francine: red october, the slump in the wake of the biggest wall street selloff since the very. italian equities set to enter a bear market. 2011,rst selloff since $900 billion since august. the stock market plunges and prompts the president to call the fed crazy. how much conflict can we see between trump and powell?

francine: welcome to bloomberg surveillance, i am francine lacqua in london. it is a big markets day. we did see a big selloff in the u.s., and onto asia. this is what we are thing on the stoxx 600 in europe. , there is not a catalyst, but earnings came in shy. chief executives were warning about the trade war, so there is a justness out there. the tech stocks took a beating. the dax is down 3%. the ftse is one of the biggest losers. there is political concern out there. the market could go into a bear market. week was closed, we saw a lot of volatility. 5.2% lower. we are trying to figure out what prompted the selloff, but it does seem that equities are

shifting on the impact of trade, and sentiment is turning sour. we will get back to your markets area first the first word news. >> yesterday's rout on wall street was a correction, and not a reflection of a systemic issue according to the president. fresh concern about the trade war with china, and a selloff sparked. americans may not be able to deliver the runaway growth. chief christine lagarde says the world economy is strong, but the benefits of growth are not being shared properly. the meeting hosted by the world bank, said china is letting the yuan -- the trade war is detrimental to all. >> we are trying to do

everything we can to build resilience in these economies to whatever direction the trade disputes tend to go. all the countries under the influence of part of the supply chains of china, for example. we have to think hard about what they need to do now to prepare for worsening trade tensions. we are very concerned and working with every one of our countries to prepare them in case it gets worse. >> donald trump said he opposes blocking arms sales to saudi arabia over the disappearance of a journalist. this comes as a group of senators is forcing his administration to investigate the disappearance. that triggered a human rights protest against saudi officials and entities. as officials on both sides worn there are obstacles in the way of a deal, the chief brexit negotiator says a deal is within

reach, and some progress is being made in intense negotiations. the main sticking point is how to keep the irish border open after britain leaves the block. hurricane michael has slammed into the florida panhandle leading destruction across 200 miles of splintered houses. surge of water down city streets. it is one of the most powerful storms ever to hit the continental united states. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. red october, the biggest selloff since february has benchmarks declining 3%. italian equities look set to slide into a bear market. damage to corporate earnings from the trade war along with

pressure from the shift away from the decade of easy monetary policy. -- easing monetary policy. president trump edwards for chairman powell. fedident trump: i think the is making a mistake, they are so tight. i think the fed has gone crazy. you can say that is a lot of safety, it is a lot of safety. it gives you a lot of margins. i think the fed has gone crazy. francine: let's go to singapore with mark cudmore. we are hearing the president called the fed crazy. what is behind this move? equities have fallen for treasuries and currencies are holding. mark: that is a very important point, this is equity focused, and a lack of contagion to other assets. a little today of extenders but no big panic.

it is concentrated on one asset class, but the pain is intense across equities. there is no one dominant reason, there has been a surge higher in yields, then the tech sector was hit by concern about earnings. then there is increased complaints that the trade war, there are a number of things coming in. what happened yesterday, we broke some technical levels that stopped short term traders and we got passive investors. they have to sell and reduce their risk. there are a number of factors coming together. in isolation none would be sufficient but in a margaret that is vulnerable, single stock equity was low. we have this market that is complacent, and minor catalysts came in at once and has turned the market rapidly. francine: is the contagion going

to continue, or will the correction be in asset classes? mark: we have more pain in the short-term. i do not think is the end of the bull market. there may be a downgrading but it is overall positive. the fed is reducing their balance sheet, but they are not completely crazy. yields are softer in the last 24 hours. we will get a stabilization, the peak in the cycle is not behind us but we can see more short-term pain. we expected equities to open lower but we hoped they would stabilize and calibrate in line with the u.s. equities. instead they took another and a lower. weakan bonds are a real point. in the u.s. session with negativity, we will have to see

with the s&p and cash market will test the average, and futures are trading below. we will be vulnerable in the short-term. francine: what does that mean? think we have had one close below in the last couple of years and came back about. if we had a couple of days closed below this line for a long time, that would be a worrying signal for the market. it will get momentum traders happening. we may actually get longer-term momentum and signals shifting. this is a technical indicator and it does not change the fundamentals. it is important enough that we will see momentum traders in the short-term, and that might mean another 5%, but it will mean

more short-term pressure on the downside. francine: thank you mark cudmore. for more analysis log on to the bloomberg terminal and follow our blog. it is outstanding on a day like today. let's keep it on the stoxx slump. joining us for the hour, maya bhandari, executive director, columbia threadneedle. cio,pau morilla-giner, pau: london & capital group. what is the contagion effect? maya: in contrast to how mark saw it, i see it is relatively -- we have had a selloff in bonds, and we are starting to see that the affected and equity markets. a helpful way to think about equities in terms of discount rates and cash flows.

i think the cash flows across many areas -- we can come to that later on -- it looks ok, and earnings look ok. a lot of the world looks good. the discount rate we applied has gone up. when i look at equities and compare them with bonds, those have been joined up. you would not worry about the selloff overnight? maya: i would not worry about it, i think the selloff was overdue, it was coming. in some cases it warrants more caution, and perhaps it opens up opportunities. what is your take? is an worry because it indication of how the world has become. at a place where it can

be costly, and it begins to tell haveat is in store once we a particular area of the market, i believe the corporate bond market, going prohibitively expensive. francine: what i cannot figure out is why we saw the selloff. we have been talking on the desk about risks, china, tightening monetary policy, trade, earnings may be a little down because of the impact on trade tensions, but why yesterday? pau: nobody really knows. we are in the bermuda triangle of inflation, and therefore the fed is in a hard place and a rock, combined with trade tensions, combined with dollar liquidity coming tighter. that is bound to have an impact, and you know investors probably

rightly so are saying, the numbers do not look too bad, let us take some profits and go to the midterm elections. i believe that is the catalyst. why yesterday? it is difficult to say. investors need to say, maybe this is not the beginning of the end, but i should look at areas like consumer staples, which will allow investors to be dissipating the last hurrah of a bull market. maya, where do you see the opportunities? past we believe we are peak u.s. growth, but in other parts of the world such as japan, such as asia, such as the economic and profit

cycles, japan has been hit overnight. i am surprised it was not hit more overnight. capturebeing able to exposure to japan, to europe at a lower price makes sense. going back to what we were talking about earlier, why did this happen today, what has changed is we have broken through major technical trends in treasuries. we broke through a 38 year channel last week, and the discount rate we are plan to future cash flows has changed. quickly get you want to the question of the day, which is how far will the s&p fall? pau: from these levels, another 5% easy. will we recover, and if you have the beginning of the problems, the s&p willgs and

fall to double figures. number cannot give you a how for the s&p will fall, but it is a market that does not capture the tray concerns like other markets do. most of what i read suggest trade inflation will knock u.s. earnings by 8% to 10% next year. francine: thank you very much maya bhandari, executive director, columbia threadneedle and pau morilla-giner, cio, london & capital group. this is what the markets are doing, the biggest slump as fears of global trade seem to be adding to a recent selloff. we will continue our global coverage of the selloff and imf meeting. this is bloomberg. ♪

president trump: actually it is the correction we have been waiting for for a long time. i really disagree with what the fed is doing. >> we heard encouraging sign that the yield curve steepen is a bullish trend, and we are heading seasonally into a good period of time for equity returns. those probably have some element of maybe creating a mentality of this latest selloff. >> if the u.s. falls another 3% to 4% this week or next week, i think that short-term momentum will be moved around the world. unfortunately, the 1930's at

age, when new york sneezes, the world catches a cold. looking -- whyy should it fall further when it is discounted? >> there is no new news here, it is just us talking to each other. that chart proves there is no news today, and that means if it takes a day or week, you will get this back. francine: that was the president, and then some of our guests yesterday. it was the biggest selloff since february. let's get to the imf meeting in bali. our managing editor who has been covering the event, malcolm, we saw this selloff in the middle of the meeting. finance ministers and policy, do they worry about it? worried, but you

should be here, it is glorious. we have a great backdrop, and a little bit of market wobble helps to give us something to speak about. we spoke to steve mnuchin today, and he was reassuring. the fundamentals of the u.s. economy are strong. he said we have this correction, but it should not be surprising. it was something echoed a little bit here. worrieda panel today, about a former board member, worried about the backdrop but not concerned about this wobble. blackrockith strategies, she said she is seeing value. we have this drop, it makes people nervous, but there are other people saying this correction should not be too surprising, it is from a high-level, and there are lots of pockets of value out there. francine: i was trying to ignore

