alix steel is off today. scarlet: u.s. stocks closing lower. the worst start since 1928. --na's market tomorrow turmoil, how long will it last? the worst start to the year and global stocks since 2000. how much does this matter? report, tomorrow's job the data you need to see before those numbers cross. we begin with the markets. what a day. three-month lows, session lows of the day, the superlatives incredible. the dow dropping 350 points.

the china-led route engulfs markets. all 10 industry groups are lower. , the fears by china started last night, one of the most extraordinary sessions of market activity anyone has ever seen with china closing its market 30 minutes into the day after plunging 7%. the biggest drop since the august evaluation, market selling off, closing basically at the lows of the day, lots of anxiety stemming from china. scarlet: absolutely. china the big factor today. looking ahead to the start of training in australia and new zealand, here are some of the biggest names on wall street today. >> china is predicted to be down

5%. will be at tomorrow volatile day in chinese markets as the retail sector tries to exits. is everybody on alto-dial to sell their stock speed that is not a good thing. -- auto dial to sell their stocks. that is not a good thing. >> everybody is anxious about china. why? ,he growth rate will only be 6% when the rest of the developing economies are 1% to 2%. the economy is slowing, but it is not collapsing. it is important to make that distinction. joe: they will not have the circuit breakers on tonight. obviously, that did not work well. it will be an interesting session. small-cap stocks are getting clobbered, below their

august-september lows. a lot of pain in places where people might not be paying attention. scarlet: look at a two day chart of oil. selloffeen a four-day 10% off of wti, a 12 year low, tumbling five and a half percent today. it reached a low of $32.10 a barrel. it is always a supply-driven story. the demand looking stable. turmoil out of china is making people question whether the demand picture is optimistic. copper falling below two dollars a time, a bellwether of a global economy industrial demand. scarlet: it is a proxy for china at this point. let's go to gold.

ed has been -- it has been the safe haven avenue of late. trading at a two-month high. the safe haven of 2016, bitcoin having a huge rally. who really knows? some seasonal is strength for gold because chinese new year is the second week of february. i don't know if i can make the same case for bitcoin. you one of the most important things that happened in the market today. a painful 2016 if you are long global stocks. losses is nothing new, the role since 2014. we will focus on the left side of this chart here. ofs shows the seasonality

the msci all country world index. down more than 5% so far this year. , three-day two years losing streak still start the year. 2015, down 3.1%. 2014, down 1.4%. they ended higher, as we know, except for last year. that is not an all spacious start. hopefully it turns out to be a year where this is nothing. i want to look at the volatility and what it means for the federal reserve. the pace of hikes. this shows the odds of a hike at the march meeting. a few days ago, above 50%. that has pluet and now down to 37% chance of a hike.

people are thinking that the news, volatility, will give the fed a reason to ease up on the accelerator. scarlet: there is so much going on across the globe. tune into our special report at 5:00 p.m. eastern time. you don't want to miss that. ubs, associatet of the china center, joins us now. massive stock selling triggered another trading halt in china today, the second shutdown since financial markets opened. how significant is the spill over from china to the rest of the world? could china drag down the world economy and world financial markets? >> i think the chinese equity market -- actually, i don't

think it matters that much for china. i don't think it matters that much in the end for global markets. as you alluded to in your package, we have been here before. last summer,from when the chinese market went down about 40%. the rest of us did suffer a little bit. financial markets were unhinged, but we kind of shrugged it off. marketsay this, what the -- the chinese equity market -- if you think about what is happening in the exchange market with the it ising of the yuan, highly symptomatically of the concerns that people have theessed regarding direction of china's economy. that really does matter. that it everyone knows is in the middle of this

difficult transition from an industrial-export economy to one that is consumption-domestic driven. i don't want to contradict you. the narrative -- we take this as a mantra that china is going through a difficult transition and it will ditch or leave behind the strong emphasis on heavy industry, manufacturing, exports, and will become a more consumer-oriented-household-inno vation-type of economy. the 13thhe slogan in five-year plan, which runs from 2016-2020. hookis what we have bought , line, and sinker. the reality is that not is happening the way people of imagine it should.

