mark: i'm mark crumpton with bloomberg's first word news. u.s. house of representatives has elected nancy pelosi as it speaker as democrats take command of the chamber for the new congress. it returns her to the post she held from 2007-2011. >> we have heard from too many families in this time of innovation and globalization who wonder if they have a place in the economy of the future. and saymove all doubt to them individually, we will have an economy that works for you.

mark: policy is the only woman to ever hold the job. she was elected speaker with 220 votes. of the 50 who did not supportive, tender incoming members, 12 backed other democrats, and three voted present. new senators meet with her asleagues and predecessors they were sworn in by vice president pence. some looked inside their desk to see which senators had left their signatures. 29 new and elected senators were sworn in. legislationell said to reopen the parsley shut government is political theater because it cannot check all the boxes of being bipartisan, bicameral, and supported by president trump. >> the senate will not take up any proposal that does not have

a real chance of passing his aamber and getting presidential signature. so let's not waste the time. let's not get off on the wrong foot. with house democrats using the platform to produce political statements rather than serious solutions. mark: the house plans to vote on two bills to end the -- partial shutdown that began in december. temporarilybills to fund the department of homeland security. saudi arabia said that's it is seeking the death penalty against five suspects in the killing of washington post columnist jamal khashoggi. the kingdom had previously now say 18 people have been arrested. khashoggi was killed in october inside the saudi consulate in istanbul, turkey. members of the crown prince's entourage have been implicated in his death.

global news, 24 hours a day, on-air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm mark crumpton. this is bloomberg. scarlet: from bloomberg world had words -- headquarters in new york, this is "markets: the close." lisa: it has not been a very pretty day, stocks heading back down near their session lows. the nasdaq 2.5% decline. to year yields plunging eight basis points, a bigger drop as people ratchet back expectations for how much the fed is going to hike interest rates. crude oil getting a bit today but still down low compared to where was prior.

delta plunging the most in three years. a bearish symbol for the global economy. scarlet: that is certainly the case. delta is one of the corporate stories we are keeping an eye on, and apple is the other one. apple off by 9% with that guidance cut in revenue. we are also keeping an eye on the etf that tracks china. what apple is saying about china does not bode well for the macro picture there. bigene is one of the gainers after bristol-myers agreed to acquire it for $74 billion. it's a way to make true the have scale as they come under pressure to reduce drug prices. let's look at some of the big movers on the back of analysts recommendations. we will focus on apple. falling,ge target

first you have goldman sachs maintaining its neutral rating but cutting its price target to $140 a share. analysts warning of further downside depending on the trajectory of chinese demand in early 2019. to $160, target cut saying apple's recent announcement reduces revenue visibility. and an upgrade, new street research lifting apple to neutral from sell. interesting. lisa: other analysts making moves on apple today. slashing the price target on apple to $185 per share while maintaining the outperform rating. why do you still have outperform on this stock after apple

underpinned a lot of the skepticism about its viability over the long-term with respect to how quickly it could grow? >> our take on the rating right now, if you think about downside historically, somewhere in the $120 price point. , it could take the stock all the way to $200. the stock is much more attractive on the upside, given the strong balance sheet they have. while the numbers and results the servicenting, narrative is still intact. extremely numbers are disappointing here. scarlet: what is your confidence

level in management and the ability to be candid with the investment community about what is going on in china? the weakness in china is not new , we own about happening, but apple repeatedly suggesting that everything was trouble-free, at least when it came to its business. it did not acknowledge the economic challenges that would affect the company until this revenue cut. >> it is a fair criticism for the company. november is when they had earnings call. china is not one of the emerging countries that speak for them. argue one of the big things is perhaps they had high expectations for the iphone x and things decelerated from their.

