Levels last week. Joe at one point, the nasdaq down 4 . Up. Ine some stocks are tyson foods, people still eating chicken out there. 5 . Joe real meat. Romaine not the alternative. Scarlet tyson foods up 5 . Jacobs engineering gaining 1. 7 . Lets dive deeper into the marker and into the market action. Luke i like to add a little size and scope to what we are selloff, terms of china. Collection of companies they put together, the median stock has 22 of the revenues. 33 of the basket is capped at tech. The worst trade war related selloff we have had yet. Stocks with a lot of u. S. Exposure have been doing better than the u. S. Wants. Scarlet intraday, the Wti Crude Oil is sliding today along with its peers. This situation had been sparking a flight from risk assets, unsurprisingly. The bt isolated to near vdi wti slid. Lossesd some of the after a drop at the main storage hub persisted. The dispute between the top two economies in the world is going to hurt demand. Weaken stokedyuan fears of a currency war. Romaine back to our topic of discussion, what is going on with the markets, still with us bloombergs mike regan. Merrill lynch had a note out, talking about this idea of a quantitative failure by the fed. It tucked about how somewhere more pessimistic about what was happening on the credit side. If you look at this market and you are looking for any canaries in the coal mine, what are you . Ooking at the credit markets did call it, so that is a good place to look corporate debt as a percent of gdp or any other metric you look at seems to be at an alltime high. We are also at slow growth, low Interest Rates, so the cost of servicing that debt is not nearly as high. It is at more historically normal levels. Economy is strong. The u. S. Consumer is in relatively good shape because the job market is solid. Still averaging 170,000 jobs per month in 2017. Consumer confidence is high. You just dont see a recession against this backdrop. Therefore, i dont think there is anything overly sinister from the credit markets either. Scarlet when i look at the year to date performance of equities, gains of double digit percentages, the s p, nasdaq, even after six Straight Days of losses. How much do you think todays selling is traced back to the idea that people say, i am done for the year, it has been a good year so far. Mike if you look at the last record less than two weeks ago, i am down 6. 5 . That is not an unusual correction. Notoriously volatile. The vix tends to reach a peak and start climbing in august and into september. Low volume, low percentage. Obviously a dangerous time to have curveballs being thrown at you. The i want to talk about credit market and bond market overall. Even on good days, rates have been drifting lower. Bad days, rates fall lower than that. Is this sustainable . Could we see deeper and deeper rates . Sandip the bond market is so overvalued. There are legitimate reasons for low Interest Rates. The Economic Cycle has become smoother, inflation is lower and better behaved. Outside of the u. S. , growth is so weak that Central Banks have engaged in quantitative easing, which lifts their prices up. There is a third dynamic. People are so spooked and so concerned about the alternatives related to the global trade war that they just want a safe haven. You wonder what this cost of safety has been in terms of these really high bond prices. I dont think it is sustainable. We are forming the opinion that the bond market is significant the overvalued. Here is a safe asset class that could be riskier than many believe. Bere are stocks that may not so bad. It is like this rally in the bond market and low Interest Rates that are supported equity market valuation. Like joe said, there are big moves in some bonds. European bonds, not that of a move. Euro tolly allowed the rally one of the secondbiggest rallies of the year today. That brings the dollar index is off their highs. It is the one element of financial conditions that is a bright spot to look at today. Bothet thank you so much of you for giving us your perspective. Whatd you miss . Is up next where we will have much more on the escalating trade war and selloff inequities. This is bloomberg. Live from bloomberg World Headquarters in new york, im scarlet fu and for caroline hyde. In u. S. Est drop equities of the year, the dow falling at one point more than 900 points. Ugly selloff to start the week with Financial Markets around the world royal by another fx the world around the world escalation inher the u. S. China trade war. Warning of dangerous situations as demonstrators moved to shut down the Hong Kong Financial hub. China punching back against President Trumps latest tariff threats. Reason speculation that beijing is weaponizing its currency in retaliation to what the u. S. Has threatened. The pboc governor saying earlier today, im fully confident that yuan will remain a strong currency amidst fluctuations. We are joined by robin brooks. Of course, freefloating currencies normally move around a lot and depreciate, but china is not a freeflowing kurt freeflowing currency. How do you read them letting the currency weekend below seven . Rmb has moved toward being a more freeflowing currency. We are closer to being a free float. Freefloating Exchange Rates are supposed to buffer economic shocks. Tariffs are one of those. I do agree with the pboc governor that some this is just the normal fluctuation you see in Exchange