u.s. stocks closing lower on the first trading day of the year. the s&p seeing its third worst start of a year going back to 1927. joe: the question is "what'd you miss?" they really have power over the rest of the year? china manufacturing economy data comes in week. the shanghai composite sees its worst ever first day loss. alix: and oil prices and lower? -- useudi arabia use its oil as its weapon of choice against iran? we begin with the markets.

so much more the trend of let's turn a new leaf over. drop, at00 with an 8% one point all three major indexes were down. we saw a bit of a turnaround and saw a reversal. we are still down, no doubt about it. all 30 members of the dow industrials were lower. now we have ended with three gainers on the day. walmart, apple, and caterpillar all managing. joe: all three have something in common, they have been obliterated last year. a real global selloff. it started with china losing nearly 7% last night. they hit their circuit breakers and then decided to pull the plug on the day. we are just going to stop trading. they stop did around 1:30 in the afternoon local time and ended

trading lots of concern about the economy, also the expiration of a shortselling ban that was implemented last summer when there was the earlier bottom market volatility. that is possibly going to be polled later this week. that reverberated. oft i looked at in terms what health stocks reclaimed in some of those losses was oil prices. they initially pop tire on the conflict of saudi arabia and iran. selloff -- when you have the construction spending data here in the u.s.. blend, that is when you saw stocks bottom and all three clawing their way off the low the session. wanted toomething i point out about the few stocks

that were up, we saw apple leading the way. facebook, amazon, google, all diving. this situation where last year's winners are today's losers, another winner today is gold-mining stocks. >> you said money moving into gold, so you said beidler losers from last year. by the losers from last year. if you take a look at all country world index, it is the anatomy of a selloff. when ast arrow indicates markets open for trading. 12:11 a.m. is around the time the first circuit breaker went off. it is right around here. a trading was suspended around 12:30 a.m.

right here, the editor -- the red arrow is when they open for trading. if you look at how we recovered in the last half-hour, yes there is a leg up, but not enough to change. alix: and the big question is does today shine a spotlight on what we can expect for the rest of the year? i was looking at two different stocks. -- first was going to be overall you saw the index fall 13% on the year. a first down day isn't so great for the year. is 1980. that down day was 2% on the first day of trading. and we saw a rally of 26% over the next year. at this point it is a 50-50. the worst trading was 1932 and 2001.

on average use i full-year loss of 13%. on the other days, not so terrible. i think we are going to get more people talking about january 2008. the s&p was down 2% by january 2 of that year. it was a rough start to the year and obviously a terribly year. if we have a few more these bad days i think people will be bringing up 2008. i want to dive into the terminal and go back to china. obviously the china market volatility seems to set the tone. the interesting thing is the economic data out of china, we got a fair amount of it the last few days. not all that bad. this white line is the china nonmanufacturing pmi. it is actually at its highest level since august 2014. the yellow line is the china manufacturing, still very weak. that is not a news story.

weak and may be a little worse than expected, but not all that new. may be trickier than people think. scarlet: you can see all these charts and more on twitter. jeff is an emerging market strategist over at ubs and joins us now from boston. if you look at what happened overseas in asia it was a straight line down from stocks within the trading session. mainlande line is chinese stocks. are we looking at august all over again? too: i think that is far bearish to argue it is august all over again. i think it turned out to be a confluence of events, particularly with markets closed and very little trading over the last several days.

agree with what your colleague justice said, i don't think it is manufacturing data -- i don't think it is data on the manufacturing side. we know the economy is slowing down relatively rapidly. i think that hurts the sentiment significantly. there was a lot of not cutntment they did interest rates or reserve requirements over the holiday period. i think that is going to be a short-term disappointment. also -- you hear about this much before, this technical factor that big holders of chinese stocks will be able to sell those again. that was one of these exposed rationalizations are what went on. don't think there is very much and you hear and i suspect you will get a rapid bounce from those levels overnight to last night.

