francine: the market now down. the dow suffered its worst single day points plunge ever. is there signs of come to come? volatility spikes, the vix jumps up by over 100%. how much longer can hide volatility last? last?h volatility what can jerome powell do? ♪ francine: welcome to "bloomberg surveillance."

i'm francine lacqua here in london. we saw a huge plunge in the markets overnight in the u.s. we saw quite a lot of pressure on the nikkei. 1.6%.600 now down i will show you a chart of the stoxx 600 in a second, you will 3%, downit was down 4%, and now it is kind of stabilizing at down 1.6%. 37 can see the vix index .32, now we have not seen that level for a while. --.eems to be finding we focus on the selloff with the chief investment officer. we discuss oil prices in our interview with the ceo of bp. we talked the vix's historic spike.

we focus on the markets, we also have quite a lot more throughout the program. let's get straight to the bloomberg first alert news. here's juliette saly in singapore. juliette: the president of the minneapolis fed says he does not think a financial crisis is imminent despite the turmoil. he made the comments in an exclusive interview with bloomberg. >> if they are pricing in a lower young term yield, that could be leading to higher valuations. i don't see a financial crisis on the horizon, but we are paying very close attention to it. juliette: even as u.s. stocks plunged yesterday, today trump praised his recently text -- recently passed tax overhaul. when i signedp: the tax cuts six weeks ago, and set off a tidal wave of good news that continues to grow every single day.

companies were announcing thousands and thousands of new jobs and enormous investments to their workers. robotte: the so-called -advisors struggled to deal with the market crash. glitches are a setback for a sector of the financial market industry that has boomed as people become comfortable making investment decisions without speaking to human beings. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am juliette saly and this is bloomberg. francine: becky so much -- thank you so much. global equities have continued their heavy losses. the dow suffered the worst point plunge ever. indices are lower this morning.

however, there is also some signs of the clouds lifting. u.s. futures turned positive and though the marketeer in europe are not as low as they were 15 minutes earlier. joining us now is the chief investment officer at ccla investment management. let me show you what we are think across the board -- what we are seeing across the board, it is a sea of red. what is the reasoning of this? our markets anxious that the u.s. is overheating? >> there is a follow over to learned about interest rates and bond yields. francine: how long can this continue? we telegraphed it quite a lot, do they not watch this show? >> they should. there are a lot of people who are into the market with

exchange rate it funds. the significant fund flows will drive markets down. to equity investors is that corporate earnings numbers are immeasurably better than many have expected. the rise that we have observed has involved a relative reduction in the valuation. the earnings numbers have been rising faster than the market numbers. francine: it seems that the market correction was so fast and so volatile, they are unwinding on positions, and why did markets take those positions? will react with extreme speed because there is now so much technology engaged. francine: algorithms. >> algorithms and stop losses. this to me is about selling of exchange traded funds. francine: is this a correction? is this the start of a bear market? >> this is most definitely not the start of a bear market.

i say that because the fundamentals are exceptionally supportive of equities and prices beginning to decline. we have strong earnings growth hardly. any inflation there is no evidence that which numbers will necessarily feed through to the difficult --. francine: let me bring you over to the map. europe is down some 2% across the board. they are now down 1.8%. let me bring you over to asia where we saw a significant meltdown. the nikkei down 4.7%. are you buying at these levels? >> absolutely, i am selectively ng.d -- buyi it is often better to see where prices settle and then buy in the upturn.

people are selling and prices are getting marked down. it is very easy to get stomped over. francine: talk to me about that industry groups. insurance is losing the most. are you buying any of these industries? >> i certainly think that the financial services community would do much better than slightly bind bond yields. in europe we have had relatively bnp.news from bmp -- i anticipate that companies like credit agricole are well-placed. we had pmi numbers out last week for the global economy and i see nothing on the horizon that tells me we are going to have a recession. for me at the moment, no sign of a recession and therefore no

cause to anticipate a bear market. francine: what about overheating? if you have severe overheating in the u.s. economy? what does that do to the market? >> we said so many years that the u.s. market is at stall speed. now we are up to 3%. this is an economy that is going well, where the corporate earnings numbers are strong, and there is still very little inflation in the system. francine: let me bring you back to why the markets are freaking out. james: markets are freaking out because the wage numbers are better than expected. saidrs ago, janet yellen she thought wages were going to about 4%. at theare to look employment cost index, including benefits, it is around 2.5. this is not an economy that in wage terms, is overheating.

francine: do we need to get used to more volatility in the market? volatility like the kind we saw in the last 24 hours? investors will say they clipped the dividends, they are not really worried about the durations of price. that is the strategy that you have to have in this very nasty market. francine: is there a cycle that this happens again into-three 3 months? in 2- >> the next big thing will be the first quarter results, where we will see some of the real benefits of the tax cut coming through. it justifies the higher levels of the s&p 500. muchine: james, becky so -- thank you so much.

billionaire investor paul tudor jones says that inflation is about to strike and it could force the fed to speed up its hiking. the asian markets tumbling. world stocks are seeing the biggest three-day slide since 2015. you can see that u.s. futures are bucking the trend and they are gaining some 1.2%. this is bloomberg. ♪

♪ francine: economics, finance, politics, this is "bloomberg surveillance." i'm francine lacqua here in london. we saw a huge market tumble. sincelloff deepening

yesterday, however in the last 40 minutes or so we have seen a little bit of a turnaround when it comes to u.s. futures. they were down some 2.4 percent, apart from the dax, which is still one of the biggest losers. a lot of the stocks are losing less than they were 10 minutes ago. you can see the ibex down 1.4%. let's get straight to the bloomberg business flash. here's juliette saly. bnp paribas income came in at 14 3 billion euros in the fourth quarter, in line with analyst estimates. the french bank is coping well with low rates. thef you look at the markets in general, you see a pickup when you look at volumes and all of that. however, we still have a low interest rate environment, so that weighs a little bit on the

top line. the cost of a risk is lower than what you expect. that is why domestic markets, the bottom line is a 5%. juliette: bp has dodged the disappointments that have afflicted other oil company earnings. they have reported annual profits of $6.2 billion. oil and gas output rose following the start up of seven new projects. it is the highest profit since the start of 2015. >> we have been in growth mode, six major products it -- projects since 2017. we've got the assets running at 90% availability both upstream and downstream. the company is operating and firing on also wonders -- on all

cylinders. according to the ceo of the world's top independent energy trader, he says he remains optimistic about crude. >> i think the markets have done remarkably well in terms of the run-up come it has been much stronger than we thought. lots of reasons, which obviously we can talk about. good performance from opec, not fantastic performance yet from u.s. crude, all sorts of thinks. i think we are having a bit of a pullback right now, but overall i think we are slightly more bullish. juliette: and that is the bloomberg business flash. francine: thank you so much. let's talk inflation and what jerome powell has to contend with.

minneapolis fed president says he does not see another financial crisis on the horizon. the central bank is paying very close attention to the markets right now. he said the acceleration and u.s. wage growth does not yet support faster rate hikes. >> we need to see what is going to happen with inflation. we have are 2% inflation target and our maximum employment mandate. some signs -- sometimes those are a seesaw, trading off of each other. jerome powell is very well-equipped to take this on. him sayinghat was the market is very well-equipped to take this on. hedge fund manager paul tudor jones says it is about to appear with a vengeance. it will cause the new fed chairman to accelerate interest-rate hikes.

the events that have transpired so far this january making him feel more convinced than ever of this repeating history. is warning of dark clouds on the horizon, so how does this play into the market no doubt -- market meltdown? of --. us now is the ceo thank you both for joining us. peter, let me take off with you. the market meltdown, they are not listening to neel kashkari, are they? >> i want to sort of put things in perspective here. the last -- i am the last to say that this is not important. it is very important. i would caution against everyone just.ys it is

a small dip on the other hand, we have to recognize that the underlying reasons for why the market has started to price in higher central bank expectations, have not gone away. i think what we are currently , it is a correction that might deepen a bit. we have to see where we go from there. francine: why has it been so violent? >> the move up, particularly in the u.s., has been quite violent. it has not been over the same very short amount of time. if you look at the amount of increase is that we have seen, it has been quite something. i think the correction has been violent because the way up has been violent. francine: if you look at the markets, does it mean that valuations go down and you will find better deals? >> as you know in the private markets, it is different in the

reaction to volatility. is a very severe fall off and we will see the reactions in the coming days and weeks of the market. for us, definitely, the immediate reaction is to say, oh, we made have -- may have the opportunity to negotiate with the fed. good for us to step out -- step back a little bit. the general trend, the general pressure was immediate right action best reaction of the private equity player was --. you know that an investment firm like us, we are always investing. it was a very good opportunity to sell, now maybe it will be a better opportunity for your investments. francine: i want to ask you

about currencies. we have a viewer that wrote in and he says that this pullback may be the spark back into active management from passive investment. do you think this could be a trigger points? >> i completely agree that active management now has more opportunity. the fund flow, particularly in big institutional and smaller retail, it is passive. it is a very tricky game. -- i don't see inflation rising. this feels much more like 1987 when there was macro issues. the crash in 1987 became an excellent long-term buying opportunity. francine: would this move it be our skeleton in the closet? >> it is quite possible, but i would say that the majority of

fund managers have positioned themselves and anticipation that there would be a pullback. at this: when you look kind of market movement, is it some what's encouraging -- somewhat encouraging? right now after 18 months of equity, it is the equities that are moving. >> i don't know if that gives us any confidence really, because at the end of the day, if we have very ambitious moves, there is somebody who is on the other side of it. it doesn't matter where that is, in the bond market, and the affects market. francine: is it necessary to go back to a kind of more normal market? >> just pull up a chart of the u.s. equity market over the last couple of months. the increase that you are sink,

we can name -- that you are seeing, you can name a thousand reasons for it, it is very steep. if you compare it to the european markets, they have not been following to the same degree. we have seen the recent height already earlier before the u.s. can down. francine: that is the s&p 500 for you. enemye this going up bring it back to 2012 or maybe 2013. i don't know whether it looks completely different, but whether we should worry about the fact that we have not had this kind of correction for some time. a pullback in the last 24 hours you could argue was necessary, given the chart, bring it back to 2012. >> when you look at the absolute levels, the valuations, the valuations have been very high

and now they have came back. we will have to see where they end up. they most likely end up in an environment where they are in a bit more reasonable -- a little bit more reasonable. the underlying economic fundamentals remain healthy. i don't want to belittle this, but i also don't want to judge this before it is over. francine: james, if you look at -- this is what you're saying, the fundamentals are strong, but do the fundamentals justify this kind of regulation -- valuation? 1200 to 2300. >> we live in a world of very low inflation and interest rates. i expect both of those factors to persist. the participation in equities

