Out withee a playing the aussie dollar. I want to highlight copper, off about 1 . That stronger dollar story radiating throughout the commodities. Update ons get an what is making headlines outside the business world. Made aurricane maria has bad situation worse. The storm knocked out power to the whole island, and caused intentionally billions of dollars in damage. Continuing the population exit is that help push the u. S. Commonwealth into bankruptcy. In mexico city, there is a race against time to rescue a young girl trapped in the rubble of a school. She has been there for more than a day since a killer earthquake rocks the mexican capital and the region. The death toll is now 230. Dozens of buildings have collapsed and dozens more are in danger of falling. A british Prime Minister theresa may may try to jumpstart brexit negotiations. Needs discussing the use for a brexit bill worth tens of billions of dollars. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra, this is bloomberg. David . David thank you so much, emma. Earlier this morning, s p cut chinas Credit Rating. To discuss this is our chief asian correspondent. As i said, this was not unexpected, but why do they say they are doing it now . Not unexpected, but i second downgrade by a major ratings firm this year. Theyre looking at the unsustainable buildup of debt in chinas economy. Reminder of the challenges that china is facing. They say they need to deleverage and slow the pace of credit growth. They have had two major ratings this year now. David as you have said, says they know they have a problem, and they are making progress. Is this just too little too late . They made a move some months ago abroad a broader backdrop. This led to risks being buildup in the system itself. They are somewhat behind the curve, but the timing of it is interesting. We are a few weeks away of an allimportant Party Congress next month, and china selling its first overseas bond in some time. The feeling with as in the is right with the decision, but they are behind the curve in terms of everyone else. Practicalt is the effect in the real world of this . Is there an effect on chinese Corporate Bonds . There is all the mechanical impact when a sovereign gets might driveand it up costs for those companies. Chinas markets are closed right now, we will know more tomorrow. What i will say is that chinas capital is closed. They do not rely on foreign funding like countries in the eurozone did during the european crisis. So the approximate effect of it might not be as that is the headline suggests. Alix there is one voice you want to hear when it comes to china, it is probably stephen roach. Here is what he had to say on bloomberg surveillance. China has a debt problem. China has talked very directly and especially about its debt. Roblem for a number of years you can be critical of china for aggressively to force its state on enterprises state owned enterprises to be levered. Are our twog us now guests. They also said that agencies are the last to know anything on the day. Do you care about this downgrade . Sean i think in reality, the wasit budget deficit always going to deepen. They knowledge that over the last 18 months. It knowledge to that over the last 18 months. Tax receipts should be coming back right now. The companies have started to issue special dividends, going back to the chinese governments coffers. I think it is some of a lag effect, the worst part of the but it might start to improve over the next six months. Looking tois to rise by the double digits. We think financials will be in the mid teens. It has been a good cycle for the equity market, and what has also been happening, i have seen a a significant amount of deleveraging in some chinese companies. Jonathan about a month ago they predicted nonfinancial sector debt to reach 300 of gdp by 2022. What can they do about the trajectory, because it is not flattening out . What has been happening is over the last 18 months, the government for the Balance Sheet deteriorating, and that wil that is so we has improved s has has improved soc improved. This will be the state of play over the next 12 months when they start to do reforms. Jonathan so when they say Financial Risks are increasing, are they looking at the government and not the wider economy . Sean yes. I think the reality is there has been a very big switch in who is actually taking the bulk of the risk anymore. It is less and the equity market and more with the governments Balance Sheet. Julia, as you look at this is this a different situation in china . The chinese savings rate is so high, did that reduce some of the risk . Manifest itself very differently in china because of the closed capital account and the current account surplus. But it is nonetheless a Macro Economic problem. What china has been seeing over the most recent explosive of debt is exactly what the europeans did and what in terms ofd shadow banking. I think the numbers are large, and the chicken will come home to roost. The question is when . Fighting that has always been the biggest challenge. David as i said, president xi has not made a secret of this. How difficult is this to make a transition without disruptions . Difficult. Ly they did that a few years ago. Reigned credit, tried to cut capacity, and looks very close to a hard landing. Measures of growth slowed very sharply in 2015 and 2016, and bailout that credit back out of thatarn they allowed credit back out of the barn and that is what fueled the growth and the agencies are focusing on. Chinese two thirds of debt are bought domestically, so the savings story maybe you can comment on it. The savings story is an example of do they need to get consumption up