Rates. Joe it does seem to be striking that dollaryuan has hit this seven level. The last time they were perceived as allowing it to weaken in a dramatic way, the general view is that it didnt go well. His chinas position better in your view now in terms of dealing with the fallout of people trying to get their money out . Robin first of all, if you think of this weakening in the offset to tariffs imposed, how big of a weakening are we thinking of . That is the amount. We have seen a big drop in capital outflows from china, so the kind of vulnerability we had in 2015, 2016 wasnt there. The onshore population in china to been desensitized a bit rmb vulnerability rmb volatility. Romaine when you look at the moves we got, this came on the announcement of potential tariffs that the u. S. Has an even committed to. What you make of the fact that the market could move in this direction before we know for sure they are going into place . Robin i think that is a key totinction and important talk about. There really was no reaction in the rmb whatsoever. Instantaneous reaction, i think that points to a hardening of attitudes in china as in the United States. Scarlet when u. S. Trading began, the real difference maker was china allowing its currency to weaken. China saying it would allow park it would not allow purchases of agriculture, if the trigger was not allowing its currency to. Eaken what is the relationship between those two . Months,rading in recent we have had a fed that has shifted significantly dovish, a relaxation of trade tensions until now. You have wanted to use that to fund out of negative Interest Rates and invest in kerry. You mentioned before the break, the euro appreciating, the yen appreciating. It also means that the dollar is weakening. Joe we have seen the extraordinary underperformance. Obviously for years. Is there any prospect of that turning around in your view as long as these trade tensions persist . Robin it is tricky to see. The trading today is similar to what we saw in 2015 when we had that surprise rmb valuation. Oil exporters got hit. Peso is one ofn the biggest underperformers. Yields are under pressure. Romaine there has been a lot of talk on the u. S. Side of intervention, especially by the odds arernment, the about a 20 chance of that happening. Do you think that is actually a plausible option . Then my interpretation of relationship visavis china is the preferred way of dealing this issue is via tariffs and not intervention. My expectation would be for things to stay in that domain. Scarlet robin brooks, managing director and chief economist at the institute for international finance. Thanks for joining us. Joe coming up, one widely watched recession indicator on high alert and the trade war may be to blame. This is bloomberg take twoshares of halted right now. This is the videogame maker known for the grand theft auto games. First quarter adjusted revenue, a beat. A bit more of a mixed bag when it comes to the forecast. They are giving a range of about 860910 on revenue. The consensus estimate was for 876. Similar situation for the fullyear forecast, given a range that sort of straddles the line between what investors are looking for and what they would be disappointed about. Joe sticking with the trade war, rates on the 10 year note sank today, nearly erasing the surge that followed President Trumps election three years ago. U. S. Saying halts of agriculture import products pushed it into high alert. Our next guest says trade uncertain he says the baseline scenario is that the fed eases again in september. I want to bring in the author of tim deweys fed watch. Thank you for joining us. , in light of what happened since last week, everyone thinks another cut is coming. Will that be enough for will they have to bring out the big gun they didnt use last time and perhaps go deeper than 25 basis points to show they are getting ahead of this emerging weakness . A 50early, the odds of basis point rate cut arising. The fed doesnt like to make decisions based on one day of market moves. See in order to generate the 50 basis point move would be multiple days of this kind of trading that eroded conditions in the market such that the fed felt they needed to make a forceful response. Romaine do you think the fed has any other options or tools beyond just moving rates in one direction or the other . Realistically, they will have to follow through with rate cuts. I dont think they will want to say, Something Like a qualitative easing situation. I think they will want to use rate tools or jawboning as the primary response. Scarlet is that the right thing to do, that rates are the backdrop for markets whenever trump decides to come in and do what is needed to support that . Tim i think you have to think about it not so much as the fed being the backstop for the markets, but the backstop of the economy as a whole. The fed is very much worried that these kinds of perpetual trade wars and the market volatility associated will weigh on market confidence enough that investment will decline and you could have the coordinating pessimism. That is what the fed is worried about here, not so much the market, per se. I dont think the fed has much of a choice except to try to quell those fears. How we often see that reflected is in reaction to Financial Markets. Joe the fed might not like trade wars, and i think they , but it is not the feds job to judge why we are experiencing