i'm mark crumpton. president trump is meeting with congressional democratic leaders at the white house. although the president continues to blame them for the partial government shutdown, he said he will work with them. during a cabinet meeting earlier, he said the new year is going to be very good although possibly controversial and tough. he also said the u.s. needs a physical barrier on the southern border. a border will pay for itself because illegal immigration cost a lot of money. the president says he is ready to meet with kim jong-un to discuss north korea's nuclear weapons. the president said he just

received a letter from the north korean leader. earlier mr. trump tweeted that kim has pledged not to make or test nuclear weapons or give them to others. amid a surge of migrant crossings from france to england, it is questioned whether the migrants are genuine asylum-seekers. speaking during a visit today, he said migrants should seek asylum and other safe countries along their journey including france. >> there is a need to protect human life. this is one of the most treacherous waters there is. the english channel is 21 miles in length and very treacherous and dangerous. we need to set a clear message to people that if they take this journey, they take their life in their own hands. >> british and french officials have been disgracing -- discussing increasing controls of the channel.

russian emergency officials say the death toll from the partial collapse of an apartment 28 afterhas risen to more bodies were recovered from the rubble. residentsery let 13 still unaccounted for. a section of the building collapsed before dawn on monday following an explosion believed to have been caused by a gas leak. officials have said the prospects of finding anyone else alive have diminished sharply. temperatures have been minus four degrees. global news 24 hours a day on air and at tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton it. this is bloomberg.

>> nasdaq has been on a roller coaster. upis now down after being have a percentage point. gold is now down after having been up quite a bit. >> a day of reversals and you see it in the other asset classes as well. now up by two a half percent. the dollar was stronger but not against the end. etfnted to point out, the

that tracks brazilian stocks is up 6%. >> the brazilian president is taking a stand and giving people hope. president trump is meeting with democratic leaders. this is a critical face-to-face that comes as day 12 of the shutdown grinds on. let's bring in our white house reporter. what do we know about the meeting? it seems like the two sides have only gotten further apart over the past 12 days. there seems to, be some conversation between the democrats and republicans. an offer was made for 2.5 billion. the democrats have been looking for 1.3 billion to 1.6 billion.

the president just had a cabinet meeting. he said i would not accept a the vice2.5 which president suggested. i want 5.6 billion. done last friday, we are talking. our offer stands. none if anyeen communication between them. >> when you talk about the democrats, they are being represented by nancy pelosi and chuck schumer. united is the party behind nancy pelosi? effort toa concerted recruit a younger nonwhite speaker. >> at this point, she will be elected speaker. this is an issue where the democrats have been in lockstep with each other.

have been that way for the past two years. we will see what happens as things move along. nancy pelosi won her leadership fight. she will continue to be the leader of the party. the democrats are behind her. there has been no faction at this point speaking up at that could change at any minute. >> the government shutdown could take a long time or short time to resolve. are we getting any sense about how long this is going to go on? >> right now, it does not look like there is any end in sight but that is often how these things go. usually, the way these things and is that one party gets bludgeoned to death politically and they have to cave. nobody is taking that much political heat. it could be because it is the holidays and people have not been paying attention.

>> that could change when we get to january 11, which is the first pay period that the government workers will miss. >> great point considering it is a partial government shutdown. thank you so much. now coming up, the end of 2018 was unpredictable when it comes to e.t.f. trading. what does it signal for this year? ♪

>> a quick check of the latest business flash headlines. ned flicks has made it official they are hiring spencer newman. they intended to fire him unrelated. netflix current c.f.o. said he

plans to step down. shares of tesla are falling today. it is cutting prices on its electric cars by $2,000 after delivering fewer of the model three sedans and will make up for the u.s. tax credit that has been cut in half. that is your business watch update. scarlet: you want to read the tea leaves. here to provide intelligence. eric, when we look at flows, you have to look backwards because you don't get the most recent data. what do we know? >> you think wow everybody is bullish and buying these e.t.f.'s. it took in $105 billion. normally flows do move with performance and a lot of those

are in equity e.t.f. scarlet: why? >> on the flip side, active mutual funds lost $400 billion in 2018. that will be a record amount. you can see the blue bar. that is a swing from active to passive, in a year where active as saying markets look volatile. i think when the markets are flat or low or down, that's when people become more obsessed on fees. if you are in an active mutual fund for a long time and interested to go in this, you were trapped because of unrealized gains. gave people an excuse and make the conversion. so if you look at the whole hing in concert, it is bearing signals. the movement to smart data says

active is alive and well. so that is accurate. that's value, that's growth. active is having a home in this environment, but just in the orm of smart-driven. >> i can't help myself, i apologize in advance, we are eeing a lot of risk activity really high short interest and high options activity. very bearish, no? >> look at that chart. over several years. we have never seen this kind of a buildup in a bearish position. this is not retail -- >> this has been going on forever. >> absolutely. but that is not retail investors. there is a lot of smart money and clearly betting on something big happening.

half is short and half is long. you have a tug of war going on. both sides can't be right. the fed gets this, those shorts are in for some pain. pain what is what they have gotten. this time might be different. they are thinking it's different. if some of the shorts start to get covered, it could be a nice tail wind. >> why is it difficult to short junk bond using h.y.g.? >> h.y.g. will have a borrow cost and that cost will go up. people will create new shares and short them immediately. that's why the flows in that is interesting. and it's not that pricey. people weigh these options. this is going and getting individual bonds. h.y.g. will be looked at as

cheaper and the options market is essentially what is competing. nd h.y.g. is backed. >> liquidities. we could get into a whole other conversation. i'm glad that we have brought up high-yield debt. the industry has something for everyone producing heavenly. check out angel. >> the high yield bond is known by angl. corporate bonds have been downgraded and often over sold because they can only buy investment-grade products and may be right for rebound. it comes from the commodities

and banking industries. all the bonds were issued in the u.s., quarter of the companies are based overseas. the fund has $760 million in assets and expense ratio of 35 basis points. angl has crushed high yield and investment bonds by 25% and 35%. the fund has a yield of six%. it gets a yellow light in the traffic light system with a notice for less liquid holdings, namely its high-yield bonds. >> that is pretty juicy. >> for now. let's get a check on the markets. and right now the markets are down. the dow indecks more than three times of 1%.

10-year yields. d euro versus the dollar and crude still up. we'll keep track of it. ♪

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> this is countdown to the close. we are joined at this hour by joe joining us, happy new year. >> happy new year. not so happy if you are the manufacturing sector. >> i see what he did there. joe: to me, looking at que four of last year, lots of anxiety and showing it up in the data.

weak chinese p.m.i. ueo sliding into recession. y favorite number was the u.k. p.m.i. factories were stockpiling. growth for the exact wrong reasons. not the prettyy way to start the year. >> everyone knew there was a likelihood that tariffs would be imposed. there was a lot of stockpiling of goods. going to be payback at some point. joe: will we get a policy response. is the fed going to commit to an easier path. will china do a real stimulus instead of something at the margins or the e.c.b. after that set of data, the own us is back on policy makers. >> we'll see how that plays out. how much ammunition?

>> that's another discussion and we could get into hours. let's looking what is going on in the markets. up for the nasdaq and the best performer. over taken energy as the leading advancers. energy has been up for most of the afternoon given the turnaround in oil prices. on the flip side, real estate investment off by 2.7%. utilities greater down by 2%. and defense sectors and household and personal products. but you have others, too. go figure. find a theme there, i dare you. we are going to figure out the narrative. e nasdaq is up by a tenth of 1% and the s&p and dow are negative. we are looking for big swings this year and not seeing the big moves today even as we have it

between gains and losses. let's take a deeper dive into what is doing. >> let's look at the 7.7 billion e.t.f. tracking the stock market there having its best one day since october. that said for the year. still down 2.7% even there is a new president. he has a long way to go to convince investors that brazil's economy is on the mepped and impose the necessary reforms. another thing was the state-owned utility company. its shares are up more than 20%. and this came amid speculation that it was going to be privatized and the c.e.o. maintained his spot at the top. >> this is one shot to look at in 2019. one of the reeg dogs, ge.

at the high over the last three days. 12%. on that point on paper, best three-day stretch since april, 2015. he stock was down 57% last year. worst year on record. as turnaround hopes have failed. there could be another reason that investors are looking at this stock. if you go to bloomberg and use the financial analysis funks, earnings per share in 2017 above one-tenth per share and falling to 69 cents. and 2019, we are moving back in the right direction, 80 cents and 90 cents and 2021, it is far out there. so ge can take these numbers in any way if their guidance is somewhat positive.

and the near term buyers for ge will be correct. time will tell and it is a risky bet. >> i look at how bad sentiment is in general as it relates to the u.s. economy and forward outlook and what a turn it has been from a couple of years ago. soon after president trump's election victory, we had a record gap between the hard data, the retail sails and g.d.p. and soft data, surveys and consumer sentiment and that was the gap between hope and economic reality as was written back in january of 2017. right now for the first time in trump's presidency, we have the soft data doing worst than the hard data and right now, we are disappointed on everything you can think of. two places in your silver lining where the u.s. economy is achieving expectations which is

the labor market and households. but with economic surprise indexes not only in the u.s. but all over the world. what have investors been doing? piling into long bonds. 0-plus year. that is the longest stretch on product. >> thank you for setting that up. if you look what is going on in the markets, banks are the best. the s&p 500 energy sector imagining 2% right now off its highs. if you look within the index, 30 members, only two are lower. this follows prices as well. >> this is about oil prices and what an amazing turnaround. w.p.i. crude oil was down 2.3% and then it was up more than 5%.

now we are somewhere in the middle of 2 1/2%. that is so amazing. >> another area we saw in big reversal and it was down close to 2%. it is kind of boring, all the fun is gone. >> you look at the reversal that we are seeing. today is the 18th straight day and look at the s&p 500 futures, what is interesting, even if you look at the christmas period from one point until the end, it looks like nothing had happened. but very much there was a lot going on in there. and in days like today, throughout the day you are seeing plenty of market activity. >> one place it hasn't been boring is in the banking sector.

it is up today even though we are seeing volatility more than even oil. yields are down, what is going on? >> i don't think you are alone that you don't know what is going on. you look at last year, and a lot of people were looking at the financials as the sector that was going to excel. the narrative was that will yields were going to be higher and going to help financials. i think a lot of people are trying to figure out what is going on with the banks. >> thanks for sticking with us, we bring in david. david, weigh in here, what's going on with banks, how do you explain the rally we are seeing in these bank stocks on a day when yields are lower? >> if you look at what happened over the course over the last month, you saw banks do badly as a group, as a sector. hat is the group that performs

least well in a recession. and the fact is they will bounce back because maybe the recession is not imminent and because they are quite good as david payers and look at the yield available on them. the fact that they are performing well today is an interesting area that could bounce back over the next couple of months because it depends what happens in the economy and not related to the yield curve today. >> lots of bad data around the world today at least on the surveys. on the fed's recent decision and stepping back, do you expect to see it go back more as they look at markets and global economy and say two hikes is being optimistic of what they might be able to do in 2019? >> difficult to predict. but what the futures and options markets suggest. if you look at the options

markets, no future rate hikes this year. as a result of that, you could there's a push and pull between what people are expecting and what the fed has said. one of the things that sent the market down lower in december was the fed's almost robust view of the market that seemed so out of sync with what the data actually was. today we're sort of saying, market's going to do well, we expect more rate hikes. we don't expect any change of path. and yet the data you cited indicates that that certainly is probably a very optimistic outlook for the market right now. my view is that the fed is going to have to look at what it should do in light what have the actual data prints are over the next several months. >> as we consider that, we also have equity market closing with gains across the board. on a day in which we gapped lower at the open and then went on this rollercoaster ride and were split for most of the day, we managed to close up. >> it looked bleak when i woke up this morning. i couldn't believe it because i saw futures before i went to

sleep and they were green. then it was like we went back to the late 2018 selloff. s&p on pace for its best year since 2017. >> narrative still in the works. >> let's take a deeper dive into today's action. with everyone. lisa, get us started. >> i'm looking at the bearish signs in the bond market. in particular, rates now versus implied t-bell rates. in six quarters or so, you can see that that gap has actually inverted for the first time in more than a decade. this is something the fed does look at to gauge the u.s. economy, when it inverts it usually foretells some sort of down turn and rate cuts going forward. so definitely today the top -- talk was rate cuts. the fed pausing this year in terms of rate hikes. and going forward, stimulate. you're also seeing a similar reaction in the market between the gaps -- between the yields of two-year and five-year treasury yields. going down. also into negative territory.

earlier today it had inverted a couple of weeks ago, back there today. definitely bearishness across the board. >> you're taking a look at bearish signals and bonds. we have similar signals for stocks. that picture wouldn't seem to jive. risky sticks selling off as bonds sell off as well. this is a pretty interesting chart. a very powerful chart it. shows the s&p 500 on a monthly basis, out of the 2009 lows, the beautiful bull market. all the green bars represent up months. the red bars represent down months. more green bars than red bars but on last year's volatility we see the s&p 500 has fallen below that trend line. the interesting thing about a trend line is not to show the trend. that's pretty obvious. it's to show when the trends starts to reverse. this uptrend has reversed pretty strongly. the sellers really trying to take control, suggesting there could be more down side ahead in 2019. >> one thing i'd like to do to

try and answer scarlet's question, put a narrative on what we saw today because it was some messy price action. although markets were volatile, one thing that stood out today was actually that last year's winners and low volatility stocks, that's the teal line there, absolutely got slammed today and it was your high beta, your more volatile stocks that were doing well. last year we had a popular anti-beta, low volatility e.t.f. that had its best year since 2008. and why we kind of care about this kind of price action is that when we generally see the low beta names doing well, that's a sign that credit spreads are widening. financial conditions are tightening. ,here's a great chart from this a forecasting center, that shows that there. we have all three moving together on a normalized basis. so what this shows is at the start of 2019, investors are exiting the safety plays that they were hiding out in if q-4. it remains to be seen how much appetite they'll have for those

more volatile plays going forward. >> value yanlt effort. well done -- valiant effort. well done. i'm glad he got me off the hook. i can now piggyback on him. >> i couldn't come up with a narrative either. still with us right now, david of citi private bank. you heard what luke had to say. we're basically getting a reverse ale of the fourth quarter of 2018. what this reflects is a lack of conviction out there. talk about the tug of war that's taking place here between two competing narratives. >> luke's analysis is exactly right. you have all the defensive plays, doing very well. especially in the last month of the year. now the question is, are you going to have a bounce or a real recovery? the bounce i think is pretty much in there for the reasons that luke laid out. but if you take a look at 2019 from the investor's perspective, what citi private bank is talking to investors about is we expect earnings to be up during the course of this year. we don't think the current narrative, which is an imminent

recession, is correct at all. while we do think it's very important to rotate to safer assets in the bond market, to safer -- larger equities that are less indebted, the fact is we think the economy's going to grow through the year with a more volatile path and a higher equity price at the end of the year. we think when you have a situation when a market is down nearly 20%, as it was in december from the peak of middle-last summer through the end of the year, that is a time to add to core portfolios. when you're feeling most discomfort in some ways is considering adding at that point. that's what we're advising investors to do now and we will be advising them again in the event that markets were to take a further tailspin. >> one of the big debates i think we saw in 2018 was about whether historical correlations between bonds and equities would persist. because we saw a few periods of volatility in which we saw simultaneous selloff in bonds and equities. when you talk to clients about rotating to safer assets, including bonds, is it premised

on the idea that for the most part you will still get that hedge benefit from being significantly in both asset classes? >> good question. there yes. that's -- >> yes. that's absolutely right. and an essential point for clients anywhere. this idea of asset allocation has two components to it. to where you want to put your money. which equity markets, which bond markets. that's very important. then of course the question of where you want to put them in a risky time. so when you take a look at the correlations you were referring to about what happens with credit spreads in difficult markets, and assuming there's a recession ahead, the fact is you want clients to be invested in high-quality bonds and very high-quality equities that are going to be less susceptible to the credit cycle trends that tend to magnify down turns. that's what we're advising clients today. use this opportunity to improve the quality of their portfolios. >> to that point, if you see stocks rallying from here,

adding potentially, seeing upside bear, and you also see bonds as a balance aft, do you see bonds -- ballast, do you see bonds selling off, if stocks do rally, as you expect? where are they headed? where are 10-year treasury yields going to peak? >> it's funny. when we were putting together our work last october and november, we thought they could be as high as 375 which seems just impossible to imagine now. but one could imagine in a year when things normalize, that rates could go back up to between 315 and 335 on the 10-year. pretty easily. and that assumes that markets normalize and that we do not have the trade war that could happen if full tariffs go into effect sometime later in the year. that's the wild card that we have to leave on the table. this tug of war assumes that there is no trade war. it clearly will be lost in the event that the trade war goes into effect. we have very difficult and negative views about the impact that full trade war with china

could have on earnings and therefore on global growth. >> i want to go back to something you just said that was interesting. which is that $3.75 on the 10-year seems a distant memory. almost inconceivable to get up there now. talk to us about the sentiment shift. as recently as late this summer, bonds were just universally hated and now it seems like everybody loves bonds and people could see the great long bull market survive. so where do you come down on this question? >> what we've seen are pretty exaggerated moves. what's happened in december is an incredible rush to safety that has brought the 10-year yield down below $2.70 at one point. that to me is this fear factor. the rush to quality or inequities, defensive equities. so we think that's overblown and clearly what's being discounted now -- i'll give you an example of that specifically. which is, look at the number of analysts' revisions, negative

revisions on earnings for the fourth quarter. we think that that is going to be way too pessimistic and when you look back at what analysts have said about the fourth quarter of 2018 and what the prints are, that the earnings will be much stronger that be the analysts actually saw and much more indicktive of what may happen in the first half of 2019. so that's where the pessimism comes in. but what you were talking about earlier are credit spreads. and that to me is what we have to be more concerned about, which is if you think about what could happen, given the issue arns of -- issuance of debt and the debt market now is a $5 trillion market today versus what it was, the corporate debt market in 2008. it's twice as large. with three or four times the amount of lower rated paper. so the issue is going to be, what is credit quality, what is the cost of credit going to be? and that could rise significantly in a recessionary market. we do not want our clients to be in that marketplace at that time. this is the yin and yang what have we're dealing with. >> absolutely.

you called trade the wild card for this year. in terms of what investors are pricing in and how things could fall apart quickly. what about the government shutdown, i know it's a partial government shutdown, we're in the 12th day, no one seems particularly concerned about it yet, as long as we look at the market. it doesn't seem like anyone's doing anything about it. what could be the longer term economic impact, though, if it does persist as president trump says, it could be a long time before this gets resolved. >> sure. so there are two direct impacts. that a -- one is actually on the consumer. the fact is that the people who work for the government are a large group of people. a large group of our population. and they're not going to be able to spend. clearly their ability to implement government policy and to generate all of the buying that takes place from the government could also be impacted out a month or a month and a half. so there are real impacts that can happen. people will also tell you that once the government reopens, those people will be paid and those orders will be placed, fair enough. but the bottom line is it can

have an impact in the interim. certainly a confidence impact as well. >> absolutely. david bailin. thank you for joining us. happy new year to you. that does it for the closing bell and for me. next on what you missed, we'll be looking at tesla's fourth quarter delivery numbers which fell short of expectations and the stock took a hit result. this is bloomberg. ♪

>> live from bloomberg world eadquarters in new york.

here's a snapshot of how u.s. stocks closed today. up amazingly after a really tumultuous session. >> the question is, what did you miss? >> standing firm on the wall. president trump insisting on a boarding wall ahe had hed of a meeting with congressional leaders to break the stalemate over the sticking point of the shutdown. global merchandizing weakness. china and the euro area reporting disappointing economic data ahead of u.s. manufacturing numbers out tomorrow. price cuts taking tesla out of the fast lane. the car maker delivered fewer than expected vehicles in the fourth quarter. and it also announced that it will cut prices. joe: president trump currently meeting with leaders about border security as the partial government shutdown enters day 12. earlier today, during a cabinet meeting, the president hinted he wants to cut a deal to reopen the government. for the latest, let's bring in our bloomberg national political

reporter. is there any end in sight to this? is there any sign of any emerging consensus, the two sides coming to the middle, or are they all pretty dug in? reporter: the short answer is no. there's no indication that this government shutdown is coming to an end. there's no sign that the two sides are getting any closer to a resolution. we're in the 12th day of the government shutdown and the battle line remains as they ever were. president trump is holding firm on his demand to get $5 billion for the construction of a brder wall. on the u.s.-mexico border. democrats are dead set against that. they view that as expensive, immoral and unnecessary. in the words of speaker-designate nancy pelosi. they're willing to give $1.3 billion for things like fencing and border security that stops short of a concrete wall. or the artistically designed steel flats that the president has asked for. but there's no sign of resolution. lisa: we had a televised cabinet meeting earlier in the day.

this is one that is closed to the press but do we have any sense of what the tenure is in there? because you're bring -- tenor is in there? because you're bringing in soon to be newly instated democratic leaders of the house and president trump and the republicans. is there kind of any -- i don't know -- agreement or is it ker toughle? reporter: we will soon find out the answer to that. i think some of them will exit and speak to reporters at the white house. i can tell you this. democratic leaders going into this were very pessimistic that it would lead to any kind of breakthrough. they viewed this as a briefing which is what the white house called it. they thought it was going to be a one-way dialogue where the white house was almost lecturing them about the importance of the wall and border security. the president has called it essential. and they didn't expect it to be a dialogue. they didn't expect it to be a conversation or a negotiation. so from the white house's perspective, this was an attempt to appear engaged in the conversation and to not look asleep at the wheel while the government is in its 12th day of

a shutdown while some 800,000 federal workers are either furloughed or working without pay for the duration of this. joe: i want to talk about something slightly different. that's internal democratic party politics. and the fight over pay go . i'm not sure what that is. i just know that pelosi supports it and alexandria ocasia-cortes is against it. what does this say about fizzures in the party? reporter: pay go is a rule that the house has used in the past that would require that any legislation that comes to the floor of the house offsets itself. otherwise, not add to the deficit. this was a demand of the centrist democrats in 2010 who reimposed this or imposed it at the time and now they have demanded it as part of the house rules package which pelosi has decided to give them. in an effort to get their votes for this rules package. to pass the house. progressives don't like this for a number of reasons. they think it's bad economic policy. they think it's ok for the government to be able to run deficits and to be able to add

to the deficit if it's in service of a good cause. like in their view medicare for all or free college tuition. they think those will have good long-term impacts on the country. and the second reason is they view the reimposition of pay-go now as unilateral disarmament after republicans didn't abide by any kind of fiscal responsibility while they were in charge of the house. they view this as the democrats surrendering their arms in service of fiscal responsibility, when the opposition didn't really do that. lisa: i'm wondering, tomorrow nancy pelosi is going take her seat as head of the house. house majority leader. i'm wondering, what can we expect along with this? will it be mostly ceremonial or will there be something substantial? reporter: the house speaker, i would say. not the majority leader. steny hour, the number two, in the -- steny hoyer, the number two, is the majority leader. we can expect a vote on that rules package. as joe mentioned. alexandria ocasio-cortes is against it.

another democrat from california is also against it. we don't have any indication that there's going to be a massive outpour of opposition from progressives. the progressive caucus is willing to accept the rules package overall. even though they don't like that. that's one thing that will happen. and on day one, which is tomorrow, of the new congress, speaker in waiting, nancy pelosi, has said that the house will pass legislation to reopen the government. without funding for president trump's wall. this legislation will easily pass the house of representatives. because democrats have no desire to give president trump his wall. there's no appetite among the democrats in the bluest of districts to the reddest of districts. this unites them. then it goes to the senate where mitch mcconnell, the republican leader, has made clear it will not consider any piece of legislation that trump isn't willing to sign. mcconnell doesn't have the votes to pass legislation with the president's wall because that requires 60. so we are at an impasse. lisa: thank you so much. coming up, global manufacturing

weakness. will u.s. data set for tomorrow follow suit? we're breaking it all down. this is bloomberg. [note]

lisa: it is a time to look at stories trending across the bloomberg universe. new hedge funds are having a hard time raising new capital. only one is due to begin this year with more than $1 billion in commitments. the next biggest being led by industry veterans or closing or terminating hedge funds. hedge funds haven't made much money since the financial crisis. $11.1 billion flowed out of hedge funds in the first three quarters of 2018. bloomberg.com has a feature on some of the coolest travel opportunities in 2019. if you want to feel jealous, our reporters scanned the globe for

new hotel openers, new restaurants. amongst the 21 locations are norway where a number of luxury hotels are opening in the country's southern cities and its rural north. visit in the sum when are the days are long. and tic toc on twitter is looking at the best cities for people to keep their new year's resolutions. more than 180 cities were ranked on employment outlook, personal debt and gym availability. topping the list, san francisco. gulfport, mississippi, is the state's second largest city and it took last place. you can follow all of these stories on bloomberg.com and on tic toc on twitter. joe: starting the new year with a global manufacturing slump. we'll talk more about economic data that we're getting. let's welcome bloomberg's economic senior u.s. economist. pretty bleak around the world. are surveys like this, we get a snapshot of the world, is it

backwards looking indicator, is it soft data? how should we read this data? >> the more of an overreactive indicator. sentiment surveys do not necessarily reflect what's going on in reality. so in the u.s., for example, if you look at different manufacturing surveys, their headline indexes tend to overreact to bad news. such as trade tensions and things like that. in reality, if you construct, say, an adjusted index which reflects more of what is going on with production, new orders, employment and things like that, you will see that it's not such a dramatic decline. lisa: is a slowdown in china manufacturing a good or bad thing for the united states? >> well, i think if you think about all the different things, it's probably a bad thing. lisa: the reason i ask --

>> sure. if you look at overall demand in the world economy, that is probably reflective of that. it's not such a good thing for the u.s., i think. lisa: if they're mothering less, they could potential -- manufacturing less they could potentially import more from elsewhere. you don't buy that? >> sure. i think it's more about the sentiment and the global economy overall. this is probably the most -- most of the concern for the federal reserve. rather than the export-import sector which is a small part of the u.s. economy. joe: i want to drill down further into what you said about the construction of these surveys. we're getting i.s.m. manufacturing tomorrow. it's expected to dip. but not plunge. from 59.3 to 57.5. what you're saying is essentially people look around the world and they say, things are looking pretty bad. but if they were to actually sort of tally up their own business activity, their sales for the month, the amount of people they hire, the price they're getting, that data is more solid and so we would expect the i.s.m., which is less

sentiment-drivenen and more hard numbers driven, to hold up better. >> correct. if we look at the regional surveys, so we will see exactly that picture. so the headline indexes, for example, the empire state survey index dropped quite significantly. but if you construct an i.s.m.-adjusted index from the subindexes on employment, production, new orders and so on, you will see that the decline was so much less pronounced. and that's what we expect to see in the i.s.m. survey itself. joe: i remember in the immediate wake of the trump presidency, there was a big theme of hard data versus soft data because the surveys shot to the moon and the hard data, the actual on the ground, was ok. it improved, i think. but it wasn't anything spectacular. with the weakening of these surveys, would you expect that that is a precursor to weaker hard data or is it going to be sort of muted and less volatile, just like it was post-election?

>> depends on duration, i guess. kyo still again see discrepancy between survey data and the actual hard data. just in this case it will be weaker sentiment. but still solid, hard data. it really -- it's really a big question if that filters into the hard data. lisa: thank you so much. definitely interesting to keep an eye on that. i do want to mention some breaking news that we're getting. information from some of the meeting members who were at that in washington, d.c. kevin mccarthy saying they are coming back, the house on friday, to continue this. do not finish discussing on the border, so still a lot at stake. day 12 of the partial government shutdown. it appears there does not seem to be a resolution in sight. this is bloomberg -- this is bloomberg. ♪

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security bill until february 8. using his exact date. we have given the republicans a chance to take yes for an answer. we have taken their proposal unamended by any house bipartisan amendments. but just staying true to what the senate has already done. our question to the president and to the republicans is, why don't you accept what you have already done to open up government and that enables us to have 30 days to negotiate for border security. democrats have been committed to protecting our borders. it's the oath of office we take, to protect and defend, that has been very important to us and we have committed resources to it, when we were in the majority,

and we'll continue to do so. i'll yield to the distinguished -- >> thank you. so the bottom line is very simple. we asked the president to support the bills that we support, that will open up government. we asked him to give us one good reason. i asked him directly. i said, mr. president, give me one good reason why you should continue your shutdown of the eight cabinet departments, while we are debating our differences on homeland security. he could not give a good answer. so we would hope that they would reconsider and would support the very bill that passed the senate , four of them 92-6. two of them unanimously in the appropriations committee. with mitch mcconnell's support. the only reason that they are

shutting down the government is very simple. they want to try and leverage that shutdown into their proposals on border security. we have -- we want strong border security. we believe ours are better. but to use the shutdown as hostage, which they had no argument against, is wrong. and we would urge them respectfully to reconsider and support these bills, which are bipartisan, one of which mitch mcconnell proposed, open up the government, as we continue to debate what is the best way to secure our border. we hope it doesn't. and we hope that they will not e the american people, the millions who depend on these departments, and the workers who

are either not working or not getting paid as hostages to have a temper tantrum, pound the table and say it's our way or we hurt all these people. >> almost everybody in the room, i don't want to say everybody, believes that shutting down government is a stupid public polic it puts 800,000 people who work for the federal government at risk and it puts millions of people who rely on the federal government on a daily basis at risk. we are going to propose tomorrow a bill that has gotten the support of the senate and the house. lisa: i want to break in here.

shares of am were halted. they released -- apple were halted. they said revenue would be lower than their original estimate and that it will be a number of weeks before they complete and report the final results. they wanted to make sure investors got this preliminary data. we'll continue to bring you any ore news on this as we get it. sort of back and forth, we heard from republicans saying the democrat it's won't negotiate. >> no deal, that's according to republicans and democrats follows that more than one hour meeting with president trump in the situation room. the president had brought in senior administration officials from the department of homeland security. to brief lawmakers on the situation at the u.s.-mexico border. you heard from nancy pelosi moments ago. she said the democrats in the house of representatives will advance tomorrow a budget

proposal that does not include measures for the wall. but does include some bipartisan agreements that had been recognized ahead of the holiday recess in the republican-controlled congress. all of this comes as speaker pelosi is set to formally become speaker tomorrow with you in the democrats also set to take over the majority in the house. before democrats spoke we heard from republicans who suggested that these negotiations are going to continue on friday. either way, the president, lawmakers, reaching no deal as this partial government shutdown continues. lisa: thank you so much. we really appreciate it. we know you'll be monitoring all the activities there on the white house. i want to reiterate what we're hearing about apple. they released a letter from the c.e.o. to investors. cutting their guidance for revenue for the first quarter. his is a little bit unusual.

joe: this is very unusual to see a letter like this from the c.e.o. of apple cutting guidance. they say four reasons. some of it's calendar. he talked about the comply constraints on the company and, interestingly, emerging markets' weakness turned out to have a significantly greater impact than what we had projected. so, of course, apple's gigantic and sells everywhere and they're saying versus where they were a couple months ago, i think 60 days ago when they last gave idance, the world economy in emerging markets, weaker. lisa: this is compelling. especially at a time when we haven't got other information, actual facts, but we have gotten negative sentiment. the manufacturing numbers coming out of china, asia, europe, has been negative. this confirms it. while we aren't getting earnings per se, the fact that apple released this today is going create a negative sentiment. joe: and expanding on that e.m.

weakness. there's a whole thing in china and the challenges. quote we did not foresee the magnitude of the economic deceleration, particularly in greater china. remember fedex a few weeks ago, they also came out with that warning specifically citing china. we know that the chinese economy is not that hot. but interesting to see it continually surprise on the down side. and when you look at that p.m.i. number from china, you can see it rippling effect to companies that do a lot of manufacturing and sales in china. lisa: indeed. although it's interesting to note that apple reiterates its confidence about its presence in china saying that it actually sees it has a bright future, as products are getting adopted there, adamented there. so china kind of toe a narrow line here, saying we're going to do well there. but their economy is swelling. joe: i think the significance of that is they're say it's a significantly cal issue. there could be a deeper question of whether there's a brand backlash. that's something that american companies are on alert for.

whether due to the trade war, you get some sort of anti-apple or anti-nike or anti-mcdonald's sort of brand backlash. i think the implication of their optimism in china over the long term is what they're saying is cyclical and not something structurally where their brand is declining in the country. lisa: if you're joining us now, reiterating the breaking news that apple just released. an unusual letter from tim cook, the c.e.o., saying that they are revising their guidance for the first quarter lower and they say this entirely comes from lower than anticipated iphone revenue, primarily in greater china. that is all of the revenue shortfall to their guidance and much more for their year guidance ahead. interestingly they said categories outside of iphones combined to grow the most, almost 19% year over year. joe: apple shares are halted but we are seeing a 1% decline after hours in the queues that nasdaq 100 a.t.f. for more on this, i want to welcome the host of bloomberg

technology. emily chang from san francisco. first of all, how weird is this? can youity of -- think of anything comparable like this happening in apple's history since you've been following them? >> as long as i've been covering apple, which is eight years now, i don't believe this has happened. it is fairly unprecedented. they cut their guidance for the quarter. in the middle of the quarter. i'm still looking through the report as you are. but i think the highlights here are the slowdown that they're expecting in china. in general. we can assume that this is because of iphone sales. there had been several signals going into this year that iphone sales this quarter would not be as great as they have been in prior quarts -- quarters. we've seen several suppliers cut their forecast going into this. and of course apple, the company itself, decided to stop reporting unit sales as of this quarter. so when apple reports earnings in the next few weeks, that is going to be the first time since -- in the last several years, that apple will not be reporting

unit sales for the iphone. as you mentioned, it's not just about the iphone, but they talk in this letter about how apple watch, even airpods and mac book, sales of all of those products have been constrained. lisa: they point to weakness in emerging markets. they're speaking specifically about china to make that clear. can you give us a sense of how much apple relies on emerging markets and on china for growth going forward? in other words, how pivotal is his slowdown for them? >> china is a huge market for apple. they're the reason apple decided to make a bigger iphone. because chinese consumers love those bigger screens. but in china they are seeing fierce competition from local competitors. there's samsung and others. all of these companies are offering phones at lower prices than the iphone. apple still has that brand

khachanov in china as it does -- kache in china as it does around the rest of the world. but when they have these other options at much more competitive prices, we can assume that more and more consumers are going to spring for that. there's also india, which is a huge emerging market, that apple has barely cracked. and the company has been trying for many, many years to break into india with little success. companies have managed to navigate successfully from china to india and they're seeing more success in markets like that, that have a lot of potential where apple is still basically nonexistent. joe: apple shares have yet to reopen, we're seeing a selloff in the nasdaq 100 a.t.f. people are hedging it that way. when you look at a report like this that cites greater china and emerging markets' weakness as a particular source of their problems, does that seem like the type of thing that wouldn't necessarily apply to other big tech companies you follow because they're just not in these markets in the same way? >> well, facebook is blocked in

china. google exited china a long time ago. yes. apple is of the big tech giants, apple has the biggest exposure in this market. that's why you see multiple visits by tim cook to china over the years. he's the one who built apple's supply chain in china. going all the way back to the early days of foxconn. he personally has been -- has really shepherded the company's relationship with the chinese government and if you'll remember, china is a country that steve jobs never visited once. so china was a big bet that tim cook himself personally made. lisa: i want to bring you more news. apple shares are halted for trading until 4:50. but there is activity in suppliers of apple, skyworks solution, broad com, corvo all plunging in after-hours trading. can you give us a sense of how big the ecosystem of suppliers

is and how painful this could be for them? >> the ecosystem is immense. i will say that we've seen these supplier cuts happening over the last several weeks. and every time there was a new supplier making cuts, we talked about it. oftentimes this does happen throughout the quarter and at the time it seems like a much bigger deal than it ultimately does at the end of the quarter. but with the company coming out and cutting their forecast in the middle of the quarter, that is very significant. and we can assume that this is going to ripple throughout the supply chain. lisa: thank you so much for being with us. that is bloomberg television anchor emily chang. we have more ahead. apple shares going to be resuming, trading, 4:50 p.m. eastern time. from new york. this is bloomberg. ♪

lisa: want to reiterate the breaking news. shares of apple are halted until 4:50 p.m. eastern time. they reported in a letter from tim cook that they are lowering its outlook for first quarter earnings after an unexpected slowdown in china. as well as upgrades to the iphone model. revenue of $84 billion in the quarter versus $89 billion. something to keep an eye on. right now we're seeing the shares of suppliers plunging inan after-hours trading. let's get more of a sense of what people are expecting right now from apple. just to give you a sense, emily chang of bloomberg television, was saying this is highly unusual for the company to put out revised guidance at this point. but they said they wanted to amend any other guidance that they had given, which they'd given not that long ago, a couple of weeks. in order to make sure that

investors had the most up to date information as possible. joe: absolutely. worth noting that while apple shares themselves continue to be halted, you mentioned the suppliers, the queues continuing to fall after hours. so we could be looking at a fairly decent selloff tomorrow on this news. and of course overnight we started the selling thanks to china. so perhaps more china-related negativity in markets tomorrow. lisa: we'll have more on. this but right now it's time for smart charts where abigail goes over the latest market action with the street's top technical analysts. >> thanks so much. today i am joined by head of technical analysis at op himer. we've been -- oppenheimer. we've been looking at charts of apple for a while. they are bearish even after that report. this is a chart we showed at the end of last year. a couple of things to point out. you won't like that it's not a scale chart. we're trying to point out the degree of the flatlining

movement. but also the corrections. the big moves down to that up trend. talk to us about what you see in this chart. >> sure thing. i think apple for us is a great example of don't add to your losers. apple is one that we had already liked. it broke even a couple months ago at below $1.90. it's not on there. since then it's been the same message for us. it's broke and needs time to stabilize. i guess from this chart, one level to keep an eye on is the 2015 peak. it's around $1.35. very often prior resistance levels become support on the way down. but i think you need time to stabilize there. interesting when you look back at these big drops in prior years, i believe that was about a 45%, that was 33%. we're kind of right there. but they all took months to play out. this has been a much shorter move. give it time. >> perhaps down to $1.35 in the near time. but take time overall. look at the s&p 500 chart here. >> kind of that idea of needing

time really works for the market overall. we are of the view, in a bear market, but i want to consider this within the context of a larger secular bull mark. if you look back through history, using history as a guide, bear markets and secular bulls typically drop 20% over an eight-month period. the s&p 500's have done. this it's come right back. it's dropped 20%. however, it's only done this over a three-month period. so our take is that perhaps we've gotten a bulk of the magnitude. this is going to need some additional time to back and fill and stabilize. >> we are in a bear market, because you've been so bullish. but within the secular bull. let's look at a long-term chart which shows that secular bull and also perhaps what could be next. >> there's a few things you want to wait for. for starters, wait for the stabilization. you need to get the oversold bounce, test the low at that market -- mark.

then you want bullish confirmation as well. you want to see participation broaden. that's your signal that a new bull market is starting. one terrific indicator to show that is trade policies on the bloomberg terminal. this is the percentage stocks above their 200-day move average. the signal you're looking for is a big surge to 70%. while that will not get the low, if you look back at the prior points when you get 70%, after twine, t, 1995, 2003, 2013, 2016, those are all marking the start of new bulls. that's what you want to see for your bullish confirmation. >> one quick question. the fact that we have the lows, stirring up higher lows broken here on this moment recent plunge down on the trade pause, is that bearish? >> historically when you get this low we're deeply oversold. then followed by above average returns. below average one to three months. we're very oversold. need to stabilize. >> great.