is other challenge they have , maybe this is half a china issue but the other half is you haven't innovated enough and that is driving longer replacement cycles. scarlet: that is where i want to go with this. apple mispriced the recent phones and does it indicate they will have to bring those down, putting liability to their profit margins because they were relying on those high prices for growth at a time when smart phone sales are slowing. >> they have to either keep it stable or bring it down. more aggressive trade-ins are rebates for customers. be cheapercould services west,

think has 60% growth margin. i think it offsets on the gross margin line if you start to discount these products, but address.thing to scarlet: also they need to address the fact that their competitors have done a really good job of increasing their product lineup and the appeal of the products for keeping prices low. this is set the tone in terms of what apple needs to do next? are they setting the agenda and apple needs to react to that? are productsly that are better, simpler, easier to use. i do think apple is behind the ,urve and the big challenge

samsung has talked about having new products out this fall. we don't think apple will have a new product out until follow 2020 so they are behind. certainly there are companies as good as apple at matching price points. scarlet: thank you for joining us from san francisco. coming up, we talked about apple, now talk about facebook. what the facebook ceo is not noting his -- why he is selling his shares for the first time in two years. this is bloomberg. ♪

scarlet: not for sale.

mark zuckerberg has not sold a single share of facebook in the fourth quarter. that's bring in sarah from san francisco. we had mentioned this pledge to sell shares, my understanding was these transactions were scheduled in advance. so what happened here? sarah: he said that he would sell up to 75 million shares of facebook stock. he has only sold about 30. sometimes these plant trading plans can have limits, if stocks fall too far, they won't sell automatically. or it could mean that he cut it off because it decline so much from the high last july, down 30%. he could think that he could get more bang for his bunk -- bang for his buck if he holds onto it a little longer. lisa: it does sort of underscore his defiance in light of a lot of pushback from congress and

investors saying maybe you need a shakeup, a leadership shift because of all these problems that just seem to be dragging on. is there any change in tone from him, given all of the pressure? certainly thinks he is still the right person for the top of facebook job. but there have been a few reflective concessions here and there. he said facebook needs to be a little more open to having outside opinions on how to moderate content, they should do more open revelation. these are concessions he needs to make. if he doesn't seem flexible enough, they could happen without his say so. this will be an interesting year for facebook. there are regulators around the world and in various states looking into the company, trying to answer questions about privacy and data sharing and more. this will be an extremely tough year for facebook.

facebook has been buying back its own stock. the company itself has been committed to a buyback which means that maybe they are trying to send a signal that facebook shares still have a ways to go out. scarlet: regulators circling, the imagery is pretty clear there. makely mark zuckerberg some kind of pledge or to do something every year. do we know if he has identified what he plans to do in 2019? sarah: he has not identified that, but if he comes out and says something like, in the past they used to be flippant, like i'm going to learn mandarin or send a thank you note every day. he is going to have to be doing something a lot more serious. fix year, his pledge was to facebook, and certainly that work is not yet done. still outstanding issues on that pledge.

, joining us much from san francisco. the u.s. market closes just minutes away. the s&p off by more than 2%. ♪

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>> this is count down to the close. scarlet: joining us is joe weisenthal. i was going to say always watching the economic data, in the markets turned pretty terrible again. it, is interesting about some people think of the market like maybe bad news will be good news because it will get the fed to say nice things and that will make the market go up.

that is not how it interpreted the biggest drop in the isn. tomorrowhe jobs report and i think the predictive effect of the adp is debatable. hard data versus soft data, we will see how actual hiring was in december. it could be a very different story or more of the same tomorrow. caroline: i been trying to read youeen the corporate news, have the chief economic advisor to the white house saying more companies will start with warnings. scarlet: when you look at the industry groups and how they are performing, it is broad-based, this decline. these are the best performers. there are only three of them in the green. downside, and you

look at a lot of these names, tech, hardware, equipment, semiconductors, transportation, diversified financials. caroline: put it into perspective, though. , when did this happen last? .t happens again and again it didn't end with christmas. joe: yesterday basically ended flat on the s&p, but it looks like we are back to the old ways. scarlet: we had a comeback at midday but it didn't last, now we are bumping along the bottom. we are just about seven minutes away from the close. >> taken deeper dive. lisa gets us started. the autoant to look at sales data from companies that operate in the u.s.. japanese automakers are doing better with u.s. sales, beating

expectations, nissan and toyota both doing better than expected, while ford and other u.s. car producers disappointing. take a look at the share prices of ford and general motors, which reported quarterly data, notf u.s. sales monthly sales because they don't do that anymore. their shares plunged more than 4%. 1.3%, anddown announcing it would go to a quarterly reporting system which puts more onerous on each number that they put out there. in other words, if they miss on they haverly report, less information than on a monthly basis. delta leading the way down. in three years after they cut the revenue forecast for the second time it wasn't a big cut,

