Scarlet earning start to matter again and we had this period of time were stocks were able to rally regardless of what was going on in the broader world. Regardless of what geopolitical headlines were being generated by the president and other leaders. Earnings was always the safe haven, the reason why everyone like equities. Now, on a day like today, it is hurting itself. Caroline lets dive deeper into the market action. Romaine, what are you watching . Romaine amid all of this market activity, we have seen quite a few ipos on the market. Take a look at solar wind. It is neither a solar or wind company. It sold shares at 15 per share which was well below what people originally were looking for. They thought it was about 19. They came in at the close today at about 15 and three cents 15. 03. There are quite a few other companies that have come to market that have done well. You have the Cancer Therapy company that went public on october 10 up about 30 . You have the macau Casino Company studio city who went public and they have been up about 30 . A lithium maker dropped a little bit since they went public back on october 10. Up abouthave anaplan 40 or more. The public. Ares to a lot of companies are still trying to test this marketeer. We have had 21 companies in the u. S. Test the market since the beginning of the month. So far, there are quite a few more companies on tap willing to wait into these wait into these waters. What it day for stocks. The s p 500 finishing fractionally lower. This is a month to date chart. We see the s p 500 down 5. 2 , on pace for the worst monthly performance since january 2016. The lapse of uncertainty is around the trade war, tensions between the u. S. And saudi arabia, midterm elections, so the sellers are trying to take control from the buyers which is showing in the technical suit. This is a oneyear chart. Year, whenier this s p 500 crossed below the 50 day moving average, it was supporting the longerterm buyers and blue and the buyers overall to the s p 500 higher on the year. More recently, on the volatility, we are looking at the third close below the 200 a moving average over the last week or so. That was the first time we have seen that since winter 2015. The by theu that dippers have been willing to buy the debt and they are not doing it as much. This could suggest the entire off of congestion, dangling of the s p 500, if that happens and last weeks low was taken out, it could suggest it may drop below 2500. What i am watching is something a little different from whats roaming was talking about with the cyclical defenses rotation. There is another rotation brewing and it is a battle for the soul of the equity market. About are talking factor rotation for momentum as a big cause of the tumble we have seen in stock markets. This chart shows on an intraday basis, a look at how momentum versus value is moving and trading off of each other on a is amazing. Ctor, it this shows the rotation is not resolved at all. For instance, this is day three of a bull market when spreads tend to widen, volatility goes leadershipket narrows. They are saying this is a big value tribe. Trap. Is now trailing the nasdaq 100. Scarlet luke, thank you so much. At headlines out of President Trump speaking in arizona. He says the administration will get to the bottom of the khashoggi incidents. He says it would be hurtful if the u. S. Did not sell to saudi arabia. The president adds sanctions could be considered over khashoggi, but saudi arabia has been a great ally. A lot of conflicts as he determines how to respond to the death of jamal khashoggi. Davidne lets bring in from Global Wealth management. How are you assessing these geopolitical concerns surrounding saudi arabia . David it is not a big factor in terms of how we think about allocating capital. At the end of the day, i think it does not have a big implication for Economic Growth more broadly. Concerns areigger what has been plaguing the market recently which is Interest Rates moving up of it and will that have an impact on epidemic growth Economic Growth . So. Ont think with of the terrorist situation, the market is recognizing if the situation, the market is recognizing if the u. S. Goes down that front, that is much more important factor for u. S. Equities. Headlines can generate volatility, but i do not think it will result in change to corporate profits or Economic Growth. Scarlet headlines generate volatility and headlines on saudi arabia raise the concern of the price for oil feeding into inflation. Oft you seeing in terms inflation and how that impacts the bottom line for companies . Quarterlyd, this earnings season will be dependent on what Companies Say regarding their input costs and passing those expenses on. David we see a little bit of increase inst cost, especially raw materials. A lot of companies have exposure to energy and oil prices, and things like that. You are seeing a little bit of the margin squeeze. That is very concentrated in a small number of companies. I think you will see margins are well sustained at widely, i think you will see margind are well sustained at these levels. Cost is not rising at that level. I do not think it is a big issue for the markets, but it is something that could affect individual companies. Caroline when you look at individual companies, it is at the time to remain in the equity side of the equation . Where do you see the rates gets more tasty . If you look at the valuation between stocks and bonds, stocks still