Performer. The nasdaq finished just in the positive, verily. Oliver the nasdaq has remained somewhat boy it after the past couple weeks. Deeper in the stock market, i won a look at a couple of those sectors you mentioned. So well. Not doing that has been part of the market hurting quite a bit. Matt that reminds me of the death of the safety trade. And the birth of this conversation that will keep happening. Financials held up a bit possibly due to the fact we are getting more hawkish. Bigger moves. Not a huge move on the week but he was looking at the same kind of reversal of the trend in which financials are staying in the green. Energy getting hit. Commodities not getting hit. Utilities down 3. 2 on the week. Eventually flat after fisher came and muddled that message a bit. A threeday chart here on my terminal. You can see i put a line at the close of day two. Day two was one carson block came on Bloomberg Television exclusively and told the world of his short trade on saint jude and we spoke with the securities that he teamed up with in order to find the vulnerabilities they claim, they allege are present in st. Jude medical gear. You can see on day three of this threeday chart that the shares have now completely recovered their third day losses as saint jude comes out and essentially denies some of the claims carson block made. Lets check the bond market. The two year yield was particularly noticeable because the possibility of a rate hike sent bonds tumbling. Prices dropped, which means yields go up and that is what happened there to 84 basis points. Level sincehighest june and future rate increases will be gradual. You see that the longer end of the yield curve. The overall result is a flatter yield curve. I want to take a look at some of the currencies that have moved today. You saw some dollar weakness. Take a look at the pound. Take a look at the yen or this screen. I have got the dollar rising. The initial drop with the red arrow and eventually the dollar climbing throughout the afternoon. If you do look at any of those currencies, pretty much any currency you will see a stronger dollar because i think only the one and one other small currency. I will pull it up. Then we can see exactly what happened with currencies. I will put expanded majors here rather than just the majors and you can see that the indonesian rupee. Scarlet nice work. Lets take a look at commodities as well. Oil climbed but did give back most of its gains. Little change in copper and gold. Think rightly to a 15 month high in london. It has the bestperforming london this year. Signs of a shortage with demand holding up. Those are todays market minutes. Now lets take a deep dive into the bloomberg. You can find all the following chart at the function at the bottom of the screen. I wanted to take a look at the function that allows us to check out traders participating anticipating rate increases. A rate hike 42 for september, 50 for november, and 60 for december. If you go back to yesterday before janet yellen spoke, it was at 32 yesterday and 54 . You can see the odds were much lower there. In december, 42 . A bit of a change but nothing huge. No vaster repricing. Vast repricing. Scarlet maximum option analogy. Reallyhat is not exciting for us or the market. The problem is 6 trillion worth of bond managers are really frustrated by the direction or lack there of from the fed. Merlet mike just messaged saying that you really need the odds to go out to 70 for a good chance of followthrough. They want to get to 50 . A chart im sure you have seen a number of times but it shows corporate profits. We are in the longest slump right now since the end of the recession in mid2009. Broken down by quarters, it shows you how bad it has been. The last time we saw a slump like this ended in the Second Quarter of 2009. Turne you see gdp start to around, you have got to see this take up. You will not see the strong gdp people will tell you is necessary for normalization of Interest Rates. Is whatevel of growth we heard today. Who wasists and it that came on and said 3. 5 . Scarlet oleary. Matt kevin oleary was telling us. He is watching it very closely. Another red bar there that used to be green. Barely in the red now but still some negativity. I want to look at a potential explanation for why we sold off a bit today. Part of it might be because there was a position where there wasnt a lot of direction in which they could go. First we look at the moves on a yearly basis in terms of what happened for jackson hole speech. The fed chair comes down, stocks go up the next weekend and its looking at a sentiment gauge by the panic index. Basically the past couple weeks, that panic gauge has jumped up. Short interest has come down here so the fact that maybe this , juste type of selling one possible explanation. Matt mike regan joins us now with wrapping up the week for us in taking a look at what happened after janet yellen didnt disrupt the market. Boils down to one speech waiting on the edge of their seats four. Charlotte was talking about the world interestrate probability function. A lotascinating to me how of traders are glued to that thing, refreshing it every day. What amazes me is how swiftly that thing can move. A 43 chance of increase as of today. It is a very important signal that everyone is looking at the one of those based on a relatively small market. Market on a liquid relative basis compared to the stock market. The take away for me is that it is an important snapshot that we can look at any time but its a signal written in pencil. That is the important take away