there is an hour and a half left in the session. you are watching "bloomberg markets" on bloomberg television. julie: i am julie hyman in for vonnie quinn. it is friday, wishful thinking that it is one hour later. this is "bloomberg markets." ♪ julie: we will take you from washington to new york and cover stories out of the u.k. and china. here is what we are watching. hans selling off around -- bonds selling off around the world and central banks question further quantitative easing. telling the investment will this is a big moment. it is time to get defensive. ofk: u.k. authorities football scrutinizing chinese investments in premier clubs.

why it is getting harder to connect the dots of control funds coming into the scene. julie: wells fargo fired 5300 employees linked to and proper sales practices. how they open credit card accounts without customers knowledge. 30 minutes into the trading day into the u.s. we will send you to abigail doolittle with the latest. the one day i'm am not over there is the day that perhaps the s&p 500 will break the 43-session streak of not having a 1% move. abigail: we are sharing it in some ways. as julie mentioned, we have risk off for the u.s. equity markets. the three major averages are down sharply. the s&p 500 was down 1%, alluding to what julie was talking about. streak of not having the s&p move 1% either way could be on

breaking.of the s&p 500 and dell down three days -- and doubt down three days in a row. down three days in a row. could the lack of the move be the calm before the storm? many strategists have been calling for selloff. the risk off in the averages are certainly supported by what we are seeing in the vix with "fear gauge" trending sharper. june 24, the since brexit selloff. we see the spike in the vix. and we at the bloomberg suggest we could see the cycle go significantly higher. this is over the last year. when it has gone to the bottom it spikes higher. we are off of the bottom, xerhaps we will see the vi

spike higher as equity selloff. in the world of commodities, oil trading lower on the day, paring a weekly game that came on a surprise plunge in stockpiles. the big story today is bonds. not confirming the risk off picture. we have a 10 year yield spiking higher having the best two-day rise since july 10, perhaps on the comments that bond rates will likely rise. mark: let's stay with the bond-theme. it is 3:00. we were one hour ahead of ourselves. somethingr yield, special happened a few minutes ago, the yield moved to zero %.- 0.000 it has been negative since jan. .e went -- since june

we went to 18 basis points on july 8. today we have been creeping up to zero hearing we have not gone above zero. 0.000%.high is these things matter to people like me and my friend david goodman, who i will be talking to in a few minutes in the wake of the ecb meeting. the biggest move in 10 year yields since march. significant moves in the german bond market post draghi. we will talk to david about that in a second. that is the significant move in the european bond market in the last few minutes. individual movers, deutsche bank of the most in a couple of months. it is nearing a settlement deal with u.s. authorities on an investigation into the sale of residential mortgage-backed securities. of the goldmanh sachs penalty.

it will be a massive relief for deutsche bank and it shareholders. they have paid $9 billion in settlements since the start of 2008. chairs of 4.6% today. the chief executive has been ousted and will stay on in the short term as they look for a new leader. the ceo has been burdened by bad loans and losses on derivatives that went wrong under previous management. he has had to take state funds. those efforts did not pay off. shares have fallen by 94%. 2007,he record high in this is a normalized chart, shares down by 99.73%. this bank was work 15.8 one billion euros. 710 millionrth euros. what a fall from grace. burberry, shares falling. there are reports in the south

china morning post that it cut its hong kong and mainland china prices of leather handbags like 20% because of the weakness in the pound. since brexit burberry shares have risen 30%. since the brexit, it shook up top management and said the sterling plunge will boost profit by 40 million pounds. goldman sachs removing it from its list of shares to focus. burberry shares down by 2.9%. great to see you today. julie: great to see you, too. let's check out on the bloomberg news. >> north korea tested its most powerful nuclear weapon yet. the kim jong-un regime said the detonation of the warhead shows it has the ability to mount atomic weapons on rockets. the president of south korea calls it an action of "maniacal

recklessness."president obama released a statement condemning the test. a passenger trail derailed in spain. 47 were injured. it happened 280 miles northwest of madrid. porto andaveling to portugal. it was carrying 60 passengers. an organization seeking to stop donald trump. the cofounder of facebook says he and his wife are giving $20 umplion to aid antitr efforts calling the candidate divisive and dangerous. nasa celebrate the launch of a rocket that will rendezvous with a rocket. it is headed to benu. when it is there, the schiphol vacuum gravel from the surface and deliver the dirt to earth. the mission will take seven years.

