Of the eurozone. The pmi is better than expected. Rising 53. 2. The preliminary figure with 52. 1. We are seeing risk aversion across the board. Let us get straight to the data from this first day of trade. If you thought you were going tepid, quiet and calm day of trading for the first day. You have been shaken out of your sleep. This is the index that characterizes what is happening today. This is the csi 300 next. Sank further 7 . At 1 34 p. M. , local time, china halted stock trading today. These new Circuit Breakers were taken into effect today. The first day the Circuit Breakers were used. What prompted the selloff was to s showing two gauge contraction. 2000has not happened since and. The unofficial gauge, the private age also fell to a three month low as well. China set the tone today. Throw into the mix the fact that saudi arabia severed ties with iran. That is china halting trading after the csi 300 sank by 7 . This shows the appetite or safe haven assets today. Yen. Is the japanese against all 31 of its Major Trading peers today. As you can see, every single one of them, are falling against the japanese currency. Look at the weakest one. The countries that rely on china for demand. The new Zealand Dollar falling. The Australian Dollar falling as well after we had the nations official purchasing manage indexes remaining below 50. The dividing line between contraction and expansion for the fifth consecutive month. Risk aversion is accentuated after saudi arabia expelled irans diplomats. Gold rising today after a third year of decline. Was third year of decline the longest one since 2000. A flight to safety because of china and saudi arabiaaround. Thank you mark. Saudi arabia has cut ties with iran at expelled the countrys diplomats after a tax on his sympathy enter around. Lliott will be with us if we go to you, Oil Prices Higher for two sessions in a row. Is that part of a trend . Elliott two days of gains does not necessarily a rebound make. Saudi arabia and iran are than youg up tensions know there will be some kind of market reaction. Prices are rising a little today. We take a step back, we are still coming off the back of the biggest two gear drop on record when it comes to oil prices. We still are at 40 about a barrel. The imf says they need to how does this play into the situation . Elliott you do not think of saudi arabia as being among the lowest cost. Saudi arabia spends so much more revenuesout 70 of its this year are expected to come from oil. Theylower Oil Prices Hurt saudi arabia more than you might think. I want to bring to your attention. If Oil Production stopped tomorrow, that would leave saudi arabia with a budget deficit of 57 of gdp. With iran, it would leave them with a budget deficit of 7. 5 of gdp. Needs ace budget, iran barrel of oil to be 70. A barrel. Ia needs 95 both scenarios are highly unlikely. Oiloes to show that falling prices hurt saudi arabia. They wont end up hurting each other just as much. To look at the gop political concerns. And the repercussions of the escalation of the dispute over the execution of the shia clerk. What does this mean for the region as a whole . Andrew the big . And saudi arabia are waging a number of proxy wars in yemen on the border with audio which isd in syria now five years into its civil war. Faultlines run through other countries, lebanon and bahrain and other places in the region. How will this play out . We do not quite know this. Both countries have an interest in the escalating this. Were seeing a lot of rhetoric including this morning and saudi newspapers. They have been very aggressive. Wayran, that went all the to the torching of the embassy. We will have to see what happens , this afternoon or coming days to see whether this plays out in other ways. It is extremely difficult to quantify and qualified but how big of a power struggle will there be especially in syria and iraq where iran and saudi arabia have already been fighting . We have had this power struggle in many of these countries going on for years. The syrian civil work which started as Peaceful Demonstrations quickly morphed into something altogether different. Since then, it is been one big power struggle. In yemen, on the border with saudi arabia, the saudis say they are backed by iran. That struggle has played out. Ceasefires have come and go as recently as last week is a spire was abandoned. Within iran, you may see a power struggle. Ronnie initially came out and try to talk things back after the embassy was torched. This may be an opportunity for the hardliners. Elections in six weeks and around and it puts the president in a precarious position because he has to show strength and that he can stand up to saudi arabia. At the same time, it is not in anyones interest for this to spiral out of control. The region as a tinderbox. A lot of things can go wrong. To your point, there are power struggle everywhere and we do not know yet how this will play out. Francine thank you so much. Let us get straight to our guest for the hour. He is a d10 fx research. Great to have you on the program. A pretty brutal day across markets when you look at china stopping the trading and you look at the risk aversion and the yen rising and now the saudi oil struggle. The combination of drivers of markets the geopolitics but also role disappointing data and trends out of china. The question for the markets doking forward is how much we have to go from here. Can it get worse . Francine a correction in the next quarter. Especially Commodity Currencies with exposure to china including the aussie, kiwi could correct further to the downside. Another layer of uncertainty could be added by the upcoming theh would highlight fed may have to hike even more than expected. There is already a divergence between what the market is a acting and what the fed signaled they want to do. That emerges could be underscored. Francine is there going to be a lower leg and oil . In oil . In terms of correction, i think potentially tomorrow come the fact that disruption