role in china's economy probably will get rigor, but only by default, because the investment side of the economy will get smaller. if this happens in the context of a growth of 3% or 4%, that is not the scenario people imagine. at least twoe have things going on that are spooking people's confidence about china. first, this adjustment is taking place in a much lower growth environment than people imagine. second, the reform program which is supposed to give rise to this new kind of consumer-innovation economy has stalled. -- data of the things points -- that may have concerned people today was the news that china's federal reserves reduced another $100 billion in january. cash are burning through

to prop things up. how concerned should they be about how much their spending and foreign outflows? >> it is quite important. had biggest capital outflows for 20 plus years. when you think that the trade with the current account -- the balance of payments surplus that china generated -- was about $500 billion, and that it has a net surplus on direct investment to $150 $100 billion billion. that gives you an indication of how big the capital outflows were. capital outflow is a big problem. i think it is happening for many reasons, not the least of which is the central bank, pboc, is

quite conflicted in its policy targets. they want to renminbi keep the stable -- keep the renminbi stable. , thatwant to believe there are factions in the government that would like to see it weaker. time, they are adding liquidity and fueling credit expansion like there is no tomorrow. goals are incompatible, and they are leading to a lot of confusion and uncertainty amongst investors. thoset: you can see spread, the difference between the offshore rate, which is what is traded in hong kong with the spot rate, the cash rate, in china on shore. we see this gap widened, the spread between offshore and onshore rate widened, does the bank have a rate in mind. late last year, i know it has

been covered on bloomberg, pboc introduced a trade-weighted did saylthough they they were introducing it as a reference indicator, not as a target. having said that, what we have seen during the last week or two slide steadily to .he bottom end of this target is involved and entailed with significant tweaking -- significant weakening against the u.s. dollar. the widening spread we have seen between the onshore and offshore rate is something that is a problem. the offshore rate, which is weaker, is widely regarded as a kind of leading indicator of

where the onshore, the main rate, is headed. the big picture of things, the technicalities of managing this kind of dual exchange rate system are kind of lost in the sense of that what really matters is whether the government has a strategy, because that would set the cap amongst the pigeons in asia and a wider global economy. joe: george magnus of ubs, thank you so much. coming out, more on today's market turmoil and the top trades you need to know as we start off this rocky 2016. ♪

these sure to tune into our special report at 5:00 p.m. eastern time. an all-star lineup. scarlet: i am scarlet fu. first word news. >> a man armed with a butcher knife was shot and killed by police in paris as he tried to inter-a police station wearing what officials may have thought was an explosive vest, but were later determined to be fake. it happened after the president spoke at police headquarters honoring law enforcement officers killed last year in terrorist attacks. it was one year ago today that 12 people were killed in an attack on a french satirical magazine.

prime minister david cameron is in germany pushing forward his campaign for changes to the european union. is committedister to holding a referendum on eu membership by 2017. before that, mr. cameron is seeking a new deal for britain, including welfare limits for other eu nations intended to control migration. he hopes to finalize a deal at an eu summit next month and hold a referendum later this year. levels forll record heat, moisture, and extreme conditions and december. federal weather officials say el niño and whether change for the catalyst. 2015 was the second warmest and third wettest in 120 years of record-keeping for the lower 48 states. meat now and then is ok, but watch sugar and salt intake. guidelines released

by the obama administration consumedying americans too much salt. the report recommends sugarbeet no more than 10% of a person's daily clary's -- daily calories. the guidelines are released every five years to prevent obesity and disease. i am mark crumpton. back to you. scarlet: "what'd you miss?" we are joined by the global head of fx strategy. topicet's start with the

everyone is interested in, china. how much do you see the ongoing yuan devaluation? get whatends if they they want or get what they get. decline inmodest your currency is about as easy as keeping your stock market stable. that is where the doubts feed in. the currencyto see weaken another 5% or so, not much more than that. this could easily start the spin out of control. the pace of capital outflows is picking up. can they stop that? can they concentrate on the currency and stabilize the stock market? and keep the economy on its migration from investment and exports towards services and consumption? how smart are these guys? we give them a lot of credit.