hours a day,24 powered by 2600 journalists and analysts in more than 120 countries. back to you. julie: let's get to markets on day of the selloff2 -- monday 2 in the cell -- on day two of the selloff in markets. gundlach said it is time to be defensive as rates are on the rise. tothis is a bad environment raise rates come yet we have hawkish members of the fed talking about how it should be raised twice between now and year end. i think they want to distance themselves from the work. belowghten even if it is 50. julie: for insight, we are joined by the european bond and ethics reporter, david goodman. as gundlach pointed out, he has

been calling for an end to the bond rally or some time. what is changing? if it is indeed changing? what is the pivot point? catalysts of the big in the last couple of days has been the ecb and mario draghi saying policymakers have not discussed the meeting yesterday kicking off the selloff in bonds today. we are getting impressive news on bonds on the longer end of the curve. julie: for investors you were talking to and folks like gundlach, what are signs they are looking for that this will , or two, or week-log event, but longer-term and how we see bonds? he is it is interesting

talking about bond yields, because in april 2015 he was talking about a selloff in german bonds. we saw the 10-year yield go from 100 basis points. now, how high we can get if we go now is the question. mark: we get so excited by moves like this, such is the nature of our job. we are at 0.002%. ofs this signal the waning influence of monetary policy ,ctivism, not only from the ecb but if you look at comments from mark carney and of the boj, are in theessing a change activist approach by central banks? david: it might be too early to call that. we are getting excited about the

10 year yield and 0%, it is unheard of terri back five years ,r 10 years to where we are now it is the pace of change that will worry investors. mark: the move that is significant is the japanese bond market. we have seen a shift across the curve as we approach the monetary policy assessment. as theair to say japan, eurozone did, is the leader in global bond markets? david: one of them. has dealis still yields lower. even japan to an extent. japan sold off again in july. in the last week, the u.k. has been the worst performer. let's talk about what is

happening in the united states. i will try to match mark chart for chart. bloomberg, the yield curve in the u.s. you see the reversal. of yellow line to the right the screen. we have seen the reversal and a re-steepening in the u.s.. we have heard from fed officials, rosengren looking more hawkish in the united states. what are we hearing sentiment-wise in terms of this the fed will raise this year? talk: we heard gundlach about today. we have gone up 40% from 28 yesterday. a change in sentiment for sure. the earlyhat back to summer, there was no chance of

the 10% hike. mark: it is dangerous with julie and i on because it is who can outbid the other question mark i will raise julie. the top line is now and the month ago, the yellow line, we have seen yields rise. an economylective of that has proven more resilient than many had expected post-brexit? david: definitely. manufacturing on the upside and gilt pushing up on the upside. , there is scarcity that they cannot get a hold of. it went pretty well for them. yes, ther eis that. the initial brexit. mark: bloomberg news, european

reporter. julie? julie: we will look at the individual stocks moving in the early u.s. session, including why restoration hardware is soaring, bucking the downtrend. this is bloomberg. ♪

mark: live from london and new york, not white beach weather here. i am mark barton. julie: it will be here. i'm julie hyman. you are watching "bloomberg promisesand what to be a steamy new york today. the biggest stories in the news, 100 20 cars and