>> talking about china's ability to manage economy and execute a soft landing. am absolutely bullish on china this year in the sense they have the greater ability to stimulate their economy and maintain political stability as a consequence. share the optimism that china has the capacity to stimulate the economy as much or more than anything in the country? >> i completely agree. i think the flaw is the following, everyone expects to see the rate cuts you see, the fiscal easing you see lead to the economy improving. this economy is slowing down. it would have sloan down even more rapidly had you not seen

fiscal policy easing. is to cushion the slowdown of this economy. this is a huge economy. it is still growing around the 7.5% raise. they can certainly manage this. i think it is going to rebound. it is not going to rebound, it is just going to slow gently. alix: it seems like the selling was happening even before the china data came out. if you take a look at the currencies like the aussie dollar, they were already weaker before that data came out. does that tell you something about overall market conditions? >> there is a concern there.

i do think the intensification others concern in iteration markets was tied to data, was tied to the , and we had a run in some of these emerging markets into the end of the year. emerging markets according to , at thehmark indices beginning of this year they were at their lowest level since 2008. they are very low indeed. i think the danger would be to get too bearish after emerging markets have done so poorly after the last five years. scarlet: the pmi data is not so terrible. what we have is a china pmi in white. is below 50 for five straight months.

there are other indexes that show some stabilization, output, orders, purchases. why the transition in china's economy from export driven to one that is consumer and services driven? is in the data showing what is supposed to be happening? >> i think it has become traditional over so many years to focus on the industrial sector. we argue for a long time that people stop looking at will recall old china and focus on will be now called do china, which is the service sector and consumer, both of which are doing relatively well. it all upf you roll together, this economy is going to weaken a term of its growth -- in terms of its growth rate. it is a very strong growth rate for an economy that is the size

of china these days. i think it is a knee-jerk reaction. they have a huge impact on commodity prices around the world. the real heart is outside the industrial sector. >> coming up more on the global selloff and what you may have missed on today's market action.

says president obama

executive actions are within his authority inconsistent with the constitution's second amendment. the president spoke following a meeting with loretta lynch, james coney, and other top law enforcement officials. they presented the president with options for gun control measures he can take without congressional approval. >> although it is my strong to get our for us complete arms around the problem, congress needs to act. what i asked my team to do is see what we can more do to force and prevent guns from falling into the wrong hands, to make sure that criminals, people who are mentally unstable, and those who could pose a danger to themselves or others are less likely to get it done.

expect more so as to register as federally licensed gun dealers. iran has expressed regret over two attacks on saudi arabia diplomatic missions and says it will spare no effort in arrested -- in arresting those responsible. all flights to and from iran are canceled and gave iranian diplomats hours to leave the country. group says has the law attacked an israeli armored vehicle with a roadside bomb along the lebanese israeli border today with the lebanese responding with artillery fire. the explosive device destroyed a humvee. the israeli army did not say if there were casualties. tom is stepping down as coach of the new york football giants.

he won two super bowl's in 2007 and 2011, beating the new england patriots. but he missed the playoffs for a fourth consecutive year. he stepped down in the best interest of the organization. global news 24 hours a day powered by our journalists and more than 150 news bureaus around the world. alex, scarlet, joe, back to you. withould we be concerned today's global risk selloff? jeff, you pointed out that emergencyon ahead of measures in china, such as a ban on sales by stockholders and on short sales, may have exacerbated this a lot. you are not too bothered by today's plunge overall. does that me to buy emerging markets? jeff: we do expect there to be a better year in emerging markets this year. we put out our first look in the middle of new yet -- in the

middle of november. you have had five very poor years. in particular you had a bad year last year because of the scale of the decline in the commodity price story, and also the scale of the rally in the u.s. dollar. we sadly think of those holding better than last year, commodity prices may go down further, but not as much as last year. the dollars going to rally a bit more but not as much as it did last year. that should give you some cyclical rebound in corporate earnings. that gives you a modest bounce to equities in 2016. on the base of that first look, yes we certainly see this as an opportunity. in the long term, china is one of our favorite markets. i think this is a long-term buying opportunity.