could lead to higher oil prices. Weaker global Commodity Prices. Francine thank you so much. We are looking at the fed and china in more detail. Here is what else is on our radar. We are trading in milan this morning from for robbery. Shares have traded on the New York Stock Exchange since october. Stay with bloomberg for more on that story. We will bring you an interview with the Fiat Chrysler chairman. Shire is an advanced talks with baxalta for about 32 billion in cash and stock looting debt. Excluding debt. About 37rico, billion in bond repayments. This is only the conflicts with investors. They are seeking to restructure their debt burden. This will be the year of dollar peaks. The prediction from our guest. More from him as we look ahead to the trading year. Francine welcome back to the pulse. Reserve chairman Stanley Fischer says it may be necessary for the central bank to increase rates because the Financial Markets are overheating. He stressed that using regulatory tools should be the first line of defense. Prices are too high and the economy is in a reasonable situation. It may be possible or wise to try to use the Interest Rate to deal with what is happening to asset prices. Francine you will have more from the fed later today. We will be speaking with the Federal Reserve president later today. Still in focus as we come into 2016. Let us go down to what else we will be watching for the year ahead. Before the break, we were talking a little bit about oil and the sectarian differences in the middle east and what that means for geopolitics. Let us talk about Central Banks. What keeps you awake at night . The potential for global recession. It is something we cannot exclude. China is going down. Ok u. S. Outlook still looks but things may not improve much further. Anything, the big concern is does the fed have the tools to address the potential to slow down or indeed Global Growth slowdown from here. Francine you talked about a global recession. What was that the trigger i triggered by . Totheir slowness to respond what is happening, especially in the manufacturing sector. You hope they are rebalancing services. And compensating for the slowdown. It is also the case that if you look at the chinese experience, we are seeing evidence that the monetary stimulus put in place is not reaching the real economy. The lending channel is broken. The banks are not lending. What we need to do is provide stimulus into domestic demand which can only come in the form of more fiscal stimulus. Debt levels in china are already pretty elevated. Come that may not prevent any further slowdown. It continues to drop, are you concerned about global deflationary pressures . Has beena factor that taken into account by various Central Banks. The expectation of a bounce in global Commodity Prices is what is driving all of the expectations. They think inflation will rebound later this year. The biggest risk is what it global Commodity Prices drop even further. What is the inflation outlook . That is a worry especially for the ecb. Less of a concern for banks like the fed or the boe. We wait wage growth is robust. As things stand, will the fed be able to counter global recession . The feds ability to do that was curtailed to a degree. They will be in a position to do more if need be. That is a headache for the markets right now. Is hiking rates further but there is a risk in Global Growth slowing so they cannot do much more than what they are planning or they make be forced to resort back to unconventional measures. You still expect the central potentially increasing the likelihood of further Global Growth. Investors will anticipate more to come from the Central Banks. Francine thank you. Much. Coming up, the biggest risks for the exchange in 2016. We talked about some of the ammunition risks. What else is out there . We will continue our year ahead discussion. Francine welcome back to the pulse. Let us continue our 2016 look ahead and turn our rochus to the exchange. Richard jones joins us. Talking ae havent little bit about ammunition or lack of that the Central Banks have for the biggest risks . Fxterms of fx, 2015 was the year . An fthink it will also be x year. A lot of the things in play will still be in play in 2016. One of the interesting risks were flies in the ointment will be the disconnect between what the market is is saying is saying about the fed. The disconnect will resolve itself. That is the risk. How will it resolve itself . I think it will be a volatile year. You think u. S. Dollar peaks in 2016. Later. It is consistent with what we have been seeing in previous cycles. In losing some ground. Going back to what richard alsooned, the disconnect the fact that they are expecting to hike four times where the market is still undecided highlights that the data in the u. S. Could get much worse. That will be hawkish. We do expect earnings to rebound. Is determining the core inflation. Francine how much will the fed be looking at emerging markets and what the Central Bank Still . Banks are central doing . Is the first day of trading shows us anything, i do not think we have a great handle on what is going on in china. A strange equities is occurrence and there are a lot of things that might be driving that but i think china is a wildcard. I agree. One way to capture this is to look at the index of financial conditions. China which will hit u. S. Markets could make the fed more cautious. Tworeally have to balance different conflicting drivers. Point, the dollar overvaluation. We also think the relative value the eurozone recovery as a whole. That is why we like the pound. We worry about china. Francine the pound is interesting. We have a boe that is looking at lessons from the fed about what to do in a hike. They are also looking at the ecb. 2015 was a strange year. Initially, we thought the boe was going to follow the fed. At the year went on, they looked more like the ecb. The brexit wrist and the referendum are things that will create uncertainty. That will make the banks