--. i do think that the corporate earnings numbers justify higher market levels. we had a very strong run at the end of the year. we have the tax cut and jobs act, leading to a shift in the way analysts were forecasting earnings at the s&p 500. >> when you look at the quality of the investment that you can make. when you look at the quality, when you look at the innovation. at --, theok fundamentals have never been as good. fundamentalglobal terms, we do not see any change yet. it is incredible, when you look maybe there class, have been flows of capital everywhere, but when you look at that asset class called innovation in europe, we have

not seen a huge cash going. it is not an asset class. francine: would you say that the markets are complacent? is that a fair way to describe them. >> i certainly think to some degree. if you look at the volatility indices, and the equity market or the bond market, they were at extreme lows. that certainly is an indication of a little bit of complacency. inflation is supposed to be one of the catalysts here. we been debating about whether inflation goes through the roof , but ifcome -- or not you look at that inflation in the market, it is still very low. if we have just a little bit of an increase in inflation, it is relatively easy to beat the market expectation. francine: we sought a selloff, but we always -- we saw a

selloff, but we were always told by the fed that we were expecting rate hikes. where the markets not think it -- were the markets not seeing it? what were the markets not seeing ? >> it is not only about the fed hikes, necessarily. valuations were relatively high hadnow just because we have a relatively strong u.s. payrolls at the end of last week, i think the argument is a very convenient one, to say now we have inflation, and now the fed rate hikes. francine: thank you so much for joining us. this is bloomberg. ♪ we use our phones and computers the same way these days.

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it's a new kind of network designed to save you money. call, visit, or go to xfnitymobile.com. francine: economics, finance, and politics, and today we do markets from all angles. this is bloomberg "surveillance." i am francine lacqua in london.

followingn has been all the action on a down day across the globe. the gmm function highlighting the move across the asset space. on the equity markets, we are off the lows of the day. yesterday, the stoxx 600 fell as much as 2.3%. we are half as bad as earlier, so we are down roughly 1.6%. the equity decline is down in greece by 2.5%. the dax, 1.9% lower. the biggest drop since after the brexit referendum. currencies, the bloomberg dollars spot index is little changed. the euro isction, the best performer against its g10 peers. the other eight are falling against the euro.

this is those currencies against the dollar, all rising except for sterling. money moving into the haven assets, the government bond market across the european space. the only commodity that is rising today is spot gold, up by 1/5 of 1%. all other commodities are falling. citigroup says investors should increase exposure to industrial metals. they say this sock racket -- stock market route presents an opportunity to move into raw materials. this function tells you what is happening -- it is going to come. here we go. i want to show you our wonderful grr function. vstoxxto show you that function first, this is volatility. this is the europe volatility gauge. we have seen a big spike today,

up as much as 33%, the biggest increase since august 2014. this is an important chart because it shows the last two spikes in volatility on the vstoxx. that was ahead of the french election and breath -- brexit referendum. we are nowhere near that level. yesterday, we saw a massive spike in the vix, the most on record. short volatility has been one of the stock market favorite strategies to keep an eye on volatility. what else have i got here on the bloomberg? is the function. it shows that we are seeing a bit of pullback in u.s. equity futures. these three were trading lower earlier. s&p futures, nasdaq

futures trading higher. slumped by yesterday 4.1 percent, the biggest decline since august 2011. dow futures earlier were down 3.5% and they are up one third of 1%. yesterday we saw the biggest intraday plunge on the dow jones in history. 6.3%.as a drop of it fell by 4.3% at the close -- excuse me, 4.6%. nasdaq futures were down as much as 2.6%. yesterday it slumped the most 2015.june we are off the lows of the day, but still seeing sizable declines across the european equities space. francine: mark, thank you so much. mark barton with your markets on the downside. let's consider the -- continue

the conversation. bevanwith us are james and peter schaffrik. , welcome to the program. what does this mean for currencies? peter: they are going to continue appreciating. it looks like the yen will appreciate further. i have been saying that before the recent selloff. the yen is probably the most undervalued currency in the g10. what we will find is the lower dollar-yen goes -- the immediate half, i think we could get lower in the short-term. francine: did you see any selloff overnight? this is the correlation being broken. peter k.: correlations breakdown

in the fx market all the time. it depends on whether investors think this will be a real change in terms of equity market performance. i think you will see repatriation trades back to japan. francine: what will that mean for japan? peter k.: it will not necessarily go into equities. it could go into jgb's. francine: james, i feel like i am asking the same question but a slightly different variation. why do we see such a selloff in equities but not so much in dollar? james: the dollar is not overvalued on many metrics. it did not require investors to be quite so concerned about equities. when one thinks about the passage of dollar weakness, the market has been getting used to the premise that the dollar will go down. we have a relative strength from asia in a relatively weak dollar. theuld suspect that is

second half of the year, the dollar will strengthen. francine: what is your take? ongoing: if we see an equity devaluation, i think this will transpire into a risk averse scenario globally and that will prompt the effect of particularly em currencies. on a global basis, we have seen an upswing in the u.s., europe, and emerging markets. if we see money being pulled because of risk aversion, that will affect their economic markets. have values the next couple of days, something ugly with trade or some kind of tariffs, will it exacerbate this move and impact currencies? thing that has always been in the background is

that issue about whether we're going to inhibit global trade. the global upswing has been so much more powerful and as we heard earlier, particularly for the u.s., the tax reform that has been delivered have been more powerful for valuations. if we get into an environment where we wholesale change the way global trade is done, i think this will have an impact, but i do not think we are there. francine: do you think we are there? it does not have to be a trade war but a sign that not all is well between the u.s. and china. peter k.: the americans have put on some various tariffs, but interestingly, the chinese have not retaliated. it is a one-sided trade war if you will. the chinese have been reasonably , seemingly reluctant to engage in a trade war so it is a bit premature to call it a trade war yet. we will have to see how the nafta negotiations go.

at this point, it is too early to say. francine: what are you watching out for the next 12 hours? the vix, is there a canary in the coal mine? james: i want to see what is being sold and what people are saying. this is much more about sentiment than reality. i want to watch to see whether sentiment becomes more contagious or subtle. francine: it comes from the u.s., so you are waiting for that? do you agree? do.r s.: i certainly who has been selling and why and will they sell more? francine: let me bring you to the schaffrik chart. , european xsp indices. .he s&p 500 is in orange

what does this tell us? peter s.: one of the things we heard earlier is it is being led by the u.s. if you look at the white line, we basically have more or less triple on the top. the u.s. market has been rallying higher throughout last year and this year, not the same has happened in europe. if a correction were to come, it should have come out of the u.s. because the relative valuation has been led by the u.s. to begin with. francine: what are you watching out for? peter k.: i want to see how the u.s. opens. if we see anybody trying to tentatively buy on dips, that is what i'm looking at, and whether we see bottom fishing. if we don't, we will see how asia opens. francine: james, when you look at the market functioning, does this make you question about how the market is functioning? automation and exchange

traded funds, absolutely have their fingerprint all over everything going on now. biguld not say this is stocks being traded. francine: same question. as we said, if it is just some algorithms that have been triggered, that is fine. if that spreads out, i think we are looking at something quite different from what they are discussing. francine: thank you all for joining us. bevan and peter schaffrik. up next, we continue to track the selloff in markets spreading from equities to commodities. this is what i'm looking at. i am interested in futures in the u.s. and s&p futures turning positive about an hour ago.

currently 1.1% higher. 2.73%,. 10 year yield, and the u.s. dollar is stable. ♪

francine: this is bloomberg "surveillance," i am francine lacqua in london. the markets are still selling off, that as much as an hour and a half ago. across the board in europe, the ftse down 1.4%. every 20 minutes, i would say half a percentage less low, if that makes sense. u.s. futures are up. the stock tumble is continuing, but the selloff is easing up.