something that could happen in china or the u.s. or anywhere else so it make you cautious? jeff: they're a three things i'm focusing on. first of all, a sharper decline in china, a sharper slowdown than we are anticipating. we put out a report a couple of weeks ago i what happens of china grows by 4% in 2016. that would create a much more difficult environment for emerging-market equities. generally if global growth was a disappointment this year, what put morewhich would pressure on commodity prices and more upside pressure on the dollar. what that would do is signal if you like further risk for assets in global markets. we don't thinknt gets enough attention. we have a good performance in years,e terms in recent particularly last year when equity did so poorly.

yields rise a little bit as the stoxx raise rates. that couldhe things give you a selloff in bonds. those are the things we are watching carefully. for us, the really important thing is you should get a much better story on the earnings front this year, and that will drive a slightly better performance from market equities in 2016. scarlet: protesters setting the saudi embassy in iran on fire. the implications between the two countries.

scarlet: a beautiful sunny day on a turbulent market day. christie joinss with all due respect at 5:30 p.m. eastern, do not miss it. pulling the rug out from under the economy, slashing its fourth quarter gdp forecast to 7/10 of 1% from 1.9% just about a month ago. joining me is james sweeney, chief in ghana missed at investment bank. at investmentmist bank. what you make about this call from the atlanta fed today? james: this is a u.s. specific innovation. today we had some weaker construction figures.

this is real-time tracking. growth isink collapsing anywhere in the near term. joe: the manufacturing data, quite weak. a lot of people missed it because people were on holiday last week. absolutely dismal. are you confident that those manufacturing issues and clear weak spot to the economy exports aren't going to bleed into the rest of the economy and take down the parts that are doing stronger, such as housing? james: manufacturing is actually growing one percent to 2%. that is because my -- that is because ip had mining utilities in it. it is really more of an energy -- energy mining store.

that suggests we could see some cutbacks in manufacturing. it is a story that we see manufacturing flowing a lot. the global level again, it is really an energy and mining story. scarlet: global industrial production may be corrupted by the weakness we are seeing an energy and mining. at half the trend rate since 1980. how much does this reflect the real economy? outsourcingonomies manufacturing to the emerging markets. jeff -- james: in a way -- the nontradable sector is the non-factory sector. global growth is sluggish. the point is half the growth rate since 1980, it is still

growing. with that you are right, there are a whole bunch of structural stories. china's growth is slowing. it is still contribute in positive growth. there are a lot of details that get lost. about amething we talk lot is how economies are transitioning from manufacturing services. going to buyey are a lot of goods. if you look at emerging markets versus developing markets, we are noticing a slowdown in the goods consumption of emerging markets. is that a big worry sign that we are going to make stuff that they buy? james: china does not by a lot of consumer goods. but do by investment goods, the investment goods include a votto from materials from the rest of the world.

really happened is there is a high expectation of strong growth in china. it is repriced commodities, it has moved a lot of currencies around. have gotten a lot less revenue because of the current -- because of the currencies and commodity prices. that means greater fault risks. i think china is the origin. growth is sluggish. again, there are a lot of details. it is especially not that bad for the u.s.. our consumers drive factory output. >> it is not that good, not that bad, lukewarm. >> it is a big difference between e.m. and mining manufacturing. >> coming up we have a chart that could show the canary in the coal mine for world trade. coming up next. the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment,

we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. scarlet: i'm scarlet fu. "what'd you miss?" let's get to mark crumpton. are: security officials studying in islamic state video that threatens more action against the united kingdom. d man speaks of the british accent before shooting a reported spy. he says the extremists will soon invade britain. four others accused of spying for britain were also killed. the refugee crisis is complicated western europe's open borders policy. denmark says it will impose temporary spotchecks on germany. theaters were angered by sweden's decision to start imposing border checks to stem the flow of refugees.