the beach in the background. thank you for bringing it to my attention. steve mnuchin basically says there is somewhat of a correction given how much the market has gone up, but then his boss is blaming the fed. they are not on the same page. >> that was another big topic of conversation, is the fed crazy? the verdict from bali is no. the fed telegraphs rate hikes consistently. christine lagarde has some interesting comments, she saw it as a unique combination of u.s. monetary tightening at the same time the trade war is unfolding. that is a unique situation for markets to grapple with. as for the fed, this has been telegraphed. the verdict here is jay powell and the board there a file the same. -- verifiably sane. francine: thank you very much. decisionsid the fed

play into the selloffs? maya bhandari, executive director, columbia threadneedle and pau morilla-giner, cio, london & capital group are still with us. when you look at what president trump is saying, doesn't hurt the fed's independence or change the way look at things? does it make them hike more because they want to make sure the signal is we are independent? pau: doesn't hurt the fed's independence, we will see? whatever it does, we will see their credibility or not. comments are not directed at the markets or fed, they are directed towards his base which will go to the voting booths in less than a month time. tries to put blame on him gets diverted. the fed has to follow through,

and it will be the fed's ability to follow through with quite telegraphed hikes, whether markets believe the fed, credibility of central bankers is relevant. look what happened with european timets in 2011 the last the ecb lost market credibility. themselves doents not hurt the fed, but certainly everybody we are watching what the fed does, and if they are seen as linking or accommodating desires, that will be massive danger for everybody. bencine: they say there will doldrums and u.s. growth because of what we sell with trade. if that is the case, do they stop hiking, or do they need to prove their resilience and independence? maya: the funny thing about the trade war discussion is how

little it actually impacts gdp growth. most things i have read say u.s. is 20 basis points from trade war escalation. for earnings, it is a different picture. i think the fed is targeting the economy, not the markets. and the u.s. has low unemployment, and growth is at about 3.5%. the outlook is probably positive. inflation number will be interesting in that context, because last month it was held down by temporary factors. francine: what are you looking at from inflation today? maya: i think it will be in line of the consensus, 0.2% month on month, but inflation is picking up. learned thehave

last few months are rising too. abouts what the fed cares . we are talking about how markets remain stressed even after the moves we have seen the last couple of weeks, the markets are still somewhat below when you look at futures for example. pau, what is your take on inflation? is this a crucial number today, because the fed commented on wanting to hike? pau: i think the number will be relevant and in line with what everybody expects to be at the main danger is not in terms of rates, but the fed not providing the comfort blanket that markets got so accustomed to in the last two years. we are in the middle of a tightening cycle, and the fed cannot ignore the fact that for the first time inflation is at 2% but has that potential to go higher.

this is what is worrying markets, and why market volatility changes day-to-day. francine: let me bring this chart up looking at the s&p during the trump residency. does it change the dynamics for the midterms? change politics in the u.s.? pau: no, because in the short-term the economy will respond. consumers are fine, unemployment is low, and wages are on the way up. trump and these recent developments have reactivated a voter base, and i do not think we have the ability to say what is happening at the moment with the midterms. francine: will it invert? maya: one of the ironic things about this selloff, a tiny bit

has steepened a bit in the selloff. most are looking for the curve to invert probably sometime in q1 next year, that is the trajectory we have been in. i think the fed has been vocal on this. i think it does matter, it matters as far as the relationships in the past, but what does it really tell us given today. francine: thank you both. in the meantime it is the biggest stocks slumped since february. you look at the u.s. stocks next. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance."

sorted --out a pot , will canada be able to keep up demand is marijuana becomes legal next month? crude is being sent to china as the trade war drags on. bmw will become the first global gain control of a chinese venture. rising interest rates keep buyers away. president trump says the fed is interest rate its hikes. president trump steps up its attack against the fed. as he arrived in pennsylvania for a campaign rally, he told reporters at the central bank is

wrong to raise interest rates. rump: i think the fed is making a mistake. i think it has gone crazy. you could say it is a lot of safety, and it is and it gives you a lot of margins, but i think the fed has gone crazy. sebastian: the u.s. treasury secretary says the results from wall street were just a correction yesterday. investors are concerned the trade war means american companies may not be able to deliver the runaway growth in the third-quarter earnings season that has bolstered equities so far this year. the imf chief has said the world economy is strong, but the benefits of growth are not being shared properly. thee china has been loving yuan fluctuate, currency in trade war's is detrimental to

all. we are trying to do everything we can to build resilience of these economies to whatever direction the trade dispute is going to go. all of the countries under the influence and a part of the supply chains of china, we have to think hard about what they need to do now to prepare for worsening trade tensions. we are very concerned and we are working with every single one of our countries to prepare them in case it gets worse. in the u.s., hurricane michael has slammed into the florida panhandle. offextreme weather peeled rooves. of the most powerful storms average at the continental united states. ever to hit the continental

united states. global news, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. francine: thank you so much. let's talk tech. as the u.s.-china trade war continues, -- >> i think about people and institutions people build. being un-american company, i always say we are able to , we are alwaysy dependent on an proud of the american values and the trust in american institutions and values that the world has. clearly, that has served us well. quite frankly, even today, i think it has served us very well. i think our form of government and democracy, with all of the

debate we have, our ability to be able to set an example for what is a place where a lot of people of diverse backgrounds can come together, have a debate and move and make progress, i think is what makes america unique, as being born in that culture is what gives us our credibility. we can't take any of this for granted, you do as a nation or a company. we have to earn it everyday. trust is this formula about having values that are consistently applied every day over time. francine: are the trade tensions affecting your business? satya: i think we are going through this phase where everybody has recognized, let's call it the face of globalization, has not created equitable growth in all parts of the world or in any country to all parts of the society. every country is really looking at, what are the relations

around trade that help them? that is key. every country will will put their country's interest first. our responsibility is to say when i we contributing to his country? how are we making small businesses more productive are multinationals in the community country more competitive? if we do that, we are good. if we don't, we have a challenge. long-term stability for us comes from our ability to create more surplus and more opportunity outside of what we do. microsoftthat was the tooth executive. executive. the s&p 500 fell for the fifth day. that is the longest streak since donald trump's. election what next for the battered

sector and how much more could it fall? you could argue that tech was also overvalued are one of the frosty is markets. was it due a correction? maya: i think we could say tech is not cheap, but certainly with bits of u.s. debt, the price attached to future earnings looked about right. parts ofue to favor the u.s. tech. i think some of the opportunities that have opened up with the selloff in the last few weeks have been in asian tech. we talked earlier about how some of the asian a marking -- emerging markets have been hit quite hard with the selloff we have had. there are really good strong tech companies that are trading quite cheap. we have taken advantage of that

to build up some exposure there. francine: we will talk back about some of the asian tech companies. they are falling because they are very vulnerable. they are massive exporters. the majority of what they exporters generated outside of the u.s. they are very vulnerable to trade wars. the trade war with china will be fought in tech. also, the danger with all this is that a lot of these tech behemoths that have driven market upwards in the last few years have disruptive traditional sectors. on one part, traditional sectors are getting squeezed. even when tech was to fall the whole house of cards could

crumble. francine: we headed bloomberg story talking about embedded chips and possible hardware. if you look at the next frontier for the trade war, is it going to be in tech? all ofhave to rethink the supply chains are credit have an impact on the supply chains? were speaking earlier about the trade war impact on gdp. i think the real effect of trade wars is under the hood of global supply chains. as you point out, i think tech , there are parts of tech that are vulnerable to that. tech, thes bits of we have prices, that reflect those underlying risks. all i would say is that parts of asia where we see valuations

really quite attractive and context of the future risks, where the u.s. market is more broadly, i would say we are fully priced. --ncine: is it's a pleasure is it supply chain? what does that mean? chainsun to see supply like some of the semiconductors or tips made in asia's coming back to the u.s.? is it too soon to tell? u: the issue is that even in sectors where you don't really see the tangible supply chain, processesof the underpinning software companies, you have technology that doesn't really come from the u.s. the concern is, i believe you will see areas of the tech space

which exceed the hardware works will also be effective. the market is beginning to be concerned with companies like facebook, which in theory they anything.ally selling nevertheless, some of the technology underpinning is not u.s. generated. all of thesete, tech companies will have more expense. francine: thank you both for joining us. maya and pau stay with us. in the meantime, this is what your markets are doing. the biggest slump since february rolled from the u.s. to europe and from asia. i'm looking at benchmarks from i guessondon slumping, it is fears about global trade adding fuel to recent selloff. i'm looking at emerging markets. they were hit hard and european bonds.