and savings down . Savings keep going toward overcapacity, workplaces they do not need it to go. Sean i agree with that, but it some point you need to use the current account position to bail out the banking system. The longer they leave it, the worst the position will be down the road. I do think they are serious about the soe reform. We will see more of that in october at the peoples Party Congress. Having a high Household Savings rate is a bit of a bailout, provided they can use it over the next 24 months. Alix i am glad you brought up the Peoples Congress in october, because that debate as to what reforms will look like after the fact. Will we see this growth, stimulus, the same supplyside reforms afterward . What is your base case . Thrust the economy into a growth phase to allow the supplyside reforms to go on. China fromn 20112015, but when you slow down and becomes difficult to do any reform. I think he tried he give the to give the economy a jet boost, and now is really starting to clamp down on the bank lending. There is a huge lot of to Bank Regulations going on. That will move through until 2018. You. Han sean darby, thank up next, our Global Economic advisor reacting to the fed decision. We will also be set up for a rate hike before yearend. For our audience worldwide, this is bloomberg. The committee decided at this meeting to maintain its target for the federal funds rate. We continue to expect that the on growing strength of the gradualwill warrant increases to the rate to sustain a healthy label market and stabilize inflation around our 2 objective. In october, we will begin the Balance SheetNormalization Program that we outlined in june. This program will reduce our Securities Holdings in a gradual and protectable manner. Overall, we expect that the economy will continue to expand at a moderate pace over the next few years. In the third quarter, however, Economic Growth will be held down by the severe disruptions caused by hurricanes harvey, irma, and maria. Jonathan that was fed chair janet yellen, sounding a bit more hawkish than anticipated. Is sean us with us darby and Julia Coronado. Julia, lets begin with you. The Federal Reserve has a history of making policy mistakes. What strikes me as odd as the confidence that the investors have in them this time around. What is your view on that . Julia i imagine janet yellen is doing cartwheels behind the scene at how well the market has taken the whole Balance SheetReduction Plan and announcement area announcement. I think it is that global liquidity we are seeing that is helping to smooth the path for the fed and maybe normalize a little bit more steadily than they have been in the past couple of years. I think they are taking advantage of that moment. Investors had maybe expected them to be more sensitive to the low Inflation Numbers that we have been seeing, as they have instead decided to recommit to a december rate hike. Markets took that reasonably well. Jonathan sean, markets have taken it reasonably well, but they are flashing a bit of a light at a flat yield curve. I wonder what the messages from the fed coming to the treasury market following the decision yesterday . Sean i do not think they necessarily wanted to raise the too much,e because it would have flattened the yield curve. But they do not necessarily control the long and. End. When we look at the bond market from an equity point of view, most markets are negative. The Global Economy will not be slowing down, it will be accelerating. I think the Balance Sheet reduction is a good idea in yieldof shifting the curve steeper and bringing back some of that relaxation and policy. It is still good for equity markets, great story for financials globally. Had a greatn price line in his piece today, saying traders have become so fed med to a dovish even what it is tightening policy, that they have seem to actually forgotten what a hawkish fed looks like. They are data dependent, they highlighted that over, over, and over again. A need apple in they need to be flexible and 28 team in 2018 and beyond. We do not know if they will be flexible because the composer how hawkish or dovish the fed might be in 2018, what it might be leaving it. Upathan i want to bring this dot plot and go through the estimates we are looking for from the various fomc officials. Price is talking about 2020, right here on the plot. Erg. Plot dot you have to wait for the tightening to come in 2020. That is where the forecasters are above the longer term mutual rate. You have to take these forecasts with a grain of salt. Does that matter . Julia it has not matter. Leadinget has been the fed for so long they will take a wait and see approach on that. They have been ahead of the fed, growth, lowerr inflation globally, and the fed would have to react with a ander pace of tightening normalization, and the market has been right. The fed is following the market. It may be that the market is a little overconfident in that, but it remains to be seen. David as you suggested, there is a debate going on between the market and the fed. You used to work at the fed. Pay attention to what the market is doing . Does it influence you at all . Julia of course it does. Different people to different degrees, the new york fed is very focused on that since they are managing the Balance Sheet, they have to make sure that as well communicated. But they do want their policies to be priced in and good communicators. They do not want to shop and surprise the market because that means they are not doing their job communicating. Yes, they will watch the market, and yes, it matters to them. But yellens mantra, because twistsave been so many and turns in the recovery that are unexpected, and