, and whathuge risks they would like, a somewhat weaker currency, that would be a brilliant outcome for them. are also viewed for a disorderly move. to clients,te suggesting that they go out with a number a lot and japanese yen. we've seen a lot of strengthening in the japanese yen. in yen, theirng cost goes up. how much is a result of that yen strengthening? it is as much as it was in past years. tradee who was classic

short yen, they probably got beaten out of that six months ago. trades, --euro trades, but there is less than there was in the past. they might well just bring money home and put it act in the yen as well, a fundamental flow that way. there is a yen-carry trade that does exist, but not as big as it was a few years ago. scarlet: what about the yuan? they are really feeling the pain with china weakness. japan is able to weaken its currency as well. story, i don'tna --w the best way to express to sell the yuan -- it has fallen already and is it

controlled. if it falls 5%, the countries that compete with china, those currencies will fall just as much. the are struggling with reality that rebalancing the chinese economy does not help them with their growth outlook. i think korea has a problem with the week yen, weakening yuan, rebalancing of the chinese economy. they have headwinds. the laundry list is long. you can add to that north korea. what to expect when asia opens, after the break. ♪

scarlet: bag with those global

head of fx strategy. joe: let's talk about your favorite trades for the coming year. you are negative on the british pound due to anxiety over the brexit. firstly, i have diverted's of monetary policy where the bank of england is backing off from rate hikes priced in, pushing those into the future. if the u.k. votes to leave the european union, that is worth about half a percent off the growth rate for at least five years. notopinion polls suggest in, maybe a small majority in favor of leaving. if they leave, half a percent

off the growth rate on average. i can't see rates going up at all under that. probably 10% from where we are happens, and i guess we will get half of it whether it happens or not. scarlet: another trade you recommend is to short the new zealand dollar. it is predicated on oil prices moving a certain way. >> in terms of leading as, looking good so far. being bullish the canadian dollar is going well. i think oil prices will bottom out before the wider commodity complex. the china story on the rest of the asian block will last longer. i think the canadian dollar is very cheap for a country with

such a long border with the united states. you can only have so much of a move between canada and the u.s. exchange rate before goods and jobs move from one side of the border to the other. against thess frac swedish krona. the swiss franc will do well in the safe haven basis. they are slowly and steadily succeeding with their negative interest rates to get a grip on the strength of the currency. sweden is keeping their currency down as much as they can. they are coming out with great economic data. interest rates are wrong for the economy. it is growing 3% per and him -- year. scarlet: thank you so much. to positiveints

signs in the euro economy. ♪

scarlet: the turmoil in markets today has muted this new year. our special report, bloomberg markets" at 5:00 p.m. eastern time. i am scarlet fu. house republican lawmaker wants to censure president obama for trying to tighten rules on handgun sales. facesngressman's move long odds. speaker paul ryan said the president's efforts are in his words "a distraction."

fort reg, north carolina, two weeks in august 4 bowe bergdahl. he was held by the taliban for five years after he walked off a base in afghanistan. he could get up to five years in prison. cancer is the top cause of death in 22 states. deaths from heart disease, the number one killer nationwide dropped at a steeper rate. cancer is the leading cause of death in certain groups, including hispanics, asians, and adults 40-79. the trend is noted in the american cancer society's latest report on cancer statistics. one his starting job back after recovering from a foot injury. brought us weiler is back on the bench -- brock also weiler is back on the bench.

gamemarked manning's first as a backup since his freshman year at tennessee 21 years ago. global news 24 hours a day from the bloomberg first word desk, i am mark crumpton. i am scarlet fu. scarlet: let's get a quick recap on markets. if you are long stocks, an ugly day. the s&p capping its worst start since 1928. $32.10 as fell to barrel, 12-year low. gold is a safe haven. copper below two dollars a pound. that goes back to china. today started last night when we got china reducing the reference rate. stock market only traded for a half an hour, then it was a

mess. scarlet: china abandoned the circuit breakers. joe: it should be interesting. there won't be any circuit breakers. scarlet: we could see losses greater than 7%. i want to look at another way of viewing the trade of currency. has lost a lotn against the u.s. dollar. -u.s.lue line is renminbi dollar. line is a custom index to mimic the index that goes back to july. has fallen almost 6% versus the dollar, where as againstnly dropped 3%