that could lead to a large income of refugees. the lastton has spent few months of his west campaign behind the scenes. that changes beginning today. the former president is rallying in new hampshire, the first in the nation primary is in five weeks. mr. clinton will have more events across the country in the next few weeks. donald trump's first tv ad of the campaign will air tomorrow in new hampshire and iowa. that focuses on terrorism and border security. it shows hillary clinton and president obama never mentioning trumps republican rivals. he says he plans to spend $2 million per week on ads. day,l news, 24 hours a powered by 2400 journalists in 150 news bureaus around the world. back to you. scarlet: let's get a quick recap on how u.s. markets closed. not happy new year for anyone

with equities. dow industrials closing down 276 points, that one point it was down as as much as 467 points, the worst first day of trading since 1962. we saw a clawback and late not enough to change the tide. joe: clearly a really ugly start, and it started with china last night. 5%,market fell nearly triggering all the circuit breakers. eventually early in the afternoon we are done trading. we will pull the plug on things and be back here tomorrow. and since we couldn't trade chinese stocks after 1:30 local time, where will you see the stress of the market? ice in the copper market. you can't sell chinese shares, but you can do it with copper.

i look at this as a proxy of how the market feels, and it doesn't feel very good. we had a call from ubs today that we could see $2400 copper to the oversupply and that told the whole story. miners --rally, the all of them got hit -- it gotnd noneeless, pretty hammered. stock market plunge stole all the headlines but a lot of people overlook the currency fluke. it took a huge dive against the dollar. the the pboc is stabilizing -- the pboc was stabilizing, but they began allowing their currency to strengthen -- the line went do

wn, because that is what happens. we were talking about the dollar using value against the yuan, and it reached a low in 2009, trade around here. right around here. and here, of course, is the devaluation in august. if you look at what kind of move we have made, we have retraced more than half a decline from the high, early 2009's. joe: it seems like it was a small move but if you look at it, it was meaningful. i want to dive into the terminal and talk about something that is south-- which korean export growth. they are in a very trade dependent economy, with all kinds of technological stuff. it's a really ugly chart.

this purple month is the 12 month losing average, down to its worst level since the crisis in 2009. this is a real bellwether for global trade. by much more to say on it. alix: south korea overlooks coal mines. that could be dangerous. "what'd you miss?" the weekend tension between saudi arabia and iran was expected to drive oil prices higher. the market was so sure that any bullish headline could be a crisis. but the finished relatively flat ahead of the energy strategy. we are joined from london. what happened? why this lack of response? >> one is that it is an escalation of tension, and that it will translate into a meaningful, outright conflict which could disrupt supplies,

but that is a very low probability event. either saudi arabia nor iran has any incentive, particularly given the fiscal stress, to push for an outright conflict. it reduces the odds even further a saudi arabia pulling back to make room for more. it, it willou cut not translate into a disruption of supplies. the oil market is left with concrete fundamentals today which are extremely bearish. alix: seth, you raise the point of saudi arabia pulling back production. the rhetoric i was hearing today is that this will submit the fact that saudi arabia will need to keep producing a lot of oil to put the screws into a ran and say we will not let you have higher prices.

do you think oil as a weapon for saudi arabia is a real thing? do you see that playing out? >> i think what is driving the saudi arabia and strategy is mainly about driving at high cost producers. angryeven russia are very about syria, then all the better. but this is not ultimately a geopolitical act. it is driven by oil market strategies. what makes things difficult in terms of the near-term direction of oil is that it seems fairly clear. debate,s never any realistic chance of the opec , you see the's hopefuls rallies. alix: given that, who is better positioned to survive an oil war? saudi arabia or iran? >> that's a tough call. the saudis has more money in the bank. they could go a few years. ir n has much less money in a muchk, but iran is

more diversified economy. it has other leaders it can pull, were saudi arabia is purely a petrol state. it is a mixed bag. but iran has proven over the years through the numerous it is as and wars that tough customer and will not fall over easily. i think the saudis would be correct to make that assessment. joe: you mentioned that there are two ways of thinking this geopolitical problem if there were a major escalation. yes, you could have an oil job. bu-- oil jump. but generally, given what we have seen, the inability of opec to really control this market, doesn't even make sense for these geopolitical flareups to cause jumps in the price of oil? it feels like there is this reflects on the part of traders to buy when we get these