up next, as the trade war between china and the u.s. deepens, shanghai stocks register the biggest drop since february 2016. we will take a look at how the slump could last or not. this is bloomberg. ♪

francine: this is "bloomberg surveillance." the biggest stock selloff since february has rolled from the u.s. onto asia across europe. top of this conversation at the ims world bank meeting in bali were finance ministers and central bank leaders from across the world.

we have continued to do very big business and grow our income in asia and emerging markets in general. one thing which i want to mention is that markets sooner or later differentiate between countries depending on fundamentals. first, market of sentiment makes markets move in an undifferentiated manner because of the emerging markets, overtime, countries that get stronger are able to do better because of the markets and to earn more. at vulnerabilities, asia and emerging markets are in a relatively better position than other emerging-market areas. that should not lead to complacency because there is

high in emerging markets in asia, both corporate and countries like china and india. those are things that need to be monitored. overall, i think fundamentals are healthy. >> the likes of goldman saying that 2020 is the inflection point. that could be a recession. do you see that happening? jose: i think it is very hard to predict where the world will be in two years time, but i think we should take advantage of the present situation. it is still good in the sense that global growth, although a little bit lower in terms of the recent forecast, but also many other forecasters, global growth is going to be lower next year and this year than it was.

still, the growth rate is pretty good. i think what we need to make sure is that -- the first thing is to avoid damaging global trade. let's stay with the emerging markets and that selloff as the trade war between the china and the u.s. he pins. chinese stocks registered dramatic losses. how long will the slump last? maya are still with us. i'm going to make you chief executive. when you look at china, what happens with china? do we worry about china banking,

some of the underlying to concerns that they have to over stimulate the economy because it is lower than expected? pau: we worry, but not today. china has the ability to build over the next two years, implement cyclical stimulus policies. their levels of public debt allow them to do what they have been doing for a very long time. the danger with china and em in general is that they are very sensitive and vulnerable to trade tensions. em affects china more than china itself. the worry with investors is, is this really the beginning of a much more serious situation for em countries? they are safer than they were in , but trade wars or dramatically affect and disrupt some of the behavior and em

countries. francine: what is your take on china? maya: i worry about china, medium-term. what i worry about is its trilemma. it basically says that you cannot simultaneously manage an independent monetary policy, your currency and have free capital flows. i think it is how that ends up is what worries me with china. we're starting to see some of that already. china would stimulate already if that wasn't worried about what the impact would be on the currency. i think the trilemma is really at the heart of china risk over the medium-term. i don't think it is something that happens tomorrow. : we are talking about capital flows, i think that will be something they will feel more inclined to take a productive stance on. 2015, and the temptation will always be.

a: that is why they are being so careful this time around. francine: what will their priority be? there is this unholy trinity. maya: there is. we are to see a china that is starting to stimulate. it is a cautious stimulus. we are seeing them using things various channels to ease. it is much more cautious and much more measured. i think a key reason why is because they are worried about sharpened roles in the country. ford expectations on the currency are much more forward and flat. very different from the set up in 2015. francine: if you look at emerging markets, the impact of china being much more cautious, inward looking has an impact on the rest of the emerging markets, who would be the

countries that would suffer the most by china's policy? china's policy meeting trade wars, inevitably people, in asia, you look at indonesia, the philippines, but not so much. if you see trade war is escalating, suppliers into china which are very tied to bangladesh as well. the main issue is not necessarily asia-pacific yen. the main issue is countries that are running structural and have a pretty weak fx situation. that is normally the case of asia. i don't think i'm particularly worried about seeing a 97 -- 1997 crisis. countries are a lot more politically stable and are

well-prepared to deal with potentially stronger dollar potential. francine: is there anything you would be buying and emerging markets? currencies, equities or are you saying how it shakes out? maya: i think our exposure in emerging markets, this is a part of the world where you have companies of high operating leverage. they have suffered in the last few years. we think some of those countries will benefit. francine: thank you both for joining us. pau.and coming up, we are back in bali at the imf. first equityts managing director at 10:00 a.m. u.k. time. markets.ck back on the

we are seeing a little bit of selloff in european markets. it was not as ugly as the futures said it would be. i'm looking at the stoxx 600 down. the overall story is equities down the currencies and bonds stay calm. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." let's check back in on the markets. sebastian has been watching all the action. sebastian: the european trading session unable to leave this grasp. -- he talks about the tech sector getting hit by rotation, trump bashing the fed, the imf downgrade and how that is leading to growth concerns. this is a picture across europe. a very red situation. the ibex is the biggest faller.

semiconductor is rising up to $600 million today with apple. francine: thank you so much. "bloomberg surveillance. continues in the next hour. we will be talking to the imf first director david lipton. we will go big on the markets and look at all asset classes. what is interesting is that if you look at the equity route, it is spreading. bonds and currencies are staying calm. this is bloomberg. ♪

francine: red october. global equities slump in the wake of the biggest wall street selloff since february.

tech tumbles. the nasdaq has its worst selloff since 2011. growth,rnings on global -- this is "bloomberg surveillance." tom and francine from london and new york. we look at the fact that equities are down quite significantly. if you look at currencies and bonds, they are pretty much stable. tom: there is stability there, but yesterday afternoon was really ugly. the major thing is not only higher interest rates, but there was a weak, tepid auction yesterday, particularly of the tenure rates. say that this hour,

we have yet to find a bid. francine: and frankly yet to find a real cause. we have seen these benchmarks slumping, and it is on fears of global trade. there was not a real catalyst for the moment, so it is interesting how big the movements were on sentiment. hurricane michael has been downgraded to a tropical storm. the most powerful storms average at the continental u.s. made landfall with 150 mile an hour winsd. a storm surge turned neighborhoods into lakes. at least one person was killed. the storm is now expected to bring wind and rain it to the carolinas weeks after hurricane florence it. president trump says blame the federal reserve for the selloff, not his trade war with china.

last month, he said he was not happy the fed has raised rates for the third time this year. the president says he opposes arms sales to saudi arabia. the president told foxnews the u.s.would hurt the negotiators from the european continent and the u.k. -- the biggest problem is to -- how to keep the irish border open. global news, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek, this is bloomberg. tom: thanks so much. let's go to a data check now.

futures continue negative. futuresres -27, dow negative to 93. that puts a decline well over 1000 dow points. a third off of u.s. real markets and futures. euro stronger off dollar. weaker as well. 1617.x was at

we went out to 2021 and rapidly unraveled to new territory, up 24. we will have a chart to compare and contrast the vix to where we were in february. there is the dow with the close yesterday. you can add to that almost 300 points now. let's rounded down to 1100 points off actual trading. futures trading as well. yen comes in, stronger japanese yen to a solid 112.26. -- at the renminbi in there. francine: report of damage to corporate earnings because of the trade war. i'm looking at some of the latest developments. i have supplies is to be there's that -- distributors that added to action on the trade conflict. they were saying raising materials cost will heard a lot of their profit margins. i would also point to lbmh saying china is enforcing roles more strictly. lummis of the market perspective right now.we show this chart in february. in february, we had the vix blowup that all of you enjoyed.

let's look at a correction and a dow bear market. here's a correction down 10%. to frame where we are after yesterday's trading and before the futures collapsed today, the correction much in the same area as before. 22,000,ket down here at we are nowhere near that. that frames the -10% and -18% move. francine: i like that. my chart goes to the x. -- vix. the awakening of market turmoil has revived a penchant for volatility trading. if you look at the number of vix options and futures changing hands, at the highest levels since february yesterday. exchangeme time, the gauge it the second-most active on u.s. exchanges. that is something we will keep

an eye on. globalstaying with the equity market selloff. joining us from copenhagen is peter. g -- in london, is j geoffrey. what is the catalyst for the selloff? sentiment, and overdue correction or something else? everything.nk it is we have italy which is a timebomb. we have rising interest rates. specifically, investors are trying to gauge where is the inflation point when we get into trouble? we have a lot of debt in the economy, probably more debt than we have ever had before. and then we have all of the uncertainty we are seeing. cracks in real estate markers u.s..t also in the

i think it is a plethora of all of these things that triggered a selloff yesterday. pinching --do some probably they also escalated a selloff in the last hour or so. there is a lot of events. as you say, we have the vix about 23. our studies show that the 22 in the vix is the critical point where you have the switch from going to a normal market to a risk off market. a little bit of worry here short-term. francine: what is your take on it? ey: fellow till the is something we have been expecting. a little bit of pessimism at this point compared to january. around, ais time combination of rotation and

event risk. we're talking a bit too much about market structure and loops, unlessck about fundamentals. -- and less about fundamentals. the outlook for next year is slightly softer. athink we should caution few things and not the overall doom and gloom. tom: if we get the correction we saw in february, and if they get a nice, healthy pullback, how do you know when to buy? how do you know when to reposition? geoffrey: with equity overweight, we have held that view for a while now.if you are equity overweight already , there's no need to adjust that. this is not about taking risk off the table, but managing it. you can go overweight as a overweight because it is justified based on the data.

