welcome to the pulse. i'm francine lacqua. if filtered through here in the european stocks. it -- we opened lower. in the last 20 minutes we saw complete reversal tiered the dax is gaining. european stocks are rising. we are seeing some haven buying. oil still dropping. did the screen for you. this is china trying to stabilize the yuan. let's get to the bloomberg first word news with nejra cehic. take it away. nejra: chinese stocks have extended last week's plunge. thees data fueled concerns slowdown is deepening. extending declines to a record 46 months. the cost of borrowing has jumped by the most on record. followingy -- suspected intervention by the chinese banks. the biggest ever ipo. jpmorgan and deutsche bank are in position to win a role if saudi arabia goes ahead with the offering of aramco. they are considering selling parts of the business. david bowie has died at the age of 69 after battling cancer for 18 months. he was one of the most influential music artists of his generation. he was a chameleonlike performer that blurred the line between genders. that is your bloomberg first word news. francine: very sad news. thatafter he did a record one extreme applause. --cks in china have extended concern that the slowdown is deepening. joseph stiglitz told bloomberg that market rules are important. .> it is not a cataclysmic it is a process of slowing down. it does remind us that market rules matter. the way you structure those market rules can either diminish the volatility or increase the volatility. here is ae seeing consequence of some market rules that were not as well designed as they could be. saidine: the ceo of ubs despite market turmoil, the bank plans to double the staff in the country. >> china is not on its own. we have to expect some kind of adjustment for 2016. those are the good times to plan for the future. that is the reason why we are starting to implement our strategic plan in the next five years. we think we are going to double our account in this region here it -- region. francine: let's break down the china story. ,oining us as our guest host jim mccaughan. us. great to have you with it is been quite a week. extreme market moves. a lot of people setting a chair would say don't worry about it. others like larry summers say hold on we would -- we should pay much more attention. jim: i would regard last week as being a pretty massive overreaction to the changes in china. i think it happened because of the circuit breakers which led to the market closing early. howe is a big uncertainty bad it could be an markets don't like that. abouts in the end are clearing supply and demand. the chinese and demand. the chinese equity market has not been allowed to do that for the better part of a year. it ran up liquidity. it then fell back to ground but with a lot of stocks suspended. all of leicester, the chinese equity market has not been clearing. it is a difficult market to see where it does end up. francine: there are two sides to be concerned about. this could be huge if the bubble that we saw in equities moves on. the fact that we are seeing such a huge outflow. jim: every wealthy chinese is taking their money out of the country. that is the story of the currency. the people's bank of china has been supporting the yuan and trying to keep it. there is a misunderstanding in the market about the downward moves in the yuan against the dollar. it has been moving down with the basket that the chinese have already indicated. since the dollar has been strong , the yuan has been weakening against the dollar. that has been worrying people. that is a misplaced worry. what does thes of market tell us about the economy, we don't know yet. it looks most likely that china is not going at 7% that the government statistics say here it it may be growing at 3.5% or 4% which is still a good number. does china really hit the wall? at the moment, the chances are no, but it could happen. francine: even if it does have a , what did we learn last week? we should give them more time? these things happen when you are dealing with such a big economy. pboc is fairly new to these things. they can do things to ease monetary conditions when there is a crisis. the chinese would point to that and say you are accusing us of market minute relation, what -- market manipulation, look at what you did. allowednd, markets were to clear supply and demand. that would be the most optimistic thing to happen in china. if it was clearing supply and demand and operating properly, i think you get a rapid move to confidence. francine: at what point would ? are wet worrying more going to see more capital outflows? jim: the debt market is the big uncertainty. my general feeling is this is an overreaction and a buying opportunity in u.s. equities. it dedicated -- it is predicated on limited contagion. the debt markets in china lead to bad debt that somehow affected western banks, that would be bad news. contingent sort of that i don't think will happen. are telling us about the economy, one of the interesting things is the gassing out of high-yield spreads. producers are good to see bad stuff coming up. the bond market's giving worrying signals. i find that and more worrying signal than i do chinese equities. francine: that links back to the south african story. stay with the polls because we have plenty more coming your way. hao: a kicks off burning season today. europe in crisis. davos torkel gets deal with issues at home. we will deal with 16 euro crisis. ipo -- more that coming up on "the pulse." ♪ francine: welcome back to "the pulse." reversing earlier losses as it shares of exporters