[closing bell ringing] u.s. stocks closing mixed after the erasing an earlier rally. investors are looking to tomorrow morning's jobs report. david: the question is "what'd you miss?" could september be the best time to raise rates? why one top economist inks this month is the charm. jobs. plus jobs, jobs, we will have the top charts you must see before the numbers cross. and with chinese markets still close after so much turmoil, fear grows about what will happen when they reopened. but we begin with stocks. another whiplash feeling in the market. the dow was up almost 200 points, now ending up 21 points. the nasdaq negative and now negative on the year again. the onlyalth care was

laggard. i want to take a deep dive into my terminal. the big news today was when mario draghi spoke after the ecb meeting. also incidentally, his birthday today, turning 68. when he may this announcement that rates are going to stay the same -- not much movement, but opening the door to further quantitative easing perhaps, saying he might expand how long they are looking at that -- you see a dramatic drop there in the euro and a low, a two week low of $1.10. big news out of frank for today. alix: it is sort of like the draghi sledgehammer. jpmorgan had a note out talking about how much more selling they could see. 100 see it -- they say ilion dollars remains to be wiped out of the market in the next three weeks which speaks to the volatility. speaking of, take a look inside

my bloomberg terminal -- this is the volatility of the vix. 130.is this level -- this is the level barclays points out for when volatility changes the stock market. we've reached that level and saw a rally in stocks. and sawnear that level that level in stocks. we reached the level but we -- will we see a rally in stocks eschew mark good stuff. the ecb,old you about but what about the fed? the odds for a september rate hike held study with investors thinking it's more likely time for an increase. anding us is torsten slok dean baker. volatility makes

now the right time to raise rates. why? torsten: there are many things that go into the decision of when is the right time. but once they it going, they don't want to tighten financial conditions too much. may be a good time ironically to do it when markets are saying we don't really know if the economy is strong enough. but if the fed has the confidence, this could be the reason to go into september. david: do you think the timing is right? it is an interesting argument. i would have to say that volatility makes it to my mind less likely. on the one hand, how does the market react we haven't seen a rate hike in eight years. what is the immediate reaction? second, what is the underlying state of the economy eschew mark it doesn't look -- state of the economy?

the drop in the euro is going to worsen our trade deficit -- that doesn't look like a story where we need to have a rate hike. one.me point, we will have is this a good time? it seems that it is dressing it. given the consequences if you get it wrong, it seems to make more sense to wait. you havethis week, auto sales at the highest rate in 10 years. a strong sign of an improvement from q1. gdp growth on average has been 2.7%. payrolls,k at nonfarm it has been on average 240,000. isn't that enough for the fed to think about hiking eschew mark particularly in the labor market. it in that't see strong in the labor market because we are down roughly three percentage points.

four percentage points if you go back as far as 2000. wage growth continues to be nowhere. rate, 27of the growth sounds good but it's not a particularly strong rate. one of the things driving in that second quarter was we had an extremely high rate of inventory accumulation. i don't think we have a story of the economy going full steam. maybe we will get 2% for the rest of the year, but that's not terribly strong. david: i want to put a chart up with potential gdp. why is that giving you pause? : this is the congressional budget office assessment of where the economy could be if we had full employment and everybody working if they had a job. it's still 400 ilion dollars

against potential gdp and the estimate is a potential growth of 2.7 percent a year. down two percentage points and we are making it up at the rate of half a percentage point, we are talking about four years until we get to potential gdp rate. jumping on the point about the overall economy, it seems like financial conditions in the u.s. are getting tighter. they seem like they are the tightest in three years. what is fascinating about that is despite the tightening -- alix: i should point out that when you see this going up, it means things are tightening. think about what has happened in the last six months. not only did we have the recent information in emerging markets, tremendous had

information coming from the euro area. where is the unemployment rate? 5.3. it's very close to the fed's estimate at which we are at full employment. combined with more and durable goods, we've seen very strong hiring at low and medium income jobs. i think it's much stronger than people appreciate. david: i want to pull up that goldman sachs chart again. had he found his the fed not tightened monetary conditions in 15 years. does that give you pause when you look at that? thaten: the fed would like when you hike interest rates to get the long end of the yield curve. at the moment, we have had agents that central banks buying treasuries and now we are seeing a reversal of that. it's getting a lot of attention at the moment.