treasuries are dropping, the dollar studying. the vix, a little bit of up-and-down. you see the red in europe as the equity selloff continues. turning positive after dropping more than 8% over the past seven days. our traders starting to see the light at the end of the tunnel? let's bring in john hardy from copenhagen. what exactly is going on in these markets? john: i think near-term trigger, the interesting thing from the fx perspective is we have seen little contagion across asset classes. this is concentrated in equities. bonds finally responded a bit yesterday and credit responded less, and fx is responding the lease across asset classes. maybe it is just these -- blowing up and we can get back

to square one. i do not think so. so far, the contagion in the fx has been minimal. emerging-market currencies hardly sing any expansion in trading ranges yesterday. francine: if the selloff continues, what would it hit first? do the currency's remain immune or is it emerging markets that get hit if world markets slow down? question, is the key in equities themselves, has this stopped? the 200 day moving average in the s&p is the key for risk across -- risk of contagion across asset classes. if the dollar-yen gets below one points it -- 108, that is a risk. when this type of general deleveraging hits across

portfolios and asset classes. francine: i'm trying to understand, we have not seen a becausefx like equity equities were frothy and mispricing inflation expectations in the u.s. would you suggest currencies are better at pricing these kinds of moves? john: it is difficult to build a narrative. there is an element, an element in the narrative around here we have some inflation risk and we need to take it vantage and price that in. what is the risk of one-way selloff? -- when we selloff? i am not sure that narrative feeds through direct action of what happened. players getting a margin call on this negative can vexing trade, this insurance selling the got to be too high. does this cause a reassessment of risk across models and other

strategies? that is the risk of a follow-on move and contagion move within the narrative. ?hat are our models have they been proven false? do we need to do something about it? francine: how do we know when the selloff is over? fx stays quiet and from the currency perspective, the s&p a races the move entirely. -- erases the move entirely. it is hard to say this is entirely over with. i think we have shifted to a new regime of higher volatility. francine: can you hedge through fx some of your equity exposure? john: i think it is difficult to hedge equity exposure directly into fx another asset markets, but if you look at where equity

volatility is pricing now, it is still cheaper than fx. if we see a broadening of the contagion, there are less expensive ways to hedge. we have speculative europe positioning. on the treasury side, there is another big structural trade, the yield curve flattening trade . on the front end, he a massive positioning short. if this is continuing, the fed will not hike four times this year. we will see pulling back and covering of this type of short. these types of trades is a way to hedge in case it is going to get worse before it gets better. francine: john hardy, thank you so much. let's check back on the markets. this is what i'm looking at overall. we saw quite a big selloff, but if you look at europe, we are off the day's lows.

the s&p futures now gaining some 0.4%. it seems like the s&p futures are rising as much as they were 20 minutes ago. 10 year yields, 2.73%, seems stable. the fx markets seem do not have that much of an impact. we hear what the vpn ceo had to say on oil production. this is bloomberg. ♪

francine: economics, finance, and politics, this is bloomberg "surveillance. " let me update you on one of our top corporate's stories -- corporate stories. if you look at profit increased fivefold from a year earlier, bloomberg spoke to bps chief executive officer. >> it felt a little frothy at $70 a barrel. there was geopolitical news, the dollar was week. we are planning this year on $55 to $60. this is a healthy level for us to plan. >> let's talk about the company

and the metrics and your posting this morning. net deck continues to rise. >> our gearing is coming down. 30% gearing% to framework we work in. gearing feels fine. it is heading in the right direction. we are going to stay discipline within the capital framework we have got. cash is up $24 billion in operating cash flow. we are on the right track. >> you are generating a lot of cash. does that seem sustainable? wouldn't it make sense to raise dividends for shareholders? >> back in the third quarter for the first time, we listened to the shareholders. we have a script program. that is like a drip program in the u.s., people take their dividends in cash or shares. last quarter we bought back about $340 million of shares.

we will keep going with that script buyback program going forward. expect to continue generating this amount of cash, assuming the oil price stays steady? >> part of the outlook for us, last year we laid out a five-year plan. we had seven major projects last year. we have another six in 2018. we have line of sight through the end of the decade. we are looking to generate much higher levels of free cash flow until the end of the decade and beyond. >> what kind of mode are you in? capex is still very tight. what would it take to shift into growth mode? i am curious to know when you feel the pressure is off and you need to push ahead, rather than taking that strong cost focus.

>> if you look at the cop at all we have been spending, -- capital we have been spending, we are in a growth mode. we are trying to balance debt, the gulf of mexico obligation. the company is operating and firing on all cylinders, so growth is part of what we do. we do not see oilfield inflation yet around the world. you see it in the permian cruz -- but broadly, >> when you look ahead, are you thinking that kind of inflation has been pushed low for a period of time. are the companies do a bounce back in their pricing story? the oilnot know any of companies that are off to the races and spending. we learned a valuable lesson with that last week. -- peak.

i don't see it yet. other than the u.s., where there is a lot of activity chased by , and you, -- crews will see some inflation. francine: that was the chief executive of bp. , stocksollowing tumbling, treasuries dropping. the dollar is kind of study, but a pretty big selloff in europe. futures in the u.s. turning back into negative territory. this is bloomberg. ♪

♪ francine: the rout continues, european and deceased sink after the dow suffered its worst

single drop ever. asding -- some signs of calm u.s. futures edge into positive territory. the inflation's situation -- situation -- dark clouds are looming. neel kashkari says the fed is watching. good morning, this is bloomberg "surveillance." there is no other story in town, it is all about the market. if it is the markets bottoming out or a leg lower, and what the trigger of this selloff was. tom: we will have some great perspective on that with charts in the bloomberg. where we are right now with the vix and america opening with a 40.14 print. let me turn to the bloomberg and see that the vix is at 39.94. start,a 40.14 print to

extraordinary. francine: when you think about it, it is equities taking all the ground with massive volatility and a huge leg lower. if you look at the fx and commodities markets, they are pretty much untouched. the contagion for the moment seems to be on equities. let's get straight to the bloomberg first word news. about the markets, the global stocks sell of resumes hours after the dow jones industrial suffered its worst point plunge ever. 5%.nikkei lost almost the euro stoxx 50 is falling again. more coming up. there is a report that president trump's lawyers are telling him not to sit down with robert mueller, according to the new york times. that could lead to a court battle over whether the president have to answer questions under oath. in germany, angela merkel is facing what is being called a

decisive day in coalition talk. she needs a green light from the social democrats to begin a fourth term. the party says everyone wants a solution, but negotiations are contentious. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. news, there isn a lot of other news going on today, and francine and i will bring you that as we can come wrapped around all going on in the markets. let's go to the data. futures up 11. futures are all over the place. dow futures are up 89. as french chain -- francine -- many otherher areas of the market are not coordinated with the equity movement. the vix, 39.14, that is historic. i have a great chart that will

show across television and radio today. here is where the dow closed yesterday. price.ields, higher bond i do not know what to say. on bit-s a $500 handle dog earlier. francine: angela merkel calling topossible global partners -- the route we saw over the last couple of days may spur some people into action. the selloff deepened a little bit and we are now recouping some of the losses. the stoxx europe 600 back down 1.8%. treasuries dropping, but if you look at the dollar, it is pretty steady. tom: i got into the office about 20 minutes ago, but our team in new york has been here since 1:00. they came directly from the bars to make great charts to put this in perspective.

let's begin with the first chart that shows you the gloom. we are trying to avoid the hysteria and talk about where we are. , and we are, 10% closer to a correction then we were. there we go. there is the correction. there is where we are now. a bear market is way down here under 22,000 on the dow. we are nowhere near a true correction. francine: let me reassure the viewers, they were not necessarily coming from the bar. we have a european team as well. tom: what a life. francine: we have a map and it sure use -- shows the indices and asked on the markets. if you look at the stoxx europe 600, overall it dropped the must --ce -- most since june 16 2016. this all started in the u.s.,

but if i migrate to japan, it was down to 7% and finish the day down 4.8%. for our radio listeners in london, we welcome you. we just showed a map of the global world with everything in the red. i think ghana and tunisia are gaining a little bit of ground. .oining us is joseph davis and max kettner. what a day. what exactly has been going on. the fear of overheating in the u.s., or a market function of their are too many algorithms? max: we went into the year concerned that the market was complacent and we would see a cyclical upturn in inflation and growth. we saw that with the wage data

in the u.s., so that was clearly something -- i think what we are seeing today is inevitable giving the cyclical -- given the cyclical risk. the market was still skeptical that we would see wage pressures in the united states. the phillips curve has been dormant. it is not dead. in our mind, it is consistent with a cyclical run-up in inflation but the equity market is complacent. francine: if you bring it back to 2012, this correction is not huge when you look at the s&p. were you surprised by the violence, the trigger? max: not necessarily. i'm a bit surprised by the timing. i would have expected that after the earnings season. the earnings season is probably going to be a trigger for further upside in equities. you have all seen the first inflation in the u.s. coming in above consensus, and that will

scare investors for the 2018 outlook, saying do not underestimate the risks of slightly steeper curves. when you look at the correlation between inflation and the long end of the curve, that has been steady in 2017. when you look at cpi pc, we had two of sizes in inflation, and that brought a slightly steeper curve that was affecting equities. tom: i want to go to you on this chart. what we have seen yesterday, we have never seen before. this is what is called a fitted rate of change chart. you fit 14 days of rated change, up we go. we have never been here before. on the left, 1998, the asia crisis. then we have august of 2007 and the lehman crash in the middle,