made a weakening euro. mark barton breaks down this morning's market moves. we have to look at oil. mark: commodities are falling good european stocks are rising commodities are falling. european stocks are rising. .hina continuing producer prices falling 46 months. still about half the government's target for 2015. suggesting there is further rub for stimulus in china central bank keeping its rates unchanged after cutting it for eight consecutive days last week. the shanghai composite slumped today, down by 5%. it wasn't the worst performing global benchmark last week. -- it was the worst performing global benchmark last week. it sunk last week. china stock plunged. the one weekend to a five-year low. equitythe 93 primary industries tracked by bloomberg, only 11 rose in the first week in 2016. was thed's fifth worse germany -- was germany's tax. germany's dax. declining today as well. the rand is the big performing currency today. i am talking about negative terms. this is the first test this is a four-day chart. it is the spike on to talk about . intraday, the dollar rose 9% against the south african currency. the biggest such a spike since october 2008. china's turmoil persists. rand plunged 25% last year. only two emerging market peers fared worse, brazil and argentina. francine? francine: mark barton with your main market moves. let's continue to conversation with jim mccaughan and richard jones. richard, thank you for joining us. jim, thank you for sticking around. if you look at movement, we are thisng about china, we saw huge thing on the rand. japanese retail investors are looking to get out of that market. jim: the japanese retail investors are capricious. they were a big creator of instability two years ago. they are doing the same with stoploss selling in the rand. it has underlying weakness. he metal prices a lot lower than they were good that tends to exacerbate the stability we have seen in south africa. it is highly understandable that there has been weakness in the currency. to buy thearly commodity story. supply and demand is not yet matching the supply and most commodities. you see australia, new zealand, these are also commodity driven. jim: all of the commodity currencies are currencies you want to hedge out of. the carry trade makes it very beguiling to hold them. i think they are dangerous. they are a trap. there will be continue comment. metals are bottoming. people have been saying that for about a year. it is still too early. i don't know how much these commodity prices will fog. it is hard to tell. the conditions are not there for them to revive. francine: it is difficult to call a bottom for these commodities. richard: the point that jim makes his spot on. every single bounce we have seen in the past year has been short-lived. it seems to me that investors are looking at those bounces as an opportunity to sell again. that dynamic doesn't seem to be going away anytime soon. until that shifts, i think jim is right. it is going to be difficult for the commodity currencies to get traction at all. francine: inflation is so low, we're talking about deflation. slump.commodity even when we see positive news, investors do not seem to buy into it. case of commodities, it is not getting bought into because the fundamental overhang of supply is still there which is driven by technological change. i don't think that is going away. i think that is very fundamental. there is a dynamic going on that if you saw instability in north africa,, -- there is a run-up in commodities because of a run-up in supply. -- they pump more oil. i think that is the dynamic reversed compared to what people last 20 or 30 the years. i don't see the conditions for a turnaround anytime soon. we were talking about china, we could prices is one of the good things for china. francine: in the world, right? jim: to be specific, the week oil prices made the chinese problems a lot less bad which is an interesting thought it francine: that is interesting point -- interesting thought. it is the emerging markets that is is exposed. thank you very much. jim mccaughan and richard jones. we are looking at what investors are looking for here that is coming up next. ♪ francine: welcome back to "the pulse." discharge which plots corporate earnings against the s&p over the last 10 years. as you can see, there is a pretty powerful correlation. yellen means for janet with a wider macro picture. let's continue the conversation with jim mccall can. canard jones -- jim mccall and richard jones. the correlation is powerful but there are some its cost-cutting out there. richard: -- jim: i think the cycle is misunderstood. my believe from observing the numbers, there is a lot more technological deflation than most people credited with. carser it is technology or , it is becoming cheaper with better features and better performance, because of automation. because of the digital revolution. is under recorded in the economic numbers. maybe 2.5% growth right now is pretty good, because that percent growth in dollars is going further. francine: productivity numbers do not really matchup? jim: if you measured the functionality, it is going data -- growing faster than the data suggests. everyone is going around trying to say last week's payroll gains not as good as they looked. they are struggling to get that story. i think they are as good as they look and we are confused because of the deflation of banks in the economy. this underlines my general optimism for the u.s.. it doesn't feel to me that it isn't over in the u.s. yet. francine: richard, do you agree with that? richard: i think very much so. when