from today is that the odds look but another data point, another conflicting speech could send it the other way. I like what you are saying about the safety trade. It is interesting because you look at these groups as the safety trade, defensive industries. It used to be health care but that has kind of an dismissed question ofhe pricing with the election but it has really been not so much as safety trading as this desperate hunt for yield trait. Its not like utility yields are higher than they have been traditionally, just bond lows yields are so low. Matt i have the onemonth Group Returns here. Right at the bottom over the past 30 days, utilities, telecom , and these are the traditional safety groups. That rotation is more cyclical. Of Course Energy has a mind of financials especially, the financial index today reaching its highest level of the year and a broad group of companies but heavily weighted to jpmorgan, the groups that stand to benefit from higher rates. The stock market seems to be more confident a rate hike is coming. Oliver you can cut all the fast commentary on the bloomberg terminal. Scarlet coming up, more live inerviews from jackson hole wyoming and peter henry will be sitting down with us. This is bloomberg. Matt the stock market optimism with Janet Yellens bullish comments on the u. S. Economy viceed after the fed chairman seven interestrate increases possible in september. Lets head dr. Jackson hole where mike is standing by with heater henry, the dean of the Nyu Stern School of business. Henrey had the catbird seat. How was it received in the room . These are academics and fed policy makers who are looking at this from a different perspective. Think everyone is taking the longterm view. People waiting for revelations him from the podium i think were disappointed but there are a few that say we have to resume Monetary Policy for the next crisis, not thinking about how we change it for the next couple weeks or months. Is there a general consensus that policy as we know it has run its course . I think theres a strong view that Monetary Policy has on most of what it can on its own to really generate recovery. But i think that there is a strong sense that we are all waiting for the fiscal side of the house and for lawmakers to really step up and do what must be done. Monetary policy has created the we have seen a really contractionary fiscal policy. We are not seeing policies that can really drive productivity. To seere needs to happen the kind of robust growth we all would like to have. If that doesnt happen and policy makers have shown no signs of courage lately, does Monetary Policy continue to step into the breach and does that become harmful . I think theres a danger of overreach. I think you will see strong evidence of someone who is aware of the dangers of overreach. Central bankers need to be humble. They were heroes for a while. We have to recognize Monetary Policy has run its course. It is reacting to the next recession. , anyere any confidence feeling that perhaps Central Banks will come into the next crisis with less ammunition . Youhere is a sense, if listened to the chairs a speech this morning, given what we know today, there are reasons to believe that the current arsenal that the fed has is sufficient to deal with what may come. For instance if you look at Interest Rates historically, during the times the economy has gone into recession, it turns out the stance of Monetary Policy has unexpectedly been relatively tight at the beginning of her sessions, meaning there has been a need for bigger interestrate moves to provide the slack the economy needed to get back on track. Even though Interest Rates are at historical lows, there may be more slack in the system presently than is fully realized. Thet was a morning of theories on the table and having them discussed. What drew you the most interest . Drew the most interest was this notion that the natural rate of interest is at an alltime historical low. What is theabout rate of return to capital and that really drives bond yield in an economy. The fact that we are at all time historical lows means that frankly the Monetary Policy has reached a point where it can no longer do much to really drive Real Investment over the longterm. We need greater openness to trade, lower Labor Force Growth we have seen. That points to immigration. We call structural forms that need to happen to drive productivity, drive up the National Rate of interest for the underlying rate of return to real investors to propel growth. The question is which lawmakers are ready to actually embrace this reality and make the changes we need . There does seem to be general agreement that one of the biggest problems is the decline in productivity we have seen. Ad anybody come up with theory for what is causing it and what should be done . No definitive theory but to give you a sense of how serious the decline is, from 1946 to 2005, average productivity per year. 2. 5 since 2006, 1. 25 . That is significant if you combine it with the fact that Labor Force Growth has also slowed. Historically, its about 1 per 2. 