weakness. If there is weakness, they are compelled to act. If it is something selfinflicted like tariffs or something internal, it shouldnt matter to their mandate, right . Tim that is something powell said, hes not making a statement on trade policy, hes making a statement on the impact trade policy is having on the economy. The fed has to react to that. That is really what would drive an intermediate move. This type of behavior precipitates to the point where you really did have a tightening of financial conditions that was threatened sees up Financial Markets threatening to seize up Financial Markets, credit markets. Right now, i think we are at the point where the fed will probably another 12 in december. If this behavior continues and threatens to spread to main street, the fed will have to address that. Romaine this week, we will hear from two fed president s. Im just wondering what would want to hear from them and what they could really say to address what transpired since they met less than a week ago. Will have tothey repeat the mantra, we are going to act to maintain this expansion. It will be difficult to say the common words they need to say athout increasing the odds of 50 basis point hike. That is where the real challenge will come for the fed. They will want to resist that kind of rate cut. Points we saw the powell make last week is that they are uncertain of the effects of these trade wars on the economy. They are trying to manage the market implications in their own policy stance. Joe looking from the perspective of currency, obviously President Trump not a fan of the strong dollar, will probably like it even less with the yuan weakening further. Is that an artifact of Everything Else going on . Tim i would say that is an artifact. They would have incentive to push back against tighter financial conditions. I like to think of it as part of an overall backdrop rather than something specific. If it is something specific, it is really the treasurys job. Romaine always great to have your thoughts, professor at university of oregon tim duy. Coming up, markets slammed by trade. We will talk more about that. This is bloomberg. Sayoc, the fervent supporter of donald trump, who sent pipe comes to barack obama sent pipe bombs to barack obama, hillary clinton, and other democrats, has been sentenced to 20 years in prison. Prosecutors had saw a life sentence for him. President trump has proposed stricter background checks for gun purchases after this weekends Mass Shootings in ohio and texas. He outlined his proposals this morning at the white house. Pres. Trump we must make sure that those judged to pose a grave risk to Public Safety do not have access to firearms and, if they do, those firearms can be taken through rapid due process. That is why i have called for red flag laws, also known as extreme Risk Protection orders. Mark the president also called on the department of justice to propose legislation to mandate people convicted of hate crimes and mass murder to face the death penalty. Irans foreign minister has called the u. S. Sanctions against him a failure for diplomacy. He first announced the trumpet ministration first announced the sanctions last week. The United States is not interested in diplomacy. If they were interested in diplomacy, they were not have left the table. The sanctions come after irans revolutionary guard seized an oil tanker. It is the third for third foreign vessel taken by iran in the last month. Global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. Im mark crumpton. This is bloomberg. Romaine some breaking news here on marriott. The company reporting earnings. The results for the Second Quarter coming in a little lighter than expected. Revenue less than what analysts were expect. More importantly, they are cutting their full year outlook, both in terms of total out total revenue and revenue per available room. That is slated the range of estimates that were out there by analysts, and below the previous guidance they had given. Scarlet continue our conversation on the trade war. The latest escalation have sent markets into a tailspin. The widely watched treasury Market Indicator onto the highest alert since 2007. Lets welcome Brian Chappatta and catherine cry felt. We have been keeping our eye on threemonth 10 year spread, the spread between the yield on the threemonth end 10 year. That part of the yield curve has been inverted before. What really changed here . For a been flashing while. Brian the 10 year yield falling to the lowest level since trump was elected. It reinforces the concern that we are actually selfinflicted into a global recession and people are trying to seek safety of treasuries while there is still some yield to be had. Joe lets talk about the big news overnight, dollaryuan passing seven. Is this a big deal because of the size of the move or because something about that seven level was seen as untouchable . I would say both. People like to say seven is a psychological number, and it is, but it is a psychological barrier for a reason. The fact that it has finally broken through seven, days after we got this tariff hike from donald trump, signals that perhaps china is done negotiating. Romaine you can pick any number for the psychological level. When you look at the dollar bloomberg dollars bond index, for example, it basically ended up flat. Is there any sense out there that there would be any sustained selling on the