yuan plunges. manus: the international energy agency forecast yet another drop in global oil demand. francine: and we get u.k. jobs data in half an hour. unemployment is expected to stay at 5.6%. we will bring you the numbers as soon as they break. welcome to "the pulse." i'm francine lacqua. manus: and i'm manus cranny. over the course of the next 40

minutes, we are joined by hsbc advisor stephen king. francine: first, china's yuan has triggered the biggest two-base hit law since 1998, fueling concerns that market volatility will slow growth. manus: the people's bank of china lover the reference right today, just one day after cutting it by a record 1.9%. let's find out how the markets are reacting. dollar-yuan.d you i'm going to show you the flipside today, yuan-dollar. effect,u get the down which is more important. the yuan sinking for a second day. the two-day drop, 3.61%. that is the biggest two-they drop since 1994. ripple effects are being felt across global markets. china's central bank says there

is no economic or financial basis for the exchange rate to fall continuously. i'll let mr. king decide whether that is the case. a ripple effect is being felt in bond, commodity, and stock markets. look at the msci emerging market index. i showed you a one-year chart. was ther, september 3 peak for the period. from then, through to yesterday, the ms ei emerging markets index fell by 20%. you know what 20% means. 20% is a bear market. emerging market stocks are in a bear market, not helped by the china devaluation and the impending u.s. interest rate hike. or will there be a rate hike? one of the many questions being posed by this devaluation is,

will policymakers reignite a currency war to we can exchange rates and revive faltering exports? this is a currency we don't get to speak about every day on bloomberg, the dong. the vietnamese dong. look at what happened today. big move up in the dollar. vietnam has widened the dong's trading band to allow the currency to weaken. the dong can now trade as much side of theher fixing said by the monetary authority. today, the dollar is 22,040 against the vietnamese dong. the amount trying to bolster this economy, which is projected to grow this year. want to look at the dollar against the malaysian ringgit today. malaysia's currency plunging beyond four to the dollar for

the first time since 1998. blame it on china. blame it on a slowing economy. blame it on controversy over finances linked to the prime minister. i can show you 20 interesting charts. we will start with four. see you later. manus: let's bring in our chief asia economist correspondent, and the current standing by in hong kong. what does this mean? what is this telling us? enda: the slump today came when we had really bad economic data, signaling that the so-called stabilization really has come to a premature end. it reinforces the narrative that china is deliberately weakening the exchange rates. we don't know whether to go and continue with this devaluation. two days isn't going to be enough to turn around the china

export story. whether they followthrough will be key. we have seen mixed signals. today saideporters that china intervened in the market when the currency was going to do far south. there's still a lot we don't quite know yet. francine: how are china's neighbors responding? obviously, the commentary has been currency war, but it is definitely a currency skirmish. the amount today widened the trading band for the dong. they singled out china's actions as a threat to their economy. we've heard other policymakers far,ain that china -- so we've yet to see a race for competitive devaluation. fort of the currencies emerging markets in asia have weakened quite a lot. the malaysian ringgit down to

its lowest since 1998. there is no guarantee it will bounce back given week external demand around the world. imf, this is the one that fascinates me. what did they say? they tentatively welcomed this move. i guess classic imf language. outwardly it is a green light. it is a step in the right direction. if you read the remarks they put out today, they also say, we have to see how this new exchange rate regime pans out. it is kind of a watch and wait process. they also said there's no direct impact. i guess making the currency market like civil will be a positive. if it turns into china nakedly devaluing the exchange rate, i

don't think that is what the imf as in mind. the imf has given it the green light but with a cautious tone. francine: thank you so much for all of that, enda currnan. manus: let's bring in our senior economist in the house, stephen king. my question to you is this, has china unleashed the dogs of how and they are trying to bring them back in? >> the rmb has been a strong currency over the last two or three years. every other country in the world has tried to devalue against china. maybe they are getting some of their own medicine in return. the narrative is tricky. china is saying we want a more market-determined exchange rate, but the timing is a bit suspicious. the trade was terrible over the last month or two. maybe there was a disappointment about the extent to which

domestic policy has had an impact. therefore, there is a suspicion that china is playing the same kind of game everyone has been playing for the last two or three years. there an important underlying theme here. in the past, everyone thought that one country's growth was good for every country's growth. now there is a suspicion that one country's growth is the consequence of devaluation. everybody is stealing from another country. francine: let's also bring our bloomberg view columnist from tokyo. you wrote a great article saying, give china a chance. you think the move deserves praise. >> i do. china is the second biggest economy in the world, the world's biggest trading economy certainly, and anything that causes turmoil in china is bad news for everyone. what china has done is valid,

logical, and perfectly justifiable given what stephen was just saying. look at japan. the yen is down 35% in less than three years. the imf say that is fine. the australian dollar is down about 10% this year. china devalues by 2% and everyone freaks out. there are effects we have to think about. in many ways chama china -- in many ways, china is acting rationally. they are taking steps to boost stocks, to avoid defaults, and here they are taking a conventional step in the right direction. is, what does it do next? manus: stephen, are they acting conventionally? are we being overreactive? stephen: it is a conventional response. the problem is that every

economy in the world is weak. you can't devalue jupiter or mars. because it is a very large economy, it is likely to have a bigger impact on the rest of the world than if it was a small country like the u.k. or australia. china is the second biggest economy in the world. as aaluation from china much bigger impact on the rest of the world. francine: just saying it all depends on what comes next. what does come next? it seems like a policy mistake or a policy mishap. stephen: what we've seen so far is a small adjustment from the chinese themselves and it is how the rest of the world is interpreting this which is becoming a problem. if china wants to move toward a more market determined exchange rate, that is fine.

think it is particularly likely, but you can see how people elsewhere in the world would think that kind of thing. in look at the u.k. back 1992. it doesn't just leave as a small adjustment. it leaves as a big adjustment. that is what the world has worried about, that the chinese government has done something that markets could worry about in the future. manus: is this the beginning of reigniting a currency war? we've seen the vietnamese react. we've seen substantial reactions in some of the currencies. what do you reckon? there certainly will be some pressure on global currency markets. the question for me is, what does prime minister abe do? does he double down on weakening the yen?