but an analyst i spoke to earlier said it was all about expectations. they had a cut not so long ago and the fact that it went in the other direction really weighing on the entire sector. many investors and traders are expecting it to help but that is not the case. this is the s&p 500 airline sector. sideways, pretty interesting here. is entire area of congestion starting to break to the downside, suggesting we could see the airline sector drop by about 25% or perhaps even more. joe: right now, with all due respect to airlines in the stock market, the thing that is moving and is fascinating to me so far this year is yield, particularly at the gal -- at the long end. over 10 basis points on this

year alone. we have a chart showing the 10 year tracking those estimates over the past two years. , and2018 growth estimate you can talk about fed communication mistakes in september and october when yields went higher. now we see it touch down to that yellow line which is u.s. consensus growth estimate of 2.6. muchs not been cut that for 2019. that's what we see at the long in. we have the two-year to fed funds spread inverting. for a while you could say don't , but about the flattening you can't say that anymore. it is starting to look dangerous at both ends of the bond market. tooline: certainly a flight safety. stocks coming under pressure from all sides, apple dragging down tech stocks.

just four minutes to go until the market close. is this more of the same, are we going to see more companies start to cut their forecast? >> it seems like at least for the first quarter we will have a lot of companies talk about nondomestic weakness. the question is how much domestic weakness is there. pricing in considerable weakness overseas, particularly with china. we started that with fedex a few weeks ago and now we have the i assume survey deteriorating pretty quickly. the question investors will be asking now is, we know the international economic environment is pretty weak. how much of that will become problematic for the u.s. economic outlook?

how much weakness are going to import? re: stick -- are we seeing strong enough economic growth? joe: how big of a deal is that big drop? >> it's interesting how much the market is glomming onto that. the 20% drop we had in the s&p 500 peaked the trough into the december low. it's not typical. equities and the isn deteriorate together. we saw it in the last several movements. we all knew we were in peak growth last summer. we have not seen you slight deterioration, order spreads slowing quite a bit, but we are still expanding. we are still in positive territory, but the market is reading into this saying this is a huge drop, supposedly.

if it isical about breaking certain levels and apple starting things off pretty weak. continuing the risk off movement we've had for the last several months. there's too much uncertainty with respect to where policy is going and not a lot of bravery, despite the fact that valuations are extraordinarily low. scarlet: and we knew that companies were stockpiling. gina is sticking with us. let's bring in jason, head of americas asset allocation. do you want to own stocks right now? jason: what we are going through is the slowdown going toward long-term u.s. trends? that's what we are wrestling with. we knew we would get economic

growth, that was inevitable. it would not going to stay at that level. the long-term average is around 55. new normalto the long-term trend growth. moderate?ng to that's the difficulty investors have. would probably will not get a rate hike in january. now, with the chinese you'rer coming up, probably will not do a lot until after that point. we will get noisy data out of china. how good is growth going to be? going to

continue at least for the next couple months there we have the closing bell. technology seems to be the eye of the storm with apple but every industry was hit to a certain extent. not to mention of course, apple. caps are not doing too poorly. than 600alling more points. nine of 11 major groups in the s&p 500 are declining with tech leading the way. >> the russell outperformance. some of that is they are outperforming earlier in the beginning of last year because

of the lack of international exposure. apple highlights the china weakness. >> the depiction of whether or not is an international weakness. let's get more insight with our markets reporters. >> i want to look at dr. copper. it is reaching a 19 month low. are plunging as people ratchet back their expectations for auto sales in particular. predicted were globally for the first time in a decade. let's look at the data. we saw the biggest drop in manufacturing earlier today. of 2008.ober

you have a slowdown in manufacturing globally hitting the u.s.. not a good sign considering the fact that copper is so crucial in so much of the infrastructure. better whents do growth is faster. >> confirming the message of dr. copper and the ism manufacturing data, this is a chart of the dollar-yen. yesterday after that bearish news from apple, we saw a flash rally in the end. it looks like a flash crash for the dollar-yen. pace for its biggest drop since brexit. that was the degree of fear on the part of investors yesterday after the apple news. long-term chart of the dollar-yen suggests it is not just apple, it could be something bigger brewing. this is a decades long of the

dollar-yen and the yen had been in a tremendous rally or a very long time. then we had a very solid selloff for the yen. now, we see this starting to hold the dollar-yen in suggesting that there could be a the yen.y ahead for >> one thing i am looking at right now is how bad and how misleading it might be to look at the performance of china linked u.s. stocks since the support is it a trade truce at the start of december. since then, it has held up fairly well. is the china linked s&p 500 stocks that are underperforming that time. 500 since it is almost as though the chinese macro slowdown has meant more than any suppose it or purported benefits from having lower than expected tariff

rates. i want to point out on the white line, a sharp movement down today. we are at the worst relative performance for these china linked stocks relative to the s&p 500 since 2011. a lot of that is apple but that shows how much the chinese macro is starting to wash up on u.s. shores. ubstill with us is jason of growth management. ending on china. you mentioned the process of stimulus in china. what is left in the toolbox for china? we have already seen two separate manufacturing surveys coming out showing that manufacturing is contracting there. >> the biggest thing they can do is improve the capital to credit for small businesses. it is a credit based economy.

what we are hearing is that mechanism is not flowing through and not giving access to capital. they can do more property investment in infrastructure spending. it raises the concerns about increasing leverage which is what they want to avoid. >> square has announced a new cfo. you will remember that sarah frier stepped down in october to take the ceo job at next door. square now has a permanent cfo.

>> getting back to the markets. one of the striking things is that people are starting to price in fed cuts. do much could the fed whether it is some sort of change in rhetoric, acknowledge deteriorating financial conditions to calm the nerves of investors? >> they can do a lot. the 2015 2016 to correction, we had a rough start to 2016. the fed communicated that they were going to hold off on a tightening phase and that was enough to make investors feel better about taking risk. something that happened in december was chairman powell indicated that the balance sheet contraction was on autopilot. at that time we had a severe correction in stocks take place in response to that statement. it was once he started talking about the balance sheet that them out -- market started to

move. they could say that the balance sheet is still a tool. they also have not backed off the rate hike to the next year. we have not gotten to that phase yet they have indicated that they might not need to be as hawkish but they could get more aggressive in that statement. they are not suggesting they are as flexible as the market would like to hear. >> through this repricing of potential fed cuts, we are seeing bond prices, the yields sinking lower. our bonds where it goes when you see these yields tightening?

>> we still think the cycle has room. loseu get out now you will the potential upside this year. something we did a month ago was weour fixed income or folio, extended the duration to go out 20 or 30 years. when the rates were higher, we felt like if we were not taking rate risk and as rates fall you get a lot of bang for your buck buck. that offsets some of the weakness in equities. it is almost like a barbell approach. if we are going to go into a recession, if things get worse, the 10 year goes to 2.25, you get the protection. that is how we are going to advise at least on the fixed

income side of the portfolio. a lot of people like commodities as a late cycle play. .t could be tricky to play them there may be opportunities in metals. you have to be specific on how you play it. as an overall portfolio, it is not a core part of our portfolio. mostrlines are the volatile stocks in the s&p 500 already. they tend to trade in their own accord. the fact that most stocks are declining today including the airlines and tech, it is confirmation that we are still in the midst of a broader longer-term corrective process. >> when does it get to the point

where bad news it starts to become good news? focusing on china numbers are poor and delta is adding to apple was. what is the fed doing and what is going on with trade in china. the question is how much of each. there's a difference between the economic impact versus the market impact. people think the fed is the problem right now. if the fed sounds dovish, that would be more positive for the markets. >> do you think there is a trump put where the more the market sells off, the more they feel

like we have to get a deal because we know the president cares about the stock market? >> any time the market sells off too much in one day, someone from the administration communicates. they are clearly paying attention. the question is when do they start to move forward? i think they will do more things. there is not a lot of scope they can have to stimulate the economy other than to avoid things that would hurt the economy. the white house will be giving a briefing any now we understand according to the chief spokesperson. >> thank you, jason.

that doesn't for the closing bell. next, we will look at the megamerger that is kicking off m&a. we are talking about bristol-myers squibb. this is bloomberg. ♪

u.s. stocks closing sharper today. performanceorst since december 24. another to a half percent was knocked off of the s&p 500. most of the companies falling on the dow jones. apple outweighing in that area. that theq seeing technology was the under performer.

>> let's bring in our reporters. yesterday, you were diving into the guts of the market. on the surface it was calm, there were big differences between high and low stocks. what do you see? ugly, itadline is so is the precise reversal of yesterday. apple's correlation to high beta is among its highest that it is been in a long time. that been a long time apple sinks this group by itself and that is what happened today. ofsaw a complete reversal the nascent trend yesterday. throwing out the reasoning behind the flash crash at the end.

what are your underpinnings of that and can we see this level of volatility continue? >> yes. we have spoken about how the machines have taken control toward the end of december as traders have backed off. >> every once in a while, we have gotten used to this. the pound move in 2016. five 30 orly around 6:00 in the evening, they erase pretty quickly. is this just a fact of life that every once in a while people will get reamed by this?

. it bounced and came back. all day today, the equities and yields continue to sell off, the dollar did not come off. that tells me that a lot of people were cut short at some bad levels. did still see continue throughout the day the search for a haven. the yen remained higher against the dollar. why is the vix not showing more concern? maybe thistoday apple news is pulling volatility that would have come at another point out of the market. talk about the fx landscape changing, the volatility landscape has changed as well. big sellers looking for premium. that is something that does keep

a lid on implied volatility. one thing we have seen, the curve still pretty flat. have seen the long ball products. they have never had consistent tailwinds so the front of the curve -- it is really weird to carry this well to own equity volatility. >> speaking of the treasury curve, it got steepening on the 210. .eople were buying everything much more dramatic at the short end. people were repricing fed expectations. >> all day long, block trades going through. we have seen twos trade through the fed funds effective rate for the first time in 10 years. hike, tod is going to hike in this kind of scenario is next to impossible.

>> explain the chart we are looking at. >> the white line is the fed funds. -- the blue line is the two-year yield. we have seen that come down to match the fed funds rate. the only bright light all day is emerging market bonds rally. people are still out there looking for yield in the midst of the snowstorm. they are still taking their chances. with em bonds. >> set us up for tomorrow. what will people go into the mindset with? how are they looking to hedge themselves if it's not the vix? >> there was a lot of selling .ver the course of q4 in terms of the set up for i don't subscribe to

the view that bad news is going to be good news for stocks. you can't price in anymore fed dovishness. year, -- 2020 we are at double digits. on the earning side, we are not pricing in the environment that warrants a fed cut to respond to such a big deterioration. one of those two is probably going to be wrong and we will have to sort that out. distinctionnctly -- between the equities and the bond market. we thank you both. coming up, kicking off 2019 with a megamerger. this is bloomberg. ♪

almost two500 off by and a half percentage points. celgene was off almost 21%. that is because of the merger with bristol-myers squibb. for 74cquiring celgene billion dollars. one of the biggest mergers ever. why did the market hate this so much from bristol-myers squibb perspective? >> this was such a surprise. nobody saw the deal coming. celgene has been a toxic name and biotech for the past several years after a series of research thatities and some worries it might face competition by going off patent.

iswhen you say toxic name, it deep problems or just underperforming? >> there were some real problems in that they had unenforced errors. they had a drug that could have been improved by now if they had run the program effectively. it got denied because of -- by the fda because they had not provided enough data. the kind of thing that should not happen for a company of that size and stature. when you couple that with other errors, people were starting to doubt management. what is bristol-myers squibb seeing? >> they are seeing the best selling cancer drug in the world. it will continue to grow going forward. the swing factor is when that revenue starts to decline. they are getting incredible cash

flows at a discount because of the management issues. then a pipeline of new medicines on top of that. >> analysts came out and said this is not going to be the year of mega deals and then this was announced. in light of this, will they'll big pharma companies feeling the need to match this? >> i think so. if you feel like you can be opportunistic in the way that bristol was was celgene. finding a company that has a depressed valuation in the current market. you might see other firms jumping in. there is certainly the need for growth and pipeline projects. >> we have seen biotech stocks since the market volatility plunge, is this the type of

environment where the more stable cash flow generating companies can look and say there are deals here? >> that is definitely the case. going to next week, it is jp morgan. everyone who has not been discussing this kind of deal already will be doing so next week. >> that is why we see it announced ahead of that. >> you will see good data and pre-announcements. then stocks will start to soar again. >> interesting when you see the the mna coming from analysts at merrill lynch. what do we think of 2019 it comes to m&a? i think especially in pharma, it

