeatedly mentioned Global Economic weakness and tariffs. Ubs saying it could shave a quarter point off gdp in 2020 and markets are seeing an increased chance of more rate cuts from the Federal Reserve. July probability 100 . Sorry. December is 60 now and march for the third hike now is 58 . So we have three hikes priced in just not this year the tariffs and the call by the president for lower rates by the fed to weaken the dollar raised difficult issues for the feds independence it will not want to support president s trade war outright, but the mandate force it is to address the potential economic fallout. That might be a distinction with little or no difference. What can the fed do . How can they swoop and save us . I am not sure the fed can fight the pboc on currency intervention, weakening the yuan what do you think . If i could give a technical answer youre right both from a broader standpoint, which is were not sure interventions work or how you might structure one to work. There is a specific issue with the yuan, which is the u. S. Government would be forced to intervene in the overseas part of the yuan trade and that is separate from the domestic trade. There is in wedge in between that the Chinese Government could keep what happened in the overseas market from affecting the domestic suburbcurrency mar. So, yes, we have some fire power in the form of an Exchange Stabilization fund and the fed could join the treasury in that. I think its worth mentioning, as you saw in the tweet this morning, the president telling the fed to get on the ball with currency intervention. Its the president and the treasury that have authority over the dollar, and they have authority over this Exchange Stabilization fund if the president wants to try to weaken the dollar, its now fundamentally up to him to use this firepower the u. S. Government has. Its interesting. The other take on it could be that the feds most effective tool here is just low are Interest Rates much sharper than they are already doing 50 point cuts, 100 basis point cuts, because thats ultimately the best way to weaken the dollar, dont you think, instead of the technical intervention stuff . I think theoretically you could say that what just happened you want to put up a dxy in the back there, it has not really weakened and if you could imagine what happens remember we are the reserve currency in the world, right. So you play this out you create all this global uncertainty from the u. S. china, weaken the dollar and launch a currency war, you could drive people right into the dollar because of their uncertainty about the Global Economic outcomes its all so complicated. It really is. Nobody controls that 5 trillion Foreign Exchange market. I think thats right. Except for people trading in it thanks. Pleasure. Joining us now with more. David, are things getting dramatically worse between our country and china . How would you characterize things i would say this escalation of a trade war is making things dramatically worse the chinese were very surprised. They came out of that osaka summit meeting between President Trump, president xi. They thought there was a way forward. So they were pretty shocked that the president came forward with a new round of tariffs, 10 on the last 300 billion of imports. So i think they are scrambling now trying to find a response both retaliation in some sense, because they are committed to retaliation. More important lily, whats goig it work for their economy. For a long time seven to the dollar was kind of a red line for the chinese currency obviously, they have shown a willingness in the last 24 hours to let the currency at least creep over the line, the 7. 02. I think they are probably going to try to keep that relatively stable for a while but they have certainly signaled that if this trade war escalates, then their currency could depreciate further. Jeff, some time back the president famously said trade wars are easy to win i think we are a year and a half in since we had the first tariff supplied on things like washing machines are we winning no, we are definitely not winning. Neither side is actually winning. The danger that i see Going Forward is that the president is not factoring in or not appreciating whats happening with the chinese domestic politics for this next two months, if you look at it from a chinese domestic political perspective, this is the most sensitive period that xi jinping has experienced and he cannot offer concessions. He is meeting at thane annual meeting. From a political perspective, he is being challenged had hong kong directly. The u. S. Sold arms to taiwan, which is another challenge and on october 1st there is the 70th anniversary of the founding of the peoples republic, which is a celebration of chinas rejuvenation there is no possibility of chinese concessions before that. So the president pushing hard for this next month or two is going to be a real problem i am not making executions for the chinese, but just pointing out that we need to accept the political realities of whats happening in china david, what do you think china is trying to do here i think the chinese would be happy to make a deal, but there are big powerful they are a big powerful country the deal is going to have to be halfway in between as jeff was just saying, certainly politically china cannot be seen to kowtowing to the United States. I think they are ready to make a deal if the u. S. Will meet them halfway. They understand u. S. Politics fairly well. So they know its possible we are really moving into a new cold war era and they are ready to play that game as well. They would prefer not to well, so what would be lets assume we dont get any sort of agreement between the two countries and we have tariffs on virtually all of the