i think we have to remember that in many ways, japan started this currency war. europe in some ways advanced the argument and now we have china acting very logically to their domestic events. the reason why i'm optimistic about this is, i'm hopeful that this stabilizes china, allows officials to take a deep breath and focus on the reform process. china needs to improve the fundamentals of it economy. it is so obsessed with maintaining growth. if this takes pressure off the economy, i think this is a good thing. francine: thank you so much. willy in tokyo and stephen king stays with us. we will be talking oil and the fed next. manus: let's look at what is on our radar this wednesday morning. a report released by the international energy agency is forecasting global oil demand to slow to 1.2 billion barrels a

day in 2016, down from 1.4 billion this year. it says that should mean non-opec supply growth grinding to a halt next year as lower oil prices take their toll. francine: london is facing transport misery. it comes as unions demand improved terms for operating a new nighttime service. the union will stage back to back 24 hour strikes starting on august 25. daimler is the latest company taking on the french 35-hour work week. the german carmaker wants staff at one of its factories to put in more hours. the company hinted that it would take operations elsewhere if no deal was reached. agreed topearson has sell its stake in "the economist" magazine.

the company disposed of "the financial times" last month. the deal and effectually ends pearson's role. manus: u.s. prosecutors say they have broken up and alleged insider trading ring that use hacking to access press releases before they were released to the public, passing them to associates in america who traded shares in boeing, hp, oracle, and other stocks. over five years, the hackers infiltrated new sources. five u.s. traders have been arrested with four more still being sought. francine: will china's move reignite currency wars in asia? we will delve into that a lot deeper. ♪

francine: manus: welcome back to "the pulse." we are live on bloomberg tv and radio. let's get a little more on china's currency moves, which have prompted a global reaction. here's a few of the voices. >> china has no respect for president obama whatsoever. you have to take strong action. how can we compete? they continuously cut their currency. they've been doing it for years.

this isn't just starting. this is the largest devaluation they've had in two decades. they are making it impossible for our businesses to compete. they think we are run by a bunch of idiots. >> if you compare that to what brazil or japan has done in the past year, year-and-a-half, i think the scale of it was shocking and unexpected because of china's own past. fundamentally, is it going to toe china and take it back the state we had before 2007, unlikely. it does help but it is not the central driver. >> the real perpetrators of the currency wars have been in the g 10 rather than the emerging markets. emerging markets have had to respond to it. you've seen a number of countries in the g 10 devalue their currencies directly or

indirectly and emerging markets have had to respond. francine: will this reignite currency wars? for some in the region, the surprise devaluation couldn't have come at a worse time. the longest losing streak in almost two decades. manus: joining us is stephen king, senior economic adviser at hsbc and bloomberg columnist mark gilbert. saying iterson there is all down to the g 10. they started this. chinese, they are beginning to go with a bit of a bang. mark: will he made the point about the yen. he is right. the yen against the dollar is now 20% in a year. there hasn't been a lot of screaming about that. we are perhaps pointing a finger at china that is a little

unjustified. 30% to is talking about 50% declines going forward. worldn said it, in a where every economy is weak, how do you mix the music? you make everything louder than everything else. you can't do that in the currency market. is a problems because we are looking at an interest rate hike from the fed and markets were caught offguard. stephen: yes. people are going to have doubts on whether the fed can move in september. does every country in the world what a weaker currency? only one currency can go up. it is the u.s. dollar. the more the dollar rises, the more other countries are exporting domestic difficulties to the u.s. data shows that there's a chance of a september rate hike.

it was 54%. mark: if you look at the bond market, 10-year was almost 2.5%. you have seen a big move in the bond market as well. manus: how much more can the dollar appreciate? you sent us a chart talking about the overall move in the dollar. the dollar could appreciate another 20% over the next couple of years. given the momentum, mark, what do you reckon? mark: trade weighted. the dollar in the last four years is up between 25% and 35%. the u.s. economy seems to have survived that. walt disney last week said they had a revenue shortfall in the quarter because of disneyland paris. there was $100 million that went missing. u.s. companies are screaming a little bit. the u.s. treasury secretary

doesn't seem to be as vocal as you might have expected. stephen: the u.s. economy has not been that strong. a lot weaker than the forecast suggested every single year. some of our competitors continue to forecast strong recoveries in the u.s. economy. it doesn't materialize. the strong dollar is possibly a cause of u.s. undernourishment. a lack of growth. manus: if we look at dollar strength, there's three huge currency moves, korea, taiwan, and singapore. these emerging-market currencies are all under pressure. there's been calls for bigger drops in them. is this the beginning of a new phase of dollar strength em weakness? stephen: it seems like it. the g 10 story is about euros, yen, sterling, and the dollar.

now it is becoming an emerging market story. the surprises on growth, the u.s. has been disappointed. emerging markets are a lot weaker than expected. they are under pressure to devalue their currencies. mark: i don't think you would have much appetite for buying emerging-market currencies in this environment. europe has done surprisingly ok. i wonder if the euro might be an alternative destination, and whether that in turn starts to be a problem for mario draghi and the ecb. if i was at the fed, this is going to give me pause. wouldas at the ecb, i worry about my euro. stephen: our own forecasts

suggest exactly that. we think people have been too optimistic about the euro against the dollar. if the fed doesn't raise rates in september, the euro might get a new lease of life. manus: so all those arguments about qe seemed to dissipate quickly. francine: thank you so much. stephen king and mark gilbert. that brings us nicely to today's twitter question. has china reignited currency wars? tweet us. join in. we are all there. despite gold's recent decline, australian miners have managed to shrug off the worst because of the aussie dollar. the situation has offered some rich pickings. francine: australian mining has picked up two acquisitions. paul allen paid them a visit. >> some more fresh gold pours

into a depressed market. this 17 kilogram brick is being created in evolution mining's newest assets. out here, the appetite for gold remains as strong as ever. here's the finished product. despite recent falls in the price of gold, good fortune is still smiling on australian miners. this is $1500 an ounce. the whole brick, about three quarters of a million dollars. this is the whole it came out of. french minor la mancha began digging it in 2013, just as the gold price began its steep decline. evolution shareholders voted almost unanimously to scoop up one of two recent acquisitions making evolution australia's second-biggest gold producer. since november last year, almost a quarter of australia's gold production has changed hands. evolution ceo says foreign

miners have been feeling the squeeze. >> most of their production is in u.s. dollars. it is tough to make money. it is mainly related to their position rather than the asset already -- the asset quality. >> it seems counterintuitive, but the mood around gold in australia remains upbeat. this month saw the formation of the new gold industry group to promote the metal as an asset. >> there's a level of optimism out there. will be the gold miners at a cost higher than the prevailing price. >> as long as that situation prevails, the deals seem certain to keep coming. francine: up next, we get u.k. job numbers. we break them down with stephen king.