and where we are is on the right. can we say the new volatility in the vix is exacerbated by the belief in index funds like vanguard? when you are in your strategy meetings, are you worried that vanguard has been too successful in selling the john bogle religion? joseph: i would categorically disagree, respectfully. when you look at index assets as a percentage of stocks that are traded, it is certainly less than 10% globally. as a percentage of world capitalization is well less than 20%. the head scratcher to us that there is still a high percentage of investable assets in very high cost product's. i struggle to see that in other industries around the world, so i do not think we are clearly at a point where indexing is the catalyst. tom: we are not near a

collection -- correction and a bear market. you believe there is a new measurement for a correction? is it really 8% or 7%? is there a new level? joseph: that is a good question. i would still agree with 10%. tom: i agree. joseph: a report in november quantified the probability of a correction this year, 70%, well higher than the historical average. given the cyclical risk of inflation we saw on the interest rate curve as well as elevated me ifions, it would shock we would see another significant leg down into the bear market, because then you are talking about global recessionary risks. tom: bring this over. what we are trying to do away from the hysteria is bring you a balance of economics and

strategy. bring us to the new measurement of potential gdp. if we have markets gyrating ofund, what is the backdrop the new economy? is it a new lower set or a potential gdp we have seen? max: from a growth perspective, i think everything is pretty much in order. i do not think we have seen so much fundamental change over the last couple of days. it is not like the world has turned upside down overnight. from a potential gdp growth perspective, i would not say we have shifted to a much lower degree. that was a talk we had in two thousand 15 and 2016 that was very much oil driven and oil related. i think what we have seen in the previous cycle was basically a special effect from china joining the wto and therefore, you had a temporarily higher

potential gdp growth path. where you are right now is 3.5% growth, that is probably the past that is more on a normal pace. francine: does this have an impact on the functioning of the markets? are we going to go back to active management from passive investment? joseph: i think there is a cyclical potential for opportunity for active management. i think the dispersion is what matters more than volatility. stocks going up versus going down, that is the more fertile ground for active managers. there are secular headwinds for those with high priced investments. low-cost is the key here. i think this volatility could be an opportunity for some managers and investors. more important is to use thick the year knitting -- is to stick to your knitting. surveillancers of

on television and radio, have a great set of smart guests. let me look at the data right now. futurescontinue on u.s. , negative three, and they are all over the place. those are early-morning futures, and they are chaotic at this point. the vix, 39.94. stay with us worldwide. on the markets, this is bloomberg. ♪

taylor: this is bloomberg "surveillance," i am taylor riggs. toyota raised its profit forecast for the third time this fiscal year. asia's largest automaker is

seeing higher demands in the u.s. for the camry and rav4. they plan to spend more on research and development. bnp paribas is an improving environment is likely to support growth. they are forecasting that profit will be targets. bloomberg spoke to the cfo. at the should look domestic markets in general, you see a pickup when you look at volumes and fees. we still have a low interest rate environment, so that weighs on the top line. the low interest rate environment also means that the cost of risk is lower than we thought, so overall domestic markets, the bottom line is that 5%. taylor: bnp paribas reported fourth-quarter earnings and trading results mostly in line with estimates. that is your bloomberg business flash. tom: our team all night has been working on giving you the best perspective we can on this shoe off in the market.

-- shoe off in the market -- chew off in the market. robert sinche with amherst pierpont has seen this before. he joins us now. since you and i remember, libor ois out four standard deviations, we are not there now. is two the vix, here standard deviations and three where we are now. we are not anywhere near the agony of crisis. do you predict we will move away from that and find market stability in the coming two weeks? robert: i think there is certainly a case to be made for stability. you and i remember the october 1987 stock market crash, which if it was the same percentage decline yesterday the s&p would've been down 545 point.

113 is big, but not those type of levels. back then we had portfolio insurance, a quantitative product put together to reduce equity exposure as prices went down and increase as prices went up. that is a leveraging tool in terms of rate of change. now i think we have these risk parity bottles that have been developed, and basically they are designed to increase risk when volatility is low and decrease risk when volatility picks up. the models are based on sort of gradual changes in volatility. they are not designed to deal with these kinds of junk conditions. -- jump conditions. in the last few days, the rise in wages and employment report triggered some expectations for higher interest rates, discounted into the equity

prices. i think that has triggered some of the risk parity models to reduce exposure. tom: i do not want to pick bob on ray dalio, but risk parity models, you have been through this before where life goes on but the product du jour gets crushed. will we see carnage in hedge funds in etf products that are part of this new short vol religion? robert: certainly, when you get market moves this big, there will be people who get hurt and certainly those who were dealing in these risk parity models may find it difficult to adjust as quickly as they would like. we have some guideposts here. s&p went down and hit its 100 day moving average which comes in at 2633 and change. that is a big level of support

we saw during 2017. if we can stabilize and volatility starts to come down, things will stabilize as we go forward in the next week or so. if not, we probably go down and test where we did in november 2016, back down to the 200 day moving average which is another 100 points down. francine: you could argue that this was a long overdue correction and algorithms exacerbated it. truth? robert: i would agree 100%. absolutely. francine: how can you call it bottom? do we have further down? robert: i think it depends on whether real money investors have cash and come in and say, this is the correction i have been waiting for and i want to establish exposure. overnight, we saw s&p futures down 45, 50 points and they are now coming back toward stable. i think the next 24 hours is

critical. if we can stabilize markets and reduce the surge in volatility, then i think this downside surge unwinds itself and we start to establish fundamentals again. francine: robert sinche of amherst pierpont, thank you so much. we are seeing still quite a lot of red across the screen, but it is a little bit less violent than a couple hours ago. futures in the u.s. is a good starting point in the next 12 hours what people will be looking out for. nasdaq down, s&p futures down, but the dow jones is further down. this is bloomberg. ♪

francine: this is bloomberg "surveillance," tom and francine from london and new york. -- when you look at the route we had of the last 24 hours. will it impact the markets on whether people decide to go back to active investment? bit, butink a little we have seen a bit of that shift in 2017, even though that is not reflected inflows. when you look at in

correlations, particularly equities, you look at sector correlations and regional correlations, they have plunged to close to zero which gives rise to more active management. that is something where you can use passive tools to implement that, but that gives rise to a bit more late cycle characteristics that opens the door for active investment. francine: when you look at the impact and the contagion on ethics and commodities, we have not had any, what does that mean? joseph: i think it means it will be contained. we have not seen a massive bear market. currency market contagion, i think this is unraveling and the anomaly was the year-long, very low volatility. correction, not a surprise to us. i would be surprised if we saw more market downdraft. francine: how do we know if it

is the bottom? joseph: you never know, but the fundamentals are we were going into the year in a very fragile state. at the end of the day, fundamentals matter and will provide a level of support. .hen we see that, i don't know i think you give a week or two, fundamentals will shine through. francine: thank you so much for joining us this morning. on the markets, the global equity market route seems to be extending today. first asia, then european markets tumbling. -- droppingre. josh and dollar is edging lower. ♪

tom: francine lacqua in london and i'm tim tom keene in new york. we are beginning to see the opening in america and it is rocky.

let me show you the intraday vix chart. i'm trouble with these levels this early in the morning. nevertheless here's the meltdown yesterday. to 40 and then all the way out to 43.97. i-44 print on the vix and moments. -- a 44 print on the vix in moments. let's get to our first word news with taylor riggs. taylor: vice president mike pence is not ruling out talks with north korean officials while he attends neolithic games in south korea. he told reporters that he would see what happens. he says that north korea must give up its nuclear weapon and ballistic missiles program. house republicans have introduced a tempe temporary spending measure that would keep the government funded through march 23. that would set up a confrontation with the senate where the plants probably would not have enough votes to pass.

country's most powerful labor union has reached a landmark deal with employment. they give options to temporarily reduce working hours. the deal covers only one state, but it may be adopted across germany. global news 20 for hours a day powered by 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. francine: let's get to our top story with the continuation of the global equity route. of world stocks toward the biggest three-day slide since 2015. futures in the u.s. were down and that they were up. let's get straight to our guest, richard kelly. thank you both for joining us. richard, let me kick off with you. we saw quite a brutal move in a very short span of time.