again, there is a lot of event risk. maybe get past up few of those things, brexit, trade war's, midterms, maybe there'll be better entry levels. are fundamental views have not changed. inkagehat is the l doesgrowing economy -- that fold right into earnings for revenues? there is a lot of lacks between the economy and revenue. revenue typically lacks a lot. what we saw back in 2008 where revenue trailed by almost two quarters to the real underlying economy. obviously looking at lead indicators are important. i would that to differ a little bit on the u.s. earnings. exclude what you're getting from the tax reform and only looking at the pretext

profit growth rate, it is more closer to a percent or 10%. the u.s. is still by far the best area. terrible bearth a market scenario here, but i am running a dynamic model here. we just ran our model this morning. it still has a pretty sizable allocation to equities, but it is increasing exposure to 1-3-year bonds to protect itself. we are getting beyond our conditional constraint and a model. it is cutting back on risk, but we are not near any panic mode. i think taking off a little bit of risk here is prudent. geoffrey: it is interesting that you're talking about in the 1-3 aspects. the last 24 hours have shown that the markets are questioning whether to push the yield again.

we still see a very flat curve over a 6-12 month horizon. francine: where the is he the curve? peter: this is driven by a mathematical framework. it has to protect the tail risk somehow and it doesn't do that in equities. the rates are rising. it can only protect in an efficient way in a short end of the yield curve. it is not really going for return in that part. it is going to for protection. it still has around 45% 40% of equity. i'm not here to talk doom and gloom, but i will say we have been in a very unusual environment with very low volatility. i think there are a lot of low risks forming in the horizon. i think the u.s.-china trade war

will be a cause for trouble at some point. i think the most critical thing here is we don't really know at what interest level do we start to see red paint? we know there is a lot of dollar debt specifically in emerging markets. and of the fed doesn't believe in feedback loops into the u.s. economy, but i wouldn't be that sure there is that big of an impact in the u.s. economy. tom: thank you so much. much more coming up. geoffrey yu will be with us through the hour. coming up, and important conversation from bali. please stay with us with more data checks. this is bloomberg. ♪

sebastian: this is "bloomberg surveillance." shares of square fell afterward the ceo is leaving to run next door. one analyst said that her leadership is more and for mental to square's growth than jack dorsey's. bankhairman of british standard chartered disagrees of president trump when it comes to the federal reserve. he says the fed isn't crazy, just doing its job by raising interest rates. and is in the fed people should be worried about. >> global growth is going to be year next year and this than it was. the growth rate is pretty good. i think what we need to make sure is that we avoid that recession. for that, i think the first thing is to avoid damaging

global trade. the world's largest software maker is joining other tech giants that one federal action as opposed to state-by-state laws. us, including of microsoft, is to be comfortable knowing that we will be held to a different standard. that is what i think about as t microsoft. everything from what is our goics, how are we going to and ask for regulation, where i think it will create more of a rule of law and the framework for us to make progress, especially in the democracy. francine: thank you so much. let's get on to brexit. we understand that brexit negotiators are edging towards a

thorniest on the talks.n some of the we are hearing from officials on both sides that they both warned that obstacles still stand in the way of a deal. we just heard from mr. company of ireland -- covney of ireland saying we are still far away from an agreement. he says it is part two soon to be claiming an agreement. we welcome all of you worldwide. now, we have futures at -311 on the bloomberg terminal. down over 1000 out points over the last 18 hours or so. we are thrilled to bring you morning withhis his wonderful ability on correlations of market, particularly back to foreign-exchange. what are the correlations in the market now that allow you to be long equities? geoffrey: right now, the lack of

, that is what is happening in equities. the fact that fx is ignoring that, especially if you look at fx and the dollar, i think fx does not fuss too much about this. i want to go a little mathy right now. within the global leverage, everybody worries about tail risk. what are the distributions of the financial system now and how exposed are those tail risks, those so-called fat tales out that laid the jump conditions that lead to abrupt moves? geoffrey: they need to be more specific about tail risk, is it event risk? that is in the price already, or is it just code from the likes of risk control and other products where you have an

forced deleveraging. that is actually causing vicious cycles at this point. i think we need to be clear about what peter talked about earlier. i think we're looking for technical issues and market structure right now. again, focus on fundamentals.i don't worry too much about the tail risks coming from market structures. francine: a concern i guess is that we have numerous events or risks, emerging markets, dollar higher, italy, if they all come at the same time, could it be the perfect storm? there is not one catalyst, but all of these coming together. geoffrey: absolutely. then people will ask what is the safe haven? clients are asking already. do you think china is exasperating the selloff?

environment where emerging markets are losing already, they're not going to have enough flow. again, i wouldn't overplay that angle. when the time comes, it should start to do its job in the fed will react as well. francine: what do you think the fed will do? does trump accusing them of being local change that? ffrey: that is where we have to be careful. is the fed responding to political pressure domestically or data? let's focus on data as much as possible. tom: i want to walk through risk parity right now. i want you to explain to our global audience what this phrase is and why it may blow up with correlations where they are now between equities and fixed income. geoffrey: fundamentally, you are

targeting a framework, volatility framework and deploying leverage at the same time. it starts to break down and that is the worry right now. when conventional diversification stops doing its job. ive don't get a posit diversification from earning bonds. is that you fear get a correlated selloff where it equities and bonds a fall, it starts to accelerate. i think that is overplayed. critical.is you are not concerned about an overlay of risk parity damage that leads to a greater volatility right now? geoffrey: risk parity intrinsically is not short bull. it is leverage, that we need to distinguish versus leverage in a volatility framework. these are separate. tom: thank you so much.

haslinda is in bali at the imf meetings. haslinda: you are referring to david lipton of the imf. we have been talking about financials and vulnerabilities. the imf had its growth production for the world economy . let's get perspective from dr. lipton. saidrday, my conversation there was no conversation between the u.s. and china. could there be further applications on a downward projection of global growth because of that david: i hope not. we have been arguing for a long time that there ought to be a

de-escalation of trade conflict and there ought to be dialogue. i think that is still the right path. parties have to be open, not just to dialogue but to change. which means where there is a need to modernize the trading system and for countries to address trade practices that really are damaging to other countries that may have not been , much a smaller economy, there has to be an openness to dialogue. so far, the impact of trade conflict has been on the global economy and has been small. the risk of sustained conflict with with rising uncertainty could be very problematic. we urge de-escalation and dialogue. some are already saying that the global supply chain has been tweaked to cater

to a prolonged u.s.-china trade war. would that be enough? david: countries affected by terrorists have some recourse. they can look for demand in other places. that is a painful process and it may be an incomplete process, and you may see some unscrambling of supply chains that would come naturally from that. outcome, in more efficient outcome and a less damaging outcome is to deescalate conflict and have dialogue. haslinda: this is all happening when the dollar is getting stronger, when federal banks are normalizing. how prepared are emerging markets to cope with these uncertainties? have been asking ourselves this question of whether we will see difficulty broadly across the emerging-market world, or difficulty in those countries that are the most fragile and vulnerable. so far, most emerging-market

economies are making their way through this time period pretty well. what we are seeing is that the emerging-market countries with pre-existing vulnerabilities, countries most affected by the rising dollar interest rate, some of them are under stress. some of them quite extreme stress. a couple of them have come to the imf for financial support and for as it to help them with their adjustment. time will tell. it is entirely possible that very negative global environment is going to sweep up more countries. it looks right now as though this is a more localized problem than a generalized problem. haslinda: you don't to the possibility of a debt crisis developing given the ultralow interest rate environment countries have been accumulating a lot of debt. david: debt is very high and some countries are quite vulnerable to interest rate increases because their debts

are in dollars. clearly, some countries are having and will have difficulty. whether that becomes a more generalized problem, we will have to see. as i said, i wouldn't rule it out. haslinda: the conversation here at the meeting has also revolved around -- has been saying that the fed could be moving too fast. david: central banks do best independent and charges of fell the mandate. in the case of the federal mandate to have a dual of price stability and supporting maximum employment. i think it ought to continue to follow that. i think they have done a good job so far.

it is certainly from time to time, central-bank actions are controversial and displays some portions of the economic population, whether it's firms or individuals. what is key is that they do their job and fulfill their mandate. emerging-market economies have come out to say that the fed needs to be more mindful of the repercussions of those rate increases. david: that is a tricky question. i think the fed in the last three years has been more and more mindful. i think they studied quite carefully how their policies may spill over and affect other countries. at the end of the day, it is also extremely important that they do their jobs because, you wouldn't want the u.s. economy to have either runaway inflation recession.