manus: join us all. we are all there on twitter. ♪

francine: welcome back to "the pulse." i'm francine lacqua. manus: and i'm manus cranny. let's get you up to speed with the breaking data on u.k. unemployment and wages. average weekly wages over three months comes in at 2.4%, a lot less than the estimate which was for 2.8%. by 4.9 claims declined thousand. we were looking for those to rise by 1000. the unemployment rate stays the same. francine: we are seeing quite a lot of pay pressure.

this is a picture for the pound. 1.5568. we need to put this into context. we are looking at a rate hike. we will know more about that according to governor carney by the end of the year. let's bring in bloomberg intelligence chief european economist jamie murray, hsbc senior economic adviser stephen king still with us as well. put this into context area wage growth slowed, but it is not the end of the world. janie: it is not. if you look at unemployment, it picked up a little bit the month before. it is now stable. delay from q1. for the labor markets, it continues eroding flat. manus: stephen, how to use it? the obsession was with wages.

they have eased. stephen: a slightly different take, the wage numbers are incredibly weak relative to expectations. what we've learned in recent years is that the relationship is different from how the bank perceives that relationship today. workers are being priced into the market at lower and lower wages, which illustrates a level of flexibility the bank hadn't expected. the degree of slack in the labor markets may be greater than you'd normally expect. ase growth is not coming in high as was feared. with that lack of wage growth, it makes sense that the banks got plenty of space and time to consider whether they should think about raising interest rates. francine: when are you expecting an interest rate hike? there's no u.k. rate increase until august compared to may just yesterday. this is being pushed back already. stephen: our forecast is for the

first half of next year. what is worth noting here is that our forecast and everyone else's forecast have been based on the idea that there would be some tightening in the market. they are not really materializing. the lack of wage pressures is interesting. it would suggest that unit labor costs are very weak indeed. itshe bank is sticking to price stability mandate, the danger is it is going to undershoot for longer. manus: david said yesterday there was a case for beginning the journey. everyone thought he would descend along with mccafferty. after wages data, are you shifted at all, jamie? jamie: not really. it is mostly bonus-related. it has to do with the payment of bonuses last year. i would say regular wage growth

is still going strong. francine: don't people by wage growth slowdown. it is best manus: he's sticking to his head. well done. francine: jamie murray and stephen king. manus: here are some of our top headlines. has plunged for a second day after pboc reduced daily fixing for the currency. the move came just one day after a record 1.9% cut to the reference rate. the pboc is trying to give market forces more sway in determining the exchange rate. francine: that has affected emerging-market stocks, which have entered a bear market. the msci emerging markets index declined 20%, which is the threshold for a bear market. manus: and a report by the international energy agency forecasting global oil demand to

slow to 1.2 billion barrels a day in 2016, down from 1.4 million barrels a day this year. that should mean non-opec supply growth will grind to a halt next year as lower oil prices and spending cuts take their toll. francine: let's take a closer look at the report with our chief energy correspondent and stephen king, our guest for the hour. javier, let's kick it off with you. what we heard doesn't make for a pretty reading. >> no. this is a very grim report indeed. let me give you a couple of highlights that tell the story. in the second quarter of this year, the surplus hit 3 million barrels a day. that's a 17-year high. it means that we could have platforms fromse

the u.k., norway, denmark, germany, all the north sea could have disappeared and it still would have been a balanced market. we would have a bit of a surplus. that is how big the supply on the market is. demand is doing very well but it is not enough because supply is overwhelming. manus: production in the second quarter of next year, the highest in 17 years. oil is literally, the bottom is falling out. how do you look at this from a medium-term perspective? stephen: the simple answer there is that people assumed last year it wasl prices fell, to do with saudi's changing their attitudes. this would be a shot in the arm for the western world. it hasn't really worked out like that. the u.s. has lost out in a big way. the u.s. is one of those marginal suppliers of oil thanks

to shale. the really big story, i think, has been china and other parts of the emerging world where growth has disappointed over the last year or two. i would argue the main reason why is commodity prices generally falling. they were supported in early years because of the emerging markets and china story. that is now unwinding. what we are seeing is much weaker commodity prices. francine: javier, any positive news? the rebalancing of the market has started, but that is going to take time. already, we see signs of that growth going on. the demand is very good. as soon as oil prices came down, drivers were hitting the roads, driving more, and that is increasing the demand. the international energy agency is forecasting demand to grow

1.6 million barrels a day. still, the supply is so big that even those fantastic demand numbers are not enough. stephen, the wild card in all this is the iran deal. how do you look at the potential impact of iran economically? it is going to have an impact globally. stephen: if oil supplies from iran come back to the market, prices will be lower for longer. that will be a positive story for parts of the world. anyone who is an oil consumer elsewhere in the world would benefit from that. the problem now is that so many parts of the wild -- the world are now oil producers. the u.s., parts of latin america, norway, a whole bunch of countries, it wouldn't be such good news area -- news. have a fantastic

overview of the iranian oil situation. they are saying the supply probably is coming quicker than the market is expecting. the international energy agency believes iran could put on the market 800,000 barrels a day. analystsind that most think it will be in the first year about 300,000 to 400,000. the international agency is putting a number that is double. francine: we started the conversation talking about china. you are quite positive. i would maybe take the view that if you see oil coming down, demand coming down from china, what could be seen as a desperate move from the pboc, that growth in china is worse than even the worst people think. habit ofthere's been a trying to write it off.