what were the markets freaked out about? richard: there was not any fundamental trigger and everyone has been concerned about equities for some time and there was no particular trigger that drove the selloff. is theu have not seen spill over outside of equities into those other risk markets. it seems very contained on that side of things so far. francine: it was hardly touched. >> exactly. the biggest underperformer was the mexican peso. it makes sense. otherwise we have seen quite markets overnight. quite a lot of movement. tom: i want to bring up this chart because we have futures down. those dow futures put the dow below the 10% correction levels. so on futures, we are now at a correction state, which has changed dramatically. i want to go to your wonderful research note where you try to make calm and peace out of

yesterday afternoon's hysteria. let's go to that right now with rbc capital markets. thisught elsa synthesized beautifully. let me go that right now. the gerbil is working on it right now. there it is. hitsk aversion thermometer a two-year high of 27 on monday with more than three standard averseon risk driven almost entirely by equity volatility. the last time it hit these levels was late august 2015 on the china devaluation. that time it took six weeks to turn risk seeking again. perspective onc the timeline. are you waiting out six weeks for further peace? elsa: markets can normalize much quicker than that, but the way we measure risk aversion, we

have four different metrics that go into that. equity ball is a key component at the moment, but we are also looking at fx of all and spreads. the other three metrics have not moved as much that far. we will take weeks before we get to a proper risk seeking mood. what will happen to bond yields? yesterday's selloff was different to monday's selloff. that would have a very different signal for markets relative to the kind of moves we saw yesterday. tom: richard, this is so important -- this correlation to the markets. did you see correlation dynamics late yesterday afternoon or have you seen them in london this morning? i think what's interesting is you start to see some sort of correction on the fed pricing, but nothing significant. he started to see a little adjustment on the ecb. none of those fundamentals are explaining what happened in the

last 12 to 24 hours, but where the market started to get nervous was two to three weeks ago when they started reassessing where that long-term neutral rate is for the fed and we pushed up three-year forward rates. that is when markets had issues and i think this is part of adjustment that people are concerned that we are maybe reaching a point where long-term rates across the board if the ecb is pulling out and the boj is pulling out, that's going up. if you are an equity investor, you have to think about those ratios and say at that's now changing i'm not in this high growth, low inflation, low rates world. you cannot argue that what happened over the last 12 hours is basically etf and others taking over the markets and therefore basically selling off without much to base itself on. richard: that's the point. this is a market microstructure issue. they cannot absorb some of the risk, but that's nothing fundamental. how long does that adjustment side have to take to digest? francine: when does it become a

bear market? richard: it's a very slow bear market, but yields will be lower three to six months from now. francine: what does it mean for bond markets? jay powell takes over monday. he sees a market selloff one day and a second selloff much more violent. does it change the way that he looks at the fed rate increase? elsa: it looks very different this time around as we are seeing far more inflationary pressures build up. in previous times when the fed was normalizing rates, think 2015 and 2016, any signs of a wobble would take a step back and pause. it's a lot harder for them to do that for two reasons. equities have really exploded over the last year. what we are seeing is the market taking off. we are now beginning to see the inflation mandate send a much clearer signal for the fed. tom: very importantly, you mentioned earlier the bond idea. now we go to price down and yield up.

we all know this. mr. gross and others have given great perspective on this. your concern is there is a further rolloff in the bond price. bring it up, jason, if you would on the wall. we come down and bounced up over on the right side. what economic data will get us there? what are you watching to get us determinanis risk t? elsa: we are seeing the first signs of inflation really picking up in the u.s.. the reason that markets reacted to the jobs data on friday is because we saw wage growth picking up quite materially. if you look into the detail, the wage growth was not actually as widespread as the headline number would suggest. that is where we are looking to for signs that this could turn into a broader bond selloff. tom: the vix now has printed a 44 handle with some stability in the futures. the vix has a life of its own

right now, printing a 44. francine: i want to show you the european next index. this is volatility as measured by the vstoxx and it jumped to the highest since april 2017. we will push it out for regular listeners on social media. it is stepping back so it is just returned to a decade-long average. what does this tell you? richard: if that persist for weeks, you have to see institutional investors pull back on risk. that is where the adjustment you are seeing becomes much uber than it is -- deeper than it is. francine: what does that mean? is it equities that look frothy? richard: you need to start reducing your risk exposure into those emerging markets and other areas that you thought were going to be much more resilient and now you start to be concerned they are not. tom: let me ask the question nobody has asked this morning and it's an important question. if i've are a retirement account at td securities, am i doing

anything this morning or am i just having the fancy suits and ties addresses on bloomberg tell me what to do the short-term? do i do anything with my 401(k)? richard: this is that classic question of the retail versus the institutional investor. do i now see value? when you look at the s&p, we're back to that trend what we saw in 2016 and 2017. what a bit of a conundrum was is why we were selling off your end and you can argue about trump trades and tax trade on that. the question becomes is that trend that we saw in equities over the last two years perfectly fine and sustainable or do we need to adjust going forward? at some point but are talking about the ecb been som supporting markets and the fed -- raking the balance sheet, you now have to look and say these central banks pulled forward and a lot of equity price and equity demand just like they normally pull forward economic demand. you look it equities and say

that might be 4% or 5% returns on a year-over-year basis. that is what people need to be thinking about. tom: this is fascinating. we will continue with mr. kelly and miss lignos as well in london. have a great set of guests lined up to give you perspective on this historic market. we have never seen this in the vix and 26 years. the dow -95 after improvement last 20 minutes. the vix 43.72. please stay with us with more market coverage ca thi. this is bloomberg. ♪

the clear idea underpinning the question of whether people are taking money away from equities and putting them somewhere else. richard: i don't think there's any relationship whatsoever. the cryptocurrency market is too tiny to have any impact on these markets. people try to foist correlations onto these things and bitcoin is taking the up-and-down direction from that. it is too volatile and uncorrelated to what's going on. francine: the money is not going anywhere at the moment. we have not seen a movement. we have seen and treasuries but not in fx. richard: that was a loss in value in terms of overnight. i think that is that the question now.

you had to move through the u.s. markets. did people start to take even more off and start moving that into cash? given a lack of a real rally and given the lack of something like the yen. people were not rolling to the typical traits they would be rolling into. tom: i want to show you the movement and else i would like you to step in and talk about standard deviation. knows two standard deviations is the norm and three standard deviations i get modest sweat. bring up the chart of the vix here. i'm going to feature this out on twitter today for bloomberg radio. here's the move up yesterday. standardwo deviations. i fitted three standard deviations and an hour ago we were right here. all the sudden, i am migrating four standard deviations.

what happens across finance when we get to for standard deviation moves? that's usually a bad outcome, right? elsa: i've got to say it really depends. it depends on two things. one is what period you're looking over. you have to measure over some historic period. if you take it over two decades, the standard deviation would be different over the last year. given that volatility has come down so far over the last year, if you do measure the standard deviation of that time, it does look like this move today and yesterday is absolutely enormous. when we have looked at this historically, around 85% of the time when we do see a spike in risk aversion and so on, it dissipates without having a broader impact on markets. this seepsimes when into broad market selloff, but it dissipates. tom: i love the word dissipates.

mathematically that's a complex thing. that's the timeline. do you expect a normal dissipating? will it be even more sudden or will it take it longer to work out? elsa: that is why i'm watching bond yields as a real clue from where we are going here. we just had the tax bill. we have had one of the best and possibly the best earnings season ever. a lot of the photo metals for equities are very good on the back of a weaker dollar. this is a question of whether or not we are going to see more selling into something broader or nine times out of 10 previously it's just going to dissipate like you said. francine: let's go back to volatility. there seems to be a little bit of market chatter that this could be the release of some of the tent up global acuity that

we have seen over the last year. kind of sucked investors into a bit of complacency given how low vol is. they might need to adjust to some of that long-term investment. you can look at the fixed income market and if you try to find some drivers come you look for the first quarter. the adjustment now and the same way in the taper tantrum, we have to think about the fed issuing. that has a lot of applications for the asia corporate that cannot get demand. a lot of that rolled into european debt. the ecb is pulling out. we know investors reached massively out the curve where they were not issuing before. if that adjustment starts to happen,, that gives you a bit of a little why that happens in a low volatility world and why the has to readjust is something more normal. francine: this started in the u.s., right? is this a u.s. equity concern that impacted the rest of the world or a bigger movement? richard: over the last 24 hours, it was a u.s. equity concern come about what drove it was the

ecb repricing and normalization that went on. if you look at the drivers and their, what has been driving treasury yields is the repricing going on in european rates . the fact is they started to repress longer-term fed expectations. it ultimately came down to the ecb. francine: thank you so much, richard kelly. elsa lignos, both stay with us. the global equity route extending today. first asian markets and the european markets tumbled on the back of a difficult session in the u.s. what i'm looking at now is futures and the u.s. fluctuating. they seem to be more study now. the dollar edging lower. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. posted fourth-quarter profits that the estimates. oil and gas outputs group following the start of seven projects.

it increased profit from a year ago. private equity giant apollo global management and warburg pincus are the latest to bet on the permian basin in texas. they are backing a billion dollars in investments in texas is most profitable oil field. warburg pincus has bet on a shale explore. that's your bloomberg business flash. tom: doing many more data checks and i'm sure we will do more data checks a cost bloomberg -- across bloomberg radio as well. let's bring up the futures. not that chart. i don't need that chart right now. give me the data board if you would. anthony pulled an all nighter to do this correctly for us. futures up 11 and dow futures were worse earlier at -72. there is a real gyration i don't want to bet on that. was at a 44 handle and

now we are to a better vix the 42.62. still that shows the agony coming off of 4:30 p.m. yesterday. francine: it certainly does. it points to i don't know whether it's a measure of its worst looking at the vix or at the equity markets. let's ask that to elsa and richard. is the vix the benchmark, the one thing you want to look at to see whether we are over the worst or not? elsa: given that is where the moves seem to originate yesterday, that is where a lot of people weep looking. we talked to her equity traders in the u.s. last night and they were saying in the cash market it did not feel like panic. the bull market was a very different picture. that is where people will be seeing signs to bring things under control. francine: is that what you are looking at, richard? look at it is trying to the rates based to see if there is any follow-through on there. if that starts to move to far on

the right side of things. we have seen the move and fix. if that comes off, that let's you know if it reached the peak. what will blow up next is the other markets. francine: does it change the rate path for the fed? richard: yes, if there is more of a sustained binge. perfectly no problem and it goes through. if we start to see spill over and broader risk assets and this maintains the steady downtrend in equities, then you have to start to reassess what's going on. not necessarily because the fed is fledging, but because it has real applications for the economy. tom: i want to go to an article last night from sarah which is actually spectacular from bloomberg news on these fancy volatility etf derivative instruments, betting on a quiet market. and what they mean for everybody else. this is a delicate question. i'm not going to give it to elsa because i don't want her to get

in trouble with the royal bank of canada. i'm going to give you trouble, richard. there is no spill over here really to the major banks. if the bank has an etf or derivative structure betting on short volatility and it gets crushed, the bank is not necessarily harmed by that, is it? richard: that's a bit out of my purview to know how that will see through everyone and where the hedging is set up on that side of things. tom: that was the general counsel answer for richard kelly. let me try better with elsa. what are you going to do when you walk into the office this morning? elsa: i've already been there for a few hours. when i get back to the office, i will be looking -- like i said earlier, what are bond yields doing? are we seeing the spill over into bond markets? particularly i will be looking at yes effects. we have seen some impact on the

mexican peso and some impacts selectively here and there, but we have not seen it spelled over to the broader selloff. ble. it's been hugely valua thank you so much to all of you . i've got my time zones right here. london is on the time zone continuing. right now i want to do a data check and i also want to tell you the very important headlines coming out of credit suisse on their part of the short volatility market. we will open the next hour on the credi credit suisse headlines. this is bloomberg. ♪