we buy our smartphones, we want them to be cheaper, we want them to have more features. it is a function of everything we look for as consumers. the one thing where i would differ a little bit is in reading last week's payroll number. i think the headline number was very positive. i think what stood out was the flatness of our earnings. especially in light of the fed minutes last month which highlighted concerns about them achieving their inflation targets. if we have that deflation, isn't that a problem for the fed? jim: that is a very interesting point. we have been trying to study that. for millions of people. their pay rates have been growing for the last year. than what werent are seeing from the bureau of labor statistics. i am not sure i understand the difference. dominatingbers are the public workers -- by public workers and large companies. maybe that is where our differences. maybe we are seeing something happening that is better than those aggregate numbers. quickly, how many rate hikes to expect from the fed this year echo jim: -- this year? jim: two, because they're not factoring in -- francine: guys, thank you so much. jim mccaughan, he stays with us. we'll be talking about brexit, the bank of england and whether they need to change their metrics. .et's check in on the markets we have seen quite a bit of volatility. they were up by 1.5%. they are flattening out. the ftse is unchanged. the dax up .7%. cac up because of the weaker euro. after still seeing havens we saw a lot more volatility from china. we will get back to that in just a couple of minutes. we leave you with the yen chart. you can follow me on twitter. i have yen charts almost hourly. rand is not looking great for emerging markets. lucy on a couple of minutes. ♪ we live in a pick and choose world. choose, choose, choose. but at bedtime? ...why settle for this? enter sleep number, and the lowest prices of the season. sleepiq technology tells you how well you slept and what adjustments you can make. you like the bed soft. he's more hardcore. so your sleep goes from good to great to wow! only at a sleep number store... find the lowest prices of the season, going on now. save $600 on the #1 rated i8 bed. know better sleep with sleep number. francine: welcome to "the pulse," live from bloomberg's european headquarters. volkswagen ceo's the carmaker is sticking to investment plans, and continues to view the united states as a core market. critical meeting this week over the emissions cheating scandal. speaking at the international auto show in detroit. >> we all know we have let down customers, authorities, regulators, and the general public here in america. i am truly sorry for this, and i would like to apologize once again for what went wrong with volkswagen. ra: the $965 million hedge fund whose bets against china helped it the the industry last year, says the yen may call 15% in 2016 and even more if there is a credit crisis. the currency would have to drop a dollar to7.5 increase. david bowie has died at the age of 69. the message on the singer's heicial facebook page says died peacefully surrounded by his family after a courageous 18 month battle with cancer. he had just released his latest album. for more on these stories, you can had to go. francine: after teetering on the it, greece grex started the new year looking like it had put the worst behind it. says reformnister the ghost led our coverage for 2015. are we headed for more drama this year? >> good morning from athens. we are at the very beginning of another review of greece's bailout agreement. completing this review is a condition for the next emergency loans trust to be dispersed, and more crucially for greek debt relief talks to begin. the main miles south the greece has to meet -- milestone that greece has to meet his pension every. this week they are trying to reduce their calls from currency without pension cuts. he is heading to amsterdam tomorrow, and to berlin will he will meet the german finance minister. it is not certain at all whether this will work. greece spends more than any other euro company on pension. the government has submitted a plan, which includes hikes on contributions,on and not pension cuts. if creditors reject this plan and say that it hurts growth, then we may see prolonged negotiations, yet another deadlock, and more pressure for the greek prime minister, for mr. tsipras who holds a majority in parliament. he is under a lot of pressure from his bank ventures not to accept any more pension cuts. francine: the greek opposition elected a new leader. was there a consensus to help mr. tsipras on these painful reforms, or he'll will -- or will he heat up things? nikos: i do not think so. in his first statement after the election, he said the new leader of a conservative new democracy, he called for a broad alliance government.opulist" he did not seem like he was in consensus mode. he is one of the few politicians and greece that is a true believer in the bailout agreement. a hartford -- harvard business thatl graduate, believes what creditors demand are not just that her medicine that greece has to swallow, better medicine that greece has to --llow -- dinner medicine there is an alternative political solution in greece. this will increase pressure on ,r. tsipras, the prime minister if he threatens creditors with more political instability. they would put pressure on him for pension cut, then the response that he will likely get prohe opposition is a true bailout floors, so there is an alternative. no consensus for mr. tsipras and more pressure for his government. francine: thank you so much for