imports coming in from china, jeff what would be the next steps what would be the things that you would be watching closely to monitor whether this is continuing to worsen a couple things when we think about chinese retaliation, you can separate the methods into passive and active methods what they have just done is a passive device by not propping up the currency. If you look at the history of china with korea and japan, for example, active retaliation gets into much more aggressive antiforeign activity which can escalate into violence so there is a long runway that is out there, i think. I think, in addition, trump really has exceeded his mandate. Nobody in the u. S. Voted for us to impose tariffs on every single product that we import from china he really needs to expand his playbook beyond just tariffs and hollow praises for xi jinping. He needs to really start thinking about joint action with the allies moving forward. This tariff strategy has run its course or is about to run its course and we need new plays in the playbook. As an investor, jeff, if you have to go back to the fact that every time things got very severe in the markets and locked worrisome in the markets, you know, the Trump Administration backed off a little bit. Yes, we went through with tariffs, but he tweeted there was progress with china. He is easily able to turn the tide with a tweet, with a comment, with a call to xi, with a call for trade talks c wouldnt he just do that if we start to get really bad in the markets and we start to see the economy weakening . I pushed back a little bit. I think that the history is, when he issues threats, that he actually carries through with them i hope he takes your advice and finds an excuse to back off. I said within the next two months there is no possibility of movement on the chinese side due to the domestic political constraints. David, i took note, i think many others did, the fact that peter navarro, somebody we talk to frequently, seems to have a great deal of influence with the president right now. Notable at least according to reporting that lighthizer and treasury secretary Steven Mnuchin advised against going ahead on the 300 billion. Who was advising and who was in ascension on the chinese side in terms of advising xi on where things go from here . What can we take from that, if you know you have the deputy Prime Minister who is in charge of the negotiations i think there is a little bit of luster off his star because this has dragged on and gone back and forth. He is still very influential for this last round of talks they prout in the commerce minister he is a very articulate and powerful spokesperson for chinese interests. So adding him to the negotiating team to me that was a signal that the chinese are not going to make any big compromises over the next few months. To go back to sort of what seemed to be the sticking point, was our desire to see something, i guess, done legislatively to enshrine some of the things that the chinese seemed willing at least to do before they ostensibly backed away do you see that as a possibility in the future . No. So i think if you go back to may, that was the issue. The chinese are willing to open up more markets and do more to strengthen intellectual Property Rights protection, but the u. S. Side wanted china to write new laws frankly, the chinese found that quite insulting. So when they saw the kind of detail the u. S. Was asking for, basically the chinese refused, and thats when things really started going in a bad direction. We keep seeing this tendency for the two sides to meet, and then they walk away and they seem to disagree about what was discussed, what was agreed in osaka, President Trump thought he had a promise from the chinese to resume agricultural purchases the chinese are adamant that they never agreed to that. They said that would be part of a final deal if the u. S. Were willing to pull back its tariffs. So one thing here is definitely miscommunication between the two sides over and over again. We desperately need a g20 when is the next g20 i dont think we have one on the horizon. David, you spent some time at the treasury just wondering how you think this move is going down, whats happening behind the scenes at treasury today what can they do about it . How much angst is there . What do we expect from mnuchin. It has a specific definition under u. S. Law the chinese are not manipulating their currency the market is taking their currency down and they were resisting it for a while and now they certainly eased up on their resistance so thats not currency manipulation when you impose this kind of protection that the u. S. Has imposed, its natural for the currency of the trading partner to depreciate we see that with a lot of other currencies as well so to some extent the chinese are just allowing Market Forces to have more play. I think they are going to stop at 7. 02 and, you know, pause and see if they can get the talks restarted with the United States okay. Gentlemen, appreciate you joining us jeff moon, david dollar. Thank you both such a good name. The dow is down 537 points back to bob. At the lows for the day, lets in the quibble about a few points look at the stocks moving. The dow the most the dow is a priceweighted index. So the higher priced stocks can push around the index. Sometimes this leads to distortions. Down 2 . Look at the stocks moving here apple, for example, high priced stock. Boeing high priced thats about seven points in the Dow Jones Industrial average Goldman Sachs another one. These, ibm, all of these moving these stocks makes sense. You have tech weak, industrials weak, financials weak. Visa, which is a big Global Payment Company would weaken on concerns about Global Growth overall. Even though its price