it used to be the case that central banks were buying a lot of treasuries to make sure they did not appreciate too much. now it is a complete reverse. that is why they are selling treasuries. we could be in for the reverse where we would see the laws of economics when the fed certs hiking and central banks are selling treasuries. alix: what do you think about that? that it could work this time if the fed raises rates? dean: i'm worried that it will work. we have this unusual experience in the middle of last decade where i'd joke about china having a policy of quantitative easing in the u.s. market. if theket doesn't care fed is buying bonds or the china central bank is buying bonds. when the fed was raising rates, you were not being long rates go up. happen not likely to this time which means it will

have more of an impact on the long rate which will slow the economy. i think prematurely slowing the economy will matter if the fed does do the hike whether their statement is this is a one-off, we will see what happens going forward, or whether they say we are on a path to 2%, expect to see another hike in december. david: tomorrow at 8:30, we will be looking for these jobs embers from the labor market. what are you expecting to see? around 170.ly we're looking at the wage data. is there some evidence wages are picking up? that's what i hope to see. i don't anticipate much. monthly data is erratic in any case by still think we have a lot of weakness in the labor market. much, dean you so baker.

watch what youp, say -- the 141 words a study says can bring down the markets. ♪

askedbefore the break, we our their actual words that could contribute to market drops? david: a new study from switzerland find 141 words spoken in the financial press has a negative effect on subsequent stock market returns. you can see what happens with the word panic correlated to the s&p 500. monitoring, he times word panic was used in the

bloomberg terminal and it's directly correlated to big spikes down. david: we don't know which caused which to move. alix: don't panic. is back with us and we have the four charts you can't miss before tomorrow's job reports that shows how hot the market is. david: your first chart is about job vacancies. something we've seen pick up over the last many months. tell us what you can divine from this. we're getting close to 30 days it takes for someone to land a job. torsten: what is unusual as you often go into meetings and people say the economy is not that good. people say we need to see more but then you look at charts like this one which shows it takes a lot of time to find job compared to 2006. it's harder to find a job -- doesn't that mean the labor market is in a hotter state than

it was? alix: is that worker mismatch or are there literally not workers? think about job openings in the newspaper. that would require skills they don't necessarily have. there's probably a skills mitch skilled skills mitch -- mismatch going on. alix: this is the second chart that you brought. if you: think of this open the newspaper and say how many unemployed workers could apply for each job. today, it's only one and a half. but used to be five to six, or seven. if wels you that maybe get down to a lower level, you just cannot find the right people. david: we've seen an uptick in how housing has been performing. a fascinating chart about how

difficult it is to hire people in the building and construction sector. i think about the importance of that -- these are jobs where you could enter as a lower aid worker, make your way into the middle class. this is fascinating. when you ask home builders if you are experiencing a shortage in worker availability -- they are saying today that it is harder than it was in 2005 when the housing market was incredibly hot. workersfiled 2 million -- just fired 2 million workers in this crisis. this is just one anecdote we can quantify. this is one that we can quantify that suggests the labor market is getting hotter and hotter. alix: which leads us to the question of wages. the most jobs created during the recovery from the high wage

sector, which i found to be surprising. torsten: when you have a recession, those who have education tend to keep their jobs and 10 to get the job first. over the last one or two years, we managed to see more job creation for low and medium income jobs and we finally see those jobs coming along. if you are the fed and look at this from a macro perspective, you say in the beginning, those with education got jobs and we are finally getting to the point where this economy is broadening to a broader set of skills and backgrounds. this is what we have been waiting for for so long. that we are creating jobs in those low and medium wage jobs. about half the jobs that have been created in this recovery have been high wage jobs. hisd: we asked in baker for take on what the job numbers might be for tomorrow. what are you expecting? 170,000 -- so a

steady improvement that will push the market in the right direction. alix: good stuff. torsten slok is sticking with us. tradition goes an engagement ring should cost three months of a suitor's salary. do falling diamond prices mean the rings are getting bigger? did you pay that much for your ring? david: i did not. i'm ashamed to say. ♪

david: "what'd you miss?" before the break, we asked if time and re-are getting bigger. david: diamond prices have fallen as wages have risen.