either one of those outcomes without huge negative repercussions around the world. the fed has to do its job and fulfill its mandate. haslinda: having said that, could there be better coordination? david: one of the reasons for the meetings of that we are having here is for the international financial community to have discussion and expressed concern, to think about how there is interconnectedness and how the actions of some may affect others. to think about what is the best way, if you can anticipate better what the fed is doing and down the road what the ecb will do, can you better take care of yourself because you are ready to take steps to best manage your own situation. i think in that sense, cooperation and coordination is very valuable. haslinda: what is the biggest risk to the global economy? arising dollar, u.s.-china trade war?

when you to look over the horizon at the next recession, the next downturn. surely there will be one. in the u.s., this is the second longest expansion and u.s. history. we don't know when, i wish we did. the question is, how prepared will he be? space, have a policy fiscal policy space, the ability to deal with financial sector problems, the ability to coordinate across countries, to have a strong enough imf back and help countries by convening discussion or providing finance in order to make sure that the next recession or crisis is manageable. haslinda: thank you so much for your insights. trying to live from the imf world bank meeting here in bali. thank you so much.

greatly appreciate that this morning. we welcome all of you to our coverage of real market turmoil. we have seen a bit of a bed with dow futures at -300geoffrey yu . let me bring up this fixed chart. we showed this in february. vix down here quiet and complacent. four standard deviations with a lehman like vix. we have barely gotten here. this brings your constructive view on equities. let me ask the when question. when do we get february like? >> february like is when high yields start to lose.

diesel rates start to rise. that infects equities. then we start to worry. no sign of that yet. tom: this is incredibly important. i thought madame lagarde was adamant about the parsing of debt. there is corporate debt. the high-yield market does not show the extensions of debt that we usually see in crisis. >> not at this point. that has been a bit of a frustration for us. 2015, we had ao major correction. high yields driven by energy. the fed, they were announcing four hikes. only ended up with one. ado not think we will see

repeat of what we saw happen in 2015 and 2016. well especially against the majors. we can start to see the euro leading a little bit of a recovery. if you look at urodynamics, what does it mean for european growth? , isou go back to the risk there a risk that we focus too much on china? >> on the china side, i would agree that the market is focusing too much on china. the relevance between chinese equities and fundamentals has been a question. the question is can the ecb exit? will the numbers start to roll off in an exit crunch? it is a reason for volatility.

i do not think we are there yet. tom: one of the great calls of 2018 is getting a bit old. people have looked for big figure moves. reframe japanese yen here at 112. what do you do and what does ubs ofwith a massive risk currency to japanese yen? >> we like the yen. you want to own yen against export and fiscal currencies. we have long yen and short taiwan. point, what ithis am most it interested in is yen performance. tom: you are betting strong yen against a weaker taiwanese currency? >> that is in our portfolio.

overall, let's focus on the avion x story. francine: we will get back to geoffrey yu. let's get straight to the bloomberg first review. >> two astronauts from the u.s. and russia reportedly averted disaster today. the booster rocket failed moments after lots from kazakhstan. they had to make an emergency landing. thescue crew has reached capital and no medical help was needed. the most powerful hurricane ever to hit florida is not finished yet. winds50 mile-per-hour brought storm surge. michael has now been downgraded to a tropical storm. it is headed to that carolinas. -- to the carolinas. says tradefficial deals with the u.s. are unrealistic.

the u.s. is the biggest single destination for british exports. china and turkey may decide tomorrow whether to release detained american pastor andrew brunson. for turkey central bank, it could bring rest bite for the respite forite -- the lira. global news, 24 hours a day, on air and on tic-toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.global news,n air and on tic-toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. ands focus on europe particularly on georgia. be aneorgia continue to important link between asia and europe? we are pleased to welcome the

prime minister of georgia. he is the nation's four and -- the nation's foreign finance minister. prime minister, thank you so much. i want to focus on the economy of georgia and move on to policy. on the economy, have you seen the spillover from emerging markets? >> good morning. back toy glad to be your wonderful program. of course, george it is a part of the global economy. seehe same time, what we with the figures of 2018, it clearly shows our economy has become more resilient than it used to be. effect.el a spillover at the same time, our gdp growth is sustainable.

around 12.5%ing this year. at the same time, according to forecasts, georgia will remain the leader of economy growth the next four years. francine: we talk about some of the u.s. trends when it comes to markets. one is marijuana growing. could this be a major export for georgia? course, the market has considered this. this is related to many question marks. this is still under consideration in georgia. we plan to be more conservative. francine: when you look also at the positioning of georgia on the map and you want to get onto takelitics, how can we

advantage of the initiatives from china? are you in contact with china? can you be a link between asia and europe? >> if you look at the map, georgia is a natural candidate. you become a regional harbor. georgia is a gateway for landlocked countries. of course, this is our vision that georgia should become the original hub for international business or trade, logistics, tourism, and education. we are involved in all the major theects including initiative. tom: good morning. there was a noted essay in foreign affairs magazine that said the west in particular the united states overreached in

nato expansion. i know you disagree with that thesis. why should georgia be in nato? me who, it is not only disagrees. all the members of nato. , we feelof months ago that georgia will become a member of nato. of course, our top priority is to become a full-fledged member of the european union and nato. we have very concrete reasons for this. natorship of georgia and will make our region more sustainable and prosperous. influence --e best best interest for russia as well. tom: and why is that? please explain why mr. pugin would be advantaged -- why mr. putin would be advantaged? >> let me give you a good

example. norway for example. nato,orway was joining there were some question marks. the scandinavian region is the most developed region in the world i would say. and brings stability prosperity. georgia and the wider region needs that. let me state an example -- an important geographical fact. georgia is at the crossroads of europe, asia, and the middle east. this is one of the richest regions of the world. it has tremendous economic potential. you have to unlock it. you have to create opportunities for the citizens who are living in this area. we believe that membership of georgia in nato will be a big event it for georgia -- will it

be -- will be a big advantage. of athe delicacy projection of over 500 years, one of the things we have seen constantly is tensions. -- is tensions. how can you assist mr. putin? i had a chance to make a speech at the united nations general assembly. that was my main message. an initiative to create a new platform in georgia to organize a forum to discuss the challenges in the region. and to find the solutions. -- how we can

convert into an area that is full of possibilities for the people and the citizens living in this territory. we are result oriented. we are focused on fiscal resolutions of the conflict. that was our main message. francine: i remember your speech. can you lay out the risks over the renewed conflict of george's occupied breakaway territories? georgia -- in and georgia, we cannot label that as a net-net conflict. georgia has a political conflict. the most painful challenge we --e is the number of people who used to be leading on these territories

before the war. we are totally focused to create new possibilities for our citizens living on these territories and to offer them and to make comfortable lives for them. we are focused on humanitarian issues. we do not have a the dramatic relationship with -- a diplomatic relationship with russia. we are looking for the meetings of some formalities. humanitarian catastrophe. we wish to stop it. ifh meetings can happen only it would be tangible and could

deliver results. francine: thank you for joining us. bring you up-to-date with what is happening on the markets. it was the biggest stock slumped since february of this year. it started in the u.s. and went to asia. tradegears for global that are adding to the recent selloff. european bonds are gaining. european stocks are down. this is bloomberg.

tom: good morning, everyone. let's look at a better take than what we saw at the beginning of

the hour. -300 in dow futures. s&p futures at -22. field that follows on from yesterday with curves flattening and the euro strengthening substantially. oil goes south on-demand obstruction worries. 24 and now back into 23.8. these are nuances but nevertheless important. the dow closed yesterday with some ugliness. right now at 240 point to that. francine? on what: let's check in is trending across the bloomberg universe. there will be enough marijuana to meet demand. we dive into the oil market as donald trump's reform policy is

bringing radical changes. producers from west africa and latin america are sending increasing volumes of crude as the trade war drags on. bmw will become the first global carmaker to get control of a chinese joint venture. asdon's house prices slumped rising interest rates key buyers away. donald trump says the fed is going local for its interest rate hikes. the president's words, not mine. let's get to the bloomberg business flash. >> bmw is moving to take more control on the largest car market. it will spend $4.1 million to boost its stake in the chinese joint venture. bmw is the first auto company to take advantage of china's company that lets foreign corporation take majority control of partnerships. >> we are the first company

moving into that. a is based on the opening of stable framework we have formed in china. sometimes you need to develop trust to use these opportunities for the future. it is built on a trusted partnership. it is built on a market development. global management is looking for someone to buy a portfolio. the homes could bring about $14 million. person saw richest his fortune shrink by more than $9 billion in one day. jeff bezos was hit by the company's biggest one-day loss in a more than two years. his net worth is the lowest since july. trump hasdonald stepped up his attack on the federal reserve. the president blamed the central