weighted, it makes sense also, somewhat more defensive, even slightly more domestic Oriented Companies are doing a little bit better. So, for example, united health, they put up the defensive names. United health down 1 . Coke down a little bit less than that i think the important thing here overall is this does make a little bit of sense. If you go back to may, for example, remember all the problems we had in may similar situation. We had the talks break down. U. S. Imposed additional tariffs at that time from 10 to 25 . China retaliated some of the domestic stocks like here, united health, for example, went up actually 3 or so for the month of may. So there were some domestic names that held up a little bit better another one. Some of the Telecom Stocks like verizon, not down. At t is another one. It actually dropped at the end, but you could see overall up about 1 so there was a small group, utilities another one, Real Estate Investment trust, of sectors that did fairly well and are holding up again today i would be careful most of the time, even the big Consumer Staples names, generally dropped on the month the market has advanced a lot. There is no stuff thats down 10 dramatically that has exclusively domestic focus thats out there so the choices for investors are rather narrow at this point. Thats one of the reasons we are seeing such broad declines guys, back to you. I mean, this bond surge, bob, tenyear yield just hovering below 176. Its got to make the s p 500 dividend yield stocks very attractive i guess the question is when do you step in and buy that. Yeah. Thats why you haare getting utilities and reits holding up better even there, like you say, oh well, some retailers that are domestic oriented might do well. They are not going to do wiell. Thats the same thing as oil stocks permian basinbased or domestic refineries do fine. Thats wrong the Global Economy, weaker consumer less spending that ripples through the overall economy. Yeah, you could have a reit out there. If the mallbased companies are weaker, companies in those malls are notably weaker, those names are going to be weak as well sara. Bob, thank you. You mentioned our treasury. Our ten year the tentire yield curve in germany is negative. Negative. 51 on the tenyear bund. The feeling there is that they are caught up in the middle of the trade war almost in a worse way than the u. S. Because they are much more exportdependent economy, germany. It reflects the dmik weakness, the fact that the ecb is going to be doing qe bond buying and stock buying forever to combat this weakness. Its hard to the pool particulars politics to see any fiscal weakness germany is looking safer than say, an italy. It is i have a hard time wrapping my head that creditor debtor thing . Yeah, you get gback less than you gave them. It would be crazy if it happened in the United States. People have written that pimco Research Note over the weekend, its a stunning declaration of where things are right now, where the fed is, and how the Economic Outlook is shaping up want to hear from your friend miss lagarde at some point. She doesnt take the spot theoretically if she gets final approval until october what she is walking into is a very difficult situation in the middle of a trade war, a currency war, a lot less ammo than her predecessor had. Meantime, sue herera has a cnbc update. Good morning everyone heres whats happening. Moments ago President Trump addressing the shootings over the weekend in el paso, texas, and dayton, ohio he called them evil attacks and crimes against all humanity and called for Capital Punishment for those who commit mass murders and hate crimes. I am directing the department of justice to work in partnership with local, state, and federal agencies as well as social Media Companies to develop tools that can detect mass shooters before they strike. The nyse and the nasdaq observed a moment of silence in memory of the victims of the Mass Shootings in el paso, dayton, and gilroy, california and police in hong kong showered tear gas on a residential area police shot rubber bullets at demonstrators who congregated in large numbers in several different districts of the city. You are up to date thats the news update this hour david, back downtown to you. Thank you, sue. Now time for our etf spotlight Mike Santelli is with us taking a look at oil bro mike as you heard, mikes mic was not on see if we can get back to him . Oil is down 1. 5 . It was down a little bit further. Its down 20 now over the last 12 months. I think the concern with oil is related to demand, right china is a huge buyer of oil their currency weakening their economy weakening. All putting pressure without a doubt, despite the fact that earnings last week from chevron and exxon were actually fine. Both closed lower. They did. They did not react positively. Lets try to get back to mike. I am here, if you can hear me. I do. Great just look at some of the oilrelated stocks the xle, the broad energy sector, etf, this has been weak already. Its not as if its coming off a position of strength getting exacerbated here and if you want to just, you know, draw a very rudimentary line here, it looks like very, very, very solidly entrenched down trend and not a lot of help despite the fact people say its underloved and washed out. The ih, this is a much more dramatic chart down by more than half in the last year. So oil services, etf you are actually making fresh 52week lows in this one today, 1246 is definitely a new 52week low. Basically people selling the stock. Had hasnt done well because of the overall global deflationary scare going on in the currency and stock markets, guys. So, mike, beyond oil, i mean, we were talking about some sectors that stood out Information Technologies now down 3. 