all of that. staying in europe, it appears that germany's open-door refugee open aftero longer the new york steve sexual assault -- new year's eve sexual assault. she has been addressing it every day. today she will be gathering with her coalition partners as well as csu to have a big advisory meeting. what we saw over the weekend is that her main opposition because of the coalition government, we saw them move toward merkel position that you need to make it easier to expel potential refugees who have committed violent acts against women. when it first happened, it seemed like there was a split. saideft in german politics this was clearly organized criminality. the right says we need to do more for policing refugees. they come together to some extent a little bit. one quick note, one of the biggest google search trends in germany, pepper spray, where you can buy pepper spray. not even greece during the height of the summer has dominated. francine: that is incredible. this can be a really decisive and divisive issue. david cameron is hopeful that he xit deal inew bre february. is his enthusiasm shared in berlin? hans:* it is met with confusion. they are confused about cameron's strategy. they want to make it easier for him to make the kind of changes in february, but they cannot go too far. merkel has a difficult coalition to try to tend to. in some ways it is confusion in berlin about what cameron's intentions are. we should note in the past that when cameron said a meeting will be decisive, it turned out not to be decisive. now cameron is indicating that this february brussels summit will be decisive. maybe it will not be decisive either. francine: hans nichols in berlin. still with us the ceo jim a culkin. jim, thank you so much for staying with us for the hour. when you look at the unrivaled difficulty in predicting european geopolitics because of the refugee crisis, because angela merkel is not as powerful a leader and she seemed only three months ago, what is the biggest risk? jim: i think that is a major threat, that we get populist and extremist parties that are essentially anti-refugee, anti-immigrant. i think that is clearly a potential problem. the national front did not do as well in the french election as most of the pollsters suggested. ist of the fears around that think are put up by the peculiarities of opinion polling, particularly now when most people's answer is none of your business. it is hard to judge that. my initial thought six months ago on the refugee crisis was that it would be a problem in terms of resettlement and getting people into jobs and productive, but on a two year view and accelerate growth because it would bring in a younger population and a skilled population. that is what it looked like happening, so it was a long-term optimistic thing. this has recently been enhanced -- unhinged, so i think one has to be more fearful. francine: how do you monitor a t? how do you make sure your clients are not overexposed? of thethink in terms u.k. market, i am sure it makes a difference because it will depend on what commercial deal britain british -- manages to do with the eu. if britain were to exit, who else is exiting? it might renew the whole scotland-england debate. what about france, belgium, finland, spain? there is a lot of separatist movements around europe and i think that is one reason why the eu leaders want to deal here. there is a lot of shadowboxing around with the deal looks like. i would expect it not to happen, that it is very dependent on these talks at some point during the first half of the year, getting to a better resolution. francine: it is so difficult to believe the polls. it is difficult to gauge the national mood. it is it a 30% chance, a 50% chance, or will we get a clear view? 50% it feels to me like a to 25% probability -- 15% to 25% probability. peopleling comes from who are angry about what they see as the immigrant issues, and they are somewhat nationalistic will tend to say, have to get out. the majority will actually be saying, none of your business to the pollsters. , think they are overestimating rather as they did with u.k. and the election last summer, they are overestimating the will to separate, but i think it has to be a concern because it could u.k.. difference to the francine: up next, we talk saudi aramco and why investors hope to buy a stake in the crude producer may have to wait. ♪ francine: welcome back to "the pulse" live from bloomberg headquarters. price hasng oil basically prompted the saudi's to consider an ipo, aramco, but perhaps not the most valuable. >> that is right. saudi aramco is undoubtedly the crown jewel of saudi arabia. in his interview, the crown prince did say it was under consideration and there could be an ipo of the overall country, but it. it may not be in the value range of children's of dollars, but still not to -- trillions of dollars, but still not too shabby a number. about 3are around million barrels a day, and has ambitions to be the world's number one by 2025. many of these new refineries have expanded in china, japan, the u.s., and saudi arabia, it is trying to get these refineries to take exclusively saudi oil to help reinforce their fight for market share. a couple of caveats. some companies are out there that already refine that are listed. valero listed in the u.s. anywhere at $35 billion. there was a noble -- another spinoff of a refiner. slice rushed to get a of the saudi oil industry, but that has not been a happy investment. francine: thank you so much. as priceshe bets go tend to follow? have we called a bottom on oil? elliott: it looks like hedge