bank for the worst selloff since february. he said the fed is going local. take a listen. making ak the fed is mistake. they are so tight. the fed has gone crazy. safety.a lot of it gives you a lot of margin. i think the fed has gone crazy. francine: today, the attention is on u.s. treasuries with the sale of $15 billion of 30 year bonds. data a the inflation little bit later on. do we care what president trump thinks about the fed? -- what are right the wide-ranging implications? >> i think the market will give a lot of allowance. we will need strong evidence that it is being influenced. it is on people's radars, but i

think far in the horizon. something we should not tamper with in the short-term. so, focus on the right narrative rather than some of the other theories other. francine: what are we expecting from inflation today? >> inflation right now, overall, are we seeing the called -- the core numbers? translating into higher wage growth. what is going to be the path from a higher labor market -- the fed will have a reason to respond. what econ 101know textbook you took. usually skipm, you

chapter 18 her 19 -- i am looking at the bloomberg terminal. that tells me we have chronic negative interest rates in europe. when we unwind these balance sheets, are we certain we are going to do it with stability? we move from a negative interest rate to a positive interest rate. are we going to be able to accomplish that? >> i think right now it is being done. i think the fed is leading the way with that. global banks will be following their lead. a periodt devised for when you had a combination of rate policy. we are going to have interesting argument. can the fed be hiking rates while they are thinking about maturity extension? you are pushing forward on the liquidity angle.

my,quantity of the price of normally we have not had that insurrection. tom: i understand that someone like chairman bernanke he has to take a constructive tone. do you believe as chairman bernanke he does that we have -- that we can unwind with stability are the -- or are there going to be conditions like we saw yesterday? >> one thing you have to guard against is mind the backend of the curve. let's make sure we do not get any form of tantrum. that means strong coordination within the national central banks. we don't think in europe right now it is going to be a volatile exit. francine: what do you do with u.k. assets right now? >> we are still quite bearish on sterling.

there might be a lot of positioning and unwinding. i think markets are very underweight. they are buying back. francine: if we have an extension, >> it is more like once we pass the deal face. that is a tricky question. ubs has a constructive view on equities. do you enter here and acquire more shares than u.s. multinationals or you have to wait for a signal? ,> if you have been underweight you need to have the volatilitye volatile -- commensurate volatilities. i want to have the insurer it -- the insurance at this into. no need to go overboard at this point. francine: what is overpriced in

the markets right now? is there anything that looks like it is in bubble territory? >> high-yield is where we would look for signs of -- clients are asking where are you seeing value? certainly nots -- overweight in financials in europe. there is demand for risk out there. u.s. rates have been going up. they are underestimating that element. tom: when does the fed waiver? you and i know that every time the dollar turns around and we path,a more restrictive there is a moment where we change. you have a conviction that the fed will change the course? >> we do think the fed will stay

the course. they want to see quality being injected -- see volatility being injected into the markets. watch the credit spreads. that is what they will be responding to. then liquidity money comes in. tom: an extremely important point from mr. yu. yu, this is been a very valuable our. up, the european commissioner for economic and financial affairs. looking at futures, we improved -300 to -225.

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1000 plus dell points. of higher the reality interest rates, rising fiscal deficit, and potential slower economic growth. president, it is the fed's fault. no president has been so critical of a chairman in history. low economicders growth ahead. this hour, the european commission. good morning. this is "bloomberg surveillance." from our world headquarters. continues, but a little left in the last hour, -- first sign of a dead on bid on. francine: yes. overall, stocks and the selloff

that started in the u.s., definitely impacting europe. it is asia that took the brunt of it. i'm looking at the shanghai composite 6.4% lower. there is still little respite. i guess there is just a lot of caution out there. unds gaining, treasuries higher. the real question is why. what was the catalyst? there seems to be a confluence , concerns that came to the form fo forefront yesterday. have several guests with views on those markets in london. astronauts from the u.s. and

moments into the mission, taking off from kazakhstan. nasa says the astronauts are in good condition. michael has been downgraded to a tropical storm. one of the most powerful storms ever did at the continental u.s. made landfall in the florida panhandle with 155 mile per hour winds. it turned neighborhood into lakes and at least one person was killed. the storm is expected to bring rain and wind to the carolinas. president trump blames the federal reserve for the market selloff, not his trade war with china. he told fed news that "the fed is going loco." eu and the from the eu and u.k. closer to a

compromise on brexit, but downplaying expectations a deal is imminent. one british official said movement towards a tempora set up that would keep the u.k. inside the eu customs rule. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. here is what we will do. we will get right to a discussion with kevin cirilli and washington. guess what? there is only one election that matters. once again the president when after the fed. this is becoming a habit. kevin: it is. it has economist very concerned. they are worried the president is trying to juice up markets. sayingsident yesterday as aed has gone "crazy"

result of these interest rate hikes. he does not like it. within the same hour, press secretary sanders saying the fundamentals of the economy are still intact and note employment is at a 48-year low. they are quite confident in terms of the direction the economy is moving. to the white house and secretary mnuchin agree with the president that the fed needs to be less independent? i don't think they have come out as forceful against the fed has has the president. you will remember when secretary mnuchin made comments about the that were criticized because they were somewhat political. he walked to them back somewhat ancome but he has not taken

aggressive stance against the central bank. secretary mnuchin just met with his canadian counterpart. francine: does the market play into the midterms? when the market is up, the president tweets. i don't know whether that is a a bad thing, but at the margins, does it make a difference or not? taylor: -- kevin: the rnc would note the low inflation and unemployment and tax cuts. democrats would say absolutely not. they would say the recovery has been too slow and the tax cuts have only help the wealthy. tom: i promise we will get back to the election tomorrow. kevin cirilli, our chief

washington correspondent. at this time of our turmoil, it makes sense to speak to adults, even better to have somebody in the credit and equity space. we do that with david and george joining us this morning. we were talking off camera and made it clear that it is all your fault. rightthe credit market now. what is the linkage with credit, lower price, higher yield? what is it? >> the world has woken up to higher yields and bond yields moving up over the last month. people'srting to grab attention. we broke their technical levels in the treasury market and the reality of higher interest rates are starting to be felt by a lot of operators, whether an individual trying to get a mortgage or a company trying to get a loan, the cost of debt has

gone up. that is starting to work its way through the system. higheru think about front in rates come along and rates, stronger dollar, credit conditions are starting to tighten. you would not realize that if you just look at bond issuance. tom: we bring in david just because he's the only one who doesn't own amazon and apple. this is a really important question the goes to the zeitgeist, the parsing of a large cap, mid-cap, small cap, everybody sang the world is coming to an end for small cap. you don't agree? the number of stocks i can find that have the potential to double in the russell 2000 index versus the big s&p 500 will still be more in my favor as a tailwind. that gives the advantage to the alpha provider and small-caps. thecine: had you justify

selloff, and does that change your views going forward? >> it doesn't. it gives more opportunity, particularly within the spinoff stocks. ,hey use the spinoff index compounded at 21%. regular small-cap stocks 14%, 15%. year, spinoffs have lagged by three percentage points to giving a better buying opportunity to buy smaller companies that chase the capital structure and offer value propositions for small-cap investors. francine: the small caps, don't they have a tough time moving the supply chain around? >> they have less international exposure than large caps, . , the small caps have held up better. ,here is less supply disruption

and without talking my book, the small caps have as good or better opportunity as the large caps. tom: this is critical. we are down 1000 points. this is all you need to know. equity market come yellow pad, scratching pencil worrying about the detroit red wings. this is the world we are in. the bond guys have the fancy graph paper come and the equity guy is working off the yellow pad. >> my colleagues will skewer me, but the credit guys are usually smarter. importantis really within the hysteria of this market down. you guys are always out front. i learned this the hard way. insightthe fixed income right now you want to tell stock owners? ratee insight is that the

move is not over. the fed is tightening, yields are higher. the economy is great. corporate earnings look fantastic. the base level of interest rates is simply too low for the amount of eg economic activity e we -- activity we are seeing today. tom: are you buying equities? >> yes. we want the world to grow, but it is a combination of not just interest rates, but always in conjunction with inflation. inflation higher than 2%, headed higher, the ten-year treasury at 3.25%. you need to put the three together. i will worry when the 10-year is at 4%, then we have problems for the equity market. we are not there. francine: thank you both. they both will stay with us. coming up, the european

commissioner for economic and financial affairs on the turn in the markets in global trade. and, his war of words with italy. this is bloomberg. ♪ this is bloomberg. ♪