if you look at how china has transformed itself, you get a real flavor of what the growth per year actually means. there is no doubt that some of the engines of chinese growth that were important are now sputtering. exports most obviously. consumption hasn't really come through. it all depends on infrastructure invest in, where the returns on capital have been low single digits or possibly negative. there is plenty of potential for economic catch up. working out what the demand drivers are is a bit of a puzzle, apparently. francine: thank you. stephen king and javier, our chief energy correspondent. manus: next, holiday over? it is for one lady in europe. angela merkel returns from her summer break to face party resistance over that greek deal. we will have the latest from berlin. ♪

francine: welcome back to "the pulse." manus: angela merkel has returned from her holiday today. at the top of her entree is greek bailout number three. the final terms of the rescue plan were agreed this week after an all nighter by european creditors and are now due to be put to the national parliaments. francine: tony is standing by in

berlin. he wrote a book on the chancellor. tony, merkel has emerged as a divisive figure. what kind of deception -- reception does she returned to? againste is right up the greek issue again today. she chaired her first cabinet meeting after the summer break. we don't know if greece was on the agenda. it is on the agenda overall. she is facing resistance, or if you like, reluctance among a sizable minority of her party caucus in parliament against a quick deal with greece. that needs to be done by august 20 in order to enable grease to make its bond payment to the european central bank. lawmakers are saying, we are not going to be railroaded. it reflects some lingering

mistrust of whether greece can actually fulfill the conditions. mistrust is that very that is going to be interesting in terms of the debate today. merkel has been the architect for these talks. do you think it is going to be a bumpy ride through the german parliament? tony: i think that's one of the reasons this debate erupted again. , from merkel's point of view, she had this problem the last time, that there was a record level of .issent among her lawmakers if you are the chancellor, your domestic constituency has to be thought about. there's also a practical issue. the entire german lower house was called back once out of

summer recess to authorize the greek bailout talks that now seem to the winding up. lawmakers,0 interrupt your vacation one more alsofor greece, and that -- it is not the factor, but it is out there too. francine: tony, thank you so much for the roundup. manus: ok. here's some of the top headlines today. dutch prosecutors say parts of what could be a missile have been found in the wreckage of the malaysia airlines plane that crashed in ukraine. it is the first time investigators have confirmed possible evidence. all people on board died. francine: france has stepped up the search for malaysia airlines 370 with land and air

operations. the patrols followed the discovery of a piece of wing that probably came from the missing plane. manus: u.s. prosecutors say they've broken up an alleged insider trading ring that allowed on hacking corporate press releases. they say hackers in ukraine accessed 100,000 releases, passing them to associates in america who traded shares in boeing, hp, and oracle among others. the hackers infiltrated the servers of newswire, market wired, and business wired. five traders have been arrested with four more still being sought. francine: later today we get an internet giant reporting. alibaba has seen share prices plummet ins their peak back in november, in part related to the

slowdown in chinese growth. here with more is caroline hyde. caroline: dramatic move in the stock price, francine. this was the stock market darling. we saw shared prices surge. this was the king in terms of ipo's. we peaked in november. since then, we have wiped out 35% of the market valuation. that is $90 billion. that is bigger than the entire valuation of goldman sachs. this is the biggest destruction of wealth in the world in terms of a stock. there's been a concern. it is about exposure to china. when the economy slows down, you slow down. we had the slowest rate of expansion in china since 1990. particularly in the big cities.

scathing reports from china about business practices and kering group labeled them able to facilitate counterfeit. what do we expect from the numbers? we are expecting a slowdown. this is the weakest numbers we've seen in three years. averagewe've seen on 50% growth, 56% quarter by quarter. now it is going to slow. sales hit by that china slump. the slowdown wiping off $90 billion in terms of their valuation. clearly, there's going to be an issue here. there's also going to be a focus on mobile. there is a plan. we've seen it in action. suddenly, m&a comes to the four. jack ma, the founder, is looking towards the future. this is your comeback plan.

they bought for $4.6 billion a stake in suiting. this gives them an ability to leverage their infrastructure, go for a quick deliveries. think amazon. they want to deliver to you in a few hours. alibaba is therefore able to get 1600 stores. 290 cities. they are able to roll out in rural china. this is where most of the growth is coming from. almost half of the new entrants on the internet, 19 million more people coming on the internet this year in china, a lot of them coming from rural china. know michael evans is president now. his vision is globalization. he is bringing on the rest of the areas of the world. just think about expanding in china's biggest cities, but also, they are the top shopping site in russia and brazil.

in europe, real madrid. you are able to buy real madrid products. you are also able to buy cambridge satchel company satchels. they did a deal with royal mail in the u.k. this is a global growth story. back to you. francine: thank you. next, russia puts on a show of force but the action is not for real. ♪

manus: welcome back to "the pulse." russia struggles with sanctions over its actions in ukraine, the country has been putting on a different show of force. here's more. >> i think there's two purposes. the straight forward purpose is, such military exercises are great for the troops. clearly, there's also a political purpose, which is to improve military relations

between russia and the countries who are sending teams. the countries themselves are all countries that use significant amounts of russian equipment. look at the list. angola, armenian, belarus, ,gypt, india, kuwait, mongolia pakistan, venezuela -- those are all countries that have purchased significant amounts of russian equipment. what we are dealing with our countries whose defense policy requires them to be able to counter western forces, employing a western way of war. clearly, bearing in mind that army chiefs and senior officers from all countries confirmed will be visiting the games, it is a big opportunity for the russians to show off their defense technology and achieve arms sales. it was a great armored vehicle manufacturing nation and it

hopes to be so again. there's obviously a major opportunity. for those listening on bloomberg radio, "the first word" is coming up next. for our viewers, it is a second hour of "the pulse." francine: we will have reaction out of asia as the yuan falls for a second day. we will find out what impact that is having on the region and the rest of the world. manus: also coming up, more bad news for the oil industry as the international energy agency publishes a report on supply and demand. we are going to dig into those numbers. looks like there is more supply on the way. francine: if you look at the fed and what the markets are expecting it to do, it is a 36% chance of a september hike from a 54% chance on friday.

we will delve deeper into that. you can follow us on twitter. we will see you in a couple minutes. ♪ . .

manus: yuan plunges as china devalue it again. giving the market more say, that sparks a rise in regional currencies. philanthropy falling further. the energy forecasts another drop in global demand. manus: and cooling down. u.k. unemployment rises for a second quarter. wage growth falls. is british labor market recovery slowing? good morning to our viewers in europe. good evening to those in asia and welcome to those waking up

in the united states of america. i'm manus cranny. francine: i'm francine lacqua. this is "the pulse" live from bloomberg's european headquarters in london. manus: over the course of the next half-hour, we'll be joined by blackrock chief vem strategist. francine: but first the biggest selloff in regional currencies ince 1988. manus: the people's bank of china lowered the rate by 1.6% just one day after cutting it by a record 1.9%. let's find out how the markets are taking it. let's cross over to mark barton. mark: i'm not going to show you . dollar/yuan not an index get to chat about every day. biggest two-day fall since