funds have been pretty spot on when it comes to their bullish bets on oil prices. that has contributed to the slide we have seen seemingly inexorably toward $30 a barrel. it ended january 5, and bullish bets were down by a quarter. the top line is in yellow, shows you wti, and the bottom line shoes you bullish bets on oil. you can see pretty much where the bets go, there is a little bit of a lag and then oil prices follow. you can see that precipitous decline in bullish bets on oil prices, and oil prices have followed suit. hedge funds seem to have got this one pretty much spot on. francine: thank you so much, the middle east editor elliot gotkine. over the weekend it said it fully supports any action against shiite majority iran for terrorist held ask. is to join. when you look at risk in the middle east, it seems like it is quite difficult to price in. last week we saw a lot of risks mounting on top of each other, and between saudi and the run. who can intervene and mediate? torbjorn: the first point to make, normally when we see tensions in the middle east we see oil prices rising, and for once we have seen the opposite effect. policys driven saudi oil is the need to protect market share. at the same time, the are hedging -- they are hedging for lower prices. looking at sort of what can be immediate, itof is a very entrenched conflict. there is a sectarian division which underpins the entire rivalry, but there is so much more to it. it boils down to the challenge that iran poses to saudi arabia. francine: do you think this will actually escalate in 2015 -- in 2016? if you look at who has the most responsibility for the escalation. initially inflaming sectarian tensions and what is an extremely combustible environment, and then a run fulfilling to dust iran the filling to protect the saudi embassy. have no surprise people suggested some sort of regime culpability. saudi was probably one of the biggest allies to the u.s. and it seems because of the incident last week, that has strained. this was meant to be the year where he run was coming to market, where investor confidence was being renewed. it seems because of the nuclear deal, they are taking a step back. torbjorn: the saudis have a lot to lose and gain. they are trying to bring out the hardliners. they know they have very strong relations with the west. make hardliners in iran come out and act or -- one of the main seer -- fears of saudi arabia. play a muchble to more assertive role in the region, and challenging saudi arabia. francine: this fuels more proxy wars to a greater degree. does it also impact the ability to deal with islamic state? torbjorn: yes, very much so. that is one of the biggest problems. we have several conflicts in the cases, if youmost put aside the mutual aim of defeating islamic state, and because of that, as long as the syrian civil war is raging on, islamic state remains very much resilient. in turn, the islamic state poses a threat not just in the region but also further afield, including in the west. ?rancine: what will 2016 bring i know it is very difficult and we are expecting much more upheaval around the world in general. what is the canary in the coal mine in the middle east? torbjorn: two main issues, and they are interrelated. it is set to get worse. there is a small window of opportunity and there is perhaps a small chance. if that does not happen, potentially looking at years before relations are restored. terrorism, risk of not just in the middle east but in the west, and that stems from the resilience of the islamic state, the difficulty of finding a coalition to deal with it in part because there are some any competing interests. throughout the middle east, commercial interests, we are likely to see an increase in terrorism in the west. francine: head of middle east and north africa. next, european stocks swing to gains. we break down this morning's trade. ♪ francine: welcome back to "the pulse." thethe stoxx 600 index has rebounded from its first week in more than four weeks. over to mark barton for a breakdown of his warnings market moves. the stoxx 600 has fallen by 6.42%. performance,ix-day it has risen as much as .9%. it is bucking the trend we saw in asia overnight, but still it is a 6.3 decline over the past six days. looking for double-digit returns for the stoxx 600 this year. this is the msci all country index. china continuing to set the tone , producer prices falling for a record 46 month. composite falling further by 5%, it fell 10% last week, the worst performing global benchmark. global stocks falling as a result. the interesting currency move has happened in south africa. 9%, theaday move of dollar rising an intraday 9% against the rand, that is fascinating. it is one of the worst performing emerging-market currencies in the last year. it is the last -- worst performing emerging-market currency this year. commodities falling to a 1999 low as well after commodities tank last week. safety from the rand sinking, asian stocks sinking, but european stocks rising. francine: for those listening on bloomberg radio, "surveillance" is coming up. tom keene joins us from our london set. we will be talking about geopolitics because of the refugee crisis, and angela merkel's popularity. ♪ francine: extreme market swing. china concerns as investors doubt the country's ability to manage the economy. larry summers warns policymakers should pay more attention to market fears. go --prepares an orang aramco, as geopolitics heat up in the region. surveillance"berg with tom quinn -- tom keene. tom: when you think

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