look pretty attractive relative to bonds. That equity risk premium is still quite appealing and higher than it has been, higher than it usually is. Interest rates are moving up and there are more opportunities to allocate into fixed income, but if you look at the yields and earnings yields that are on offer with an equity markets, they look quite appealing relative to fixed income. Stick with your equity exposure, especially as we continue to expect good gains in corporate profits and could growth in the global economy. Scarlet so within equities, do you continue to stick with u. S. Names or is it time to look abroad . China saw the shanghai composite fall to a fouryear low. It seems they have found a little bit of bottom thanks to kind words from chinese regulators. David our view is to have a globally diversified portfolio. We do not have a preference between the u. S. And other regions. Generally, the u. S. Has had a little better growth at the moment, but your point, there are potential catalysts overseas where we could see some stimulus leaders that china has been putting in place begin to gain traction. Valuations overseas have certainly got fairly attractive. I think it makes sense to have a balance between u. S. Equities as well as overseas equities at this point. Rates for us your key concerns looking into next week. Is it still geopolitics you look at, ray to look at, are you expecting some sort of bottom in the s p 500 and in volatility . We are getting more constructive. There will always be concerns out there but now that the , thets are down five or 6 markets are recognizing the risk that we have seen out there that the markets had to seem to be seemed to be ignoring especially in some park its pockets of growth. Markets are more attuned to the risk so there is less downside. If we get further escalation on the trade front, i think that could become very important. Side, we have probably seen rates reached levels we will not see much more of an increase from here. I think that will become less of an issue going forward. Whenever you see a spike in volatility, you get unsettled markets and it takes time for the markets to find footing and figure out which way they want to go next. We think they will rise because of the strong u. S. Corporate profits picture. Scarlet david lefkowitz, thank you so much for your time. That does it for the closing bell and for me. Remain will step in for me where we examined chinas problems from all size. Sides. This is bloomberg. Caroline live from the bloomberg World Headquarters in new york, im caroline hyde. Romaine and im romaine bostick. Joe weisenthal is off today. Caroline a pretty flat day but the dow jones finished in the green. Romaine the question is whatd you miss . Caroline caught between a rock and a hard place, turbulence and economic slowdown adding to the china trade problems with the Trump Administration. The financial world grapples with the growing outrage of jamal khashoggi. Holiday is having to catch a break as the Eu Commission was a slow on the Government Spending plan. Trump has just been speaking about the showdown with saudi arabia. He says the country has been a great ally, but sanctions could be considered over the killing of jamal khashoggi. All this as they struggle to respond to the mounting crisis. With now hows the social impact coming when we look at saudi arabia . It is an awkward time for this to be happening. We think maybe because the beginning of the year, he sent this letter to executives of public Companies Saying you need to consider the social purpose that your company is serving. Now, with such a public scandal playing out in the wake of the alleged murder of jamal khashoggi, it has thrown the spotlight on these wall street reacts over how they will beyond just dropping out of the conference next week. Romaine you wrote a story and there was a quote that said they are stuck between conscious and the demands of the bottom line. Doesnt the bottom line when out one way or another . Annie historically you have seen that. Example where you them taking the bottom line is a greater consideration. Caroline its interesting you would have the libya did at the track record. All black and white. There are areas of gray. Is that the gray ceos are stepping back but there are highprofile people going. Annie thats right. Dealmakers are still showing up from a lot of the banks that have pulled their ceos from the program. Credit suisse for example, the leaders of these types of businesses have left the program but they will still send delegation along. It makes you question how much are you doing by symbolically dropping out. Romaine but theres a reason why a lot of these folks are not dropping out. What is at stake with the type of business they are going for in the dollar value . Annie if you are one of these businesses, you put a lot of time and energy into creating relationships in the kingdom and you may have investments already happening. So, to drawback immediately in mostake of this incident, of them think it is premature. It leaves them in an ethical act,ary over how to especially since this has caused attention, and it is certainly not the first sign of human rights abuses out of saudi arabia or many countries where giant Financial Firms to business. This has been a lightning rod. Since it is all playing out publicly, it kind of puts pressure on the ceos. Caroline meanwhile, one says he still sticks by the plan to have an office in riyadh. Annie the aramco