5 peris declining year. Those factors together automatically lock you into longterm potential growth less than 2 , which is far below what we have seen in the past, closer to 3 . That is a real challenge. In a conference like this all day, you are basically talking about worstcase scenarios. Are you optimistic, pessimistic . I feel positive to neutral. The fed has done an extraordinary job over the last almost decade now of grappling with a very severe crisis, putting in place new tools to help us deal with that crisis. There is stability in the economy. We are growing again. But its hard to be overly optimistic when we are growing at 2 and with unemployment down to 5 , theres still a real chance of having an economy that is not producing the kind of income gains that are either large enough or widely distributed enough to really lift the average working American Family into a place that makes them feel confident. Because of that, there is this reinforcing fact that people are expecting less in terms of their income, in terms of their ability to put their kids through school. So that is having a dampening effect on the economy today. Same thing with businesses. Businesses are not investing as much as because they are expecting less. Lower expectations about the future translate into lower expectations about the future today. Thank you. We will send about to you in new york and hopefully you can be optimistic. Scarlet diverging path after the brexit vote. This chart here shows how stocks in the u k in europe tend to move in lock step. It doesnt matter which is which until the brexit vote. Since then, it has really taken off. What has been driving that outperformance, the pounds european which has stocks falling. The handle bottom panel shows the correlation between the two indexes. Right now, its at the lowest level correlation going back more than a year. Its an interesting divergence to keep track of, especially as everyone is looking for data to back up the fact the brexit vote was terrible for all of the economies. That those are companies export a lot so when you see a big drop in the pound, thats beneficial to those companies that will look different. Nonetheless, economic surprises have been very positive in the u k take a look at this function i have on the bloomberg. Right now, i have got it open for the u. S. And we have had a little green at the end. That means positive surprises rather than disappointments. I will go ahead and blow up this chart. Its a multiyear look going back to 2009 but if i zoom in on 2015 the2016, you can see in second half of the year, we have had a string of really has it in economic surprises. Its a great function and i recommend you use it. You can ask your self what is going on after the u. K. Voted for a brexit. Oliver so that is a very sort foromestic looking function the u. K. And we talk about the multinational stocks doing well. I will look at some more domestic numbers in the u. K. That suggested maybe not just Larger Companies taking advantage of the weaker pound. This is retail sales in the u. K. Japan and purple, canada in orange. Numbersa pretty solid here. Not only was it an expectation beat but this was the highest in 2014. Perhaps out of all the job owning and talking about what brexit would do, it hasnt been terrible thus far. Scarlet matt did by a lot of ties while he was in london. Matt every day. Scarlet coming up, a closer look at chinas mysterious tourism numbers and why they dont totally add up. This is bloomberg. Mark the impeachment trial of brazils president turned into a shouting match that was suspended for a second time today. The head of the senate declared stupidity is endless and call t criticized someone who spoke against it. She denies any wrongdoing and says her enemies are trying to stage a coup. The former labor leader has denied wrongdoing and says he is the victim of political persecution. The french top court has burkinis. A ban on the ruling specifically concerns a ban in the town but the decision is expected to set a legal precedent. The Spacex Dragon capsules back on earth with scientific gifts from the International Space station. It parachuted into the pacific loaded with 3000 pounds of research and equipment including a dozen mice that traveled on the dragon as part of the genetic study. Global news 20 for hours a day inered by 2600 journalists 120 countries. Back to you. Scarlet lets get a recap of the market action. Janet yellen spoke after two months of public silence on where Interest Rates are headed. More optimism on the economy overall. Some speculation Interest Rates could rise next month which is what we kind of knew before she spoke. I thought it put it into the debate that the hike is on the table. Onnley fischer commented Janet Yellens comments and got things murky. Scarlet and volume is defend. A lot of people have already left. Matt a lot of participants see this as elon musk when it comes to his production promises. You know he is going to make the car but it is going to be later than he says it is. Probably hes not going to make as many as he said he could. Fair enough. There are a lot of questions about whether or not we will get to more hikes. Some say there is never going to be a rate hike ever again. Lets switch gears to china. I want to look at how it has been declining. This is a depreciation by the chinese government. Its a normalized chart. Everything goes back to 100. It has been falling against the currencies since its inception. The basket is the white line. Matt there is a white line . Scarlet it is in the middle. Down 7 . In terms of who the steepest andes are, mainly the yen the ruble. The chinese yuan has gained. The weakness and chinas currency keeps financial conditions on the looser side. This weakness is probably a concern. For the retailers on sloans the sloan street it is good. Scarlet great point. Oliver we will stick with china. There is some stuff you may have claims tourism boom dont add up. The council on Foreign Relations is the numbers dont make sense. Here with us now is a senior fellow at the