december 31, twen. this is an index that gauges the dollar against 10 main asian currencies. it has fall on the its lowest level since 2009. the last two days, get in there, down by 2.4%. the big question is will policy makers reignite a currency war weaken exchange rates and china is its ng biggest trading partner. investors fleeing the nation's assets. already you're seeing a big impact on asian currencies from the devaluation in the chinese currency, two devaluations in two days. that is chart number one. have a look at chart number two. this is dollar against the -- plunging below four to the

dollar for the first time since 1998. it is not just about chining. it is about a slowing economy. it is about finances linked to the prime minister. asia's worst performing currency in the last 12 months. he dollar rising against it. i want to showdown of the commodities. a lot has been said about commodities in the last o 24 hours. this is nickel. this is a commodity that is used in stainless steel. this is an r a shot, get in there close. look at that. just at the start of trading. 2:00 a.m. this morning. nickel plunged 15% on the london metal exchange. biggest drop since 2004 as investors digest the impact on china's devalings evaluation on commodities. china the biggest user of energy, metals, grains. the devalued yuan makes

commodities more expensive and could slow demand for currencies like nickel. very quickly. autos. luxury companies. industrial companies in europe sinking for a second day. look at autos in the last two days down by 7%. biggest two-day drop since 2011. 25 billion euros has been wiped from autos in the last two days. b.m.w. gets 1/5 of its sales from china. the ripplingfect is quite staggering. i could show you 20 charts but my director is saying shut up. of this move in the yuan. what does it mean? what is the take from the local guys and girls? >> well, you know, we had a good

reminder manus why perhaps china is devaling the currency. -- devaluing the currency. it is kind of putting -- to this narrative that has been started. perhaps the economy is stabilizing. when you look under the bottom and strip away the stock market boom effect, some economists are saying they devalued the yuan to give exporters a jump-start. we'll have to see significant further deevaluation if they are really going to have a game changer. francine: how are china's neighbors actually responding? >> mark put it very well when he spoke about the ripple effect. there is no doubt that when policy makers are adopting a wait and see, they are getting -- with the first time off the

rank when they widened the trading. they pinned the blame on china's move and said it is negative for their economy. the bank of korea is meeting tomorrow. they have been under pressure to cut interest rates. they can't cut too much further. their commentary will be interesting. i suspect we'll start to see more direct commentary as we go forward. depending on how china moves, if they continue to devalue. manus: let's talk about the i.m.f. they tentatively, i think that is a fair word, they sort of tentatively welcomed this? >> i think that is right. it was classic i.m.f. language and they awkwardly gave it the thumb's up. it is a very cautious welcome. they say china did the right thing moving toward the freer floating exchange rate but they

said they want to see how this regime develops. in the near term at least it will impact their thinking on the s.d. but if you step back, you to wonder if china is doing this, trying to boost exporters, i think the i.m.f. would give -- a at the present time tiver thumb's up but are a little bit cautious and want to wait and see. francine: now let's speak to our next guest. blackrock chief investment strategist. thank you both for joining us. he basically says we have to give china a fair chance. this is not such a bad move. do you agree with that? i do.

first of all let's deal with language. this is not a deevaluation. it is a depreeshes. depreciated over the last few months is not a deevaluation. it could turn into one but it is not one at this stage. the depreciation. manus: willie, let's bring you into it. this is a deevaluation. a depreciation. not a deevaluation. your word that you used earlier, this was a rational move. >> i think it is. china is the second biggest economy in world. the last thing any of us need at this point is for china to be sputtering more than it is currently. you look at the export numbers for july, it is relatively scary. china has a couple of dueling bubbles in debt and stocks. i think this was a conventional but rational response the a slowing economy. if it buys officials in beijing some time to take a deeper breath and improve the fundamentals you yeed to sustain

these bonds, stock bubbles i s the he end justify means. i'm willing to give china an opportunity at this point to impress me. i think they have so far. francine: when you look at currency wars, right, jaff has done it to -- japan has done it, to some degree the e.c.b. has and the fed has in the past. >> east asian currencies with the exception of the hong kong dollar and the singapore dollar have tracked the r & b more closely than the u.s. dollar. so it is not surprising to see them falling as r.n.b. drifts down. they have allowed the market to sets the price for two days. whether they allow it to set for the third day, maybe there is a fixed rate tomorrow. how much stomach do this authorities have for allowing

the market to set the price? they didn't in the stock market when it went against them. let's see how it works in the fx market. manus: everything that china does has a ripple effect. mark talked about the currency markets. i want to talk about the bond market. we're seeing interesting moves. the german bond market. record negative rates. this is china. is this china exporting deflation? there are the bond markets for you and the same story in the u.s. we're seeing lower yields. >> we talked about it many times in the past. it is an acceleration of that. in a sense the domestic economy is growing far more slowly, but your exports have been rising reasonably comfortably against backdrop of subdued world trade and maybe reaching a saturation point in terms of the world trade and having to deflate that more.

i think there is some lodge nick the way the markets are working. dropped from 50-plus to 40. it is right. maybe it is all this silly season trading as well. francine: i'm sure that is a technical term. china has your confidence at the moment. what do you think we'll see from policy makers next? >> i'm sorry. i departments hear the question. francine: so far you're confident that they are on the right path. what do you think we can expect from the chinese government or policy makers next? >> i think china just needs to focus more on creating more confidence in financial system. this depreciation, deevaluation, whatever you want to call it, it is a chance for china to take a deep breath. in many ways, it is a smart response. if you look at the steps china has taken, people have rolled their eyes and said what in the world are they doing? here is a conventional policy

tool they are focused on. when you look at other necessary japan, the yen is down 35% in three years. people say that is fine. china depreciates by 2% and everyone freaks out as if this is going to precipitate a currency war. the first, you know, big -- tag game from here. francine: that is a fair view. thank you. cameron watt from blackrock stays with us. we'll be talking oil and the fed next. manus: the report by the international energy agency is forecasting global energy demand to slow in 2016. nonopecthat should mean supplied growth grinding to a halt this year. francine: u.k. unemployment rose in the second quarter while total wage growth fell suggesting a possible slowdown in the labor market recovering.

