S p is now down 2. 25 the nasdaq is off by 40 points that happened after news that we heard from beijing that well tell you about in a moment Interest Rates are a huge part of the market story. Yesterday we saw the inversion of the twoyear and the tenyear yield. So shortterm bonds are paying more than longterm bonds. Historically this is considered a recession warning sign check this out the 30year bond this morning is now yielding below 2 . This is the first time in history weve seen the 30year below 2 1. 99 . Tenyear is yielding 1. 557 . The twoyear is yielding 1. 54 lets look at what happened in markets overnight in asia. Things got a slower start there. The nikkei was down out of the gate it ended down by 1. 2 . In china, stocks are stronger. Shanghai is up by a quarter percent. The hang seng up by three quarters of a percent. In europe, there is active trading taking place, you are seeing some red arrows across the board. The biggest decliner of the three major averages would be the ftse we have breaking news out of hong kong and china. Want to start with china the government there responding to President Trumps plan to raise tariffs on some chinese imports that were supposed to go into effect on september 1st or will go into effect on september 1st saying beijing will take unspecified Counter Measures but giving no details. When that happened, the dow futures were higher prior to that by more than 100 but tumbled on that news you can see whats happening there. This s this is the key we looked with President Trump saying he would hold off on some of these maybe people would think this would be some way that theres a truce, something that comes together china comes back and says, no thanks they dont even mention some of the delayed tariffs. All the Administration Officials we talked to, talked to wilbur ross yesterday, they said this is not a concession to china. They made a point to say were not being nice this is about consumers. This is starting to square me, the brinkmanship on both sides of this. President xi is not stupid knows that President Trump loves a higher stock market. And is up for reelection. I just thank god its not nuclear brinkmanship, but this is economic brinkmanship that can get scary. They know that President Trump, it means a lot i think President Trump sees whats happening in hong kong. Hes like you have your own issue fofrce you issue fofrce you for your econot president xi has ways to quell problems that we dont and President Trump tying whats happening in hong kong to the trade turmoil. Which may or may not complicate things lets get over to eunice yoon in beijing now. Eunice thank you very much, andrew as you said, there are no specifics or details about what those countermeasures are, from what we see on the ministry the finance ministry website, the reasoning they were giving is the move by the u. S. Side contra events the c event contr consensus reached. I was speaking to some people here, some who do consult policymakers in beijing. They said china wants all the tariffs lifted and that even with the latest round of tariffs, they feel they were especially unfair the way it was explained to me, they felt President TrumpJust Announced theselatest round of tariffs and now he says he is delaying them but those tariffs should have never been put in place in the first place President Trump in one of lhis latest tweets last night seemed to suggest that the chinese needed to reciprocate because he did delay on these tariffs people here say that goodwill is not really there theres a reason why on an ou official level china did not respond officially liofficially. They feel this move was done because of complains from u. S. Businesses as opposed to a goodwill gesture to china. I asked do you think china will make big soybean purchases, the dont expect any at all. In terms of what President Trumps tweets on hong kong, the Chinese Government has not mentioned anything about those tweets about hong kong and state media has given us a bit of a sense of their frustration about what they see as broad u. S. Interference for example, the official peoples daily put out a commentary that reads to heck with the u. S. s concern on Hong Kong China daily editorial said the u. S. Politicians tweets expose their ugly hypocrisy when i was asking people do you think that President Trump or president xi jinping would meet with President Trump as President Trump seemed to suggest in one of his tweets, the answer back was universal that is that president xi jinping would not accept this kind of invitation because then it would be seen here as china allowing the United States to intervene in Domestic Affairs because china believes that hong kong is a purely domestic issue. So that is something the government would want to avoid eunice, just to put a fine point on it, you dont think well hear from president xi via twitter or elsewhere sending his regrets, if you will, to that n invitation no, more likely maybe on chinas twitter, but i dont think so eunice, thank you we want to get to hong kong, separately as we were talking about there, hong kongs government announcing a wide ranging stimulus plan as it admits the trade war is cutting into its own economy it says growth for the rest of the year could be flat Brian Sullivan is there. Well get to him in just a minute joe, i know we want to talk markets here and the reaction. Yeah. Lets get back to the markets and your money after yesterdays 080point selloff. Joining sus is brian levitt fro invesco north america. Good global perspective but more about north america, and david bianco brian, i did not have time to talk to you earlier. I spent time with david in makeup neither one of us were getting makeup yes i was getting makeup. You were. It is beautiful. Its great thank you what we decided, david, and we go back a long way, you think that this is not quite finished yet, as far as a correction. And that we may have a full blown correction were down about 7 . Youre saying it could be 10 , 15 , 20 the 20 is still unlikely. From the highs. I think whats likely is a full blown proper correction plays out, 10 to 12 decline. 