♪ this morning the game is over. the short volatility crew is crushed and the vix from 47 to

43. the stock market music correction. should you sell? should you buy? can there be knock on effects to the american economy? no word from the tweeter in chief on all this winning. we went with bruce kasdan and dean kermit with perspective on rising inflation. with kermit like flash crashes. president trump to speak with an to mr. mueller. the lawyers just say no. this is "bloomberg surveillance." we are live from our world headquarters in new york and london. i'm tom keene and francine lacqua with me. what have we learned in the last hour? francine: we have learned that i there is quite a lot of volatility. a lot of investors wrongly are rightly are tried to see that markets are stabilizing. there's quite a lot of

volatility continuing. i would point to u.s. futures. they were down and up and now they're up a little bit less. that will give us a good indication of what the rest of the world would do. tom: over to these credit suisse headlines, which is indicative of how all the banks are adapting to the news. we want to be very careful here. these are headlines from the bloomberg on comments by credit suisse. they're not inflammatory. just bring it up if you would right now. credit suisse confirms it experienced no trading losses. credit suisse is says there were no trading losses from velocity shares. those are not actual shares of the etn's. it is the losses over the bank and they have not seen that right now. we need to be careful with the news flow. francine: we have to be very careful come of the story was basically related because credit suisse early this morning was one of the biggest share declines that was indicated around 6% lower. , butnow down to 2.5%

basically they are the biggest holder of this velocity shares daily short-term. etf the etf. credit suisse saying they have not taken a loss, but they have a 32% stake in this product. for thoseeadline waking up in america is the vix going from 37 to 44 earlier. we will have much more on that with our steam guests. first, here's taylor riggs. global stocks selloff resumed hours after the dow jones industrial suffered its worst point plunge ever. the nikkei 225 lost almost 5%. the euro stoxx 50 is also falling again. we will have more coming up in a moment. there's a report that present trump's lawyers are telling him not to sit down for an interview with special counsel robert mueller. that's according to "the new york times." that could lead to a lengthy court battle over whether the president would have to answer questions under oath.

and the u.k., shoppers are spending more on essential purchases. consumer spending rose from a your go. barclays says that was driven by highe prices and market purchases. in germany, chancellor angela merkel is facing what is being called a decisive day in coalition talks. merkel needs a green light from the social democrats so she can begin a fourth term. the party says everyone wants a solution, but negotiations are contentious. global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much and thank you for the reporting in germany. a lot of news flow and we will go to kevin cirilli in washington on the mueller news out of "the new york times." here's the data with equities, bonds, currencies, commodities,

futures all over the place. the dow -18. as francine mentioned earlier, foreign-exchange really does not move all that much. this is about the equity with a little bit of bond movement as well. andng quickly to the vix thrilled that dean has chosen to be with us. dowe's the closing on the we are at a correction level now with futures roughly -37. then there is bitcoin and i put that just aggravate you this morning. francine: thanks. i know this is something you usually do on a tuesday. amid the sea of red, safe havens. gold and european bonds trading higher and it does seem that the s&p 500 futures in the u.s. are fluctuating, but they seem to be more study in the last 20 to 30 minutes or so. treasuries dropping of the dollar edging lower. tom: i want to show this and get to our guest and a bit here. we are at correction and right

here on the futures right now. the dow closed just above yesterday. in a bear market huawei below under 22,000. nowhere near the gloom of a bear market. francine: let me bring you over to my bloomberg chart very quickly. this is the volatility we are seeing in europe so i know it's generated rate in the u.s. and that's volatility we need to look at more. you can see the vstoxx jumping to the highest since april 2017 and stepping back in touch as it seems to be returning to a decade-long average. that is the average and tank and i did push it out on social media. tom: very good. we are thrilled to bring you dee dean kermit and bruce kasdan of jpmorgan. we are blending here first right economics with the land of derivatives, greek letters, and dynamics. what a joy to speak to john norman yesterday on the dynamics within the market.

alan greenspan, who we talked to a few days ago, says the stock market matters to the fed. the stock market matters to economists. what is chairman greenspan talking about? bruce: there's no doubt the stock market is an indication of what both the economy is doing and particular corporate performance. it's an indication as to what degree monetary policy gets transmitted to the broader financial markets. this is the interesting part of where we stand. normalizingbeen policy and watching a global and u.s. economy doing well to the markets have been moving basically and one direction. from our point of view, what's been interesting about this is the sense that the market has priced in global growth and u.s. growth and tax cuts, but it has not priced in the normal responses that we get both from central banks and also on the inflation side. that to us is what we were concerned about as we were turning into this year.

it's the complacency of markets against what is still a very positive for the mental environment. -- fundamental environment. tom: i was sitting next to my phone hoping chairman powell would call. we of got to get the chairman of to speed on how to use the bloomberg. does he care about market turmoil and will this adjust fed policy? bruce: in some sense the fed is having a debate right now about whether or not the monetary policy adjustments they have been making have been getting through the markets in a way that actually reflects the change in monetary conditions. at the same time, any the market moves in a sharp way, you have to be concerned about how that spills over to funding and credit markets and the broader financial conditions. my perspective would be given what the economy is doing come a correction in the equity markets would not be unwelcome and would certainly not stop the fed to move at the march meeting, which is what we expect. if we start to see disruptions,

we start to see stress beginning to show up in the system. that starts to turn to a different situation. francine: do you agree with that ? dean: jerome powell, welcome to the neighborhood. first day and the vix goes to 40. really interesting timing. if this does not spiral into something even larger, it's a bit of a gift to the fed. this was a long time coming. these mix products have been an accident waiting to happen. i do think the fed bears some responsibility for this in their excessive amount of can indication to the markets. -- communication to the markets. tom mentioned greenspan and he was always secretive in some ways and forced the markets to figure out what was on the fed mind. the fed's philosophy these days endingell what the of the movie is before the movie ends. when you know what is going to happen, trades that lead against ability like selling volatility earnings carried generated

income, these kinds of traits become more crowded and crowded trades get unwound in a hurry. i pick up some ways if this does not become a bigger thing, it's a good thing for the fed. it probably prevents something even larger from happening down the road. francine: what does that mean for communication? we had a i'm aware, slightly higher print when it comes to inflation and wage growth. this was pretty much telegraphed by the fed. how long have they been saying inflation will take up and they will raise rates three or four times this year? week this did start last with bond prices falling and yields rising. uneasy the market got with the wage growth number. it started to become a little bit of a mini version of a taper tantrum. yesterday's action was simply a volatility unwind event. i think that the fed is going to

stay its course year unless things get more disruptive. powell has inherited a playbook from yellen. he is not apt to switch that playbook anytime soon unless you start to see either inflation accelerating in a way that the fed cannot look past or the selloff yesterday becomes something that starts to impact growth. francine: what do you see it being? is it just depends up low volatility coming to the fore? dean: i do. these trades were so crowded. tom has asked me on the show many times what is different now in the land of the vix versus the same 10 years before? i would say the vast ecosystem of products builds around the vix are what really matters now. tom: we will get to this during our, but let's jump to it right now. dean is a pro on this, but i want you to weigh in on this. day vix.e fitted 14

before never been here back to 26 or 27 years. that number keeps going up. the game at that we are seeing is there. there has got to be carnage. who gets harmed by that rate of change on the right side of the chart? done andsk parity game they all take big losses? dean: certainly the vix products themselves and i do think it's unfortunate because there was a large retail constituency in products like the x iv. tom: well they go up by perspectives? do you said just they will be shut down? dean: whether they have shut l event haso happened. tom: it is the creative destruction of these products. dean: whether they have shut down or not, they will never have the same value that they have had. tom: this is critical. bring it over to the adult world of macroeconomics. isn't enough to destabilize

anything with of the gdp growth equation or is it separate and discrete to their world? bruce: there's certainly a lot of concentrated losses that are going to be felt. now we want to see a look as get realizes weather creates the kind of stress that begins to affect funding markets and affect a sovereign or company in a way that begins to have macroeconomic feedback. it's hard to see that right now although we have lived through these kinds of events and have been surprised by what seemed like a relatively isolated event exposing broader problems in the system. i would say right now we have relatively little reliance on short-term funding. the global fundamentals look good. dollar financing is not hard in a world in which the dollar has been going down globally, the . the kinds of things you would be worrying about don't seem to be sending a red flag right now. having lived through a number of these things, sometimes you don't see where the problems are

until they unfold. i would not close the door on this event at this point. francine: bruce and dean are both staying with us. in the meantime, it's a clear that volatility is back with a vengeance. a lot of chatter on the markets, but i've seen that markets may remain on edge. let's look at the equity futures and the u.s. as that may be a good indicator of what comes next. they were up. you see a little bit of volatility. they are kind of flirting with the unchanged. the s&p futures unchanged. the nasdaq futures unchanged. dow futures down 0.4%. this is bloomberg. ♪

tom: good morning, everyone . our team has been working diligently to give you perspective of where we are in the markets. if i can turn to my bloomberg, the fix 44.08. that means it's good time to speak to brian belsky. he is an optimist on the markets. have you changed your medium-term strategy on equities over the last 48 hours? brian: good morning of thanks for having us. no change in numbers, no change in rating. i'm glad you use the term perspective. it's in the title of my report that i'm trying to type up your this morning. rhetoric, client are in dire need of perspective. let's call it rage against the machine.