he jobless rate held steady. manus: london is facing misery later this month with day s of strikes. here come the unions demanding improved terms for demanding a new nighttime service. back-to-back 24 hour strikes on august 25 with member s of unite and effa joining in over a similar period. francine: daimler is the latest company taking on the french 35-hour workweek. the german car maker wants staff at one of its factories to put in more hours. the company hinted it will take operations elsewhere if no deal is reached. million pound --

which is owned by a billionaire. it came after the financial times newspaper. that was last month. the deal ends pearson's role in the news publishing business after nearly 50 years the. francine: coming up next, we'll discuss china's currency wars. ♪

manus: welcome back to "the pulse" live from bloomberg's european headquarters in london. let's get a little bit more on china's currency moves which prompted a global reaction. >> china has no respect for president obama whatsoever. hatsoever. well, you to take strong action. how can we compete? they continuously cut their currency. they devalue it. they have been doing it for years. this is not just starting. this was the largest deevaluation they have had in two decades. they are making it performance possible for our businesses, our companies to compete. they think we're run by a bunch of idiots. francine: what japan has done in the last year, year and a half. it is minuscule. i think it was shocking and unexpected because of china's own past trend. exporters will have more room to

breathe. it may buy a little bit more room, so it does help. it is not the central fund memory driver behind the move. >> the real perpetrators have been in the g 10 rather than the emerging markets. they had to respond to it. you have seen a number of countries in the g 10 devalue their currencies directly or indirectly. emerging markets had to respond. a 1.9% depreciation is hardly of the same order. francine: will this reignite currency wars in asia? some say it couldn't have happened at a worse time. rejoining us now to discuss all this is blackrock's chief investment strategist. thank you for sticking around. does it change what you're

expecting from the fed? >> the market is saying you should change what you're expecting from the fed. i think they will look at domestic conditions. i think that will go with the 25 basis rise in september. kathy: it is rocking, as rocking higher. this is going to prepare it further and higher. can the fed tolerate a higher dollar? is up over 20% according to your math. >> depending on which index you do, it is somewhere between 25% and 3035%. you're hearing u.s. companies squeal a little bit. if you look at market rates, expectations for next month 40% ance that they will increase rates. the flip side is there is a 60% chance they will not increase rates. that has moved. the balance is definitely hifting.

the likes of disney saying it is hurting their revenue because of moves in the currency market, but the u.s. officials seem reasonably relaxed about it. we heard mark carney talk a lot about the strong pound and how that is impacting on bank of england policy thinking. we have heard anything along those lines from the fed yet. maybe we will. so far they seem relaxed. >> because america is a price make r. not a price breaker. import a lot of our inflation here. it would be strange if that wasn't the reaction. francine: are you concerned that what we have seen is a little more sinister? they are trying to grapple with something we don't really know about but they know much lower growth? >> i think the problem of low growth has been on the policy make rs agenda for months and month.

it looks like the u.s. is going to struggle to grow at more than 2, 2.5%. europe, 1 to 1.5%. i think policy makers are struggling with that. they feel so much monetary stimulus. that things should be a little bit stronger. kathy: just look at emerging market currency. the 10 most traded currencies, take the i know out of the basket. he longest losing streak since 19973730%, to 50% drops from here. are we at the beginning of the next big leg lower in merging currencies? >> these these are not fixed currencies. inflation currencies. in a sense, it finds its own level like water does over time. a fixed currency changes. it drops very precipitously. if you have 30% to 40% depreciation already, which is

what you had, it doesn't go a lot further than that in the long run. this is also because the u.s. dollar is strengthening as much as anything else. so i don't know. things could go lower. the fragile small financial markets. the specifics in brazil, malaysia, russia. if you can't trade with those markets you trade somewhere else and get the spilloverfects. it is hard o think some of these currencies are not getting down toward intrinsic levels. the thing about market investing is the first, second, third, fourth, fifth and sixth is a currency decision. francine: when you look at what he just said and you talk about currency wars, is it unfair to label this a currency war? >> you look at the japanese yen, down 20% in the past year. there is no doubt that is an engineered deevaluation. designed to try and get some

action going in the japanese economy. and as willie said earlier, no one really complains about japan doing it whereas china is being castigated in effect. but as i have said before, heavy metal music, when you mix it, everything ke louder than everything else. you try turn everything to a level at once. not every country can have the cheaper currency. at the moment, the dollar is taking that strain. trib interesting to see . it is not just the dollar's strength you're looking at. it is the worry that china is not going to achieve 7% growth when lots of other countries are struggling as well. you have to be brave to raise interest rates with this backdrop. it might give much pause for thought. >> i think you to go -- one of the halfs of it is china has been misallocating ca capital for a long period of time.

next week we'll see the results of the big five chinese banks uffering the penalty for this. big stock of lending out there is never going to be repaid and this is creating a credit constipation. that's why china are moving to fiscal stimulus and away from using the banking system. it has such a deep -- on it. anus: thank you very much. francine: despite gold's recent declines, australian miners have managed to shrug off the worst. manus: the situation has often rich pickings. they have picked up two acquisitions in their on backyard. paul allen paid them a visit. >> some more fresh gold pours into a depressed market. this 17 kilogram brick is being created in mining's newest

asset, a mine in western australia. here the appetite for gold remains as strong as ever. the re is the finished aussie dollar is -- so local currency, this is $1,500 an ounce. the whole brick, about 3/4 of a million dollars. >> this is hole it came out of. he began digging in early 2013 it is a gold price began its steep decline. evolution shareholders voted unanimously to scoop it up, one of two recent acquisitions making evolution australia's second biggest gold producer. since november last year, almost a quarter of their gold production has changed hands. evolution's c.e.o. said foreign miners in general have been feeling the squeeze. >> they need to be looking at it. most of their production is in u.s. dollars.

which the gold price -- it is tough to make money. it is mainly related to their position rather than i think the asset quality, which we think is terrific. >> it seems counterintuitive at these prices but it remains leaptlessly upbeat. this month saw the formation of it. they promote the metal as an asset. >> it is the nature of the industry. a lot of the gold miners at the moment, the producing gold miners are producing at a cost -- the current prevailing price. >> as long as that situation prevails, the deal seems certain to keep come. francine: up next, the forecast that global energy demand will continue to slide next year. how will that affect oil prices that have already taken aing? ♪

francine: welcome back to "the pulse" live from bloomberg's european headquarters here in london. i'm francine lacqua. manus: and i'm manus cranny. let's get you some of our top headlines. the chinese yuan has plunged for a second day after they reduced the rating by 1.6%. the move came one day after a record 1.9% cut to the trying to give market forces more sway in determining the exchange rate. francine: that is having a knockdown effect on stocks.