ipo, even though it is not as soon as we thought, still hangs in the balance for a lot of these banks. That may be a reason they decide hey, we will still send a some of our big dealmakers to the conference. Romaine what about other companies countries excuse me. We talk about some of the big u. S. And european bankers and ceos. There is an issue here that if those people pull out, there are a lot of people in china and asia that may do not have the same moral quandaries. Annie thats right. You could be leaving a void for others to fill. If youre looking competitively to your options, you do not want to be stuck on the sidelines. So this is all going into the calculus. Caroline certainly what trump has been saying in terms of protecting the military deal arabia. Udi it is a great story. Look out for it online. Coming up, ford pokes fun at tesla as elon musk and co. Refresh their product lines. We will talk that next. This is bloomberg. Is bloomberg. Romaine tesla is trying to get the new model three out there and is dropping one of the self driving. Elon musk said it was causing too much confusion so they will drop. A temporarily as they work through the issues. Here to talk about that and drop it as they temporarily work through the issue. Here to talk about that and other issues that were next guest. I think this is a case of elon musk wanting to change the narrative a couple of years ago so they had a real ugly falling out with one of the really important suppliers for their autopilot system. Rather than have the attention delay ort of this problem with their hardware on the autopilot system, they wanted to make a transition to the new hardware, but also give a little more ofm to that omf on that announcement. To his point, there has been confusion about is autopilot fully self driving or not. It is not. That is cause real problems with them with regulators and the public. Romaine so that is where the confusion is. Caroline this confusion is giving pessimism to a few of the analysts. We spoke to a key bear on tesla saying this is lack of continue to plan. We question the ability to deliver from tesla on their promises to customers when they are on the brink of a massive supply chain disruption. We see very little Contingency Planning and we also see executives from the supply Chain Department the parting in recent departing in recent weeks and months. Caroline clearly outlining the struggles that continue to present it has a. What does it speak to in terms of getting the model threes out and into the customers and as quickly as they like . Craig a big point that she was making there was there is a lot of attention on they have had delays with paying suppliers takingher suppliers leads up to against them or against their subcontractors. That has raised a lot of red flags for people including the shortsellers. She is not necessarily the first appointed out, but definitely laid out an interesting case. Tesla has definitely pushed back on whether that is overblown, but it is certainly the case you them try to take steps to pull every lever they can to get to that profitability in the back half of this year. Romaine what is interesting, everyone gives elon musk credit as doing something innovative. Ford came out with an ad campaign that pokes fun at some of that innovation and maybe how it is falling short. Craig in a notsosubtle jab at tesla, they have a reference to the idea that we do not shoot cars into space, but we have a couple of million in driveways for this particular model, i believe it was the escape. Is little bit of an edgy on ford. Ness Bryan Cranston was the pitch man. That ad campaign will be debuting this weekend. Caroline talking about edgy and nervousness, i will take it back to europe, how much a second profit warning . Craig just within the last few months. Youre putting me on the spot there. That sounds about right. The first announcement on the profit warning was the idea china was a big part of it, and we were talking a lot at that the about ascension 232, same trade code used to identify the steel and aluminum tariffs. The Trump Administration has looked to do that as well. The programs that problems mler and others have is getting some vehicles approved for sale under that regime and generally, a lot of litigation, ongoing fallout from the volkswagen scandal coming back to bite. Romaine are there broader issues in the global Auto Industry . Not just confined to daimler or ford. Craig absolutely. China and the u. S. Are the two markets to watch. With china, we have seen the case anytime the market has shown signs of being tired are looking like or looking like the will go up up up, government has saved the day with special measures or tax breaks. There are questions on whether they can afford to keep doing that and if that is unhealthy for the government to do. In the u. S. , we have had a surprisingly strong to the start, but we knew we would face tough issues at the end of the year. We are seeing real softness in this market in china and in europe with emissions testing issue. Caroline craig, thank you from bloomberg the autos editor. A quick check on the business flash headlines. Shares of honeywell are high today. Earnings Beat Estimates. Of lynn technology was richest woman, but she has lost 66 of her fortune. This is not just china, but it goes back to tesla. Romaine right. They made the touchscreens for tesla. It shows you how integrated we are globally. Caroline and how the mighty fall in terms of their