the drop inflation is another unexpected developments, so she is different from the greenspan stands let me micromanage the market and make sure it is in line with my guidance. She is flexible, i will take the data as it comes. This is our path, but the path is data dependent. We will react to circumstances as we evolve. Alix what happened to real rates . Sean this is a nice environment for equities because the cpi is quite low. We have the inflationary boom, but prices like in energy are rising quite dramatically. It has been rising in the last come back, and they to the corporate sector very robustly. You have this emergence building up. Low cpi numbers, strong producing, that tends to be a for equities over bonds. That is where we are at the moment. Think the pricing we think the pricing globally has a big tailwinds to it in the next sixmine months. Alix sean darby and Julia Coronado, both of them will be sticking with us. Coming up in an exclusive interview today, we have harold hamm. No surprise, he is bullish on oil prices but has an interesting reason why. You have to listen. This is bloomberg. David this is bloomberg. Im david westin. Tech stocks have been on a tear this year with the likes of netflix, amazon, and google of 150 . But there is a growing force of lawmakers in europe calling for increased regulation on the megainternet companies are doing business, everything from how they are taxed to political advertising to being responsible on terrorist content posted their site. Just this week, chancellor Angela Merkel, president a cron, and Prime Minister say one gentiloni still with us are sean darby of jefferies and Julia Coronado of macro policy perspectives. Sean, as an equity strategist, what point do you need to take into account government regulation when you have a sector like tech . Sean they have a Business Model which allows infinite returns to scale, which again, in economic terms, is very rare. The issue is not necessarily that the u. S. Wants to go to the regulatory route. In europe, they want to find them and force them to change the way they operate, or, indeed, change their Business Models. Think it will start to be a headwind. They havein europe, started to introduce this tax levy on their sales. Theyre coming up from a variety of directions, not just from the regulatory side but on the tax side as well. If david if they can change the way they do business, will that not cut into returns . Sean i think it will. The business were these operators is that they will find investing difficulty to in the same rate. That was the problem with microsoft, in a similar position in the late 1990s. It faced a backlash against a regulator and was found to build up cash balances, because they cannot make this infinite returns to scale. Jonathan there are two threats coming from the government to andtex, and one up tech, one of them is that they pay a tax rate of 10 , normal business is paying around 23 . Another is around things like Facebook Advertising in russia. As an equity investor, what is the biggest threat . Living down on the tax side of things or the moral side of things . Sean in the short run, the tax side. They will introduce this tax levy, which i think will start to be focused on the amount of sales in each of their european countries, and that will start to hurt the bottom line overseas. I think other issues are ones that have to span out over a longer amount of time. Company theater Rate Companies need to wait for the Regulatory Commission to change. Julia i think technology has become such an important Macro Economic driver, i think of low inflation. One of the reasons consumers can use their smart phones and search for the best price. It has transformed everything, and it is inevitable that the regulators would start to pay attention. It is a matter of National Security now. It is a matter of personal security, information security. In all of our lives, and eventually even though we are deregulatory regime and environment, it is still a target and a big part of consumers lives. Julia sean darby and coronado will both be staying with us. For more tech stories, pick up the latest issue of Bloomberg Businessweek. The magazine focuses on facebooks challenges, especially for ceo mark zuckerberg. Close to theare cache open, and a series of record highs, four days of gains on the s p 500. Futures flat on the dow. From new york, this is bloomberg. Jonathan from new york city, daybreak. Oomberg im Jonathan Ferro. Four Straight Days of gains on the s p 500, four alltime highs. Futures just a little soft, but dead flat on the dow and s p 500. In europe, the banks outperform. That is the biggest gaining sector on the session. It might be able to be found in the bond market. A little softer in europe, treasuries softer as well, yields climbing high. Market, the eurodollar weaker, weaker, weaker,. 1. 1892. At now lets head over to emma chandra to get some headlines outside of the business world. Emma Hurricane Maria destroyed hundreds of homes and knocked the island. Ross damage may be in the tens of billions of dollars. Puerto rico is trying to restructure its massive debt will the government has warned it is running out of money. Special Counsel Robert Mueller has asked the white house for documents related to donald president ,ions as including the firing of his National Security adviser and fbi director. This indicates how wide a net mueller is casting. And u. S. Secretary of state Rex Tillerson is urging european allies to make changes in the Iranian Nuclear agreement. He says the deal has not stopped iran from playing a destabilizing role in the middle east. He spoke hours after President Trump says he made a decisi