2700 on the s pment s p. Were already down. I think we might have a test in september and october i think this will be a textbook correction theres enough reasons for it. Valuations are not cheap they are demanding i know theyre supported by the low Interest Rates, but these low Interest Rates, particularly the possibility of Something Like a total of 100 basis points of fed cutting rather than the 25 or 50 that we were thinking a month or so ago. This is a real threat to the profitability of the Financial Sector you can trace this back to the trade war, the general deceleration of the economy, in the past you would hear me talk about threats to industrials, materials, technology companies, but this is a threat to something domestic, the financials we talked about your worry that even though Interest Rates are low, the multiple could contract to 15 tl doesnt matter whether its the multiple contracting or the slowdown youre seeing causes earnings to go down. One way or another you put 15 on a lower earnings number, can you get to 2500 on the s p i think earnings will be 163 this year. No growth this year now. I think earnings will be 173 next year. You should get something for that there is no alternative. Yes if we were to be comfortable and confident that we would get mid Single Digits earnings growth, i would be comfortable with an 18 trailing pe on the s p 500 until then, its 17, 17. 5 at the highest with the possibility of people getting more unnerved that the pe could fall lower than that. Right i didnt talk to you, you heard all that were you nodding or whethere yo rolling your eyes . Im nodding when we talk about the downturn in markets. Downturns come with policy uncertainty. We have a lot of policy uncertainty now. I think investors should get back to what the Bigger Picture is, which is its a slowing growth environment, modest inflation, a accommodative policy globally, low Interest Rate environment, all that should be good for equities. But we need some we need to know the rules of the game until we get there, theres going to be a churn. The fed steps in i think at some point in an Election Year well have to have some agreement to i dont think were getting a framework trade agreement, but some agreement to push this off a bit to the future. I think equities will respond. How do you think youll know the rules of the road when things are changing so rapidly thats part of the problem. Thats the issue we have now we had a good economy, then sentiment falls as we add additional tariffs, as sentiment falls, the capital goods fall is this the feds fault or is this the trade war i dont think its the fed oomfeds fault. I dont think this is a fed problem. There are people who think it is they think there was 400 basis points of tightening when you take the balance sheet, and theyre so far behind now where the yield curve is on the short end, almost a 50 basis point would make sense people for so long thought the fed was too easy for too long my concern is any time the fed signaled additional Interest Rate hikes, the fed would strengthen, the yield curve would flatten, they needed to back down. Theyre doing so but to beckys question, you think this is a trade story . Is it a trade war story or do you think this is a Global Economic story and trade is a piece of a larger puzzle which is to say really things started to turn the wrong way yesterday as a function of what was happening in germany i think this is a byproduct of whats going on with trade. The uncertainty around trade that is slowing u. S. Growth. So you think if the trade when you took that off the table, Everything Else is not Everything Else is great. But in the United States, 2 growth, 2 inflation, easing fed was a fine back drop as soon as we started to muck around with policy, whether it was stimulus, then rate increases, then trade, we disrupted the apple cart do you agree with this . I agree with a lot of what hes saying. I would say a couple things. There is always a difference between gdp, the u. S. Economy, and the s p, and the profits situation at the s p even before we get to the valuations and this is a healthy economy. However even before the trade war people had to realize we had a deceleration in investment spending, excess capacity, commodity complex, things that are important drivers of profits were already slowing down. Thats what im suggesting. The jobs number always looked good on top. We thought all right now we have capex spending, theyre saying thats not where it should be a good economy. Hopefully its not the ten years of central bank easing we talked about this yesterday the 30year at an alltime low yield, that means 30year bonds were never more valuable than they are now, which gives us leeway with our deficit issues because our to issue more 30year and go to 100year . Lets do the 100year the deficit what threw a wildcard for me into the china thing, suddenly were talking hong kong, theyre mad at the way theyre theyre pointing fingers at us for how were responding to whats happening in hong kong six months ago that had nothing to do with it. We were talk about soybeans. For a long time this trade war wrapped more into it, including