job more difficult. Bottom or the year. For the year. Scottish referendum. In the general elections. The pound is selling off seems premature. Right selling the pound now are running the risk of the any rate hike decision will depend on the eu referendum. Francine what are the chances of the u. K. Leaving the eu . Less than 20 chance. Thank you so much for joining us. He will stick around as our guest for the hour. Here are some of the data you should be watching for the week. Wednesday, we have the fed minutes and then it is job stay on friday. We will see you in a couple of minutes. Francine welcome back to the health live in bluebirds European Headquarters in london. Lets head to our courtney at the market desk. Mark we are getting to manufacturing data out of u. K. It cooled in december. It suggests little contribution it to the economy in the final quarter of last year. Market economics are set. The factory index fell to a threemonth low rate of economists had forecast to increase to 52. 8 from an initially reported 52. 7. The survey showed that export orders rose. That is the slowest pace since september and put prices fell because of stronger pound. Weve get information on mortgage lending and it grew the most since april 2008. That was before the collapse of lehman brothers. Lending increased 3. 9 billion pounds in november from the previous month, according to the bank of england. June 2008. Est since that is strong mortgage data weak manufacturing data. Francine lets head over to Caroline Hyde. Caroline sweden will have order danish primethe minister used his new speech warned that his government may be forced to have goals across the german border. Sweden is shaking the border by bus, train it, or fairy. Saudi arabia has cut ties with iran and expelled diplomats after the Saudi Embassy in toronto was attacked. This is a protest for the execution of shiite cleric elon musk tried to ship 50,000 vehicles last year they eight graph,580 with manufacturing more than one they shipped 208 suvs in the fourth quarter. Thank you so much. The worst ever start to the year for chinese shares created a halt to the Circuit Breakers are to the test been manufacturing contracted. Happy new year it looks like a bad start to the year for the markets in china. Its data that disappoints. Certainly the pmi news was not good. They were missing expectations. You see contraction in the manufacturing sector. If you look at the balance of the latest numbers, they dont balance. The real story on the chinese stability,2015 is stability paid for with massive stimulus. I think whats driving the market is something more specific. Expirationrs of the of some of the support measures the government introduced at the top the crash in 2015. Back then, with the market really in freefall, securities regulators in china said major stockholders be banned from selling shares for six months. That is about to expire. I think the concern for some investors in china is its going to be a lot of orders from major investors. There is a combination of those factors and concern about growth and some concern about the expiration of those the measures. Ing the market down in francine what do you think the markets fear western mark are the fears wellfounded question mark . So, 2015, the government is going to come in very close to 7 target. Our expectation for 2016, looking at the official numbers, is a moderate slowdown. We expect to come in between 6. 5 and 7 of the year. The risk the policymakers have is growing questions in the market, like the credibility of the official data. The market is paying more attention to private numbers and indexes created by independent economists. Are much morehese negative than the official state data. Data is going to be showing a moderate slowdown and gdp growth moving toward 6. 5 . We expect the market to pay more attention to these unofficial, independent private measures of have a much more negative story. Francine thank you so much. We talked a little bit about china at the beginning of the show given what tom just highlighted and that we are talking about mistakes, what do they have to get right . Thatey have to make sure the money they are pumping into the economy does reach the real sector of the economy, which is not happening at the moment. So far, the results are underwhelming. They areme time, risking a slowdown in manufacturing. It will get worse from here. Are behind the curve, that is the biggest concern. Far, there is a change perception. Francine i read some research they are going to zero bound. Would that make you nervous . Thattin it is the case whats worrying is the impact of all of these measures on the case thatit is the its further easing put in place, given the u. N. Is freer to move. That puts pressure on the chinese main trader you partners. Trading partners. There could be more of a currency war. Further aggressive easing by the pboc and further weakness in the u. N. Is not necessarily good and for Global Growth desperate. Francine the dax is down 32 . These are getting hammered. We know that this is a link to china. See this change have you 2016 . Is it going to be a lot more risk on risk off western mark . Valentin it drives around a trend. Monetary policy is determining the direct in of the trend. Direction of the end. At the same time, other Central Banks are expected to ease further. Change anded accentuate the swing around those trade its unlikely to change trends. We see the dollar. Making a safe haven trends are firmly in place. Francine we havent talked about the end. Yen. Valentin i think the policymakers are watching this. They are expecting another round of qe to come from the doj. In terms of the offense at the boj, they come to the next round of qe. They may try to top the most liquid assets out there. This could bring forward more measures by the boj. The dollar yen correction it could be lower. We think its an interesting buying opportunity. Next, ferraris races off to a slow start and we have the latest as they start trading