group who did this study. We took a minute to figure out the terminology. China says there is a tourism deficit. Chinese tourists are spending more abroad. Case . T the top line what is china saying about that . That is exactly what china is saying. Chinese tourists do spend more outside of china than foreign tourists. The question is the pace. Reported Chinese Tourists traveling abroad spent 100 billion outside of china. That has gone up to 300 billion. Its a spectacular rise. Thats almost equal to the fall in chinese spending on commodities. Matt that is huge outflows. Does that worry the government . That sounds like they are trying to get their money out of chinese assets. Thats the most likely explanation. Some of the increase in Tourist Spending is capital outflows. There is an offset. The other implication is china is running a beer and bigger current account, a goods and Services Surplus than is reported so it has more capacity to sustain. We have a chart that explains why it is suspicious data. They are showing the numbers china claims dont quite add up. There is. In the u. S. Data it is up by 50 which is reasonable. There is no doubt there has been a stronger increase in japan. What the big discrepancy is is hong kong. There is traditionally a lot of Chinese Tourists that go to hong kong. They do not provide a breakdown of spending. Scarlet there is the line at the bottom. Total spending has fallen. Even as they reported spending more. Of chinesey 3040 tourism has shown up over the past two years that has gone down to 10 . It doesnt feel right. Oliver i want to get to why this matters. Why they may be fighting these numbers you are casting doubt on. You mentioned a good surplus. They basically saying perhaps there is more money going out the a tourism . People are spending money elsewhere instead of in china . What was the motivation be . Guest im not convinced it is a conspiratorial thing. Unambiguously as Chinese Investment has slowed chinese demand for the rest of the worlds goods has fallen. You see china is spending on imported commodities has tanked. That has had reverberations through the rest of the world. Thene tourism date is real a lot of the decrease in chinese spending on goods has been offset by increased chinese spending by Chinese Tourists. The aggregate impact should not be that bad. If it is Chinese Tourists buying Financial Assets that doesnt generate demand. Saving. Erates a global that would be capital outflows. Exactly. You can see demand setting aside the possibility of the u. S. Rate hike. In general do not need more rate hike for now. Narrative. Es the the good surplus would suggest they are getting more of the things they need domestically. The domestic economy is starting to grow which is what they want him a which is what everyone wants. If the tourism numbers are right may be they are getting foreign products and bringing in foreign things through other means. That is a possible argument. , you look at is indicators. It doesnt seem to match up any better. In general yes. There is a story about import substitution. For putting that sosa singly. The way that that is not so bad for the world is a Chinese Tourists are spending a lot outside of china. If they are not the positive impact for the rest of the world is weaker. Do you feel isse the most possible . Some of the increase is real. There has been growth in chinese tourism and other destinations. That increase is not big enough to explain the full growth. Disguisedful part is capital outflows. The more important arab implication is not that there is money leaving china. China is providing less demand to the rest of the world. Great paper. Fairly sophisticated conversation for a friday. Thank you. We have some breaking news. He bought 2. 3 million shares of herbalife and he continues to believe in the Nutritional Supplement company and adds he never gave jeffries an order to sell any shares. This comes in response to bill ackman. Trade taken the opposite betting against it. He sent the stock down after saying he has tried to sell his stake. He has said that is not the case. He had close down a dollar 43 at 60. 50 a share. That is pretty huge news. This was a big deal. The fact that he has been refuting this claim saying he is not only not selling but adding is pretty big in the market move. He cannot catch a break. Im looking at a threeday chart on my bloomberg. You can see the big drop that we had yesterday at the end of the day. Tohad a drop from 62 down 58. Essentially what he is saying is he has taken advantage of that drop. 2. 3 million shares. We will continue to monitor those headlines for you. Scarlet Hillary Clinton criticized donald trump for his embracement of an alternate right ideology. We head to washington for more. Oliver the campaign trail has been heating up with words over race. Donald trump accused Hillary Clinton of smearing his candidate his supporters as racists. Secretary clintons speech in reno linking donald trump to this out right movement has been all over the headlines. There is anyink question it accomplished its goal to tie donald trump to this racist element in the republican they, to drag that into spotlight of the president ial race. Here we are in day to. This. 2 talking about donald trump has been consumed with the issue. All of a sudden it is referendum on who is the bigger races. For the clintons that is a fight they are happy to have with donald trump. Does this last long . Thingms like the kind of that blows over in this campaign so far. Everything except for Hillary Clintons emails that continue to shock