suvs. the company says the vehicles could leak brake fluid and cause fires. in some cases, owners should park outside until they are fixed. they cover the newer suvs and the recent model cars. they will replace defective parts for free. south korean exporters hurt by a collapse in the hongjin shipping collapse are getting a break. they will be shipping to los angeles today shipping from samsung and lg electronics. it has been piling up at the south korean port. turning to sports to attract viewers to its online tv service. amazon is pursuing video rights to a wide range of sports, including the french open tennis tournament and professional rugby. it gives amazon an edge over streaming rivals like netflix. flash herer business

that's good applico doolittle with the latest -- abigail doolittle with the latest. ingail: a surprising pocket today's selloff. the retail space. holding shares nicely higher after the retail company beat second-quarter estimates. they expect to open seven stores this year and they reaffirm the full-year view. the six-year analysts are recommending to buy it. on average, they see a 20% upside potential. restoration hardware, the shares are soaring after they beat fiscal estimates across the board. earnings by 52%. they maintained their full-year view. shortould be a high bear of 28%. another retailer that is higher, posted atic retailer

loss,r than expected three cents versus eight cents. it will stay relative to sales. this is another stock that is shortened. that could help to explain some of the strength. we do have one loser in the retail space. this is a man's apparel company that missed second quarter revenue, down 19%, reaffirming the full year view. holding is up 45%. weakness on the day, but on the year, winner. mark: still ahead, quietly doubling in size over the last four years. their leading the post-brexit rally. the friday report is next. this is bloomberg. ♪

julie: you are watching "bloomberg markets." i am julie hyman in new york. mark: from london, i am mark barton. reachedmall ca[s have $113 billion and are leading the post brexit rally. here is the senior etf analyst at bloomberg intelligence. this is surprising. that we are seeing small cap etfs do the best. >> i am surprised. after the brexit, small-cap etf went up. they are beating large-cap. now that their lowball, their leading the charge with the post-brexit bounce. it is julie: a shocker. which small cap etf's are we talking about? >> this is the one everyone reaches for.

let's go over the trading volume . it is unbelievable. it trades $2.5 billion a day. looking at the holdings of this etf, tracking the russell 2000, it tracks the top 25 small caps combined. the reason this is so popular is because the spread is one basis point. it is almost free to trade. if you were to buy or sell the basket of 2000 stocks it would cost 25 basis points. a lot of people will use this for the trading pop. it is pricey at 20 basis points at expense ratio with a lot of mid-caps. it is 40% mid-caps. a lot of people are using the small-cap which is smaller, tighter, and 14 basis points. this has led flows in the past three years.

even though iw when is king -- iwm is king, this is eating into its market share. mark: a quick peek at the german 10 year, it is above zero. it is positive. check out my chart. we are at 0.003%. this is significant, highlighting the upward movement in global yields in the wake of mario draghi's inaction. the ecb did not discuss an extension to the bond buying program. you talk in your notes about long and lend trade that you can russellfrom the ishares 2000. >> etfs can lend out one third of their holdings to short-sellers. basically, most of those people who want to shortstop their head fund. adding up iwm, the revenue, it

puts it back into the funds. it eats up the expense ratio. it should trail the russell 2. it actually beats the russell 53 basis points, nine over one year, 44 over five years, because of the security revenue. this is a case of hedge fund subsidizing the exposure of people to get free exposure to small-caps and then some. in institutional take an iwm and lend it out and get 40 to 50 basis points, a supplemental income play. the little guy can still get free exposure in iwm. if you are tracking or above your index, that is free exposure. julie: let's get really small, micro-small. microcaps, how are they doing? eric: they are lagging. they never do that well.

always look for them to have a great year. what is interesting about is that they give you a glimpse into what the etf world would look like without vanguard. product no vanguard purity average fee is 65 basis points, the cheapest is 50. there are pockets of etf where vanguard does not exist and the fees are quadruple. that is one of the more interesting aspects of microcaps. they are convenient, but very prices. julie: covering etf for bloomberg intelligence. mark: the german 10 year is above zero, the highest since july 15. stay with us. this is bloomberg. ♪