the basket of currencies. it is a fascinating chart. china has explicitly said it is not just thinking about the dollar, but the trade-weighted basket. i want to talk about a little good news in this ugly-sad world that you may have missed. news out of europe, eurozone unemployment falling to its lowest level in three years, 10 point 5%, still high, but on the way down. eurozone economic confidence hitting its highest level in several years. country data has been solid. ofope had been seen as one the slow areas of the global economy, but the data does not look that horrible. scarlet: maybe the stimulus is working. there was so much in flow into europe at the end of last year. joe: everyone was talking about

divergence going into this year. rising, and a the u.s.,n uris -- maybe it is overstated. is the eurozone doing better than people think? the u.s. recovery is strong. european recovery has been seen as weak. is moreeeing that there acceleration in european data. we downgraded u.s. growth and upgraded european growth. we are now seeing what you call peak divergence. it's not so much about the absolute level. it is much more about are we at the peak. the u.s. will still do fine. investors have to recognize that

europe is getting better. be overtaken that by concerns about china and dragging down global growth estimates. >> the europeans have benefited from a lower euro and oil prices. that the issues and china are also a challenge for european exports, but from a valuation perspective, european stocks have for a long time looked relatively cheap. aroundwant to bring it to the u.s.. we had the fed minutes this week, expressing anxiety about whether they will hit the inflation target. a goldman sachs senior economist said the following, under a scenario in which the dollar rose another 10% and oil prices declined another 25%, our model suggests that core inflation wit into the year at 1.3% instead of 1.6%. the fed would respond to a shock

of this size by skipping one-to ray kites under the assumption hikes under the assumption of this. think that it is perhaps time to bring? down one outlook for inflation for this year is thatmportant theme the trades that worked last year, will they work this year? it depends on do you agree with the view that oil prices will fall to the same degree that they did for the last 12 months? will the dollar rise like it did over the last 12 months? that is a very heroic assumption. not see the appreciation of the dollar especially if we are at peak divergence with europe. is true that there are temporary sources holding inflation down in the u.s., but

this issue is much more about are we getting closer to full capacity in the labor market. we well see the numbers tomorrow. situationser to the where we will see persistent upward pressure on inflation and the things holding inflation down will fade away. when you look at some of the other central banks that have gone ahead and raised rates only to turn around and cut rates again, what have? we learned from those examples? these have been quite embarrassing situations. the federal reserve does not want to have to reverse course. this is something they worry about. the fundamentals in the u.s. economy are strong.

many investors look at the 10-year rates and say 2.15 is the low level. the reason why rates are so low in the u.s. is because the rest of the world has weak growth. are not too concerned about inflation, but there is clearly a divergence between what the fed has signaled it may , which is going to give? ? consensus is saying something more along the lines of three hikes. the big uncertainty is we don't know if these temporary forces holding inflation down will persist. it is clear that the dollar

appreciation last year and oil prices falling may hold inflation down a bit longer. the reason why they hiked rates because they believe these forces are temporary. the permanent tightening of the is a very important ingredient and how one should think about the fed. scarlet: as the fed pursues normalization, you think there is a lesson to be learned from japan, that more qe is not the answer. >> i spent a lot of time discussing with clients that japan printed a lot of money to try to get the economy back on track. in terms of the japanese out sheet. it is much bigger than what the fed has done. it is much more substantial. japan has still not been able to get the recovery and a strong way compared to the u.s.

qe has been helpful, but only some countries where and investors believed this was a good idea. scarlet: there in lies the confidence game. the u.s.will focus on jobs report. david rosenberg says he is not concerned. the'm not worried about u.s. economy. i think it will be a better year moderately than last year. yearnk it will be the where the wolf shows up at the end of the story. ♪

i am scrolling through. it is time for the bloomberg business flash.