on the italian exchange. Francine lets head straight to Caroline Hyde for the business watch. Caroline puerto rico will default in bond payments today. This estimate the conflict with investors. They are trying to restructure a debt burden. A french phone carrier could reach an agreement with the Greek Telecom unit. The companies signed a confidentiality agreement to start official talks. At 10ld value them billion euros. To buymaker is trying excelsior. That is the only with the matter. It may be enough to be approved this month. European stocks of an hammered today. Dax, down 3 . After the china index tumbled. China,f the focus is on a lot is on correction across the market. U. S. Futures are also on the way down. Says its going to show more. They made their debut on the italian stock exchange. This, its great to have you on the program. There are so my hopes for the stock. Its already trading in new york and now its trading in elan. There are hopes for the spinoff generating new cars but also the memorabilia that goes with it. Chris the strategy is to position itself as a luxury goods company. They want to play off the petition in the supercar performance car market, to be a wider ran the on just cars and the question of whether they will be able to do that. Its a tough transition. They are based on these cars. They require a lot of investment. They dont have the market of handbag, the margins about the same. The stock has not performed particularly well since its october listing. It close to the u. S. At 48. There is some doubt whether ferreri can make that transition. Francine this allows them to focus on fiat. Value, theyerrari paid more if you are in fiat. Doubled the group since the announcement a year ago. To whats leftd of Fiat Chrysler . The answers seem to be a merger up until a few months ago. G. M. S obviously wooing quite publicly. Inhas backed off that idea gm has been very adamant in its resistance. The question is what is Fiat Chrysler go from here . It doesnt have the play now. He cant put another ferreri out of his hat. Its the nuts and bolts of it and making it competitive but putting cars on the streets. That is a temper task. He is traditionally a hill maker. Francine thank you so much. Are guest postly is going back to currency. Will they have a pump 2016 western mark . Valentin especially those exporters whose costs are very focused on the domestic economy. They are not part of the supply chain. Its a across different countries. A lot of the cost with fiat are based in italy. They will benefit from the euro. Week euro. That will help boost the experts. Ae bigger message here is certain exporters is seen the current target conditions and they are quite attractive and it is the case that if you are a company and you want to borrow funding willpe the not get very expensive anytime soon. There will still be sufficient demand. That is depending on the amount of cash Central Banks are pumping into the economy. The hope is for the Balance Sheet effect. Continue in the funding conditions in the eurozone are quite attractive. The Bigger Picture of all that is the back that its coinciding with the move in the u. S. In the opposite direction. The fed is tightening. That should lead to higher yields across the board. Spreads widen. The u. S. Companies could increase overtime. Eurozone,asing in the what we have been seen last year and the year before, International Investors are trying to diversify their liability. They are swapping their dollar had. Billion 90 billion. That is a record. We expect that trend to continue. Areour ex swapping, you selling eurodollar. We break down reports of a 32 billion dollar takeover of shire. Francine welcome back to the pulse. Out to mark with a check on the markets. Brutal day. Europehe stocks 600 in rose 6. 8 last year. It wiped away a third of those gains in the first two hours of trading in 2016. That puts today in perspective. This chart puts everything in perspective today. This is china. This is the index that tracks the Biggest Company on the shanghai. You can see trading results. Session, end of the Circuit Breakers kicked in the first time in the market fell by then 7 . But it stocks also much in china . There are a number of reasons. There seems to be the data on manufacturing. Other, the concern is there will be share sales very soon. Where the flight to safety is taking us, there is movement into Government Bond markets and goal. Take a look at the yen. It is a haven currency. The yen is pricing. All of these currencies are falling today. Index isanufacturing low 50. Dont forget that we have risk aversion accentuated after saudi arabia expelled iran after the embassy was attacked in tehran. Start to the year. Nobody expected. Francine nobody was expecting. Bloomberg intelligence director of research joins us talk about shire. They are in talks for a takeover. Oft is according to people family with the matter. Thank you so much for joining us. Stock,look at this whats changed . Nothings changed yet. This is a rumor. Tos a slightly higher price a new reality for 2016. This premium is putting in premium. Its about 25 higher than the median for the year. Then if you look at the Growth Profile and it does not look as rosy as the pair group. Here group. Maybe they should take it. Francine there was a lot of m a in the pharma. The pressure is piling. Is it a big deal . It is. You get potential he the pfizer deal. Whether or not want to take the cash for the shares. Its easier growth and lower risk. It is a leader in the hemophilia in space. Be a balance. People are getting into a more broader based business. This is one that is focused. Francine thank you so much. Stay with bloomberg. Plenty more is coming up. Francine european stocks fall. The yen gains. Saudi arabia cuts ties with iran. The expelled diplomats after an mcn terror on was attacked. On wasembassy in terror attacked. Good morning. Bloomberg surveillance. Tom keene is in your. Happy new year. Tom im going to get my bowtie straightened to begin 2016