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>> this is bloomberg markets. we have breaking news on volkswagen. a conspiracy to defraud at u.s. regulators and customers.

again, these headlines just crossing be bloomberg right now. you can see shares have taken a little bit other leg lower in german trading. the u.s. is continuing that criminal inquiry into the company's manipulation of .missions we have the first person who has been charged and you has pleaded guilty to conspiring to defraud u.s. regulators and customers. let's check in with bloomberg first word news. >> thank you, julie. president obama is valuing that the united states will never as a nuclearkorea state. north korea says it has the ability to put an nuclear

warhead on a rocket. he has toldama says japan and south korea that the u.s. is prepared to defend the region. the house is prepared to vote on victimshat would allow soon -- tor 11 two sue saudi arabia. dozens of tourists have been rescued in the else after being in my blog.night tangled at angot altitude of mama's 12,000 feet. formals opened a sepp blatter.into prosecutors say the investigation relates to bribery and corruption and accepting

gifts and conflicts of interest. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. for entity. this is bloomberg. mark? the former federal reserve bank or of indianapolis, president gary stern, spoke earlier and we discussed the challenges facing the federal reserve. >> it's the environment. financialost of the crisis. it is the uncertainty going forward that makes things very difficult. of much of alan greenspan's tenure, for example, that was one long economic expansion. while the fed probably contributed to that, the fed was by no means the key ingredient. the economy was performing very

well. the fed basically -- as long as you avoided big errors, the economy continued to reform very well. this is a very challenging environment. >> gerry, i want to talk about diminishing returns. are seeing a we diminishing return. do you agree with that, number one, and if you do agree with it, what should/can the fed do? >> i think there are a couple things we should focus on in response to that. we are seeing diminishing returns in terms of communication. we have to many people speaking at cross purposes, or at least not entirely clearly. what the fed can do about it, but is not easy, is narrow who is going to speak for the fed on policy. i think that is a good idea. it is hard to execute that idea

in today's environment. individual governors and individual reserve bank presidents view themselves as tong perfectly appropriate speak out on policy. nevertheless, that is part of it. as far as diminishing returns to interest rates, you know, i think you can in some ways declare victory. is it a perfect world? no. is whattion for policy is the appropriate level of interest rates or the appropriate path of interest rates going forward to maintain what we have achieved. i think if you look at what people have put out there in their charts and so forth, the rates are set to go up. i think in my judgment, that is

right. they have the opportunity to go down that path. change topic, gary -- if you went around giving this speech in that speech, what would chair greenspan say to you? would he say, you guys need to stop talking so much, you need to let me run the roadshow? have donelcker would that. >> would he? >> because i was there for some of all's years as a. paul would not have tolerated that. the chairs have been increasingly laissez-faire about it. that was actually my attitude for many years as well. let everybody participate in the communication effort. i have kind of changed my view for two reasons. one, i do not think it has

turned out to be effective, and secondly, i think it diminishes the franchise. by which i mean -- i am not a fed president anymore. i am sitting are talking about policy. that is fine. fed presidents, in my judgment, should not be sitting here talking about policy. they should be talking about it at fomc meetings and so forth. the mandate is price stability and employment. >> yes. >> for you need economic growth. it is a half step away. what would be the effect on economic growth, a modest, gradual interest rate rise at this point? modest atect would be most. i say that for a couple reasons. i do not think inside or outside the fed people are advocating sharp increases in interest rates. the fed is a conservative organization by nature. any increases that occur will be

modest in size and gradual in terms of timing. so, there is that. i do think that the fed does not intend to be disruptive. i think the economy is on very firm footing today. employment gains though have been quite sizable the last several years and the economy it -- quitelike -- sound. quite sound of the moment. reservermer fed president of the bank of indianapolis gary stern saying that the economy looks of them quite sound."s " that brings me to marry of draghi. extendingeven discuss the qe program, which has led,