3 within the s p financials down 2. 5 i think the yield move clearly is leading some of this stock move. Yeah, without a doubt when it comes to the financials, interestingly, they have somewhat held up okay today wun today. I think you had some weak hands in so financial stocks. Also, by the way, Berkshire Hathaway not so great earnings thats a big position in the xlf. Technology, i see it thats where people built up profits. They have an outsized allocation of course, apple down for chinarelated reasons most likely too thats skimming some risk away from the markets and happening in some of the biggest most liquid sectors. Mike, the gld and the s p are up 14. 19 for the year now. Wow i regret that i didnt come on that myself. Excellent coincidence. They came at it from different directions, right . The gold market is trading at a new high i think gold was on it like 1250 two or three months ago. Here it is pushing 1,500 an ounce. The s p 500 has backed off from there. Gld now exceeds as we are speaking the s ps return, at least so far year to date i love when i can actually surprise santoli with something. Mike, we are down 5. 5 from the highs. Yeah. Some people were looking for a few Percentage Points correction is that a healthy thing . Absolutely. It can be viewed as a healthy thing. A lot of folks are looking at levels on the s p a bit below to see a real test of this uptrend. In may, we were down 6 or 7 . 6. 6 on a closing basis. So something similar to that would get the s p to 2750. Would bring it around the 200day average. The idea this is a sharp pull back with a lot of scary headlines in the context of the market it helpd up okay, valid for now. I have to go back to other examples the Fourth Quarter last year, didnt obey positive seasonals, the buybacks are coming back, all those things we looked at for clues to see if the market could make a stand, we didnt get there. We are not as deep in this pullback as we were just in may. I think its okay to say the market is up a lot year to date. Its about flat over 18 months, which isnt great. Its not so terrible given what has been thrown at it. Mike, thank you back to todays headline of the morning. Chinas currency breaching the magic seven level. Weakest in more than a decade prompting President Trump to call the move currency manipulation joining us is brad bechtel, everyi jeffreys head of Foreign Exchange you must have had a busy overnight. What happens on a currency desk when Something Like this happens . Yeah, definitely creates a lot of noise, a lot of tension, a lot of volume, a lot of clients asking questions about whats going on. Clearly, you have to react rate away and then put on your positions and get your risk right as soon as you can you know, last nights move was sort of subtle in a way, right it was only 229 pips in terms of the fixing that they do every night. And that was a signal. That definitely spooked the markets. The market was already looking for china foe tensionally or dollar china to take a run at the seven level. The moment we had that bigger fix the market took the run at the seven level and never looked back and we saw a flurriy activity around that exciting types for sure. Following through into new york morning, its a little more quiet now. Quieter in london as well. Definitely a flurry of activity in asia. I ran through at the top of the hour some of the concerns that can happen when you have the chinese making this kind of symbolic move past seven capital flight higher dollar borrowing costs for companies in debt. Questions about the resiliency of chinas economy how much of that do you think is actually a real worry right now . All those things have to be taken into account think thi i think thats part of the reason why you likely went see a follow through with china on this move. I think is a shot across the b bara bow. In their mind stability is better than a devaluation. At least atthis stage. They have Monetary Policy they can use. Fiscal stimulus they can use they have a lot of other tools right now they would rather have stability. The fear behind that is simply capital outflows, panic in the market it just creates a lot of noise for their economy that they dont want to deal with at this particular moment. You do a shot across the bow, get the currency above seven it sends the right message clearly, they had the reaction from President Trump and then they can kind of sort of take it from here and thats what i think is going to happen so how significant is then in your opinion the risk of capital outflows at this point i dont think its a big risk at this point. Last time we went through this was august 2015. We all know that what you had then was basically two backtoback days of the fixing rate going 1,100 points per day. That was quite significant thats a very big move it definitely scared people. This move last night was 229 points on the fixing, which isnt that big in fact, in may, only a few months ago, we had a night where there was over 300 points in the fixing it was floating under the radar of their retaliatory tariffs i think this is a big enough moment they dont want to upset the apple cart the outflow story is real and could be potentially pretty damaging if it starts to gain steam again. Its hard to ignore the fact that is happening while these massive protests and strikes are happening in hong kong do you see that as linked . Is it part of a bigger china risk right now and if so, whats the connection its definitely part of a bigger china risk. I think one of the people on the show earlier was talking about how china has their backs against the wall you have hong kong protests. You have taiwan, you know, arms deal you have trump constantly on the twitter feed and the economeconomy in china,e trying to make sure it