hina will curtail reports. manus: let's check in on the equity markets. there have been some pretty big moves. jon puts it in context for us. jonathan: 30 minutes into day two of the china tantrum. heading for the big west to-day loss. losses of 1.5% on the ftse 100 in london. over 2% on the periphery in spain and italy. the go-to for anyone waking up this london or wall street, it is what is the currency doing? what do the people's bank of china doover insight? they cut the rate once again. dollar/yuan goes 1% stronger but some intervention. reports that the people's bank of china will try stop from

dropping too much. a 2% move yesterday. a 1% move today. the regional market impact and the global market impact. the regional market impact, you go to the asian currency. the malaysian ringgit. the asian debt crisis ringing in everyone's ears. that is the topic of discussion throughout the day. the equity markets, though, it is the same movie that we watched yesterday. the automakers getting what could off the back of this. .m.w. down 3%. the same feeling pain. what does it mean for the chinese consumer? that's why you're seeing this move in luxury as well and why you're seeing this brutal move in the miners. trading at the 2009 low. a huge two-day sell yaw. % on the down 6 1/2

session. b.h.p. billiton down. to go more international check out core bond markets. if you believe the story is going to lead to something much bigger, the idea that china will export more inflation than there has been over the last few years, it is one of the reasons there is -- in the bond market, treasuries going south by seven basis points. erman bond yields, the two-year, negative .29%. it is a safe haven bid. a deflation bid in the bond market as well. back to you. manus: tom keene joins us now from new york. tom, some really, really aing moves in these emerging market currencies and the yuan. cameron watt has been here throughout the morning from blackrock.

he said it is a depreciation, not a deevaluation, tom? tom: i don't agree with that at paul. i think it is a true deevaluation because it has been a farce for many, many years. they have been in charge of their currency and when you're in charge you can call it a true deevaluation but i take the point that it will be a repetitive deevaluation which begins to look like a epreciation. london just publishing moments ago about the new volatility. i'm focused like jon ferro on the new negative low yield for the two-year german. maybe it is the deflation wars and the not the currency wars. we'll talk to brian belsy. we have futures to a new negative 23 this morning on the s&p futures. hans nichols is with us in new york this week, which is a great pleasure for us and we'll talk to mr. nichols about the effects

of that depreciation over to the european economy. francine: you know what, tom? i was fass mayed. we were talking about with it our guests earlier. if you look at the fed rake hike, it shows a 36% chance of a september hike compared to 54% last friday. this has huge repercussions, also on your central bank. tom: it is a shifting debate. i go from the comments that vice chairman fisher made that margely moved the market. -- marginaly moved the market. this new idea that the fed could delay. i really don't see a consensus shift yet from september to december, but the series of subsequent rble nature of these market shocks makes you wonder what all central banks will do and how they will respond. francine: tom, thank you so much. tom keene of "surveillance" in

25 minutes from now. manus: the global oil glut will continue next year. let's take a closer look at the published report. we have our chief energy correspondent and of course we have our blackrock strategist with us for this hour. it talks about demand and the slowdown in the risk of demand. >> yes, for next year. this year, however, the demand continues to be very, very strong. i think the main point of the agency is that the amazing glut that we still have in the oil market and it is going to last for all of this year and well into 2016. we are not going to go into a situation where we can see real increases in oil prices according to the international agency until the very end of 2016. francine: what does it mean on where you put your money? >> i think that, as long it is a dollar is strong and the commodities are weak, however

cheap emerging markets get, you're kind of being paid to be patient. there is no point in trying to catch the falling knife in that respect. i think the fall in the oil price and a slightly stronger dollar is reflationary for europe. i think walking across jon's map, there were some interesting opportunities coming up in european equities and likewise, i think we'll find if the chinese situation is a depreciation and not a deevaluation and i take tom's point about the change in the structure, but if it is a depreciation, we'll get to a point where some of the asian stuff is a shot too far. in a bear market, patience is your friend. in a bull market, it is your enemy. i think we need to be patient. manus: probably reaching for levels at the moment, certainly in the energy market we are. we started writing articles. the chinese were beginning to stockpile again.

stockpile in iron ore or oil. is that something that can put a flaw turned market? >> i think there is an element of that. to me, the most surprising thing about the i.e.a. report is that if the price is going to remain as incredibly low and remain under pressure, you would have thought that demand would be growing faster because of of the purchasing power. that doesn't seem to be the case. that i guess is the slightly concerning aspect of the report me. by the way if the rate of growth is going to be slower next year than they were previously projecting,s that another way of saying that the relationship to fall in prices and rise in demand doesn't seem to be mapping. francine: is there any positive news? >> absolutely. talking about demand. talking about europe and how reflationary -- is for europe, one point to make.

all the money in europe is going to grow this year by 1.4%. that is a very small increase but it is the first increase in 10 years. that is how reflationary it is at the moment. that does lower prices. these low prices, people are -- it is an incentive for economic activity for countries who are oil importers. it will grow at double the rate of last year. that is significant. a lot of inin five years. that is positive news for the bulls. they will have to wait a lot of time before the supply comes down. manus: have you got patients? >> plenty of it. manus: thank you very much, gentlemen. francine: we have to chrebet something we said earlier. it is oil demand growth that is forecast to grow, not demand in general. manus: absolutely.

oming up, signs of a slowdown. alibaba reports earnings today. francine: the former stock market darling has lost more than $90 million in market value. we look at what to expect. ♪

francine: welcome back to "the pulse" live from london on bloomberg tv. manus: it has been a difficult year for alibaba. the chinese tech company which became the biggest single source of shareholder losses worldwide. let's get careline to break it down. careline? -- caroline? caroline: over the course of 12 months since the i.p.o. it was the darling of the stock market. it rocketed after it initially sold shares. come november, we start to see an eradication of market value. suddenly you start to see $90 million wiped out of its market cap. that is similar to goldman sachs' entire deevaluation. this is the biggest destruction of market value in the world. why? why have we seen an eradication in terms of their share price and what are they doing about it? what do we expect in this third quarter? that fiscal third quarter? we're expecting the weakest

growth in three years. usually we see about 56% every quarter. why 33%? notably the china slump. you were just talking about it why china is of course slowing down. we're expecting the worst year for china growth since 1990. of course that is going to hit the dominant e-commerce giant in china. they are being sued over the fact that they are claiming they were allowing counterfit goods to be sold. down goes the share price. $91 billion eradicated from their market value. turnaround. can we be seeing a turnaround? going to bearter is slower. what has been put in place? already we have seen it. the bigs deal on record. $4.6 billion spent on a 20% stake in suning. suddenly you're going to be seeing an ability to access