headlines, but is there any logic to that? >> if you had a balanced or a tight market, which is what you had the previous years prior to the last 18 months, is you have a tight market, you have the potential of some disruption. it could have a meaningful effect on the market. it is not just traders rushing out to buy for speculative purposes. if you are speculative and you think these will kick off in the middle east, you will rush out and buy a bunch of oil. on the other hand, where we are today, a materially oversupplied soft market where it really is a buyers market, you're much less concerned. i think these geopolitical headlines can have a much more meaningful effect in a tight or balanced market, but we are in what is really a glut. it doesn't move the needle. did saudi arabia become

some aggressive because they are scared of losing market share in china, where exports are really going to compete? >> i think that is part of the new -- over the past 30, 40 years we as a talk about oil prices as being a zero-sum game. now that we are in this age of abundance for oil, it is really -- and we are looking at demand potentially peaked sometime the next decade -- you have is a zero-sum game between producers. yes, it is a battle for chinese market share, but it is also all of asia, and saudi arabia has really gotten riled up as it sees increasing volumes from iraq and crew that has been pushed out of the u.s. all this crude has been pushed out from the u.s. as they made their way into asia, encroaching on what saudi regards as its backyard. alix: thanks so much. scarlet: coming up, what does it

take to send the global economy into a spiral. we spoke with one manager who gives us his recipe for recession. ♪

scarlet: i'm scarlet fu. it is time for the bloomberg business flash. general motors is getting an additional ctitle. meanwhile, they are investigating $500 million in lyft. it is part of a billion-dollar financing rout. the federal government is suing volkswagen over and

emissions scandal. it alleges that the german software to get past federal emission standards. vw can still say separate criminal charges. scarlet: and mark adams is resigning for health reasons. the board says he will stay with the company until february 1. he joined in june, 2006. no word on who will replace him. and that is your bloomberg business flash. "what'd you miss?" recession has some popping up more and more, starting with the global risk selloff. one portfolio manager joins us. connor, you have identified what you call three criteria for recession. monetary policy becomes overly tight. oil spikes. one of those apply right now, but these recessions persist. why? >> in light of the financial

crisis, everyone is looking for that one magic data point. joe mentioned south korean exports, people mentioned china or oil, and because the cycle has really changed things, the old patterns don't work the way they used to housing market is doing its own thing and is impervious to anything happening locally. joe: you mentioned that things are behaving like they used to, put on the flipside, couldn't we have a new phenomenon that we haven't seen before? last week we were talking to we havevy, we said never had a u.s. recession caused by slowness overseas, but now the linkages are higher. even to your oil point, yes, an oil spike would be bad, but oil has become a more significant part of the u.s. economy and financial system. now parts of the u.s. are hurt by the collapse in oil. why do you feel confident that your three criteria still apply in 2016?

>> energy is that "cost to the u.s. economy. when oil is cheaper, for the most part it is a good thing. it's a good thing for the economy. i wouldn't be buying houses in houston but if you are looking at atlanta, this is a good thing. we had a lot of lumpy housing data out. you said it usually falls in a recession, so clearly we are not in a place. but when have they risen and it has hurt the economy? >> in 2001, we had that. housing accelerated through the recession and you could argue it was because of subprime, and that is the only time the past 50 years a single family started to increase in a recession concurrently. scarlet: we have talked about what is happening in the u.s. -- last week we spoke with the

global head of currencies that bank of america merrill lynch, and he mentioned how the challenges of china would affect the u.s. this year. >> when the dollar was weak, the japanese were happy to take their currency against the dollar. now that it is strong, they are poised to rise. i don't think china has the same incentive. if china devalues, it will be bad for commodity prices and emerging markets, and it will make it difficult for the fed to watch. scarlet: so he says it will be difficult for the u.s. to do much. joe: absolutely. what do you make of that? do you think china's ongoing struggle with the fact that they may have to weaken the currency further will be a drag on the fed's inclination to hike rates this year? >> they are going to follow the market. since we saw september elevated, they went on hold. then as fixed income normalized through the end of the year,