tends to be more -- less cyclical in that you have less idiosyncratic companies. the market goes down when there is a recession and you still need to replace revenue from patent in spirit -- expirations. there is still always the possibility even as money gets tighter that we might see more in pharma so we will see. thank you. coming up apple anxiety. sending shockwaves across the tech sector. we will analyze that next. this is bloomberg. ♪

i want to congratulate nancy pelosi. i think it will be a lot of different -- a lot different than everyone is thinking. i want to congratulate nancy on a tremendous achievement. i want to explain to people that i am with them today. i have known these people very well over the last two years. people who have been supportive of what we are doing on the border. they are tough, smart, they think, they love our country. iey have every quality and

know them well and they have the qualities that we need in our country. they have done a fantastic job at the border. it is ice and border patrol. a man who have has become a juddd in a sense, brandon has become a stalwart in terms of justice for people and fairness and the toughness you need. you have some pretty tough situations. it doesn't get much tougher. i want to thank brandon and all of the people. i will have them introduce themselves right now and also wall,few words about the you can call it a barrier or whatever you want. we need protection in our country. we are going to make it good. the people in our country want it. i have never had so much support as i have in the last week over my stance for border security, border control, the wall or the

barrier. i have never had anything like it in terms of calls coming in and people writing in and tweeting and doing whatever they have to do. i have never had this much support. we have done some things that are very popular. i am going to ask rand and judd to step forward and say a few words. this group has apprehended 17,000 criminals last year trying to get across -- across the border. that is one category. there are others. the other thing that has been so incredible is what they have done in terms of drugs and stopping drugs. unfortunatelynty come through our southern border. i'm going to ask brandon to come up and say a few words and introduce our friends and some brave people. >> thank you. we appreciate the support have

given the border patrol and ice. i am the president of the national border patrol council. i have been a border patrol agent for 21 years. i can personally tell you from my work on the southwest border that physical barriers actually work. you hear a lot of talk from the wallss that say that don't work. i promise you that if you interview border patrol agents, they will tell you that walls work. i worked in arizona for 10 years. we did not have physical immigration illegal and drug smuggling was out of control. we built the first -- physical barriers and illegal immigration dropped exponentially. anywhere you look where we have built walls, they have worked. they have been an absolute necessity for border patrol agents in securing the border. we need the physical barriers

and we appreciate president trump and all of his efforts in getting us this physical barriers. there is a lot of talk on the shutdown that federal employees do not agree with the shutdown. i will tell you, that is not true. i want to introduce the vice president of the national -- counsel. he would like to say a few words about the shutdown. >> thank you. i am vice president with the national border patrol council. i want you to understand what is going on. we are all affected by the shutdown. we have skin in the game. it comes down to border security. >> president trump speaking on the border. is being joined by ice and border patrol. makingrstand that he is

a surprise appearance in the briefing room to pitch on the border wall that he is trying to rain -- raise funds for. the border patrol agent is saying that trumps calls for the wall are correct and that physical borders work. >> now to another story. how worried should apple investors be? wherego to san francisco emily chang is on the phone with an avid apple watcher. >> thank you for having me. i don't have an apple watcher on the phone but i do have an update about apple. we have been watching the stock fall precipitously. we are crunching more numbers about what the revenue shortfall means. bloomberg intelligence put it this way. sold 50ssume that apple million iphones in the first quarter of last year in china, those are numbers.

they sell that many in q1 this year. an eight to 9 billion revenue shortfall -- it appears that apple could have sold as many as two thirds less iphones this quarter in china than they did in the first quarter of last year. that is huge. to put that into context, apple is saying this has to do with a downturn in china more broadly. trade tensions. there is no denying that this also has to do with the slowing global smartphone market. also, rising competitions from other companies. smartphones selling at less than half the price that you could get an iphone 4 in china. phonening us now on the

is an analyst with apple one capital partners. he is saying this is self-inflicted by apple. >> yes it is. >> yes it is. if you look at the problems of apple, this is been going on for a while. they have been raising average selling prices consistently. their prices in the september prices -- quarter were up 28%. are trying to sell three phones priced above a thousand dollars during this holiday year versus last year when they had one phone above 1000. if the growth in smartphones is coming from the emerging markets going forward such as china or india, if you look at the wealth in those nations, our average gdp per person is 63 thousand dollars. in china it is 10,000 in india it is 2000. how are you going to sell a