1,600 stores, 290 cities. alibaba can deliver that much faster. they can get their good to you in two hours. some will start to bring in the new users in rural china. they are in the big cities. they just added -- get this, imagine it, 19 million new internet users came onboard in the first half. half of them are from rural china. how do you access those people? you to leverage infrastructure. then you start to think global. alibaba haze globalization is the number one trend for the next decade. ey have pipetted -- he was partner at goldman sachs, michael evans has come onboard as president of alibaba. his focus is globalization. you look at one of their businesses, they already, in russia, number one. terms ofe in brazil in web services. you're seeing some really

interesting points. you're starting to see real madrid selling good to the chinese consumer by alibaba. royal mail here in the u.k. setting up global. the chinese can start to buy cambridge -- company and british good. also u.k. businesses can get loans from alibaba to help buy supplies from china. they are focused about globalization. it is an interesting trend to see when that starts to gather steam in their numbers. for this quarter, sales are going slow. francine: they have seen sales slow. our next guest says the entire chinese tech sector has taken a blow but remains bold with alibaba looking to expand. joshua, great to have you on the program. alibaba is not looking great. was it just because evaluations were so crazy beforehand or do we actually have concerns about

sustainability of future growth earnings? >> obviously i think everyone was ecstatic when they first listed it and thought this was the new thing to jump on. the new ebay and amazon. who doesn't want to be involved in that kind of brand? ultimately, i think people all of a sudden have lost a bit of faith in the direction of the company. they don't necessarily know where the company is going. you said previously about a bit of a slowdown in terms of the sector. there is a slowdown in terms of the whole region. it makes sense that baidu would underperform. we have seen it outperform expectations. i think the bar has been lowered to an extent that it gives us room for maneuver. i think it is likely to actually people would allow that. if we saw an outperformance of it, people would start to jump back on the bandwagon and given the fact that the firm has been buying up so many different

brands, we were talking about the whole alphabet at google because they have so many different things going on. we can say the same thing about babbb. they have internet dating in tinder and an online app for ordering food. just eats or hungry house in the u.k. people are trying to gauge what these investments are going to look like going forward. therefore you know, today's earnings are going to be able to put a bit of flesh on the beend try and get people to really focus in on what these new investments will look like going forward and whether they are the ly making money in time being. manus: let's talk about the latest view for the company, which is suning. the headline, alibaba plots a comeback from the biggest market wipeout. this is from online to offline. we're looking for synergies in this kind of deal. geographical presence. physical presence.

what was the talk yesterday when this was announced? >> largely again, like i have said before, we have seen so many different deals. this is the size. it is a massive deal for them and also i think the thing to focus on here is not necessarily the fact that they are going to be able to show physical presence. everyone likes to go in and try something but ultimately people generally know what they want to buy. they try to utilize the logistics which is they are supposed to be amazing and essentially it will allow them to be able to deliver things within two hours. i think there are major synergies to be created on that side of the business. not so much the physical sidor the business as people have been speculating. josh, thank you so much. manus: up next, russia puts on a show and it is not for real. join us after the break.

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francine: welcome back to "the pulse" live on bloomberg tv and streaming on the ipad and bloomberg.com. manus: here are some more of our top headlines today. dutch prosecutors say what could be part of a missile have been found in the wreckage of the

malaysia airlines plane that crashed in the ukraine. it is the first time investigators have confirmed possible evidence that a plane was shot down. all 298 people onboard died when mh 17 crashed in july last year. francine: meanwhile france has epped up the search for ma laselation airline off the coast of reunion island. a piece of winning was discovered that probably came from the missing plane. other indian ocean countries have been asked to carry out similar searches. ukraine ckers in accessed 150,000 releases passing them to associates in america who traded shares in boeing, h.p., oracle and caterpillar amongst others. over five years, the hackers and five u.s.

traders have been arrested. francine: as russia struggles with sanctions, they have been putting on a different show. they have a chance to compete and perhaps do some business as ell. >> i think there is two purposes. the straurd purpose is such -- straightforward purpose is such military -- of troops participating. they are wonderfuls for training and leadership. there is also political purpose, which is to improve military to military relations between russia and the countries who are sending teams. now the countries themselves are all countries that use significant amounts of russian equipment. i mean, look at the list. egypt, armenia, belarus,

india, kuwait, monogoal aia, serbia, pakistan and venezuela. those are all countries that have purchased significant amounts of russian equipment. what we're dealing with amongst the list list of countries are countries whose defense policies allow them to encounter western sources. quite clearly bearing in mind that army chiefs and senior officers from all of the countries concerned, it is a big opportunity for the russians to attempt to show off their defense technology and achieve arms sales. it is a global player. it was a great armored vehicle manufacturing nation and it hopes to be so again. so on the back of this, there is obviously a major opportunity for russian defense ministry. manus: that is almost it for this hour of "the pulse."

we have a couple of breaking headlines from one of the business groups in germany. is it stating the obvious? they are saying that the yuan rop may damping china. fantastic profits may be over for the foreseeable future. francine: i think this is quite significant on the back of these weak numbers in terms of forecast. yesterday we had a very weak number. that means that german confidence is -- people are not concerned about the future. in the past, it has come from russia. this has come from greece in the past. now it is china and they are concerned that we'll have of course -- it will affect the markets and revenues for a lot of the german companies. manus: the dax is down 2.4%. paris is down. daimler down 3.84%.

these are significant moves. autos, miners in the united ingdom as well under pressure. francine: that's it for "the pulse." keep it right here. "surveillance" is next. ♪

announcer: this is "bloomberg surveillance." tom: it is a second day of the valuation in china with the effect felt around the world. german yields strive -- german yields drive more negative.

lower for longer. iaea oil prices. alibaba down 34% from its peak. jack ma will have explaining to do. those earnings out today. good morning, everyone. this is "bloomberg surveillance" from new york. moments ago, the chinese appear to be reacting to the market. brendan greeley, help me out here as we truly rip up the script. twoone and evaluation, date of depreciation. 9% improvement, strengthening of the renminbi. brendan: the question has always been what are they willing to do. they also want their own control over it. we are reverse engineering this. we do not know this from the bank. we are looking at the tape. tom: