♪ >> stocks slide. 6% at thelunges close. oil below $30 a barrel. the ecb president said the central bank must fulfill its inflation mandate. it's credibility is on the line. the federal reserve's first meeting of that year. a hike off the table? good morning. i am jonathan ferro from london. alongside michael mckee in new

york. are in for tom keene and francine lacqua. michael: risks are back off as china falls. we're back where we were a week ago. on ahan: all time lows two-year and five-year yield. let's go to vonnie quinn. vonnie: in china, the south market -- stocks fell to their lowest level in 13 months. the shanghai composite index down 6% at the close, falling 47% since last june. outflows will speed up. it may be a while before things are normal on that is to coast. 48-hours after the blizzard travel is a mess. 25 hundred flights were canceled or delays. in washington, federal

.overnment offices remain shut denmark's parliament will approve a plan allowing officials to confiscate valuables from refugees, the latest crackdown on asylum-seekers. backers of the confiscation plan says the money will go toward the cost of refugee care, but the idea is criticized as a violation of human rights. the islamic state has stepped up operations command to plan more terror attacks in europe according to the european union crime-fighting agency. the agency says they want to carry out attacks similar to those in paris that killed 130 people. a meeting will highlight a long-standing relationship between the vatican and iran. the iranian president will meet with pope francis. he is on a trip to italy and

france. they'll discuss these efforts in syria and iraq. global news 24-hours a day. i'm vonnie quinn. some data? michael: how we are trading in the early morning. u.s. futures and european stocks are lower. oil, everyone is concerned. we are below $30, pushing money away from stocks worldwide. yield is below 2%. in germany, but deals breaking lower. china, no help. the biggest drop in the shanghai composite since january 7. a gold, it is quietly building -- over $1100. sensexitive note, the index in india is the best performer. it is up by 2/10 of a percent.

jonathan: we have a saying in london, it is called scraping the barrel. the shanghai composite, the headline in global equity markets. down 6.4% down to a december 2014 low. the two-year yield all time low, -0.46%. brent crude above $30 a barrel. for me, a big surprise, conventional window would say -- conventional wisdom would say when mario draghi hinted at more qe we would have a weaker euro. it is flat this morning. michael: you would have expected that to continue going lower. it felt when he first spoke, but it has gone back up. i've found a really interesting economic indicator for europe telling the story of the last few years in one product --

swiss watches. swiss watch exports have been declining for the last three years. that we havelowest seen since the great recession, down 3.8% last month. the whole year 2015 they fell to a new low. if people are not buying swiss watches, the high-end isn't spending the kind of money that is needed. johne: they went up after brought back some from davos last week. michael: maybe that is why tom was late getting back to the states. he had to get watches. vonnie: they were down 25% in hong kong. michael: that shows you where the economies are performing and where they are not. jonathan: in switzerland, the euro/swiss down to 1.10, a little bit of pain. we'll talk about that later.

to thestocks tumbling lowest level in 13 months. in hong kong, enda curran joins us. great to have you. it is simple, but hard to answer. the market went down, at one point approaching -7%. how do you find a single catalyst? we are more than six off.hs into the sell there is no sign of a let-up. a fragile sentiment over china. the latest excuse was capital outflow, which in and of itself is a concern. inund $1 trillion left china terms of capital outflow. it is a sustainable figure. it is worrying the government and unsettling investors. it is book of investors and companies are worried about the

weakening yuan, so they want to put their money in a stronger currency. unless china clamps down harder on capital borders. it is about risk aversion and a selloff on shanghai boards. there is sign of a circuit breaker yet. michael: our chief economist for bloomberg and intelligence in beijing suggests this isn't about the chinese economy, but the world doesn't understand that. enda: there's a big disconnect. you have the fragile sentiment on china's markets, the stock markets and the yuan. the stock market is disconnected from the real economy. on the real economy, we are seeing some stabilization. all the growth drivers like are slowing down. there are a growing gdp, crucial

to what the government is trying to do. rebalancing the economy being driven more by domestic demand rather than external demand. it is inlieve that, the near-term. the yuan is the wildcard with what they do with that and how it impacts global trade. thank you for giving us your time. let's go to the goldman sachs senior european economist, kevin daly. convictiontion -- view remains that the european economy will remain resilient. the data point yesterday, german business confidence, is that a crack in that? kevin: the has been volatility for sure. you hit the nail on the head in the last report. in terms of market volatility, there has been a clear economic catalyst. it has been a mark of

nervousness in event. looking at developments, the fall in oil prices, the weakness in oil prices, we think that will be broadly neutral for growth with a bruise from oil prices of setting negative effects from market volatility. lower oil prices is negative -- jonathan: what we want to pick up on is the economic backdrop. you say there are no data points they can reconcile that we have seen such a volatile market in 2016. the manufacturing recession globally -- the lead across -- the bleed across. kevin: i don't want to sound complacent. we are monitoring it. arelatest activity monitors consistent with growth around 3.5%.

it is not spectacular, but it has been reasonably stable. we are monitoring closely, but so far, it we haven't seen evidence of global growth weakness and aggregates. you cannot focus only on manufacturing. some of the developments we have seen recently will be positive for growth. we are negative, but some are neutral. michael: how much is europe exposed to what happens in the chinese economy? the u.s., a relatively closed economy, doesn't have as much at stake. europe is more of an export led economy. kevin: there is the risk of exposure. the effects are reasonably sizable. on the latesthat news we've had has been on the market developments rather than the economic news out of china. there has not been a huge amount

of economic news at of china. although europe is more exposed than the u.s., china is exports to europe. not so much a consumer of european products. michael: is the real danger that china's exporting deflation? you look at what mario draghi was saying -- the fed has been concerned about the progress of inflation. is that the real concern? kevin: one thing that we have tried to get across in our recent research has been though research developments has been neutral for growth, it has been significantly negative or inflation. the fall in oil prices, equity prices, the rise in the euro, developments in the broader commodities complex -- they all drive inflation blower. inflation lower. it is that that mario draghi is

responding. it will be lower for the second quarter. average inflation for the euro area has been largely flat. 1%.forecast for december is significantly negative effects on inflation. michael: we will continue discussing the impacts on europe and the rest of the world. in the next hour of "bloomberg surveillance" the state of prices inflation. the ceo of zillow, spencer rascoff, joins us. this is bloomberg "bloomberg surveillance." you are looking at hong kong, a nice evening there. ♪

♪ michael: good snow has turned to mush on this new york morning. this is "bloomberg surveillance." i am mike mckee with jonathan ferro in for tom keene and francine lacqua. vonnie: the german engineering has a profit outlook for the year. it highlights their confidence slowdown ine the china and the oil slump. the ecb president mario draghi is firing back at critics of his policy. itsays it must meet inflation goal to maintain credibility. they are trying to keep investors convinced they will the economyulate and prices don't go enough. swiss watch exports fell for the first time since 2009 at they

were down 3% for the year because of a drop-off in asian sales. if wealthy taurus were buying watches in europe. that is our bloomberg business flash. i know the swiss watch exports also include parts, people like swatch make all the parts for the luxury watchmakers. jonathan: not just the demand from asia but the strength of the swiss currency was a problem. crude is a big headline this morning. extending its drop below $30 a briefly this morning. we joined by the executive energy for energy. stuart wallace. up 10% on friday, down 5% on monday. the days where we got excited about a 5% move oregon. that we are looking now,

is a question we ask everyone. interests,n is open is at a record high? record open interests with declining prices should signal more shortcoming. the options market, everything you need to know about the panic. $25 options. iraqi oil, high-cost producers, very resilient. aereo draghi talking about the credibility issue at the ecb. i wonder if there was a red ability issue at the central bank. a simple question to you, kevin, showed central banks be chasing this move and commodities with more stimulus? it is nothing more than impact on the ecb at the moment. typically they would not respond

to near-term inflation. typically central banks will look through the impact on oil prices on inflation, the reason is because it happened too quickly and passes through to quickly, beyond with their policies can have an impact. central banks look at the one-year to two-year inflation area pressures. the reason they are so sensitive is because of the impact on inflation expectations. particular, but also household notions of inflation expectations fall -- and they are influenced by currency inflation, oil prices in particular. they are responding to the dangers of the secondary effects. ask you abouto storage. we're hearing reports there is no place to put excess oil, .utting pressure on prices yesterday on surveillance, we could see prices in the teens

because there's too much oil and they cannot store it? there is a capacity for the storage. you can actually go a little bit above. it does make logistics difficult. you have seen a back load of ships waiting to unload. in terms of what that means for prices, low teens are in the teens. one thing i would say, the lows at the end of the 1990's adjusted for inflation, $17 or $18. is that the price forecast? no here it a possibility? of course. everyone is waiting to see where the supply comes out of the market. berra probablyi said, nobody knows nothing at this point. coming up, we do find a rose among the thorns. dwyer, u.s. equity

strategist, he is a raging optimist. is he still? "bloomberg surveillance." ♪

♪ jonathan: welcome back. this is "bloomberg surveillance." pictures of the governor of the bank of england testifying for a treasury select committee, along with a few other stability officials. ' kevin goldman sachs daly. a question for you. ?hat is he so scared of

so frightened of that he was not so frightened of in the summer of 2015 or 2014? kevin: he has been done a disservice by some of the reporting. says that the decision would come into relief over the turn of the year, he did not say that rates are likely to rise around the turn of the year here and he said the distinction was likely to be more clear. i think it has the answer is now is not the right time to raise rates. central bankers typically will not give guidance to say when they are likely to raise rates, because they cannot. even's will change. events have changed. will change. events have changed. jonathan: he knew how it would be interpreted. he was also aware of what he was

saying in the speech or 2014 in the summer, and that was more punchy on whether he would raise rates anytime soon. the criticism of that speech is more deserved, shall we say, and the backtrack he had to make from that. on this occasion, cognizance of how the speech was interpreted to strongly, he was more careful with his words. blames case, the lies with how the speech was reported rather than what was said. hadthan: 12 months ago, we a discussion about the bank of england and if they would follow the federal reserve with a rate hike. it seems the spread between mark carney and janet yellen is wide. kevin: we do not expect the bank of england to raise rates until the end of this year. we have a number of rate hikes from the fed through this year. have clearlyagues

knowledge the risks relative to the forecast are now to the downside, given the developments on inflation. this is a recurring theme in sectors. the growth sector. what the inflation picture has. this central bank has to respond. you'll see some conversion. jonathan: kevin daly, thank you for joining us this morning. later today, more conversations. the managing director of pimco. they will join stephanie ruhle. add of the opening in new york city, futures are negative five points on the s&p 500. ♪

♪ michael: the pattern continues. a week overnight. overnight.

s&p futures are down. soyear yield is still barely . in the euro is unchanged. crude oil is now over $30 a barrel. let's get the bloomberg first word news. down halfocks are their value since last june. the shanghai composite fell 6% today. from commodities to technology. investors are concerned capital outflows will speed up as china's economy slows. another snow day for federal workers and washington, d.c. traffic is slowly getting back to normal. 2500 flights were canceled or delayed yesterday, but that is fewer than the previous 2. president obama has banned the use of solitary confinement for juveniles in federal present.

solitary confinement can be devastating and have lasting psychological consequences. it would affect him thousand inmates. malaysia's prime minister expected of stealing millions of dollars was cleared of wrongdoing. the money that appeared in his private account was donated by the saudi royal family. he will not answer why he was given the money. meeting to convince euro-area investors he is making good on his promises. he began his second year in office yesterday. europe will see if he delivers on his pledges to takes the pension system and update the labor market. news 24-hours a day. thank you. back to the markets. william deed by

vijlder. from paris. economist's stock market, markets in general, they have addicted nine of the last recessions. do you think the stoxx 60and the move lower is becoming real, the feedback loop into the real economy? is the mostt frequently asked question when i meet with clients, how it will impact the economic outlook. it is easy to understand why that question is asked against the background against a high level of conviction for european economists looking at the growth forecasts for this year. the difference between .conomists is low historically, as you mentioned, the record is poor.

meaning that stock market declines is 70% in locations are not followed by a recession. if you look at the 30% of occasions in the u.s. where there was a recession after a stock market decline, you need an additional factor. a financial crisis like in 2008, oroil like in 73, 70 four, 79, or killing inflation. we are not in that situation. that is why we are confident about economic outlook in developing economies. the most frequently replied response i always get from that question is that the economics in europe is ok and resilient. yesterday, not so resilient. looking at the dax among concerns of china, that is quite explainable of what is happening

with the dax, it makes sense. it makes sense when there is a concern over an italian bank. it is not true to say economic fundamentals in different countries is not what is driving the stock markets. i will agree with your analysis. what is happening is that the economic data and outlook is only explaining a tiny part of what is happening in the markets. that is why, if you look at it from an economic perspective, you would enable the decline of the markets at the start of the year as exaggerated. on the other hand, without saying, and the list of uncertainties has gone significantly longer. what is happening in the markets, 1 -- the decline is coming at the start of the year. that means portfolio managers will be tempted to+++

positions more quickly, because if they don't do that, they run the risk that the risk manager would come in and say you have to cut positions. it would be different if that would happen in the middle of the year to happen outperformance, then to have a session. there is no cushion. the second thing is that markets are pricing their risks. there is a big focus on if something can grow linearly. the concern about loyal is -- about oil is not that it is going down, but triggering consequences we have not looped that sufficiently. the same goes for china. a hit or risk out there. that there is a way for investor sentiment. ofhael: could this press extremely low growth rates

throughout 2016? lending spreads are widening. corporate is saying we don't want to invest in our economies? that is a possibility. that ise has to meant the case. what you are seeing, if you look thehe central bank, monetary policy environment, what is happening is that the effectiveness of the policy environments has been curtailed. it is not a surprise that mario draghi, last thursday, announced that in all likelihood there will be more already. it means that the feds have already changed sooner rather than later. in a way, that is a small comfort, especially for business people that are concerned about the rising uncertainty and will hold off from either recruiting

people or from making investments. it is striking to see that. yes? was in newio draghi york last month and said he will do whatever it takes. he is made that statement several times. does he risk losing credibility if he does not back that statement up, and sooner than the march meeting, with something more concrete? the december ecb meeting was disappointing in terms of expectations and not delivering to the full extent and necessity to try to bring another message the following day in new york. i think he was extremely last spoken last thursday, and that means he understands, and his critics understand, you have to deliver it you could not have a second experience in march like in december.

it is a credibility issue. jonathan: i final question on the back of the credibility issue, on the back of the ecb doing more in march. the respectable effort of the federal reserve and the lessons we learned, is when the fed and increases the balance sheet, assets performed very well. that has not happened in europe. what is the thinking? since the press conference on thursday, the euro is flat, equity has not performed well in 20 16 despite the expectation that ecb will do more. we have to accept that ecb qe assets will not look like what happened in the u.s. over the last six years? william: the environment is different from different perspectives. that emerging markets and

commodity environments during qe was significantly more benign than now. the external hazards to the eurozone and the impact of the ecb announcements on markets have been significantly stronger. that thed reason is global impact of the fed's policy on markets across the globe is bigger than the ecb. the third reason is the ecb in in thee has been late game compared to the fed, which was early in the cycle. that is weighing on the effectiveness and market impact. it is striking to see the twin a was announced, it had positive impact on financial asset prices. later in the year you had an external head went coming to the forefront that was concerned about the fed and china, weighing on the effectiveness. it had a fiscal effect that it

was instrumental in having the euro where it is trading now. that is a key element of wastary conviction and helpful in creating a more positive credit environment in the eurozone. michael: thank you. coming up in the next hour of bloomberg surveillance, the state of housing in the united states real estate. the ceo of zillow joins us. 6:00 in new york, 11:00 a.m. in london. streaming on your tablet, phones, and bloomberg.com. ♪

♪ jonathan: welcome back to "bloomberg surveillance."

ferro from london, alongside michael mckee in new york city. the headlines in global markets. brent crude below $30 a barrel, 30 point 33.ws at the shanghai composite, down by to eight december 20 14 low. the german yields, the two-year, -0.46%. an all-time low on german two-year and five-years. one point 08.r, israel has an enviable reputation to cyber security. let's go to cyber attack in tel aviv. gotkine is standing by. elliott? no reference would be complete without talking about check point software. , i'm joined by the

founder and chief executive of check point software. it is great to have you with us. posts recently about checkpoint wanting to buy fiber optics. is there any truth to those reports? gil: we don't comment. but here on stage we're seeing cyber arts for the first time. elliott: you could make an acquisition. looking to increase our portfolio. we have more protection and prevention. you have been doing transactions and acquisitions. some of the young whippersnappers of the israelis

cyber security team -- they are not an invading so much, they are just buying other companies. to otherou say companies that say you are only buying innovation rather than developing? we have criticism from both sides. we are buying too much or innovating too much. we are committed to do both. if you look at the technology, the vast majority are growing. has technology in the forefront of security and prevention. it is a good combination. -- you: even announced a tie up with argus. of people who try to hack cars. if they are such a great company, why don't you buy them? the risks for cyber is everywhere. cars is one of the devices.

doing, they are specializing in security for the internal system of the card. specialize in the malware. combined, we have a unique solution, securing the car from the inside out. we are approaching car manufacturers, and we will see where it goes. elliott: checkpoint is like the volvo of cyber security. dependable. very high margins. competition is expected to increase. should we expect margins from checkpoint to come down? our where to managing margins. many of the competitors that you described are in the markets. .n our case, we are investing

in the past few years, on margin did go down, but went down from .7% to 56% operating margin margins are still too high. we aren't managing the margin, we are managing the business. ofiott: ceo and founder checkpoint technologies. thank you for joining us. back to you in london. much for thank you so joining this program this morning. later, do not miss bloomberg , an interview with amanda needs no introduction. the former greek finance minister joins us at 8:30 in new york, 11:30 in london. this is "bloomberg surveillance." the s&p 500 coming off of a low. good morning.

♪ this is where it all started. the risk off in china, the

biggest drop since early january. andgerman two-year five-year at record lows, gold is moving higher. india is the only real index in asia that moved up. we have news out of china. and a lot of questions about chinese economic statistics. the head of china's national bureau of statistics has been placed under investigation, according to chinese officials, for severe disciplinary violations. an interesting development. we will follow that as we get news out of beijing. here is vonnie quinn. plan to cut scale production could lead to 400 thousand job cuts in china and feel social instability of according to the government research institute. europe, fourth-quarter

estimates.t demand figure in the u.s. and china increased. they have been focusing on health care equipment. president obama wants to make it easier to offer retirement plans. the proposal would allow a small firms to join together to form retirement plans. congress would have to agree. that is our bloomberg business flash. back to you. up.than: i will pick things thank you. london, 5:52 and in new york. brent crude, a brief drop below $30 a barrel. the market in china is expected to be volatile, stocks down 6%. the german yield curve, the two-year yield at an all-time low. what is it mean for the fx

market. let's bring in richard jones. you just put on a blindfold and guest where things were trading, you probably would not get it right. what you make of the moves? has many things pushing and pulling on it. a lot of the pairs are reacting and a way that are countervailing. you have expectations the ecb will ease. jonathan: it stays flat, you have risk aversion, the euro swiss goes higher when you would expect it to go lower. richard: the key take away from me was that monetary policy will be easier than anyone thought it -- going to be than anyone than anyone thought it would be directly after the meeting last month. fixed income has been the place to invest so far. jonathan: every year we come

into a new year everyone says yields must go higher, and they go lower. my question, we had five years being years of bad as good news because it meant easy fed policy. thes different in the sense bond market has been pricing and the federal reserve will find it hard to go anywhere soon. the market in general, the sentiment shifting from the fed could be damaging for markets? the fed raising rates last month sent a signal that toy would like to be able get off of zero and return to some sort of normality for monetary policy. i think that that spent the markets. as a result, because of the tightening of financial conditions we have seen from equities and the dollar being stronger, that has fed into the idea the third with like to hike four times, but the market doesn't. the bloomberg

terminal, offshore versus on shore, the chinese yuan. they are starting to whiten. the market believes china will have to do something. richard: that is the case. there are challenges. this is the key ones. at the end of the day, as a global macro investor looking at what is going on in china, the uncertainty is something that is making you nervous another investment. that is one reason we have seen negative reverse sentiments. people do not know what is going on in china. jonathan: a difficult question to answer. that is it for the first hour of "bloomberg surveillance." a turnaround in markets. brent crude now positive on the session. it was down 3% when i woke up. futures are turning higher,

almost in positive territory. negative one point. it looks like crude is leading the party once more. michael: it is what happened yesterday. we will see if it holds. still to come, spencer rascoff will join us. one of the conditions for real estate. next on "bloomberg surveillance." you are watching "bloomberg surveillance" on television, your tablet, your phone, and bloomberg.com. good morning, new york city. ♪

michael: it is another risk-off

morning. china crashes and global markets are desperately searching for that elusive capitulation. interest rates are falling. spencer rascoff knows that has to be good for housing, right? amidst the darkness there is a ray of sunshine. this is "bloomberg surveillance ," live from our world headquarters in new york. tom keene and francine lacqua are off today. i am michael mckee, in london with jonathan ferro. jon: if you had woken up a couple of hours ago, you would have woken up to a series of bad headlines. in the last half-hour, a recovery in crude, back into positive territory at 30 point 66 on brent crude and futures in the u.s. recovering as well. michael: it is hard to tell what is going to happen anymore. the futures do not give an

indication of what the day is going to be like. let's get an idea of what we will be trading on and go to vonnie quinn. in china.t's begin stocks fell to their lowest level in 13 months. the shanghai composite index down 46% since the close. we are following breaking news right now from syria, where at least 20 people are reported --led in the city of islamic state is claiming responsibility. is expectedrliament to approve a plan that would allow the confiscation of valuables from refugees. it is part of the latest crackdown on asylum-seekers. backers of the confiscation the money will defray the cost of refugee care. obama's latest remarks

are making hillary clinton smile. there was a town hall for the democratic candidates, and she was asked for her reaction after mr. obama called her "wicked smart." hillary clinton: i was really touched and gratified when i saw that. people in iowa remember we ran a really hard race against each other, and then i had the opportunity when he asked me to serve as secretary of state, and it not only was a great working relationship, but it turned into a real friendship. federal offices in washington, d.c., are closed again two days after the big snowstorm. there are still travel holds up -- there are still travel holdups with 2500 flights canceled or delayed. i'm vonnie quinn.

let's look at some data. michael: let's get caught up on where we are. it was very negative early this morning, but u.s. futures have many of their losses. ap futures down less than 10th of a percent. yield, 1.99. crude oil had broken below $30 and is now back above that. china is the other reason we are seeing such a negative. the chinese market down to december, 2014, levels. gold has been moving quietly higher over the last couple of days as we have seen this risk off in the markets. i wanted to mention there was one bright spot in asian markets and that is india. india, .2 of 1%. switch up the board

quickly. i want to look at some of the other asset classes. wti is back below 30, brent back below 30 as well. there was a recovery in the last half-hour or so, but the global market headline is the shanghai composite, just messy. this morning it was negative four, negative five, -6%. and one point it was -7%. risk aversion, -0.46%. the all-time low two-year yield, in germany, also speaks to the expectations from the ecb in march and april in expectations compositell take the rate deeper into negative territory. michael: we have one major indicator to show you about what is going on in the world, and it does relate to the slow global growth we have seen for the last couple of years. -- swiss watch exports

have fallen once again, at the lowest level since 2011. if this is not a sign of a new normal, slower growth economy in europe, and around the world, i do not know what is. knots -- not selling much in china, as jon and vonnie mentioned. what happened today to trigger this? let's check with nick in beijing. the? -- nick? nick: there are those two things going on, one is the direction of the you want, and the other is the strange situation when -- when theyteam do not buy up stocks, that encourages it. toward the end of the day when it was clear that the government was not intervening, there is a broad sort of concern about the government's intention and whether they are willing to

intervene to prop up the market. right now it looks like they are not. jon: i want to pick up on something that happened overnight. the ad hoc injection of cash from the pboc -- what do you make of that, and what do you make about how ad hoc it seems to be and appears to investors? when we will -- when will we see the real action on capital outflows, something that will last a little longer? nick: they have said they think heavy, socuts are too we are not expecting to see one. from inside china, these cash injections at this time of year are very normal. we have the chinese new year coming. that is traditionally a time when -- they had been broadly

doing more cash injections to prop up the yuan, so again you are seeing that issue of concern over the government's intentions. is this just normal business as usual, or are they really stepping and again to keep the yuan for devaluing further. chinese stocks are down 6.4%. driving markets lower. as we have noted, driving interest rates lower, which is a major impact on the housing market in the united states. joining us as guest host for the hour, spencer rascoff, the ceo, cofounder, and a board member of the zillow group here at you have to be one of the people enjoying watching interest rates stay down. : a 50-basis point change in interest rates or mortgage rates up or down equates to about $50 a month in mortgage savings one way or the other. so that is how the normal american homebuyer's pocketbook.

michael: the fed raises interest rates to five basis points on december 16, and interest rates went down. spencer: it is puzzling. the way the yield curve has reacted over the last couple of years when -- we are in uncharted territory because interest rates have been so low for so long. where we are at u.s. housing, we think that the fed would have to raise rates dramatically to get mortgage rates up in the 7% ra nge, and it would take mortgage rates up around 7% to return to usual rates of mortgage availability. we do not see it impacting the homebuyer at all. whate: this is exactly would make the federal reserve happy, because two-year rates are rising. when should we expect that it would -- spencer: at this point it is not just the rate one could get, it is mortgage availability that is the bigger issue.

although mortgage rates continue to be very low, and you can get rates in the 3.5% to 4% range, down payments are down from where they typically are. it is 20% down, but if you have good credit and 20% down, you're still getting a 3.5% mortgage. jon: a two part question from , what is china happening there, and what is a mean for the non-common gap of china and southeast asia, and the money coming in from the second, you are bullish on real estate. can you talk about that as well? spencer: on the chinese real estate investor buyer in the we have not seen a slowdown of chinese buyers buying u.s. property.

chinese buyers just past canadian buyers as the largest international buyer of u.s. real estate, making up a quarter of all international buyers. it is not just coastal. using west coast, east coast, that is where chinese buyers are. i hear from real estate buyers in dallas, houston, chicago. anything, the market volatility in china has accelerated chinese investors' motivation to buy. vonnie: what about $30 crew -- jon: what about $30 crude? spencer: savings at the gas pump are very important in a world of very high rent. one of the interesting things happening in the housing market is, as people had their homes force closed upon -- their homes foreclosed upon, we got about

5.7 million more rental households, and that increased rent because supply had not come online. less 34 years, the typical american has been paying 30% of their income on rent, as opposed to historically, 25% on rent. savings are coming from the gas pump because of low crude prices. michael: where are we on the foreclosure overhang? it seems like there is not enough supply. spencer: we are not all the way through it. there are still a lot of foreclosures, but we are through the worst of it. negative equity, the great leaving equity of foreclosure rates, is in the low teens. that leaves 15% of homeowners with a mortgage are upside down on their loan. during the depths of the crisis, we are at 35%, sometimes 40%. home values have increased on the bottom, and that has pulled people out of equity and helped

with the foreclosure crisis. michael: we will continue with housing. spencer rascoff, from zillow -- coming up on "bloomberg dwyer, u.s.," tony equity strategist. he has been optimistic. is he still? this is "bloomberg surveillance ," on bloomberg television. tablet,n your phone, and bloomberg.com. we are everywhere. good morning, new york city. ♪

jon: hello and welcome back. this is "bloomberg surveillance ." we bring you the headlines from the global markets. this morning, it was looking ugly with the chinese shanghai ashdown --own 2.46

30, atrude back through $30 72 cents. things turning round on u.s. futures as well, negative but not as negative as they were, to 0.1% this morning. plenty to talk about. we will do that shortly on "bloomberg surveillance." but now i want to cross over to vonnie quinn with the bloomberg business flash. vonnie: two former disney workers claim the company workersy replaced with foreign workers. they are suing. disney says they comply with u.s. laws. sprint will be cutting 7% of its workforce. it is also closing some call centers, trying to save $2.5

billion. president obama wants to make it plans,for retirement lowering administered of cost and easing compliance issues. congress would have to sign off on the ideas. that is our latest bloomberg business flash. michael? our singleme for best chart. we want to bring the federal reserve in because they begin their two-day feeding today. there is concern about whether they will be able to move, even in march. no move expected this time because we are seeing inflation go the wrong way. tim bullard at bill dudley brought this up over the last couple of days. inflation expectations -- you can see they have moved along in a range for quite some time, moved up a little bit after the fed raised interest rates -- the green circle -- and then look at look at howthen they have collapsed. if people think that prices are going to continue to go down,

that will put downward pressure on prices and inflation will not move up. this is a real concern. inflation expectations are becoming unmoored. it is what people think in five years' time, right? michael: people think inflation is going to be down 1.5% at best. leads to the question of, where do prices go? influence cpi because of the way it is calculated. rent prices have been going up but the cpi has been going down. what i was seeing at as a national trend? or can we even say there is a national trend? spencer: as people say in the industry, there is no sixth thing as a real estate forecast. that is like having a national weather forecast. is increasingow

-- is -- it is regionalized purity in manhattan, home values are increasing 8% year over year. a little bit higher in brooklyn, in manhattan right now, high single-digit. other parts of the country are hot -- seattle, san francisco, l.a. -- all increasing 5% year-over-year. much of the midwest is flat. big regional differences at this point, but overall, 2.5%, 2.6%, which is pretty boring, pretty slow growing. seeing we are not wage increases typically. that dropint does out? spencer: what is driving higher rates of appreciation is immigration. in the san francisco bay area, there is only available housing for 2% of them. is incremental job growth

not being equally supported by incremental housing growth. that is what is driving higher home values. of your homehe era as your savings account, your retirement account, over? spencer: it depends on your time horizon. for the typical american, it takes about two years for people to breakeven. less than two years, they would be better off renting, more than two years, you would be better off buying. but you should not buy your home as solely an investment. do not buy a home just as a financial investment. vonnie: i want to quickly mention -- dupont earnings are out, fourth quarter sales down 9%. share areearnings per at 27% as opposed to $.26, the estimate. -- at $.27 as opposed to $.26, the estimate. michael: later today on

"bloomberg ," richard clarida will join david westin and stephanie ruhle. this is "bloomberg surveillance ." ♪

to youllo and welcome all. this is bloomberg tv. this is "bloomberg surveillance ." brent crude back about 30 bucks per barrel, a brief drop this morning, but now it is 30.58, up

.25 of 1%. the stock market in shanghai, the shanghai composite down by 6.42%. before we get to the morning must-read, sentiment is not pretty in europe with equities lower, but things are starting to improve. s&p futures lower, but only out 5.2 points. michael: this is something that has happened the last couple of days. we get a low overnight, then it falls off. time for the "morning must-read." new poll, donald trump leading the national republican gop nomination race. he has a 41% share. in a "new york times" column this weekend, frank bruni noted that is kind of ridiculous. stevens, theart gop strategist, noting a national poll is meaningless

because one out of every nine california,ves in so when is the last time anybody read a story about the republican primary in california? he is right, because at this point it is all about how people are going to vote in iowa and new hampshire. the interesting thing -- it does not matter who you support or who you might want to vote for, because they may not be in the race by the time we get to a new york primary. vonnie: second-round effects will be interesting. if somebody drops out, whose vote -- michael: who will get the benefit? marco rubio hopes that works for him. vonnie: who predicted david in after the be last voting round? spencer: it hardly makes any sense to start paying any attention at this point if you are a californian. hampshireisle and new have this outsized influence on

who becomes our president. it is quite an amazing and arcane system. polls right news pieces about people who conduct the polls. vonnie: when was the last time you were asked to take part in a poll? michael: it is hard to tell because i turned them down. spencer: i love polls. one of my greatest joys is when my phone rings. michael: call spencer, not me or vonnie. later today, tom el-erian -- you can call him, too. he will join betty liu at 1:00 p.m. in new york, 6:00 p.m. in london, on bloomberg television. ♪ 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. jon: hello, this is bloomberg tv. this is "bloomberg surveillance. " good morning from the city of

london to all of you worldwide. the ftse 100, the session down by .81%. moves toarket discuss. for now, let's get to vonnie quinn. vonnie: in china, stocks have lost almost half their value since june. the benchmark shanghai index suffered a cross-the-board losses today. 's --tors here that china investors fear that china's slowing economy will lead to slowing capital outflows. general -- attorney still unanswered, why he was given the money. president obama is planning to use a solitary confinement for juveniles in federal prison. the president says solitary confinement can cause devastating psychological problems. the change would affect about 10,000 inmates. part in aders took

townhall leslie for the democratic presidential candidate. he says he is confident voters will back his plan for single-payer reticle covers. bernie sanders: it is time, in my view, for us to have the courage to take on the insurance companies, the drug companies, and provide health care for all people at an affordable cost. vonnie: presidential voting starts seven days from now with the iowa caucuses. global news 24 hours a day, powered by 2400 journalists in more than 150 bureaus around the world. i am vonnie quinn. michael: as you have noted, it risk-off, down, a depressing market. we bring in the official bloomberg optimists, tony dwyer pick he has been optimistic about the u.s. economy and markets through all of this. i'm going to ask you to do something you are not supposed to do when you are making

forecasts. you are supposed to give a forecast or a timeframe. you are telling time frames that when we bottom out we will see a nice ride to the stock market, according to history. when do we bottom out? tony: it is not the first 10% that hurts, it is the last 1% or 2%, when you feel you have never been down again. i have been wrong. the optimistic side has been wrong. pricerestimated what the of oil would do with emerging currencies. but two wrongs do not make a right. but at some point i see the breakdowns in every single financial. i see the breakdowns and all the stocks. at some point it becomes too extreme over the short-term, and that is where we are. even if you look at 2008, typically when you get this oversold in all the sectors and many of the stocks, even if you do not agree with our view, which is you are not going into

recession -- we are going into a sharp slowdown and the data will get worse just because of the crash. but again, even if you disagree with the recession, a no recession view, you do not want to sell into this kind of damage and run away from a more significant rally. michael: how far from fair value our way? you say we are oversold, but are we way below where we should be? -- init depends on where yesterday's note, we set our target is wrong. 23.60 is going to be wrong. what is fair value? historically the reason we got to our target is we are using a 19 multiple, because that is the average multiple in a sub-three core inflation environment. the industrial space is in a negative period. my earnings numbers are wrong at one point when he four.

it will probably closer to 1.21, 1.22. clients are becoming anxious about the stock market and moving to cash. is there a potential they might actually be more interested in buying a home? spencer: it is hard for a typical american to participate as a real estate investor. there is no asset class to invest in. people try to create derivative products and trade on the market and other places, but there is no place a typical american can -- you can invest in one builder, there are a couple of rental property management companies there, the online real estate stocks, like our companies. what we have seen in the residential housing market is, the people attracted to residential housing are either sophisticated investors that are buying 50, 100 properties, or the individual homeowner that no longer thinks of the home as an investment and a think of their home now as a place to live. i think that is appropriate.

vonnie: what have you been hearing from clients and other people that you do with on the street? when they call you up, are they wanting to go to cash, looking for alternatives? would say they are paralyzed at this point because it is down so far, so fast. i know my target is wrong, but i am not going to tell you to sell because the target is wrong they are feeling paralyzed and confused. .nergy is a mess you do not have any specialists, no market makers. these folder rule has taken bankers away, the ability to do significant proprietary trades. on most walldebts street firms are depleted in a big way. so if you are wanting to sell energy bonds, how do you do it? what do you do to hedge that position? hedging that position, you sell some high-yield dts, or you

shortly stocks against those companies that are in distress. a lot of the companies worried about going into insolvency or things like that, already have a huge increase in the cds. so we have talked a lot about the negative. in a view of what could go right -- what could go right? michael: that is why we brought you on. tony: what could go right is, housing is doing pretty good. jon, do you have any idea? jon: i would love to say what we go right. though, theto you hang seng last week traded below book value. the european bond market yielded negative. these markets will stay abnormal for a lot longer. does that change the way you view markets in a traditional way? do you need to look at them differently? tony: therein lies the whole problem.

you have not gone into a recession without an inversion of the yield curve, but you seem to be heading to a recession in the industrial space. in the international ring, it is important to look at how far down they have come and how -- that used to be so expensive and now they are not as expensive. i have no idea what the chinese regulators are going to do for the chinese market. i have missed that call the entire time. but when i look at the leading indicators for the asian five -- india, japan, china, vietnam -- those sequential gains in the leading indicators is improving. -- the european leading indicators are pointing in the north direction as well. it is hard to couple those, too. it is -- it seems like it is broken. michael: you are a ceo of a company. when you look at this environment, at the cost of funding, are you saying i do not want to expand at this point, i

want to be careful? what is your psychological view of the overall environment? spencer: i would describe the investor psychology as shellshocked. i talk with shareholders all day thereall the time, and will is broken. they did not get paid in 2015 because they did not the their benchmarks, and hedge funds -- they did not beat their benchmarks. the south side is lowering price targets because stocks have come down, which is a little bit sortcal, or a little bit of self-fulfilling. so the investor psychology in the tech sector is pretty scared an shellshocked. as a tech ceo, i try to take a long view. our business is very healthy and we focus five or 10 years down the road. i do think it is affecting tech hiring a little bit.

companies are starting to slow growth a little bit. tony: spencer, do you have access to capital? spencer: absolutely. tony: so when market tech goes into a severe recession, down well more than we are today, he has got to not get access to cash, and the people watching the show have to not get access to cash. we have made 11 acquisitions and we are always looking at m&a. but we have not done a buyback and we could do a convert, a debt offering come and we have offers every day from central banks wanting us to raise more cash. i like being -- publicly traded with access to cash. in a declining market, the start of community is having a harder time raising money, and that helps companies like us. michael: how does the fed play

into it all? coming up on bloomberg radio, we will speak with ian shepherdson, a big fed meeting this week. to 11.30 in new york, san francisco, 960 a.m., and in washington, 99.1 fm. ♪

vonnie: welcome back to "bloomberg surveillance." we have earnings for johnson & johnson. they did beat the bottom line. , 4.5%growth for the year to 6% is the forecast. in terms of revenue, we saw $17.8 billion in revenue. that just barely missed the estimate. about .5%.s down

it is earnings season, and you have headlines. areie: top twitter managers gathering right after cointreau key executives were let go. among those -- after cointreau key executives were let go. bank, third-largest huntington bancshares, is -- first merit has 367 branches in five states. figures show amazon prime reaches more than 1/5 of american adults. research firm says prime had 54 million members at the end of last year. that means nearly half of u.s. households have prime. that is the latest bloomberg

business flash. michael: we're speaking with tony dwyer and spencer rascoff, ceo and board member of the zillow group and he is also an author. you have a book coming up, rewriting the rules of real estate. how have the rules changed? spencer: buyers have more information than ever before. it used to be that the real estate agent had access to this information only. buying a car, you can see what the prices are and do your own cop. that your own comp. moree: so have you seen people doing person-to-person deals? beener: sales have constant around 10% to 15%. the difference is that the consumer comes to the table much

more educated. so the role of the agent has changed. agents now have to interpret what they see on the internet. the agent is still very important, but they are playing a different role. the internet has changed things in different ways, too. the best time to list your home is in late march, the last two weeks of march. if you live in the southeast or the southwest, the warmer part of the country, it is earlier -- earlier to mid-march. in the northeast when it is colder, you want to list in april. you want your listing to look fresh. you do not want to list too early because then it sits on the market and homebuyers on the internet and see how long the listings have been on the market, and they start to think that there is something wrong with your home. information transparency is good, but it also has important effects on housing market psychology. jon: i want to go back to a conversation you and i had on the effects of crude with housing. but i want to talk about data.

it is one of the hottest markets for zillow, at least for 2016. some people would scratch their heads -- why would you be bullish on tech and real estate when crude is at $30? spencer: what happens in these local climates is that it depends greatly on the levels of negative equity, which affects inventory levels. of negative equity are impacted by how large the down payments were that people had on the homes going into the housing upswing, and the housing downturn. in places with high rates of negative equity, there is low inventory because people cannot list their home. what little inventory there is tens to sell quickly at a high rate. that has created a high rate of appreciation in places like dallas, but also arizona or las vegas. places hit hard by the downturn have had big bounces, and that is one of the things you're seeing there. on the hangover from the

financial crisis, in the u.k. there is concern about those who took variable-rate mortgages before the crisis, and what will happen when rates go up. in the u.s., if we had a washout, has there been enough of a correction in the housing market that we do not have the hangover from the precrisis mortgages? spencer: the washout has happened here. there is still some foreclosure hangover. you still have 10% to 15% negative equity, so some people are still upside down on their loan, but nothing like during the depths of the recession. we have moved to the next stage of housing, which is boring. boring is good. for housing economists and housing geeks, you want boring. 2.5 was what we expected, and that is what is forecast this year. michael: if i want more than 2.5, you say you can use the internet to find places that are hotter, and negative characteristics -- and

neighborhood characteristics that will make your home price appreciate faster. the whole foods effect. spencer: we look at what our leading indicators in neighborhoods happening? we looked a lot at starbucks and saw the in pact of starbucks -- saw the impact of starbucks. the data says over a 17-year period, homes in america increased 70%. if your home was near a starbucks, your home increased 100%. if it was near a trader joe's, it increased twice as fast as the negative appreciation. buy near a whole foods or a trader joe's. failing that, starbucks. the starbuckse aspect of it and having a whole foods nearby is not bad as well. spencer rascoff is with us. his book is zillow talk, rewriting the rules of real estate. also, tony dwyer from canada course genuity.

-- he is an optimist. maybe he is right. maybe he is right. we will talk when we come back. coming up tomorrow, we will be .oined by derek halpenny global markets, 5:00 a.m. in new york, 10 a.m. in london, here on "bloomberg surveillance." ♪

michael: good morning, washington, d.c.. roll over and go back to sleep. the federal government is off out from thedig snowstorm. it is time for the forex report. let's look at how currencies are improving. starting with the russian ruble -- the russian ruble, through 80, through 82 again today. it is like a train wreck, you cannot look away. the yen is a victim of a flight to safety. and the swissie, the swiss gaining despite the swiss efforts,bank's best money flowing from europeans -- from the euro bloc into switzerland.

dollar index, little changed on the day. a little bit higher on the day. vonnie: time for morning movers pray let's start with coach. we just had earnings from the luxury handbag maker. branching into other areas of consumer spending. earnings per share, $.68. net sales met estimates, so there again, reaching 1.1 $7 billion in terms of net sales per for guidance, fiscal 2016, they are maintaining their guidance. the stewards weitzman brand -- the steward weitzman brand -- the steward weitzman brand, forecast for them to be down 4.1%. no trading in coach premarket so far. moving on to apple now. michael: the overall markets, futures have turned positive. futures up five points right now. i do not want tony dwyer's job

as chief equity strategist. how do you deal with a market that gyrate like this? apple was the darling. every portfolio manager had to load up on apple. and they got killed because they were loading up on apple. are andbol of where we where are we going, what do you think? tony: typically you cannot bottom out of what is a bear market. last wednesday's close, when we compile this data, you had over prove issues at a 50 to -- and a 52-week low. what happened after that is you typically shoot some of the winners, and they have shot some of the winners. i think apple probably falls into that category. our analyst is a well recognized analyst on apple and also has a buy on it. typical thing stocks -- facebook, amazon -- those names

have been under pressure as well. typeel: you would be that of investor. you are not a fang. spencer: our stock has traded down quite a bit. that thecronym allestor likes to use, sm mid-cap tech stocks have come down. you look at apple as a barometer of your business for real estate? spencer: i look at it as a barometer for tech centric in general. it is not that closely related to real estate, but certainly in terms of investors. tony: when we have the opportunity to talk to clients on television, to talk to viewers on television, to have a ceo talk about his company, not his stock -- because there are periods where you go into this

slop -- we are in one, but there is nothing that spencer is saying, -- in this slump, the are in want, but there is nothing that spencer is saying or investors are saying -- michael: futures are higher. s&p futures up by six points right now. jon ferro, this is a change. change, and the equity market, s&p 500 futures and crude, nothing lost there yet, but that correlation is getting much tired -- much higher. this is "bloomberg surveillance ." "bloomberg " is up next. ♪

stephanie: a snapshot of the global economy. we get earnings from johnson & johnson, procter & gamble. we are seeing a freefall in china.

the index falls more than 6%. investors are beginning to worry the capital outflows may make things even worse. , after theinflux question which energy companies can end up in bankruptcy in 2016. ♪ stephanie: welcome. it's tuesday morning. we are here in new york city, you are watching "bloomberg go." i'm stephanie ruhle. david: i'm david westin. now oil is a little bit. stephanie: in the game of oil production, supply demand, kabuki theater, we continue to see producing nations really start to play a game with us. as soon as we get a signal the production could get halted, whether we're talkingn,