julie, looking at the 10-year yield, the biggest move up since tuesday march. this is the highest we have been since july. julie, i really quickly want to look at the u.k. 10-year as well. something significant happens. on the fourth of august implemented this huge stimulus round. the 10-year yield after that points andso basis now we are back up to 86 herein we are higher, julie, then where we were before the boe implemented qe. just showing you how this move with yields is very much universal. julie: and we are seeing it happen in the u.s., too. in the u.s., i am watching the whatbility calculator -- you want to look at is this column over here. the probability of a hike as calculated by those fed fund

futures. we have seen it take up a little bit for september. really though, the number you want to watch is december, which 60% probability. that is going to increase. as we see this play out in the bond market, in the fed funds iger's market, we have also seen it play out in the u.s. stock market. look at that move in the s&p 500. lower. if the s&p moves a percent aday, that will break 43-session streak of moves less than 1%. it has been dead calm in the u.s. equities market through jobs report, janet yellen at jackson hole -- dead calm. that looks to potentially change today. we should also mention happening right now in the sea, congressional leaders, including house speaker paul ryan and nancy pelosi purges of trading

in a ceremony to mark the 15th anniversary of the attacks of september 11. s also marking the event with a moment of silence on the floor of the new york stock exchange. this is bloomberg. speaker ryan: i would like to invite everyone to join us in singing god bless america with our marine band. ♪

julie: you are watching bloomberg. i am julie hyman. mark: and i'm mark barton. this is your global business report. aree: this is what we watching -- and the post-brexit world, is london in danger of a world'sspot as

financial capital? one expert says don't be so sure. missing data and a suspended review. the perils of polling -- how polling errors multiply in the no time to talk era. second of britain's largest insurer does not think the world is ready to take away london's position as the world's financial hub. he spoke exclusively with friends we look what about why london will remain an important financial capital, even after england -- the u.k. leaves the eu. greathink london has labor laws. it's a great place to live. it's still a financial hub. it still has all of these systems. trying to unwind all of that, i

think, is a pretty tall order. the european union's big case against apple started after they upset u.s. regulators. they have been ordered to pay back taxes and interest. a senate investigation tipped top european regulators that apple might have illegally have received government aid. largest 737 jet according to people familiar with the plan -- although it may go ahead with a revamped that enginesature larger developed for the airbus jet. meanwhile, eu antitrust regulators have stopped the clock on the review of the $60 billion merger between dupont and dow chemical. they say the company has not

provided an important piece of information, so they suspended the january 11 deadline. dupont says it does not change their timing expectations. the deal is the largest ever and the chemical industry. oure: time now for bloomberg quick take where we provide context on issues of interest. have long been the gold standard for assessing voter concerns. they have not been shining lately. their predictions were far up the mark in the scottish independence referendum and a u.s. congressional elections in 2014 and recently failed to indicate the victory of the leave camp and the brexit vote. here's the situation. -- some supporters of donald trump say polls that show him trailing hillary clinton cannot be trusted. analysts say the most reliable raw motors are aggregations of polling data. pollsters face a range of

constraints. only half of adults in the u.s. service.bile phone those users tend to screen out unknown callers. here is the background. george gallup created the first scientific political pull back in 1932. he correctly predicted president . roosevelt would win reelection. botch others did picturesns, leading to like this one. here's the fear -- paul aggregations will be dominated by less scientific polls and accuracy will suffer. meantime, more people

might vote if they did not think the results were preordained. you can read more about polls and all their quick takes on niquick on the bloomberg. pet to -- head to bloomberg.com for more stories. hollande ands other eu leaders speaking right now after meeting in athens. leader,the italian matteo renzi. they are asking for eu cohesion. you can watch this on bloomberg . do leaders meeting in athens not want to divide the eu. matteo renzi is speaking after this eu summit that has taken place among the five southern counterparts in athens today. a major scandal unfolding at wells fargo. employees at the bank are accused of opening more than 2