forgotten how to invest. this is not 2008. we are not in correction territory yet. markets are down from the highs on january toy six. 6. everybody has been looking for a pullback since the day of the u.s. presidential election. everyone has been doubting this bull market since 2009. why surprised things go the opposite way? thatajority of investors we speak with from institutional perspective that are running money or even senior analysts on wall street with their name on the top of the piece of paper have been in business less than 10 years pr. i go back to the 1990's or even earlier in this decade. we saw numbers in the 30's and 40's. the low levels of vix were not sustainable just like the low levels of interest rates. developing seeing is

-- it's something you and i have had the opportunity to speak on the show, but we are returning to fund the mental investing. because people in less than 10 years experience in the marketplace, the have no clue what we are talking about. tom: it's a meat and potatoes of what you do. was there a sector made more attractive yesterday that you can acquire shares in if you are bold enough this week? brian: it's a great question. here's what i would say. i've been making my bread and butter on sectors for well over 20 years. i think that we are heading into a stock pickers market, which we talked about last year. i think you want to own fundamentals on an individual stock basis and build up to quality. andrn on assets, equity, earnings are consistent. if they pay a dividend, give it to me. most important people have to understand that stocks can go up

in a rising rate environment. last week was a shock to the system because people did not believe that yields could go higher and the yield curve could inflate. give me a break. i think that most investors are still underexposed financials. that will be a winner the next three to five years. if you are looking opportunistically at sectors, start looking at tech. if they continue to take tech behind the woodshed, those will be names that you will want to own for the next five to 10 years. francine: are you talking about people have been in the markets for less than tw 10 years or machines? is it algorithms that led to the fall of the last point for hours? brian: that's the million-dollar question of. . it's really difficult to prove that, but i do believe the lack of perspective from wall street and lack of perspective from investors -- remember we have become insistently convinced that stocks only go up because interest rates go down. for all intents and purposes,

this has been a momentum trade since the day after the election and people have been chasing the market because of fear of missing it. missing is not investing. now is time to earn your stripes and pull up your sleeves and do your job. your job is to find companies to invest in for the long-term. not for two to three days. i'm talking to the three years. i think the skill set to do that is sorely lacking on wall street . guyn't mean to put my old hat on, but we are not seeing the type of investment theme storytelling we saw what i first got in the business. people are depending on machines and looking backward looking at macro. that's not investing. we have forgotten how to do that. opportunities like this provide a reset to be able to actually do your job. francine: do your job. roll up your sleeves. brian, thank you so much. this is what we are seeing overall in europe.

europe still on the downside with a little fluctuation when it comes to futures. i'm looking at the vix. it is near 40. we are not seen that in a couple of years if not longer. the ftse down 2%. we will get back to that and look at your u.s. futures. this is bloomberg. ♪

tom: "bloomberg surveillance."

we are continuing to give you data checks. the vix at 44.19. let's bring up that chart. this is just the three-day vix with dean and bruce with us. up we go with the afternoon meltdown and we continue in a very linear fashion to move up. has it surprise you to see this followthrough today on the vix from an elevated 37-38 to an amazing statistic of 44? will take a ton of daily fluctuations to sustain anything close to this. you did have massive overnight moves. futures were down 60 at one point. that is what drives the vix. it is the daily swings of this magnitude. tom: the media looks at the vix spot price. how linked are they right now? dean: increasingly unlinked when things get as wild as you have. you have a term structure of interest rates.

the vix is the front month. it's what you can measure right now. it's the instrument that gets the most elevated when volatility spirals higher. tom: we have done too many greek letters here. bruce is going, when do i get to talk about gdp or the economy? we are going to come back with an and link this market turmoil into the greater economy. futures negative four. there are dow futures. as brian mentioned, that gets you to a dow correction. stay with us. worldwide this is bloomberg. ♪

>> this is bloomberg surveillance. all the focus, of course, on the selloff. it a global equity route which started in the u.s. but things seem to be levelling off a little bit.

a lot of the market participants we're speaking to and putting on some calls saying a lot will depend on what happens with these futures in the u.s. they were down. then they were up and now they seem to be a little bit more down and you can see the s&p down and the dow when it comes to those futures, tom. >> very good.e market bruce with us and dean is going us off his call last night on volatility. right now, briefly in ashington, kevin, our chief washington correspondent. kevin, without question, the "the new york times" is the idea that the president wants to speak to mr. mueller. to mueller wants to speak the president. and the president's lawyers are saying no, no, no. president trump going to listen to his lawyers? question. the big look, we've been saying it for weeks. president trump really at odds with his attorneys right now, tom, because his attorneys are giving the legal advice that say do not speak to these investigators.

and that's really what's at stake right now. here are republicans up on capitol hill who behind the scenes are urging the president to listen to his attorneys. know exactly n't what he's going to do. all of this signals that this nvestigation is nearing its end. >> mr. gates involved with the this special of counsel effort. out orhis lawyers walked he fired his lawyers yesterday or the day before. would you presume that the remove change or substitute his legal counsel? >> yeah. the president has in the past shown on a whim that he can whether ever he likes, it's his own team or whether it's folks who are investigating him. added aeally kind of

just printing 45.23. we'll continue this discussion moment. first, your news briefing for the day. here's taylor riggs. franicen, vice president

mike pence is not ruling out talks with north korean attends the le he olympic games in south korea. pence told the reporters he'll see what happens. he said his message would be the same that north korea must give up its nuclear weapon and program. missile house republicans have introduced a temporary spending that would keep the government funded through march 23rd. the measure includes school year the defense department. that would set off a confrontation with the senate where the plan probably would not have enough votes to pass. and in germany, the country's ost powerful labor union has reached a landmark deal with employers. the metal workers union agreed 4.3% wage hike and options to temporarily reduce working hours. now, the deal covers only one state. but it may be adopted across germany. global news. 24 hours a day. powered by more than 2700 analysts in more than 120 countries.

francine, tom? >> thank you so much. steve is with us and we'll dive in a bit.tudy here but right now, bruce casman of j.p. morgan without question the most important friday night reading. the weekly j.p. morgan report is with us as well. to the greatest distortion. let's bring up the chart right would, we've shown this many times. thank you to robert for bringing this to me months ago. the fed fund's target rate adjusted for inflation, chairman working with the greatest distortion. is this why we're going through this? at the end of the day, bruce, all of the fancy economists, negative interest rates, all of distortions of asset balance sheets and what we see on this exceptionally an distorted fed funds. is this why we're here? >> well, i think why we're here been fact that we've watching over the last year and a half is a u.s. and global shaking off s been the -- >> agreed. >> the shadow of the financial we've neededis why

such low policy rates, why we've needed so much stimulus. and as the market has started to see that growth, it has also been watching low inflation and calm central banks. and i think it has become complacent. happened in the last few months, i think as you've seen backbone on the part of the fed, signs that een some goods price inflation is picking up and you begin to see a whiff of wage inflation and i think become more gan to normalized. >> this is critical, bruce. you say backbone. i'd say almost jaw bone. mentioned this earlier that the communication model of the fed. are they behind? do we need almost an arthur burns like 3/8 of a percentage oint move instead of the measured quarter, quarter, quarter? likely right's not now that the fed is behind the curve. think the dynamics on inflation are slowly but i think that the fed has a decent amount of work to do here. ou know, we think the fed has 200 basis points to deliver over two years. >> wow. eight rate increases. macro environment is

what we would expect. the market today or i don't know where the market is today but was arket as of friday pricing in about 100. but three months earlier, it was i think t only 50 and we've begun to see that adjustment. i think if you look globally, even more complacency as we look at the way the market is pricing in the e.c.b. and banks.central and i think we've been beginning to see in the market some shift and the equityon market has had to digest that. that's the macro backdrop of what's starting this. lot of other things are taking over here as well. story, a macro economic complacency beginning to become shaken as a result of macro economic shifts. me bring you to my function, world interest rate probability and gives you a the markets are. but bruce, do we need a more federal reserve chair? does it kind of even out so you a hawk until the markets get