dollar unless we get to some catastrophic circumstance . Katherine if you really dig into it, it is because haven bids are rallying. The biggest gainer in the g10 today. I want to go to this idea that has kind of gained currency, that the u. S. Could intervene in the fx market. For years, we have saying that u. S. Policy is strong dollar. But, trump of course has come in and broken all sort of tradition people are starting to price that, arent they . And the0 chance today next three months. The issue is that it is a bipartisan effort. Elizabeth warren also thinks we should intervene and make a weaker dollar. It really comes down to the fact that, if you get this coordinated effort from the treasury, defend. If you start to get a hold cohesive unit around weakening the dollar, i think it is pretty risky because so much depends upon the dollar. There is nothing packing currencies except the faith that your money will buy you something tomorrow. Did the people you talked to today really think this could be a real thing . Katherine trump himself has said that he hasnt ruled out action to weaken the dollar. He gave exactly the response he expected to get. He tweeted immediately that china is manipulating. People arent ruling it out. Romaine the 10 year yield u. S. Falling again to the lowest level since the 2016 election. There are a lot of calls that the treasury yield could weaken go negative. En brian it is possible. I think there was the first negative yielding mortgage bond in europe today. The craziness keeps on piling up. It seems like treasuries are sort of a safe haven. If you can get 1. 7 yield, maybe it is worth it. Thank you very much. Coming up, as brexit turmoil continues, we will take a look at the steps British Labour Party Leader Jeremy Corbyn is taking to topple Boris Johnson. This is bloomberg. Romaine lets recap a few earnings we did get over the past few minutes. Company, the videogame maker of grand theft auto. It is raising its revenue outlook for the year as well as eps outlook, giving a range that is the top end of the range of what analysts were expecting. Shake shack is beating estimates. Versus an 3. 6 estimate of 2. 6 . Caesars up fractionally. It met the estimates on net revenue. Shares up about 0. 4 . Scarlet take two takes it back to the same level it was out it was at before the selloff six days ago. We have bitcoin surgeon past 11,000 for the First Time Since july, now closing in on 12,000. It rose as much as 14 for fridays close. It comes after a selloff in july but it is unclear what exactly is behind it. The Federal Reserve will create a realtime Payment System to compete with wall street. It will allow money to be moved almost instantly at the at any time of the day. Big banks have been fighting the fed plan after creating their own system. In europe, the boards of takeaway. Com have agreed with a combination. The new company will be called just eat takeaway. It is adding that its experiencing turning a profit will convince shareholders it can fend off rivals. Joe as brexit turmoil continues, British Labour Party Leader Jeremy Corbyn now threatening an early vote to topple Prime Minister Boris Johnson. Lets bring in marcus ashworth, joining us on the phone from london. And isn corbyn really do there anything that the antibrexit forces can do at this point to avoid brexit if the government says it is going to leave for sure on october 31 . Marcus this is a classic game of chicken. Todays news from corbyn is not really any real news given that he has this power to call a vote of no confidence. The government is trying to say he has missed his opportunity before the summer recess. If force johnson managed to have survived a vote of no confidence or corbyn doesnt feel he has the ability to win one or wont call one, then the government will be able to continue negotiations on a no deal brexit. There is a chance of course for lawmakers to switch sides, as one has mentioned, either thelock or possibly majority, that a chance of a no confidence vote would come through. We are not sure whether that means that a general election could be delayed beyond the october 31 date. Taking the time for the general election. I think people who fear a no deal brexit are trying everything in their power to come up with anything in their power. The key is the no confidence vote. They wont call it unless they are sure they will win. Romaine how is the Market Reaction and preparing for this . Are they still pricing in the likelihood that this will be a complete fallout from the eu . Marcus it has not been that reaction. The business game plan has been worked through for a while. The likelihood of a noconfidence vote is very high. The question is, it is anyones call. The markets arent reacting so much to this latest use latest news. Gilt yields are falling but that is because they are following u. S. Yields lower. Benings coming through will on foreign currency, not pushed back into sterling. The real barometer is definitely the pound sterling. It is anyones call. The Boris Johnson government is aiming for a general election before or after the brexit date. They are gambling that they can hold the line with the you and if they win a confidence vote, i think it will really switch the pressure back on to brussels. I know the germans think that Boris Johnson is bluffing but i dont think they realize how serious he has to be to keep his party and country going. Sayset Standard Chartered 1. 