stays on a growth path above 6 so they have a lot going on. I think the hong kong story is definitely a part of the narrative. And its probably part of the reason why they cant go full steam on any sort of currency devaluation. There is too much other factors to Pay Attention to. The last thing they need is this sudden outflows and worries about their currency if you remember, last time in 2015, the global central Banking Community and the Global Leadership in the g20 were very seemingly upset with chinas move there because it really destabilized the markets i think they kind of learned their lesson this way they did a little subtle move and they can kind of back off on that then sort of keep going, you know, behind the scenes with trade negotiations and other things. But they have a lot to deal with, for sure and stuff like part of the broader package youre looking at with china right now. And on the u. S. Side, my question, brad, is can President Trump do anything about this particular issue can he call secretary mnuchin and say, you got to step in, youve got to weaken the u. S. Dollar here, especially against china. And then can he call, you know, John Williams at the new york fed and can they actually do something . Technically speaking, they can do something, for sure i mean, you know, in terms of the letter of the law, he could theoretically make that phone call to mnuchin and start some sort of Intervention Program but i think youre going to run into the issues mentioned earlier, which are, how are you going to intervene, exactly what are you selling the dollar against . You cant do that in the local Chinese Market, so youre basically stuck with the offshore market. The fed could disagree with the move and sterilize the flows, which offsets the impacts of it. And i think the last thing trump wants is egg on his face if he starts down the road of actually intervening, thats a risky gambit because if it doesnt work, youre going to look a little silly, and i dont think trump wants to do that so i think doing what hes doing now, creating a lot of noise, putting pressure on china, which in fact puts pressure on the market and the fed, which then puts the fed into a posture of dovishness, i think thats sort of working for him and i think if you can get the fed to get, you know, way more dovish again back into sort of a 50 cut or something along those lines, it will take pressure off the dollar, add a boost to the economy. Thats really what hes angling for in my opinion. Brad bechtel, thanks for joining us thank you from the jeffries Foreign Exchange desk. All right lets bring in Bertha Coombs now and get a look at some of the movers taking place over at the nasdaq in terms of Big Technology, which as you might imagine, bertha, is taking it hard today given some of the exposure to china. Yeah, the usual suspects are selling off here in terms of Big Technology and big momentum names. The nasdaq right now is off about 7 from its recent alltime high. Apple is back in correction after tumbling last week the third out of the last four days that apple is lower but this morning, we are really seeing apple selling off on very strong volume. Already, more than 65 , it looks like, of their average daily volume here, traded just over an hour into the trading day. Amazon, similarly, also trading on very high volume, as well this is the eighth straight day of decline for amazon. Amazon also in correction. In fact, all of the f. A. A. N. G. Names right now are in correction, as folks sell off some of those names, which have been very strong alphabet remains the only one that is up for the quarter all of them are in the red now for the quarter. And chips, again, are also feeling the pain chips down for the fifth straight day here, trading in heavy volume, as well. The concern, of course, with chips, they manufacture in china, they sell to competitors in china numbered them last week. Saying some of their customers are being impacted by the uncertainty of whats going to happen with these tariffs. Finally, some of the other names that are selling off in very heavy volume today and seeing the biggest declines include some of those with real exposure like ctrip, the china names as well are also seeing big declines because the other part of the story, its not just the import tariffs here in the u. S. , but the slowdown that is happening in china, as well, that could impact names like wynn in july, we saw the macau numbers come in weaker than expected, so thats going to be impacting those casino names as well but also, those who are looking to sell in china and david and sarah, even for apple, its not just the importing here into the u. S. , but chinas an important market to them. As this rhetoric continues to escalate, you could also see a backlash in terms of consumers feeling patriotic, wanting to boycott american products. So this is one of those things that could escalate and we really dont know the full ramifications just yet back to you. Yeah. Thats always been a worry bertha, thank you. Lets get to seema mody, getting a check on the industrials. Also a lot of china exposure in that sector. With nearly 37 of sales generated overseas, industrials is one of the most exposed sectors to these global headwinds and weakness in china has been a reoccurring theme this earnings season 3m saying for the year, we expect organic growth in china to be to the low to midsingle digits versus a prior expectation of flat, as they continue to experience a challenging end market conditions, particularly in the electronics and Automotive Industries caterpillar referenced similar challenges in china, pricing pressures, as well its interesting with caterpillar, it does intend to repurchase about 9 of its shares outstanding this year, so there is a question as to whether aggressive buybacks could help counter any pending downturn for some of these big multinationals. Overall, the industrial sector is now down about 7. 