>> this is bloomberg. ♪ let's get the bloomberg business flash. square falling after word the cfo is leaving. one analyst says her leadership was more instrumental two squares growth and jack dorsey. shares and standard chartered

disagrees with president trump when it comes to the federal reserve. he says the fed is not crazy. it is just doing its job by raising interest rates. he said it's not the fed people should be worried about. >> global growth is going to be , thennext year, this year it was before hand, but what we need to make sure is that we avoid recession. the first thing is to avoid damaging global trade. the microsoft ceo is calling for a national privacy law. it is joining other tech giants who want federal action. he discuss regulation in an exclusive interview with bloomberg. >> i think all of us, including should become from knowing we will be held to a different standard. i've think that is what i think about at microsoft, everything from what is our operation

security posture, ethics, how will we even go and ask for regulation where it will create more of a rule of law and a framework for us to make rye grass, especially in global democracy. >> that is the bloomberg business flash. tom: futures negative 300 earlier. the dollar still weaker. and george still with us as we look at equities and credit as well. brian withbring in pivotal research. there is no one on wall street revenues in advertising reality with the foibles and craziness of the media analog and digital business like he does. he is here to give us an update. the single line in your reporting is google continues to

take share. when does google dominate the media business? >> they already do, right? from a time and at spending perspective, there is nothing like google. unlike facebook, they are reasonably well run. tom: we had a great conversation with paul sweeney yesterday. this is bloomberg surveillance on radio. we had a great talk about amazon, their huge success with the man in the high castle, but i have no clue how do they make money on that. , facebook make money in the future. cbs, you have to sell content directly to consumers, other channels. or athe traditional model, new model as disney has encouraged to go out and stream and pretend to be amazon? >> cbs has been ahead than the

others. they were thoughtful and not participating in hulu. that is good. they are down that path. the point is they are building out properties in a direct consumer model. the business will be as good as the old business, but it is durable. francine: brian, what do you mean durable? who is the biggest competitor for cbs going forward? >> google wants to be a big player in traditional tv. they will be. they have not invested in any meaningful way. we talk about sports, one of the to building out of business. facebook has hired the former head of eurosport.

amazon has hired the former head of fox sports. they will be big when it comes to bidding on sports rights in the next coming years. that is a potential source of competition. google could be, if they choose to be, but the tv business has more players trying to use it. amazon wants to make money with streaming video because they know it means they get a better prime customer, so i totally different set of economics. cbs, if they keep building good content and deliver direct to consumer will leverage regulation to favor retransmission consent rules or take advantage of them rather come the business is durable. buy, you are the closest thing we have two draper in madmen. ford motor just walked away from jaywalker thompson over another firm.

is that a signal of turmoil in the industry, or a one-off? >> it can be both. it probably went away. the interesting thing is that while the big, global creative ideas went to on the calm, but wp kept the media, the production. by media, i mean that planning and buying of media. interestingly, the faster growing pieces stayed with wp. >> is a turmoil? i think it has more to do it for than anything. agencies are cockroaches, not dinosaurs. they will outlast us all. a depressing thought. we greatly appreciate the update this morning. to seee, i will run out

the oppenheimer funds people. francine: looking forward to it. tom: given where we are in the markets. francine: we get lucky because tom will be first from the trading floor. we will be back with our guests and have more on the markets, i to speakover to bal to pierre moscovici. this is bloomberg. ♪

francine: this is bloomberg.

♪ on the assignment on radio shortly. this is what your markets are doing. we saw the stock route spreading. currencies and bonds pre-much calm. using thend china latest gathering to marshal support for their respective cases in a trade dispute that shows no sign of ending. the u.s. slapped tariffs on $200 billion in chinese goods, prompting beijing to retaliate on $60 billion in american products. saidweek, pierre moscovici a rewrite of global trading rules must deal with the issue of excessive capacity in china. by our house haslinda amin. the world malls the

implications of slower growth and a prolonged trade war, the a budgethas rejected with significant deviations, opening the prospects for a showdown. pierre moscovici joins me right now. good to have you with us. do you see the risk of a showdown? >> we are watching global growth and see risk on the downside, but the world economy and the eu economy is quite solid now. our fundamentals are sound or than they used to be. are onent, job creation a credible path. i think that europe is now , and aboveexpansion our potential. we need to upgrade it. for that, we need long-lasting

reforms. we are watching the risks, some from the outside. the most important one is trade. trade wars would create a problem if they were to generalize or intensify. we are watching risks from inside the eu. they are here. they need to be addressed. the rejection of the tying budget, could that lead to a showdown? wewhat will happen is when come back from bali monday , i will receive the draft plan from italy and all members, then we will have to react to this budget. our first reaction was to say there is a risk of significant deviation because this budget as we know it does not seem to

respect the rules that have been designed by all eu member states to. what are they made for? to reduce the burden of debt, and public debt in italy is 30%. that is why structural deficits need to be reduced. we will analyze that, then react and pursue dialogue with the italian authorities. i will be in rome at the end of next week. let's cool down. it is not in the interests of the eurozone to have a crisis with italy. moodommission is not in a to create that. oris not in italy's interest in the interest of the attain people. the italian government likes to speak about a budget for the people. >> italy admitted it will not change its fiscal goals.

why are you still optimistic a deal could be struck? >> because it is my duty to make sure the rules are respected and to do that in a respectful manner and have a dialogue with the government and try to persuade them that it is in their interests, not my interest, to reduce the debt. who in the end reimburses the debt? who is accountable for that? who has the burden on his shoulder? the citizen, not brussels. this is why i will try into the end to convince the government and the finance minister it is in the interest of italy to get closer to the rules. we might not be in full agreement, but we need an effort of rapprochement so we can see italy is still what it must be, a core member of the eurozone. if there are no changes made, would you accept the budget? >> i will take that step by

step. i am waiting for the budget. , thenl analyze the budget we will react and have an exchange of letters with the italian government, then we will see. for the time being, let's not put some more excitement on the fire. and theeputy premier mayor have been harsh and their comments. one comment was beer kratz in brussels are the enemies -- bureaucrats in brussels are the enemies of europe. >> on one hand, we have politics, and on the other, outcome of work. i don't agree with him. frenchman, i come back to madame le pen and the extreme right. i have the duty to be neutral and to act by the rules. the rules are my book. that will be my attitude.

i won't respond to any kind of provocation. i would just pursue dialogue because i love italy, because i italians deserve a government that leads into a strong position in the eurozone. that would be my only line. >> italian banks are under pressure. do you see any risk of contagion? >> again, let's not jump to conclusions. if there is a will, there is a way, that we can still find a way to be absolutely like we must be together at the core of the eurozone. time banks have made strong efforts to improve their on situation. >> growth in the eurozone is above trend. some have said that won't be the case if you don't solve the issue in italy, in greece. your thoughts on that? >> no, that is not essential.

what is essential is potential growth, 1.3%, 1.4%, races, and for more structural reform. i will take the example of italy. i understand some governments for to fight poverty or act inclusion or invest more. they can do it with a serious budget. it is a matter of political choice. the true problem for the economy is different. productivity.ift the productivity in italy has for decades, and this is white attain growth is too slow. each of our countries have its own problems, failures, difficulties, and each of them needs tailor-made reforms. commissioner, italy on the

one hand, greece on the other. is the government in greece for right and asking to scrap the penion cutt -- cut?nsion >> i am now happy this program era is behind us. the budget of greece, it will be the first time it will exist, because before it was outside because it was in a program, so the situation is getting better. my answer is the following for the pensioners. first, i will discover the budget. if there is a surplus that is higher than what is required from greece, 3.5%, already very high and then we will have to consider how the surplus can be

used, but first and foremost, we need to know what is the primary surplus come of the budget surplus for greece come and this is why i went for the greek budget on monday, then we will have dialogue to know whether this can be used this way or that way. of thet greece is out program come it is free to do find its own policy. it would be legitimate there are some social measures, but it is not up to me to say about the pensions. in your view, do you think the creditors will let the plan go through? what is the sense you are getting? understandditors they cannot ask too much from the greek people, but it is time

now that the greek people, who suffered so much during the 27%,s -- unemployment youth unemployment at 50%, pensioners who lost revenue, families who saw children go away because there was no job in greece, it is time they see that their efforts have borne fruit, the creditors are human beings, not machines, not all of them pro-austerity, so if greece comes with a credible plan respecting the commitments of so.ce, then it can become first and foremost, let's be credible. i am waiting for a credible budget from athens. aware thaty are first they must respect their commitments, then we can discuss. >> one final question.