million bank and credit card accounts without customer approval. fired 5300 has employees over the illegal practice. for more on this, let's bring in our u.s. banking regulator reporter. this is absolutely mind-boggling. how is this happening? reporter: it is certainly a crazy situation. they had thousands of employees. they were under such pressure over a five-year period that they opened fake deposit and credit card accounts to make their sales goals. and clearly this was improper and going to catch up with them. sse, if i could -- was there any involvement from management here question mark 5300 employees is a remarkably high number two have been acting

independently here, no? is hard to say what management's knowledge was here. the bank, in this very large neither admitted nor denied any wrongdoing. though they have a statement that they regret any harm that happened to customers. julie: and what about the harm that was caused to customers? what would it have been in these situations? : the bank said it set aside $5 million for the restitution it was required to pay customers. where they clearly ran into trouble and where this came out was customers were being charged fees for these accounts they never set up. bank accountslar or credit card accounts, debit

cards -- they started saying they were on the hook for fees, and this was incredibly widespread. and as you said, more than 5000 employees were terminated. julie: all right. amazing story. you can read more about it on bloomberg.com and the bloomberg terminal. bloomberg's jesse hamilton coming to us from washington today. mark? u.k. still ahead, the football authorities are scrutinizing chinese investments in the league clubs. that story is next. this is bloomberg. ♪

mark: live from london and new york, i'm mark barton. julie: and i'm julie hyman. you're watching bloomberg markets. let's look at what is going on in the u.s. stock market where we are seeing a sharp selloff,

the sharpest we have seen in several months now with the s&p 500 taking a 1.6% hit, the dow down 200 points. it is the interest rate sensitive sectors during the worst today. utilities, along with energy, down with oil prices, mark. santos -- monsanto -- we are entering the final stretch. both sides are said to be moving closer to the deal, the deal said to be announced next week. for a pricehing closer to $130 per share. wants $130.eemingly they are said to be discussing the one point 5 billion dollar breakup fee as well, but feel it .ould squeeze farmers

that is the breaking news. we could be moving closer to a deal between monsanto and bayer. thatbayer move closer to price? let's talk football. this is english football. you call it soccer. soccer authorities investigating -- not only feel -- the chinese companies investing more than $68 million in british soccer over the last nine months. david, what is going on? does china want to take over soccer, david? david: the chinese government has made it very clear it wants to invest as much in european-style football as it can. it was to make the next world cup in china. it has made an incredible move on a number of football clubs. problem?t is the

we don't actually know what is doing the buying? league alwaysmier looks at the potential buyers. that stock price is where it if the buyer came from anywhere -- england or anywhere else. there is a lot of backing for chinese football in this developing. the premier league authorities that china might have a stake in more than one club. mark: you believe that the chinese government has anything to do with the purchase of the english premier league club? david: [indiscernible] -- premier league thinks their rules are that they have a

threshold of temper percent. at the moment, the chinese are under that. but there's a consortium out there trying to live liverpool -- mark: and that is taking a while, isn't it? david: it's taking a while. the liverpool one is partly state back. the premier league can have as much chinese money as possible, and it wants it, but they do not want to do clubs owned by -- yeah. david, great to sum it up in a few minutes. coming up on the european close, italian banks back in the headlines. seeking a change in leadership. the european close is next. this is bloomberg. ♪

shery: -- mark: 30 minutes left in the trading day.

julie: you are watching the european close on "bloomberg markets." mark: we take you from washington to milan to cover stories out of the u.k. wall street in the next hour, here's what we're watching today. the italian bank tries to pull capital and raise shut bad loans. it's ousting its chief executive. let's next chief have an impossible job? they say it's time to get defensive as he the feds raising rates. saysresident rosengren waiting too long to raise rates threatens the economy. deutsche bank shares jumping the most in two months, t