5 from its respective high. As you can see in todays trade, down about 2 . Sarah . Seema, thank you. Lets get to the cme group in chicago. Rick santelli with the Santelli Exchange and the storm that is brewing in the bond market rick yes, definitely overcast down here today, sarah, to be sure. What a time for a first appearance by my next guest. Mizzouho steve economist, stevesteve , ill summarize we have tenmonth after a 25basis points cut by the fed we have very little curve influences today twoyears are down 11. 10s are down 10. Steve, what do you see out there and underscore that with all the trade issues that seem not to be able to be resolved anytime soon well, i think the clear message that were getting is were going to go back and retest the 150 level on the tenyear note. Weve repeatedly tried to break through that in the postcrisis environment. And i think were going to go back to test that level. I think were probably going to fail at that level unless things get enormously worse from where we are right now and i dont envision that happening. I dont believe whats happening in terms of the trade situation is going to be enough to bring the u. S. Economy into a Slower Growth trajectory. I think weve stabilized around the 2, 2. 25 level and i think whats really happening now, its more negative net global story. And i think the overseas Interest Rates will continue to be the place where most of the negative developments will start to continue to happen. You know, steve, what i find fascinating is i believe that the underlying economy in the u. S. Is still pretty good and lets be honest here sarah talks about how we couldnt get all of these negative feedback loops regarding how this encroachment, this issue with china may give us a negative appeal throughout the globe. But were one a consumption economy. If theres one economy that could take these trade issues, its us. Your thought well, youre 100 correct this is the reason why we havent had the net negative that people thought we would have coming through from the tariffs. Every economist has blown the whole discussion on the tariffs. First, they thought it was going to be inflationary, domestically that didnt happen then they look at the argument that, okay, if its globally negative, that global negativity has to relate its way back into the u. S. The reality is, the u. S. Economy is fairly immunized from whats going on, for exactly the reasons you talked about, which is why when you look at our Inflation Numbers, yes, the tradeable goods portions of the Inflation Numbers are moving lower, but with the very, very tight labor market, the Service Costs are offsetting that and we continue to run very, very close to the feds target of about 2 on inflation you know, steve, heres the thing thats most dire to me, actually is that we get caught in this cluster of lower sovereign rates. Very difficult to extricate ourselves from that. And it seems as though through models and much Historical Data significance tied into those models, that the central bank seems to be getting caught up in the same downward pressure on the short end, were getting globally on the long end steve, this is such a unique situation with regard to no comps can in the past. Are Central Banks relying too heavily on models that most likely have failed inputs and failed designs, considering the landscape of 2019 . Well, youre 100 correct, again, when you look at it, weve moved from a world of excess demand to a world of excess supply. And the fed has completely lost sight of that. During the crisis, fed used operation twist in order to flatten the yield curve and bring down longterm Interest Rates. What the fed should have done in terms of their july meeting is they should have done more quantitative easing and they should have done it in an environment where they rotated the curve back up by boeing more at the front end and selling some of the ownership that they have at the long end of the curve and putting supply back in to feed the demand the fed has the tools to do this theyre just not doing it appropriately, and this is what happened to boj and largely to the ecb. They fell short on coming to grips with the realities before they wound up in the environment theyre dealing with, which is zero shortterm Interest Rates and a curve thats in the negative territory for a second, forget all the moving pieces were discussing if christine lagarde, when she takes over, if she brings down to minus 75 or minus 80 or see bund yields at minus 100, is there really any way you see our tenyear of being immune to having a significant percentage of that move priced into our yields again, the Federal Reserve could use its Balance Sheet in order to do that and given the fundamental economic realities in which were dealing with in this country, the fed should be using its Balance Sheet to offset whats happening in the market place. Thats why we have the large Balance Sheet. Thats why they should never have executed quantitative tightening excellent steve, its just an absolute pleasure to discuss this topic with you and i would like to you know what, steve steve, we have a little bit more time so lets go in another direction here another direction. When i see 7to1 breach with regard to the chinese currency and i see even small discussions that we should maybe try to devalue or move into the fx intervention game, that seems like a huge mistake to me. Your thought again, currency intervention never has worked for us. The reality of the situation is, we are the reserve currency. And we have to treat our
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