millions. Romaine absolutely but she is still a billionaire. Caroline she is still wealthy, but it has been brutal in chinese stocks. This is bloomberg. Rg. Im all about my bed. This mattress is dangerously comfortable. When i get in i literally say, ahh. Meet the leesa mattress. A better place to sleep. This bed hugs my body. Im now a morning person. The leesa mattress is designed to provide strong support, relieve pressure and optimize airflow to keep you cool. Hello bed of my dreams. Order online. Well build it, box it and ship it to your door for you to enjoy. Sleep on it to up to 100 nights and love it or you get a full refund. Returns are free and easy. I love my leesa. Today is gonna be great. Read our reviews, then try the leesa mattress in your own home. Order during our fall mattress sale and save. For a limited time get 150 dollars off and Free Shipping too. Sale prices are available right now. Go to buyleesa. Com today. You need with i am Mark Crumpton bloombergs first word news. A Russian National or has been national has been charged as someone to disrupt the american interferesystem and in the 2016 elections. And shen was identified allegedly worked for a Russian Organization funded by an oligarch. Of helpings accused create thousands of fake social media and email accounts. The alleged conspirators referred to the accounts as information warfare. Against the United States. Mike pompeo says a moment of crisis has approached is approaching as Central American migrants travel north seeking to enter the United States. Today, the migrants poured on the border gate in guatemala. Mexico says it will ask the United Nations Refugee Office for help with the arrival of several thousand under an on migrants hon duran mingrants. They are not moving just for coincidence from the home countries, but from conditions that are serious. Also, the respect of their rights means each and every case has to be individually considered. There cannot be a massive collection of expulsions. Mark guatemala has decided to in the metered entry face of the thousand migrants trying to cross. The eu has signed a landmark trade deal on the sidelines of a europeasia summit in brussels. The deal seeks to improve Investment Cooperation and remove all customs duties. It is the First Agreement of its kind between the eu and the Southeast Asian nation. To the pollsreturn hoping to bring change to widespread corruption in the country. Voters will have to wait a week. A vote was delayed after the police chief was assassinated. In eight years since there were last held parliamentary elections, the taliban has carried out nearly daily attacks on security forces. Global news, 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am Mark Crumpton. This is bloomberg. Caroline thank you very much. The yuan is slumping for third week. A next guest says it would be better for china to let the yuan we can past seven per dollar rather than try to defend level. He joins us now from washington. Robin, do you think they are intervening as it stands because all of the fundamentals point for the yuan to weaken anyhow. Robin i cant remember a time that was as complicated in terms of managing the rmb for china as right now. There is this fixation on the seventh level for dollars see ny cny. To have the fixation on a Floating Exchange rate like that is unhelpful. Yo bigger issue is, if impose tariffs on a country, the natural responseu for the currency is to weaken. Is romaine what is the point of defending the level anymore . It undoes a lot of the progress we have made since 2015 and the market seems to be preparing itself for this volatility. What did a game i doing this . Robin thats a good question. What Market Expectations are in the considerations of the chinese. Market consensus is having come back from the meetings in bali and the broad consensus was that the seven would not be breached soon. Many analysts have written about seven as a critical level. I think there is a bit of a fear factor in markets. That has changed and the fix has moved a little bit. Has signaling sensitivity since we have not seen that level in a long time. Whatine if we had seven, would you perspective,hinas there are two considerations. On the chinese side, you want to avoid freaking out your own public population. A population that has significant wealth. If the population starts to feel like a big devaluation train, they might start to flee the currency and you might have the kind of capital flight you saw in 20152016. For external markets, the chinese will want to avoid the impression of a oneway trade. I anticipate that will be a lot of back and forth if we go about seven above seven. Chinas when i look in gdp numbers, they weaken the little bit. I also look at retail Sales Numbers which were good. How strong is chinas economy . Robin that is a great question. As you know, the gdp data has been very stable in the region and 65. 