should investors be concerned? >> there are solutions. we are working on it. on a soliding banking system all over europe. we have reinforced this with the banking union and need to do more on it. , we thankmoscovici you for your insights today at the imf world summit. >> thank you. a feisty interview with pierre moscovici. still with us in new york, george and david. , george, at the concerns worldwide, we focus on china, the fed, emerging markets. where do you put europe and all of this? >> we are looking at the market through a fixed income lens.

we particularly look at the health of the corporate sector and the ability of companies to continue to service their debt. from that perspective, although there are concerns about growth overall, the debt-paying ability does not seem that concerning. what is very interesting in the recent selloff is a marked move both in government bond prices that have come down and a material spike and equity volatility and the drop in equity prices, but when we look at the risk premium between corporate bonds and risk-free ,onds, both europe and the u.s. it has been an orderly transition. spreads are wider and prices are a bit lower, but not by much. that is encouraging to us. it underscores the message that the fundamentals, the economic fundamentals, at the corporate level are still quite healthy. companies are still generating

-- meanine: right, so does it you are high-yield in europe? >> high-yield does look expensive. our central message to investors around the world has been be in capital protection this year. rates are moving higher. they are moving higher faster in the u.s. than elsewhere, but moving higher, so that implies being in shorter maturity securities. that has been our central message. from that perspective, the front end of curves may not look arely cheap, but they relatively attractive from a capital protection mode. high firmly falls into that category. a little extra yield, and otherwise reasonable economic backdrop, and you are protected from that perspective.

you are not immune to all risks, but protected against some of these volatility shocks and other markets. francine: i am looking at the continuing,urope but at a much slower pace. youere talking about what saw as opportunity in the selloff market, david. do you wake up this morning and buy anything? >> absolutely. the average stock in the s&p 500 is 16% off its 52-week high. that is spot on for the declines we saw in february this year and again to we are back those type of valuations and buying opportunities we saw earlier this year that some people were able to capitalize on. the stock backdrop, could go to 20% off its 52-week high, but if you have cash on the sidelines and lamented you

have not put it to work fast enough, this gives you that second chance. francine: thank you both. george and david state with us. -- stay with us. the most powerful hurricane to hit the florida panhandle is not finished yet. it brought a storm surge that turned neighborhoods into lakes. while michael has been downgraded to a tropical storm and is headed towards the carolinas, which haven't recovered from hurricane florence's record flooding. joining us now is bloomberg's climate policy reporter. what do we know about what happens next. this is the strongest hurricane to strike the u.s. mainland since 1992. >> the next day or two will be important. this will give officials a chance to get into these

neighborhoods and find out how much damage there is and what the casualties are. we know the storm is extremely strong. down, so we don't know how bad it was. initial indications are it was very serious. francine: how much damage can the winds inflict on the electricity grid? , so we don't know how bad it was. day before, fema was predicting widespread power loss. day before, fema was predicting widespread power loss. florida in particular has been through this, not this part of francine: can we be sure it is

bypassing the cities and heading on to rule georgia? >> we know the track now. we don't know the part of the carolinas that will be hit. these areas in north and south carolina are still recovering from florence. if they get hit again with severe flooding, you could have a real problem, especially for all the homes destroyed. .he storm is not done its affect on the northern part of the southeast could still be really bad. francine: thank you so much. we will have more on hurricane michael. david will be back with us.

in the meantime, this is what your markets are doing. it is our biggest story of the week. we saw the huge selloff that started in the u.s., then asia, and now europe. in the meantime, this is what your markets are doing. it is our biggest story of the week. we saw the huge selloff that started in the u.s., then asia, and now europe. it is taking a respite for equity investors. if you look at what people are selling off, there is a lot of cautious trading. i'm looking at metals and commodities come a but court european bonds gaining, treasuries edging higher. this is bloomberg. ♪ es edg your markets are doing. it is our biggest story of the week. ing higher. this is bloomber

francine: this is bloomberg. ♪ on radio shortly. let's get to first word news. forramatic moments astronauts. there was engine failure minutes

after the launch from kazakhstan . crews say theye are in good condition. hopes for a sweeping post-brexit trade deal with the u.s. are unrealistic. even prime minister may's closest allies realize any deal would give priority to u.s. interests. the u.s. is the biggest single destination for british exports. turkey will decide tomorrow whether to release a detained pastor. that would go a long way to resolving a domestic crisis. it could bring respite to the battle lira and reduce chances for another rate hike. the u.s. imposed sanctions over his detention. to takeoving , boosting its market

its chinese joint venture to 75%. is the first auto company to take advantage of a policy that let's foreign corporations to take control. companye the first moving into that, but it was a long-term strategy based on the framework in china. sometimes you need to develop and have the trust to use these opportunities for the future. it builds on the trust of partnership and market development, which will grow in the years to come. >> global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you. let's get back to the global equity selloff. still with us or george and david. let me start with you, george. if you look at the concerns and

the splits the between equity markets, but also bonds, em currencies have not been touched in the last 48 hours. what does that tell you? fundamentals are stronger than we thought because of the recent selloff, or they just got lucky? >> i think they have had their price adjustment. i don't know if it is lucky, but we have been through a wave of risk off in em earlier this year, so that valuations do look a little better. that is particularly true in the bond market, where you have seen tighter liquidity conditions. but cost of dollar funding has gone up. big global borrowers in particular, the more credit countries have been hard-pressed to raise dollars. that has manifested itself in yields and lower

prices. yields and lower prices. i would argue that is not fully out, but pretty far advanced at this point, so there is not necessarily new news there. the new news is liquidity conditions get closer to core develop markets and that is when you see volatility and one of ae reasons you have seen spike in volatility over the last couple of days. david, how do look at liquidity in the markets. >> on a scale of one to 10, probably a seven. not so much the fixed income markets, but we know the federal reserve is retracing a little bit, but the key is real fed funds are still closer to zero been that, and that tells me the combination of that along with real money growth, inflation-adjusted into growth still suggests ample liquidity

and that nobody will be talking about a recession until early 2020. francine: i have some good charts to show you next. thank you. david and george stay with us. here are the charts we have been using on tv. first of all, the oversold equity spikes. you can see when you retrace the volatility that it is distant from the high and low's in the february panic. here it is. bloomberg users can interact with the charts. and stealgtv some of the charts. this is bloomberg. ♪

the steepest selloff has rolled through europe and asia as trade wars impact sentiment. balias the imf gathers in to marshal support for the respective cases in the ongoing dispute.

is the standard chartered chairman who spoke exclusively to bloomberg this morning. we have continued to do very good business and grow our in general,ia, em but one thing i want to mention is that if one looks at fundamentalsfundamentals, markes differentiate across countries depending on fundamentals. first, market sentiment makes moved in an undifferentiated manner vis-à-vis em, but moved in an undifferentiated manner countries were stronger fundamentals are able to do better and earn more than countries that have poor fundamentals. europe, for example, has external vulnerabilities. asia and em are in a better position than other em areas. that should not lead to complacency.

that is high in emerging markets in asia, countries like china, asia have highn household debt like singapore, thailand, in malaysia. those are things that need to be monitored. overall, the fundamentals are healthy. the likes of goldman sachs and 2020 is the inflection point and could see a recession. do you see that happening? >> i think it is hard to predict where the world will be in two years, but we should take advantage of the present situation. the present situation is still good in the sense that global growth, although lower in terms of the recent forecasts the imf has issued, but global growth will be lower next year, this hand,than it was before

but still the growth rate is pretty good. what we need to make sure is that we are for that recession. for that, the first thing is to avoid damaging global trade. francine: that was the chairman of standard chartered. this is the chart looking at the vix rising after a muted summer. it has revived tensions for volatility trading. george, is volatility back, and is it the good kind? >> volatility matters for fixed income investors. there are two transfer mechanisms. one is the correlations between markets. volatility has spiked meaningfully. fixed income volatility has also moved up from say 45 to 55, so a material move. the true stress levels are not until you reach 70.

fixed income is taking this in rates haven though gone up. implied volatility is still somewhat muted. the other impact is when we look at risk premiums in credit, in corporate credit specifically. lastu look back over the 10 years, you have had 40 specific instances where stock prices have dropped 3% or more in one day, the subsequent five trading days, credit spreads have tended to widen, but it is pretty muted. overall, spreads wider, but not too bad. francine: thank you. we continue the market fallout. this is bloomberg. ♪ ♪

fed is the says the

source of the selloff and is crazy for raising interest rates. a global stock route, the worst a lot since february. it has spread throughout the world. the next big test, inflation. cpi numbers out this morning. will inflation justify the market turmoil? david: welcome to "bloomberg daybreak." michaelht the storm was , but it turns out there was another storm. alix: storm fed, storm trump, storm earnings, storm yields, storm what? david: storm tech. alix: good one. assets your quick cross chat. futures down after the worst a yesterday since february. euro-dollar of.