north korea. There will be more talk of human rights and Environmental Concerns theres a lot of democratic nominees who believe more issues should be brought into the trade debate i was surprised President Trump raised the issue of hong kong yesterday i appreciate why he was doing that, but given where we are and actually how fragile it is to connect those two makes his job that much more complicated its hard not to. I appreciate that by the way, theres been lots of times where they were separate positions. Wilbur ross yesterday said what are we supposed to do invade Hong Kong Cisco out last night bad forecasts. They had problems with dropping revenues when they drilled down on china, they did mention china, when they drilled down on it, its 2 of their revenue, it was 25 a quarter percent weaker that is still not youre talking about this overall feeling about the trade war and uncertainty, but youre not seeing it if you drill down to the numbers. Its hard to separate theres a lot of things i look back and for a decade or more i used to think take every Good Business model in the s p 500 and replicate it all around the world. Now i spin the globe and i have just concerns all around the world. Its a tougher environment to grow in. Yesterday wilbur tweeted after the show and said i wish i could have made the point that tariffs have not affected import prices or companies in this country. He implied he was cut off. I dont know who would have done that he implied he was not able to say that there must be an impact from the tariffs down the road. If china is paying for the tariffs these tariffs will be eased in and left in for a long time thats what it looks like to me. Wilbur ross was right about import prices, but when you started to see flight to quality, strength in the dollar, yield curve flattening, davids points what that means for the banks, you start to see where the problems surface the good news is that these are selfinflicted so we can ease we dont have to sit here with a flat yield curve. We can ease policy conditions, central bank doesnt run out of ammunition the administration could take some steps to try to ease some of this pain around trade. Std inveis the inverted yiel signal of were not inverted. We were inverted briefly just because invert briefly in a low Interest Rate environment, the fed can ease conditions. I could make that point if its 7 on the shortterm and 6 on the 30year, i can see how thats nuts. I saw cramer tweeting this morning, somebody said jim, we went from 2 basis points not inverted and then 2 basis points inve inverted and the world ends jim said do you have any idea what these moves have been really significant of . He said it like a Small Cap Stock trading on steroids. Theres something really happening here, could be there is. Any way, did we figure anything out no. Not really. Not yet thank you can you guys come back at 8 00 thank you. When we come back, much more on the market turmoil. Well take you to the sectors impacted by the trade war and the tumbling Interest Rates and talk about the feds next potential move first two big breaking news stories out of asia shaking up markets here Brian Sullivan is in hong kong brian, how does it look where you are . It looks nice now it seems peaceful, but underlying this, as you know, is a lot of political turmoil and financial turmoil. By the way, i heard andrews comments asking why the president , President Trump, would reference hong kong right now. Well, there may be an answer to that question. The answer is gointog come up after the break. I can shine, i can shine, i can shine. Imma do what im made to do. Built for excellence. You start from the foundation up. The excellence is reaching dreams and chasing them at the same time. The excellence is reaching dreams and im professional stylist calyann barnett, and i know that style starts from the ground up. For a lot of teens, shoes matter. The right kicks, make the outfit. Kids like to make a statement, they want that wow factor. And for parents, you want to pick shoes that theyre going to wear over and over again. So i put together some of my favorite kicks for the new school year. When it comes to back to school shopping, your year starts at dicks. Welcome back two big breaking news stories out of asia and theyre taking a toll on the markets and your money. The dow futures even after the 800point loss yesterday are down again this morning a decline now of 142 points. S p futures down 13 points the nasdaq off 80 points after the worst day for the markets all year yesterday lets get to Brian Sullivan, hes in hong kong. He has the details good to see you. Thank you very much. Both of these stories breaking over an hour ago at the same time one out of here in hong kong, one out of beijing. I will get to answer andrews question in a second heres the headlines you heard eunice talk about it china vowed retaliation of some kind on the 10 tariffs. In hong kong, also at the same time, the region, special Administrative Region of hong kong coming out and cutting its Economic Growth forecast they were saying maybe 2 to 3 , they cut it to zero percent. At the same time announcing a number of economic stimulus measures to try to revive growth and maybe placate some protesters who had a press Conference Today in english talking about the economy among other things those protests are expected to continue perhaps tonight, tomorrow, and into the weekend in your previous discussion, you guys were talking about maybe why President Trump had referenced hong kong in some of his tweets i dont know what the president is thinking exactly, this might go into it in 1992, five years before the