thank you so much for joining us for smart charts. lisa: thank you so much. just want to give you a sense of apple's shares. they are now open for trading after being halted and they are now down more than 8% in after-hours trading. thisle follows the filing thing that they are devising downward their first quarter revenue in earnings. due largely to china and a slowdown there. slowdown in iphone sales. they also mentioned foreign exchange pressures, just the emerging markets generally. really interesting to see how much the shares are selling off, especially after the weakness that we saw in the fourth quarter. we're going to continue to follow this because this is going to set the tone heading into the new year. because we have gotten the negative manufacturing data. this is actual news from a major, one of the biggest u.s. corporations pointing to the effects of the slowdown that we're seeing in china. joe: the drama of the selloff is striking because you have to figure some of this was priced

in between weak chinese data, the fact that apple has already sold off so much in q-3. the not like investors weren't already turning pessimistic. so the fact that this is a further surprise, that there's further selling of the stock after hours, tells you still that even after all they're selling, investors have the capacity to be surprised. lisa: not just that, but the initial guidance came so recently. this isn't like a long-term kind of guidance. to get this kind of revision this early in the year, highly unusual. you have to wonder where the surprise came from and then you have to extrapolate out how significant it will be on all of the suppliers which we're already seeing moving. joe: the speed of the decline in china to me is really striking. because it's not that surprising. we know china's slowing down. we've been getting the data. when i saw that the chinese i.s.m., i was like, that could -- could that really be a reason? i do think that it's coming so fast that investors are really

just continually caught by surprise, whether it's survey data, hard data or corporate data. such as apple. lisa: the big question will be how much more can china stimulate their economy in order to offset the decline that we are seeing in growth. we'll have much more coming up after the break. from new york. this is bloomberg. ♪

lisa: just want to reiterate the breaking news. apple just releasing a filing saying they're ri revising their first quarter earnings guidance. saying the slowdown in china is seriously hampering sales of iphones there. you're seeing shares in after-hours plunge more than 7%. suppliers of apple also seeing their shares plunging. not only that, but in response to the filing, you saw 10-year treasury yields take a material leg lower. this is definitely being red worldwide as a sign of slower growth going forward.

we haven't necessarily gotten that much real information about corporate earnings in the united states. one of the biggest u.s. corporations givening revised guidance just weeks after the initial guidance, saying their income revenue during the first quarter will be lower as a result of weakness in the emerging markets, largely china. joe: important to remember too, this was a $233 stock in early october. so it is -- it has already had a massive decline going into today. you have to figure that investors were already taking a lot of this into account. slowdown in china, the fact that the product cycle may not have been firing on all cylinders. the fact that the global economy is slowing. that is really what continues to strike me here. just how much still people are being surprised by this slowdown. i love the fact that it's causing yields to drop. because apple is already kind of a safety play. but it's like, rotation out of safety into even more safety. lisa: just to reiterate how unusual this is for apple to

release this guide of guidance -- this kind of guidance. they annoy -- announced first quarter rev use in. they said, we did not foresee the magnitude of the economic deceleration, particularfully greater china. this is new emphasis also on the reliability of some of the data we're getting out of china. and will raise more questions about perhaps the deceleration is happening faster than expected, even before the trade tensions really start having significant impact. joe: you have to wonder tomorrow, are investors going to be sort of punishing every company for whom china is a major part of their revenue, of their growth strategy? it's going to renew anxiety over the trade war and the fact that that's already having -- it's going to put more pressure on this administration, frankly, which specifically trump coming out today saying stocks will certainly revise -- go back up when we get these trade deals. we know this is an administration focused on the

stock market. so all kinds of further ramifications. now, for more on this breaking news, i want to bring in bloomberg news reporter. garrett, thank you very much for joining us. why wasn't this priced in? what does it say that this has been happening? reporter: i suppose -- there was a great piece by our bloomberg opinion colleague just two days ago saying, what's going on in china is worse than what people are expecting. obviously it's because of the unreliability when it comes to data. but people are expecting apple to be the number one economist on what's going on in china. that's quite a high expectation, of course. lisa: one question i have, joe made a really good point, which is everyone's going to be looking at other companies that have major exposure to china. which of the other tech giants stand to slow down more than people might be expecting? >> china is -- reporter: apple is a luxury product. it's been -- china's been where their growth has been, where people have looked to, ok,

what's the future, where is the growth for apple to come? china's always been -- lisa: sounds like you're having a problem with your mic. joe: we'll get that fixed in a second. one note that the -- tim cook made in his letter was he was talking about the rapid deceleration of a smartphone overall. so it's not just an apple luxury brand problem. i think we have your mic back. is this -- is this sort of the end of this great smartphone story? reporter: that's something we have been talking about for the last year, probably two years. there's just not so much -- the difference between each phone year to year is not as great as it used to be. the camera is greater. in the marketing of apple and google products, it's all about the camera now. i was in the apple store a couple days ago, they were doing a tutorial for taking new and better selfies with the camera. joe: i need that tutorial. lisa: we know you're going to be following this. thank you so much for rushing onto set. we really appreciate it. apple shares plunging in

after-hours after reporting that they are expecting lower than expected earnings in the first quarter. that's all for "what you missed." bloomberg tech nothing is up next. this is bloomberg. ♪ emily: revising revenue guidance to $84 billion. down from a range of $89 to $93 billion that the company had originally projected. cook writing that the vast majority of the shortfall happened in china with lower iphone, ipad and mac sales than anticipated and fewer iphone upgrades world wilde. joining me now on the phone, we have someone from forester research, someone from bloomberg intelligence.