shares of sun edison falling 39% today. behind the drop, the clean energy developer announcing a plan to boost its balance sheet, taking on $950 million in debt and issue 40 million new shares. american apparel receiving eight takeover bid of $200 million. completed, the founder would return to the company in some capacity. he was fired a year ago after allegations of misconduct. bed bath & beyond earnings met expectations, eps of $1.09 a share, revenue was $3 billion. year, have fallen 4% this 40% over the past 12 months. that is your bloomberg business

flash. "what'd you miss?" report tomorrow may not be the best thing. report would encourage the fed to continue hiking interest rates, something investors may not want to see. at 200,000,ng in the jobless rate at 5%. hourly earnings rising 2.7%. with us is the chief international economist at deutsche bank securities. joe: what are you looking for tomorrow? adp, in the face of significant stock market the kleins and china, it is amazing the u.s. economy can produce -- the declines in china, it's amazing the u.s. economy can produce these numbers.

if you -- even if it is 200,000, the u.s. economy scarlet: is still doing pretty well. you have this global turmoil at the start of the year. for happens for the outlook january, february, march, given what we saw last year with the august turmoil? >> that's why we try to list the risks we worry about. the most important continues to be the dollar appreciation, , the costead widening of capital for companies has gone up. that means hiring could be held back a little bit. weakand europe with growth, so also a reason to

expect slowing. we still saw decent numbers on payrolls. clear that the chinese worries and the selloff and the some market creating uncertainty. overall, the u.s. economy seems to be in good shape. joe: let's talk about head winds. economist consensus tomorrow is a 2.8% increase in hourly earnings. sense 2009.the best medium-term prognosis for wages? do you? think we will get above

3%? is that so many people left the labor force. are these people coming back? how many unemployed are there for each job opening. we are basically at one. in two thousand nine, there were six people who could apply for each job, now there is basically one person. there is this tight situation on so many different metrics. retailers andy restaurants raising minimum wages? it is because we are seeing a tightening market. that is the reason why the fed started hiking rates in december, because the labor market is getting tighter. we are seeing wage

increases. all the job growth has been in the service sector, less so in manufacturing, mining, and logging. that the the fly in the ointment for wage increases elsewhere? line, yellow and blue mining and manufacturing, hit hard by the dollar, and those sectors have been pretty bad since prices started falling and the dollar started going up. theorange line shows service sector is doing well. why we arephant is not talking about the services sector. joe: thank you so much for joining us. scarlet: our saudi arabian reserves going to zero? we will look at the implications

of the price plunge. that is coming up next. ♪

joe: i am joe weisenthal. "what'd you miss?" may take aramco public. it controls a 10th of world oil production and the sole producer of saudi arabia's reserves. losses.suffering major cofounder now is the of the cross asset firm. what would it mean with saudi arabia where to selloff part of aramco? factor is a huge

company. there are indications a could be worth at least $1 trillion. publishedrview today by the deputy crown prince of saudi arabia. there are suggestions it could be as much as 5% to begin with. it would be likely that down stream elements, but later oil exploration. joe: we've been talking about this question of whether saudi reality -- depeg the their currency. what factors are driving this. in the work that you have done, what really drives this, and what would it take to break that pay?

the first thing we should examine is the reserves. they started to decline from their highs last summer to a $7 billion a year -- a month depletion. around $90 billion. the important thing to look at is the oil price. say it is like traders buying a lottery take it -- ticket? look at forwards, they

moved around 900 points in the one-year. that is an implied carry of 2%. they revalue higher it will be a winning trade. at what point would you change your mind? where would you say this looks to be a viable move. recently we had the saudi budget, and they suggested that they wanted to reduce some of the subsidies on energy, and also potentially introduce -- so they're trying to reduce spending.

you would expect that the depletion of reserves is reduced over time. the key factor will be what happens to crude. if crude goes higher, it should help them. joe: thank you very much for joining us. break, whicher the you need to know for tonight and tomorrow's trading day. ♪

scarlet: i am scarlet fu. "what'd you miss?" jobs report tomorrow at 8:30 a.m. 5% is what people are expecting. 62.5% labor or dissipation rate. joe: the early earnings number is the crucial fact or it

determine whether the fed was right to raise wages. scarlet: year8% over year growth. stick aroun

scarlett: u.s. stocks linked to a close that marks the worst 500 on record.&p to the east, where australia and new zealand markets have just opened for a new day of trading. tokyo will open at 7 p.m. new york time, shanghai at 8 p.m. new york time. will the selling person test? this is a special edition of "bloomberg markets -- will the ?elling persist this is a special edition of "blorg