alix: i married at the wrong time. massive carnage in emerging markets following china's surprise currency to valuation last month. torsten slok is the chief international economist at deutsche bank and morgan harting is a manager from morgan bernstein. it feels like we are approaching those levels again. morgan: the chinese market is down by a third and last three months. brazil is down by 30%. have had antion, we opportunity for active managers. there have been changes in prices that set up opportunities for stock selection and bond election and currency selection. it's a time to recognize the passive approaches to this

volatile part of the capital markets. it leaves investors exposed to the very sort of risks you describe. david: we had mark farber on recently i want to say what he had to say. mark: emerging markets are not yet cheap, cheap, but return expectation, i would have over the next seven to 10 years by investing in emerging markets would be my -- would be much higher than u.s.. stop david: that leads me to this chart with emerging markets not oversold compared to emerging -- compared to other markets. as you look at this correlation -- it seems like we have approached something are emerging markets hitting bottom or is there still more room to go? morgan: there was a reference in that clip to 1998. today, they are at 11.6, so they are down a lot.

a are not at rock autumn prices but they are cheaper than developed markets. value relatives to develop our gets and you see equities come down and emerging markets want escape the ofndraft, but in terms forward-looking expectations, there's room for multiple expansion in emerging markets to the extent we start to see growth coming through. emerging markets growth has been consistently disappointing and in the face of the fed tightening, investors are rightly concerned about whether we will see growth coming through. as emerging markets are decelerating, they will face tighter and tighter global conditions as the fed tightens and that may be the opposite of what they need. alix: we have seen global reserves in central bank start to decrease. is the result of that quantitative tightening? torsten: absolutely. it is a big regime change.

foreign central banks have been accumulating reserves in a major way but we have seen the reversal of that. that's a very significant regime change. if foreign central banks start -- thattreasuries, could put a lot of outward pressure on treasury rates. that is why u.s. yields have been held down for a long time with this link it lying over rates. morgan: we could overstate the risk of the fed raising rates. it's going to raise rates when you have economic activity improving. in that kind of environment, emerging markets are going to do well. in the mid-to thousands, emerging markets were up -- alix: doesn't that mean we have

to see capital inflow out of emerging markets? morgan: i think you can overstate concerns by a tway five basis points. is if thee reality fed is recognizing improving economic conditions, demand from will be improving and that's good for emerging markets and emerging-market stocks. torsten: that is why the fundamentals get that are as the u.s. better. the tourists have gone to u.s. market and if they see higher rates in the u.s. they may be selling much more persistently and the risk could be more substantial. but it would certainly pull things in the right direction. morgan: it's hard to see many tourists left. i think most of the tourists have been shaken out at this point.

it is the intrepid, more familiar investors. i worry about people who take passive positions and say i'm just going to buy em. people who use this probably are taking exposure to everything blindly and the reality is this is a large part of the global capital markets. you have to have exposure. there's a lot of opportunity, but you have to be selective because these are not uniform countries were markets and they are not growing at the same rate. torsten: that is exactly the group i would call tourists. right stop i appreciate what you are saying. fundamentals would be going in the right direction but if it was the case it had adjusted, would we not cem go up by now smart -- i now? alix: great conversation. thank you so much. morgan harting and torsten slok

here for the whole half-hour. thank you very much. david: we will be right back. ♪

alix: i'm alix steel. david: "what'd you miss?" the: do not miss this -- jobs report is coming up tomorrow. i should point out mark hilbert had a report saying don't trust it. august has the lowest monthly average gain since 2011. david: he crunches these numbers and what is fascinating is the revisions are typically revised up by 90,000 in august, more than double what the other 11 months are. alix: that means the fed is looking at the most unreliable jobs report of the entire year. do not miss this tomorrow -- the

former advisor to fed chair janet yellen and former chairman ben bernanke will be on with us tomorrow for "what'd you miss?" david: thank you very much for watching. alix:

emily: twitter's board needs to discuss the ceo search. who investors want to see in charge? i'm emily chang and this is "bloomberg west." billion loan a $2 against alibaba's stock. system gaining traction with corporate giants like cisco and unicorns like spotify. all of that ahead on "bloomberg