67 at the iaf, we have our own Activity Tracker which is around 5 so it is quite a bit weaker than the numbers. Anecdotally, we are picking up all kind of stories of relatively weak activity. I think it is clear the economy is weakening and the external pressure and uncertainty of that is not happening helping. Caroline we are getting a focus on trying to drive growth by borrowing even more. Robin the difficulty that china has had, there is a leverage overhang. I think that is fairly temptationso the here is going to be to use fiscal spending and Government Debt in essence to try to stabilize the economy. T you really want to do the imf has emphasized this many times, to do structural measures to free up the economy and booze private enterprise. Whether we will get that is an open question. Romaine when you look at all of the things china is doing, the levers they are pulling to i wonder, economy, when did we get to the point of china where they emerge from being an emerging market and an undeveloped nation and start behaving more like a developed country . In many respects, china is extremely advanced in finance, artificial intelligence, and so forth. We import a huge number of products from china because they are very sophisticated as a manufacturing sector. If china allowed investment flows more freely, many Foreign Investors would be very happy to invest in china and more. The issue here is more around the trade relationship with of the United States and the uncertainty that is creating. That is a negative. Caroline robin brooks, we thank you. You have been seeing throughout the headlines that moodys Credit Rating institution has downgraded italy to a baa3 from a baa2. This is highly anticipated is because they still exhibits credit strength. More on the breaking news, we have john who is a man who does something about writing an important conference today. This is more anticipated that we get this downgrade. Something to reassure the market . It all to be something to reassure the markets. We have seen a very strong recovery for italian bonds today. Possibly people deciding they had to start behaving more after reading my bloomberg column. Caroline [laughter] probably not, but possibly. As you were saying, the eu has been hard on whether it will allow italy to get over the budget. It has broken its more strict accord limits running central to the hallway the eurozone works. Any watering down of that kind of rhetoric might make it easier its alito wiggle through. Our italy to wriggle through once you let somebody gets away with that caroline like france . Exactly. Once you let italy do it, it becomes harder to say no to the smaller countries that might want it, like france. Romaine how tough is the eu being . I think they are already being consolatory. How much back onto the have to really hold out . John we remain to find out. Part of the issue with italy is has not gained that much whitespace. We are still uncomfortably aware theres another chaotic issue involving the ownership of the eu affecting markets and affecting political thoughts in the last few weeks. Said, it seems to me the language has been quite strong. Was to send the italians a letter asking them to explain what they have done. If you look at the way the market has been reacting over the last few weeks, this is what i tried to cover in my column, it is quite startling how bearish, how implicitly worried about the italian Political Risk that the market is. When italy was part of the acronym. When people were talking about contagion and when we were already in full crisis. This time around, there is not the same branding around that. Caroline there is a bit of contagion. Spain is making an issue with itself, but there has been a slight widening in the yield in portugal and spain. Did that make them step back from the vitriol and get cozier . John i think it is primarily a simple question of how much can they afford or dare to call italys bluff. , threecase of greece years ago, when we had an even more populous government saying they would not go through with the disparities, on that occasion, the rest of the eurozone Banking System had cut and thees to greece germans, and others at the core of the eurozone. Italy is bigger, much more competitive, and the may realize they cannot follow the same script with the populists in italy. Caroline great insight. Moodys cuts italy down to a baa3. This is bloomberg. Caroline the next financial crisis could stifle investments. That is what a Nobel Laureate told bloomberg today. Will almost surely have another financial crisis. We dont know when, but we will have it again. Theres a thing we can do right now to get ready for it, which is create a bunch of new banks that are legal entities that are shells sitting there. If we get another crisis where we need to inject another large quantity of taxpayer funds into these banks, you put it into these new banks, let them operate, and avoid populist backlash of why did you give billions of dollars out of main street. And they are not publicly traded, they are just shall bank set up. You would provide a bunch more capital and you would sell off the shares once the crisis passes. Part of the source of the populace aggravation is the distribution of wealth and income. The practical effect of the going twot is not ca things that would redeem that. Yet, you suggest we feedback on ourselves because the politics almost make it impossible. The other thing is, part of my job is to raise possibilities, to try hard to be wrong. We need to suggest things that are precise enough that people can say well, it turns out it is not true. I think we need to think hard things likes behind this resistance to invest. To think about what it was like during the crisis, if you got caught with no liquidity is a corporation, you had to selloff assets at very depressed prices. So you want to hold onto a lot of liquid assets, and two, if a bunch of other people have to selloff liquid assets, you think i have even more selloffs and a bunch of assets, and liquid assets, i can make a killing so the