and amaze people has died out over a week or two. I have come up with a law, green rule of election scandals. Any scandal go on for as long as donald trump decides he wants it to go on for. If donald trump keeps fighting back in tweeting and dragging this thing out the way he did with the con family khan family, if he keeps this up with the alt right, it will keep going on and his numbers will keep falling. Scarlet lets talk about something you have been writing about. You did a profile on the chief executive of the campaign. What effect has he had on Donald Trumps campaign . The you see a shift . Guest i do. He is annexed Goldman Sachs banker who became a filmmaker. He did a documentary on sarah palin. He became editor and chief of breitbart news. He was brought into the Trump Campaign because trump is someone who talks to ban in bannon. He was hoping he would make it more focused on Hillary Clinton. The problem is he brought with him this alt right association that opened the door for the Clinton Campaign to try and connect donald trump in a way that is going to be very successful and has turned the campaign in 20 referendum on race. The alt right movement is linked to a racist selfprofessed White Supremacy ideologue. Call graybar to call graybar breibart alt right, is it a racist publication . Guest i would argue it is broader than white supremacists. It encompasses everyone from nationalists, populists, America FirstForeign Policy all the way to actual white supremacists. It tends to go out of its way to be offensive and aggressive. It is active on social media. A lot of those self a lot of those people have gotten behind donald trump. Matt im trying to get my head around this. It has popped up in the past couple of days although it dates back years. Is this not a new term . Scarlet its a new term for the week. Statement issuing a after the close of u. S. Trading. 2. 3ought an additional shares of herbalife and continues to believe in the company. He never gave an order to show sell any shares. Rumors he wasg to trying to sell his shares in the company. You can see that following his. Emarks the stock is up this is bloomberg. Scarlet todays top story, Janet Yellens comments from jackson hole. She says the case for an increase has strengthened. The economy weakens in the first part of this year and it is not clear. As they moved to the middle part of the year we have incoming data suggesting the economy is on the path it has been for some years, growth Strong Enough to support improving the labor market which is to say job creation that is taking slack out of the lake it labor market. In inflation moving back to 2 . I feel constructive about the economy today. Do you think the rates need to rise . On a view is we should be program of gradual rate increases. And growth progress Strong Enough to support all of that we should take the opportunity to do so. In the absence of some big event like the brexit or such. It has been my view. Has the that been thrown off by two many events . Should they have concentrated more on just responding to the fundamentals of the u. S. Economy . I dont. Andre being datadriven patient and cautious. Demand is weak around the world. Other Central Banks are cutting rates. We are below our inflation target. Growth was one and a quarter percent. Our caution is appropriate and it has paid dividends. Where would you put a fed funds rate . The rate that would be in place when youre at full employment and 2 inflation would be 3 or lower. That is more than a full percentage point lower than before the crisis. How long would it take . How fast do you go to get there . That is going to depend on incoming data. There is no preset course. You have to see how the economy performs. Do we continue on this path . And good jobnd 2 creation then we should be patiently raising Interest Rates as the economy in the Global Economy warrant. The argument has been as unemployment goes down inflation should go up. It has come way down. Inflation has not gone up. Are you a believer . Its an interesting question. There is the wage the lips curve. Thehe labor market tightens wages should go up. We are seeing clear but not strong evidence that wages are moving upward. The transmission between wages and prices has weakened. The transmission between slack in the labor market has weekend. Is flat. Ips curve it is much weaker than it has been historically. What gives you confidence you will get to the target . Core pce inflation is 1. 6 . Maybe 30 basis points you can attribute to the strong daughter strong dollar. Those, thathrough gets you fairly close to the 2 . It doesnt leave a big gap between where you would do be for those. Then they on that path dollar has been going down this year a little bit. 2 inflation would be very close. Smore breaking news, it appears herbalifes shareholder has reported a stake after he added to his shares in the company. He bought 2. 3 shares. This is his announcement. It is leading to a gain. Coming up, what you need to know to gear up for next week. This is bloomberg. Scarlet what you need to know for next week. Chinese industrial profits coming out tonight. Matt stay in to watch that. Japan jobless rates on monday. Oliver on friday, it is the u. S. Jobs report. Scarlet that is all for john with all due respect to hillary offering chocolate to the press. We prefer gin. John and bourbon. All right. As we wrap up another wild week in american president ial politics, yesterday may be the nastiest day of the nastiest week of the weirdest president ial campaign in modern history. We will talk about donald trum