where they're going more? >> i don't think so. think the fed has been pretty consistent in telling us they're on a path. they're a force in motion and i think what they're telling us is hey're going to stay in motion as long as the macro environment is aligned with their forecast. the fed needs is to be consistent. it needs to be clear on what its decisions. and i don't actually think the fed has been overly ommunicating with the markets here, quite frankly. i think the market has not been hearing what the fed has been saying for the last six to nine months. it needs to follow through on that. the fed is telling us it's going times this year. we think they'll move four times. and the market doesn't have that riced in and i think that adjustment combined with a broader macro adjustment in the is what's , i think, happening now. it's not bad. i think as dean said up front, in might be a blessing disguise if it tells us that macro etting into a environment which is not as much goldilocks as we saw in 2017. fed ght, can you blame the

for actually not communicating enough? after all, it's not the trajectory. know, in space, you which the market has corrected concern.d be cause for you know, if he were still in charge, he might call it a brutal move. the fed's mandate is growth and inflation and yet, their policies interact with pricing and risk taking a tremendous amount. i think one of the things that's driven a lot of this stability is the macro has been incredibly stable. if you look at the variability, for example, of core p.c.e., the gauge, it has been very sideways for a long period of time. and so the fed is only reacting to the data it sees. the nk the problem is that fed is sort of put forth this plan that's very predictable. philosophically, they want to guide markets. hey've said many times, they don't want to have to surprise markets and again, at mac risk we tend to focus the

trade that is built around when stability lasts for a long period of time that these trades get crowded and carry trade that gets unwound in a hurry. fed'sk this is one of the challenges. challenges is trying to get this in one hour. it's a smart conversation this morning. literally art that i call the kernit chart. i don't want to make too much of a big deal about it. but there it is. up here and look at the moon shot. 46.37. futures negative nine. futures negative 195 to take the curating in the last 30 minutes. please, a smart conversation on the vicks industry coming up.

>> this is bloomberg surveillance. let's get to bloomberg business watch. b.p. posted fourth quarter profit five times larger than a year ago beating estimates. did aitish energy company better job of exploiting higher oil prices. bloomberg spoke to b.p.'s c.e.o. >> it felt a little frothy at $70 a barrel. news. was geopolitical the dollar was weak which always drives the oil price up. i mean, we're planning this year to 60. this is a healthy level for us to plan. we don't need it at $70 a barrel. >> b.p. said that oil and gas utput grows following the startup to 60. this is of seven new projects

and b.n.p. says improving rate environment is likely to support growth. largest bank is forecasting the target will be there. bloomberg spoke with the c.e.o. when you look at volume and fees and all that. however, we still have a low finance. rate and with that, it weighs a bit on the top line. however, the low interest rate also makes it so brisk, it's lower than what you expect. domestic y overall markets, the bottom line is it's up 5% in 2017. b.n.p. also reported fourth quarter earnings and trading results that were mostly in line estimates. that's your bloomberg business. >> thank you so much. now like we did yesterday into the world of vix and the greek letters. did that yesterday with stuart warther and christopher strategis research and we do with the head of

economics with j.p. morgan. dean of macro risk advisors and someone who stopped the ournalism business last night in business and finance, luke bloomberg cross reporter and with sarah last night, you put out the story of afternoon. this is the creative destruction of the one-way trade in the vix. dead market. if i "short the vix" it's an money.ay to move is the trade over? >> you know, you said it. a s is what happened when free lunch spoils, basically. we've seen. and i think from the market back ctive, taking a step from this, an important thing to consider is this trade, its market, thisrt the particular trade, these particular products, that part is certainly dead. >> ok. it's dead right now. i correct on this? they shut down one of their e.t.n.s, right? so what of that?

that is the t of product that it shut down is a the ones withwith a structured note and the other is an e.t.f. but they track the same underlying and all designed to give the inverse return of the two-month. >> here is the underline right now. let me show it to you. the xiv. we could have showed you 25 as well. there's a little fall. and that's only the close yesterday. that doesn't show this morning vix out at a stunning 45.05. right. but luke, what are the stress points later? is there like a level that we're looking out for? so in terms of the stress points, from these products, i'm rightre what the worry is now is do we get target vol fund type selling in the coming days based on the moves we've gotten yesterday and the day before. so what are the ripple effects? not necessarily from this

product. but from people who own this liquidatingmight be to, you know, to cover some risk. and from funds that, you know, realized rgeting volatility and now they're playing catchup to this huge vol spike we just got. >> all right. bruce, what do you make? at some of you look the stress points, is there -- i if we're talking about a canary in a coal mine anymore or we've gotten beyond you need to look at the canary that shows the selloff is done. >> from a macro point of view, he losses that have been made here directly are not going to drive the economy. the question is whether or not concentrated losses caused some stress points that hit funding markets and hit credit directly. right now, that doesn't look like it's happening. that could cause the problem is a spike in the dollar that could hurt funding costs and dollars. happening. the kinds of things that you would want to see to get worried are right now not evident. i think we've been through this too many times to close the story at this point.

not like lly, it's august of 2007. but what we're seeing is this parody", dean, we're not there yet. parody is a rate dynamic within the hedge. you allow one thing on go this everything is happy. is the vix dynamics, does that over? are we down upon the risk parody trade that's out there? what ust would underscore luke said. on the vix itself, this product, and there's another one scxy, these guys cover their risks. losses are baked in. capital, for example, in 1998 was short about a third of what these products were short. and they lost a tremendous amount of money. but they covered and it went away. to risk parody. i think this is -- the big question here is around rising rates.st interest rates were rising on thursday and friday. yesterday, the tenure actually reasserted itself as a risk off

vehicle. it started to rally as the selloff got worse. from a risk parody standpoint, want.s actually what they so i think the question mark on risk parody is if the 10 year starts on rise and yield again. >> that's something. >> exactly. if inflation rears its head, issue.comes an >> what are you and sarah watching this morning? all these other e.t.n.s as well. the vix was at 37. to luke that the vix is now at 45? >> i think that accelerates or the potential that we do have -- shutdowns. >> based on the indicative value at last close. i'm looking at that. i'm more concerned about the effects based on who was holding these. >> thrilled that you came in 9:45 before his usual entrance into our world headquarters. coming you, luke, for in 10 minutes earlier than usual. uke of bloomberg and brewings of j.p. morgan and dean of macro risk advisors staying with us.

n the meantime, this is what s&p futures are doing. they're signalling a lower open. s&p 500 futures earlier signalled a higher start and actually, what i'm hearing investors re is that betting against volatility and u.s. equities may have some headaches this morning. look s certainly when you at some of the funds. this is what we're talking with luke. plenty more on your markets. this is bloomberg.

>> bloomberg surveillance, historic day from london and new york. futures right now. they've been all over the place with y two hours ago negative 14 on s&p futures and dow futures are at near lows for the day. 45.05 on that key market barometer. key that we have with us bruce of j.p. morgan and dean of advisors with a single best chart into every interview we've done since 5:00 afternoon, all the pros are looking at bonds. gross is looking at bonds. dean is looking at bonds and bruce is looking at bonds.

the 10-year yield from thanksgiving. own we go in price and the rebound yesterday that dean has talked about a number of ways. bruce, the basic economic ambiguity is we can have lower price on that chart and higher yields. and that's good for america. that's good for the economy. could it be good for the markets? time, it could. if we are watching what is a synchronized ly recovery take place. nd we're following that with a need for central banks to normalize policy stances. interest rates should be going rates should be going up with the healthy equity market. now ssue, i think we have is that over the last year, equity markets have gone up. arkets have understood the growth story. but because inflation was low, because central banks were there was a iet, complacency we think that was built in that was reflected in the bond market. what the bond market has done over the last

two or three months, big part of has been repricing of five to 10-year out inflation expectations. a that, i think, is reflection of the fact that we're starting to believe that this is becoming a bit more that, yes, e sense we will have growth. thewe will also need to see fed normalize and inflation move back to more normal levels as well. another point to make here, we haven't seen any of that in europe. i would emphasize in this macro watch europe. europe is a place where there's quite a bit of complacency about the e.c.b.r >> quickly, jesse says basically 2.63% hurt above u.s. equities, is that right? >> i think it's hard to say. share the comment that markets can rise even as rates rise. it's all about the speed. i think if rates are rising very, very quickly and the fed's body language has that with respect nge to maybe reacting to incoming

in a market a unfriendly way, that's where both the level and pace of for e can be disruptive equity markets. >> you've been wonderful to be with us. you have a lot of client duties today. he'll continue with us on bloomberg radio. and i will drive this conversation forward worldwide on radio. futures ll you about right now. simply they have deteriorated through the morning. lows negative 21. dow futures i'll round that down negative 300 because it is tv. the vix, 45.05. all day bloomberg across all of our platforms on this market. this is bloomberg.

>> equities crushed. s&p suffers the worst day since

2011. equities get hit much what's to blame? record volatility, vix rises the most on record and related products getting blamed. and fed conundrum, what does the fed do with tightening conditions? welcome to bloomberg. with the day after or maybe not. day threee day two or or four. let's get a check of what's happening in the markets after selloff in very steep the s&p yesterday. worst day since 2011. dow e point, you had the crashing over 1,000 points. now, s&p futures are down by 26 points. we had flirted with positive territory earlier in the session but now we've rolled over again, continued selling off by 1%. euro dollar flat. 2.7%.ar yield trading at you saw some safe haven buying come in yesterday. safety board. big buying happening in germany. 0-year yield is down by seven basis points as that seems to be where traders