expectation of another crisis may be part of why we see so much accumulation of liquid assets and so little investment into the machines and infrastructure, the things that raise qualityoflife. How do you fix that . You try to reduce everybodys estimate of the probability will we we will get another crisis. Government has to intervene, it is less relying on private money. Use government assets instead. You have been critical of your own economic profession. Our macroeconomics helping us in Monetary Policy right now . We look at the fed as they said Monetary Policy. We have all of these models, are they working for us and helping us . I think we have room to do better. In my profession. We are at a critical time because there is skepticism about experts. When i went to the bank after the brexit vote, which for a lot of people was a vote saying if the economists are for it, we are against it. We have to clean up our act which means we cannot be tolerant of shortcuts and sloppiness. Caroline that was the 2018 Nobel Laureate in economics there. Quick check of the latest business flash headlines. Apple has a new top bull on wall street. The price targets would be the market value of 1. 5 trillion. They say apple will probably Beat Estimates of the iphone shipments next year. The average selling prices expected to be higher. A french tire maker is warning of declining volume in europe testingew emission [indiscernible] britains former deputy Prime Minister is to run at a time where governments are debating how to regulate the social network. That is your business flash update. Be a bad monthay for biotech, but lots of investors are betting on the sector as a whole. We will tell you why, this is bloomberg. Caroline Technology Stocks are some of the worst hit by the market turmoil, but many investors are hungry for selloffs in the space. Lets bring in the reporter that follows this from boston. It looks there is appetite for the smaller players, rebecca. That has been interesting. In selloffs, if you expect investors sell the riskier first. In biotech, you would think those are speculative science driven Companies Rather than the companies that have drugs in the market already. And not just drugs on the market, but big billion dollar sellers. Bigger companies are the ones driven driving the market lower. Are you seeing the differentiation between the big company and the smaller company, particularly when you talk about the ones coming to market . Robecca what is really interesting is that 2018 has been a boom year for biotech ipos. 2000 recordng the set with 5 billion raised for new companies. We are a little over that now. It has really been amazing to watch. At the same time, bigger , these hundred billion dollars huge profitable companies, their shares have struggled. That is because investors are wondering how they will replace the older blockbusters nearing their patent dates. Caroline and the Trump Administrations campaign to lower drug prices could not have helped. Robecca when some of that first came out, there was talk that this was just rhetoric but not actually going to have an impact. What we have seen as Many Companies have voluntarily said it will keep rice hikes in line with inflation or they will cancel price hikes. Certainly, there has been the messaging that they will keep pricing aggressive. Investors have finally gotten the message and they realize we might not get the price hikes which will drive up revenues. How else will these Companies Grow . Caroline we will keep an eye on our startups. 45 drug ipos listed this year. Thank you. Lets keep talking biotech. The etf industry is seeking to get in early on the next generation of bio start. Romaine banking on a breakthrough banking on a breakthrough. This etf tracks pharmaceutical names with one or more drugs in two or three fda trials. The fund is made up of u. S. Listed small and midcaps. Each company must have enough cash to last 24 months. Investors hope names including amber in, galapagos, hit it big on the next new drug. On a the risk can pay off hefty reward, it comes with a high risk if the Company Fails to deliver. Bile has 250 million in assets with an Expense Ratio of 50 basis points, cheaper than bbc. Etfs launched in december 2014, and over time, bio is a clear a performer returning 50 which is in line with the index. Sbio gets a green light with no notices. You can catch etf iq with scarlet every wednesday at 1 p. M. 1 p. M. New york time. Dont miss this Investment Initiative even after investments have dropped out investors have dropped out. Romaine twitter, alphabets, and amazon reporting earnings. Caroline that is all for whatd you miss . Romaine Bloomberg Technology is up next. Caroline have a great weekend. This is bloomberg. Comcast business built the nations largest gigspeed network. Then went beyond. Beyond chasing down network problems. To knowing when and where theres an issue. Beyond network complexity. To a zerotouch, onebox world. Optimizing performance and budget. Beyond having questions. To getting answers. Activecore, hows my network . All sites are green. All of which helps you do more than your customers thought possible. Comcast business. Beyond fast. I am brad stone in San Francisco filling in for emily chang. This is Bloomberg Technology in the next hour, netflix, the first a big tech to report earnings, Third Quarter subscriber growth that could impress, can the rest of the faang family do the same . Congressman wants to protect people online