15dollar could fall to if there is a no deal brexit. Is there a level to which boris limited orctions are did dated by the market moves or dictated by the market moves . Marcus i think as long as it is a measured decline, it is a really sharp drop, then you get that panic and it starts going through to gilt yields and slowbly the stock market drop towards 1. 15, 1. 10 area. That is where they think a no deal brexit will be fully priced in. That is where the weakness will be shown on the pound. Scarlet thank you so much for speaking with us. Coming up, the hong kong crisis deepens. The latest in todays asia head. Asia i had. This is bloomberg. Romaine time for asia ahead. The crisis in hong kong deepening. Stephen engle was there on the ground. Hong kong on edge again as protesters take the unrest to a ninth consecutive week and there is no end in sight. They called for a general strike across the entire populace. Here, handing out errors handing out banners saying to strike at school, work, and commerce. The hardliners took to the street and there were pitched battles in many places around this former british territory. Yes, there was confrontation with the police. The Police Firing multiple they wouldeargas have these pitched battles with police. Earlier today, they were behind government, confrontations, but then the protesters moved further east including causeway bay and northpoint. There have been other battles in parts of the territory. This is their strategy, to continue to cause unrest. Lam, she had a press conference. First time she had addressed the people of hong kong in two weeks. She said protesters are trying to ruin hong kong. Offered many say they no new solutions on how to end this nine week standoff. Thiset for more on ongoing story, lets bring in shery ahn. Stephen mentioned the general strike that people in hong kong called for. Walk us through what it entailed. Shery historic scenes that we havent seen in years. Only caught my attention was that these are guerrilla tactics that really evolved from what they were during the Umbrella Movement a few years back. These are people consciously getting together, moving from one direction to another. We have seen disruptions all around hong kong. More than 170 flights canceled. The airport trains suspended. Halted as well. Romaine when we watch that video, the first thing you start to think about is how much restraint will we begin to see by hong kong authorities and beijing . Shery that is the key question. At the moment, we continue to see beijing backing chief executive carrie lam. The protest started with controversial extradition bill. Now it is something bigger. They want carrie lam to resign. Also, for other freedoms to be given to hong kong. Protesters at the moment dont seem to have an end game insight. We have seen for the first time the most highprofile response coming from the office and they were asked about potential military intervention because there was a lot of speculation that the pla would get involved. They said they would have to act according to the basic law. Joe are more scenes like this expected or is this a oneday strike . Shery there is no end game at the moment. The protestsway the went away was they faded into the background they continued for two months. June 9, the hong kong superintendent saying hundreds of people have been arrested, more than 1000 rounds of teargas have been used june. They said the protesters ages ranged from 14 years old to 76 years old. Scarlet a lot of them are young people. You say the 2014 protests faded but it sowed the seeds of young peoples radicalization. They feel like they dont have any Economic Future in hong kong. Shery hong kong has been given country, two systems until 2047. Those kids have grown up five years later and a lot of them have taken the helm of these protests, like the Student Activist who was detained in the past because of these protests. Five years ago, i remember talking to them and they were talking about the Economic Prosperity not touching them. Have beenests compounded into all of these different reasons. So much greater than just the extradition bill. People feel like they have no future in this is kind of a lastgasp. Scarlet for more of these stories, dont miss daybreak australia and daybreak asia. Ugly selloff to start the week. Down 767 points, the worst oneday round so far this year. The vix spiked. It was at 19 at one point. It got close to 25. Romaine we saw the twoyear yields drop. Aboutight now sitting at 7. 145. Joe i think now it is basically, what is the fed going to do . Obviously, powell last week cut but didnt show great inclination to do much more. Scarlet what can they do . Their job is to backstop the economy. If the economy is going to feel the effects, they have to be there ready to provide aid . Romaine it will be interesting to see what happens, whether they follow the lead of the u. S. Shery overnight, Interest Rate decision from the central bank. Joe jim bullard set to speak in washington. Romaine disney reports thirdquarter results after the bell. Nextmberg technology is in the u. S. This is bloomberg. Chang in sanily francisco and this is bloomberg technology. Mondaysks lead selloff with chip stocks among the worst performers amid trade issues with china. Apple looking particularly bruised. Plus, policing the web. Two devastating shootings over the weekend leave dozens debt. President trump calls