they signaled they would go in december, and it did go in december. even if the data is saying you should hike here, the fixed income market refuses to a knowledge that, they will go on longer. alix: we have the criteria that say we are not in a recession, but could the be enough to derail? >> right now the dots the fed has put out are much higher, so will the dots move lower to meet the market or will the market begrudgingly realize that the fed is correct, and later in the year we will see things go the other way? joe: an earlier time you were on this show, you talked about oil and your investing strategy. oil has continued to be completely miserable. doesn't look like it is coming any sort of bounds. what are the knock on effects you see in markets from this

ongoing weakness? breakeveninue to see interest rates very low. we believe there are some things that are attractive. because we have seen real interest rates rise despite all the global turmoil, nominal interest rates stayed more or less the same, which gave credence to people who were skeptical, to say things aren't that great. all we really need to see is breakeven normalize to 1.5% or 2%. scarlet: thank you so much, connor. good to see you. coming up, the great things investors need to know about the market in this new year. we explained, next. ♪

alix: i'm alix steele. "what'd you miss?" the three predictions about the markets investors need to know for 2016. our executive editor is here. the number one thing. >> we have our new podcast, and we gathered together a bunch of our favorite bloomberg journalists talk about their productions the 2016. the first one comes from joe. joe's here, we might as well do it. it's an amalgamation between our stocks editor and joe. number one is the death of the perma-bear. once the fed raises interest rates, we will have a big stockmarket crash, things will happen -- bearing in mind these predictions were made for today -- [laughter] >> the idea is once the fed

successfully raises interest rates, these bears won't have as much to complain about, news will change,, people will finally capitulate say that the recovery is and artificial. right?: qe works, joe: i think there were a third of people who will just have to sort of delete themselves from the world. [laughter] joe: if we can finally get through this cycle. no one will care anymore. scarlet: harsh! >> number two is the rise of the federal reserve. specifically, the fed has started training liquid quiddity out of the system and raising interest rates. the idea is that the fed takes on a new power in financial markets, is specifically met bosler reckons that

reverse repos are going to reach one chilean dollars at some point this year. at the end of last year they got up to almost $500 billion. we are halfway there. matt bosler is half right so far. scarlet: let's talk about risks for a lot of players. >> it's a whole new era in the way financial markets operate. you have the shadow banking system, which was basically the repo market. now the fed is a huge player in the repo market. it's the shadow banker of last resort, which is an interesting thing. ise people worry that it going to crowd out traditional players in the market such as banks, so we will see how that plays out. alix: i've been waiting for oil m&a for like a year at this point. everyone is promising this next determination will do it. >> you are right. bankersd a bunch of

have been waiting. this comes courtesy of our m&a correspondent. he figures that 2016 will finally be the year we see some m&a in the oil and gas sector with small and midsize players who may be merging to competitors, or they get bought by one of the majors. this is driven by the very low oil prices you can see on the screen. signs ofo had capitulations of the banking sector and capital market, the idea being that they won't fund these companies forever, and that puts the pressure of the management of these companies to do something about it, to fight for their own survival. chevron alsoon and watching their cash very carefully? >> sure, but exxon has so much cash. you have still got to grow. at some point they will need to provide something else. scarlet: i've been waiting for a year.

i found this podcast over my vacation -- it is really awesome. i really recommend everyone listen to it. really informative. scarlet: coming up, what you need to know to gear up for tomorrow's trading day. ♪

scarlet: i'm scarlet fu. "what'd you miss?" don't miss this -- december auto sales tomorrow. asianggest u.s. and automakers will report at least 10% gains for the month of december. five weekends and its leaders -- and a slew of solutions. alix: pmi services number coming out of china, up over 52 in november. joe: and don't miss tomorrow --

german unemployment and special employment tomorrow morning. interesting that both these countries missed on the inflation side. scarlet: that's it for us, thank you for watching. ♪

>> most people trample flameout or drop out. >> i think this is the beginning of the end for donald trump. >> it is the beginning of the end. >> the beginning of the end. >> i will eat my hat if he is the republican nominee. john: happy 2016. cap down to the new year is finally over, and the countdown to iowa and beyond has begun.