thousand dollar phone to someone makedia when they only $2000 per year? it makes no sense. that is when other companies are doing in china and also in india where samsung is doing well as well as other brands at the low-end. the macrok said economic environment, something they cannot control. it sounds like your assertion is that apple has just made some strategic errors and that what is going on in china, there are some real apple specific issues that are not necessarily about the macro. >> completely. if you look at the things they have brought up is causing them problems, you think about it and say ok china is an issue. if you look at the chinese stock market, it is down 4% from when apple reported on november 1. the u.s. stock market over the

same. of time was down 9%. the situation in china, tariffs were going to go up 10% to 25% on january 1. that went away. there has been a lot of stimulus coming in from the chinese government to get their economy more revved up. in a lot of ways, with relationship to china, things have gotten better than where we could be sitting on 25% tariffs. to say that this is the macro there, don't forget nike came agoand reported two weeks and -- some of this is apple shooting themselves with what they are trying to do. >> what is the mood like in san francisco on the west coast?

this revenue cut by apple is a huge surprise. they have not done this in 20 years. the question is why did they not see it sooner? suppliers a number of cut their revenue forecast. why didn't apple see the slowdown in china? the company says they cannot focus on what they cannot control. they can't control macroeconomic conditions. ideas that tim cook floated in his letter was to make it easier for consumers to trade in an iphone and to finance a new one. some analysts are saying that's the best you have. apple is facing a giant smartphone slowdown and

smartphones are two thirds of their business. >> a key number. great analysis. coming up, manufacturing runs out of steam. why the data is raising concerns. up next. this is bloomberg. ♪

>> u.s. manufacturing running out of steam. sinceggest one-month drop the 2008 recession. the index hit a two year low. here with a data wrap up is our economy reporter.

tell us what is the significance to you of this miss? >> port manufacturing number today came in weaker than expected. the reason why this ism manufacturing number is always such a big mover in the bond and stock market is because it is seen as one of the most primary leading indicators of the direction of the overall economy. what we see here is the white line is the ism manufacturing number and the blue line is job growth. the white line usually tends to lead the blue line even over the course of this expansion. is, does thison mean that six months from now we are going to start to see a materials downturn in job growth? a couple caveats are that the index is still pretty solid and pretty high at 54. also, there have been times in we had a lot of

ups and downs in manufacturing and it did not impact job growth. that is a question that markets seem to be wrestling with today. >> when you look at other numbers coming out today, they are looking hot. >> yes. forecast for tomorrow's jobs data are optimistic as well. we have wage growth is finally starting to pick up. job growth has been steady over the last several months. signs and seeing many that jobs data yet. >> could we see any sort of tightening in the labor market start to be spilling over? everyone is waiting for wage inflation to galvanize itself. one of the interesting things to me is that we are seeing in

the job market now that wage growth is above the 3% mark. we are seeing a lot of people coming back into the labor market. the unemployment rate is low. there are a lot of people that are classified as outside of the labor force. they say they don't want a job. they are doing other things. interestingly, more and more of the job creation is being accounted for by people who said they did not want a job and then they come in and take one. the white line shows the people who say they do not want a job right now and that number has been coming down as this people have been coming in and taking jobs. there could be an effect going on where even though unemployment is low, we are seeing these big job creation

numbers because people are being enticed back into the labor market because of higher wages. >> in theory, daesh shows we could still have a long way to go. many more months ahead of very strong job creation even though everyone is expecting it to slow down. it seems like there is still a large pool of people outside the labor force who could still come back in. on the wage push -- front that is what we are seeing right now. >> regional -- one place we are seeing this wage push is in retail. that is the blue line. the white line shows overall wage growth. over the last several months, retail has been what is been driving overall wage growth higher because that is a large portion of the wage market.

you can see where the blue line went down, that is a reason why wage growth was not going anywhere even though we had continually falling unemployment rate. the retail psych or daesh is back on trend. then we could start to see that become a more material factor going forward. >> a conundrum for the fed continues. stocks experience the worst december route since the depression. we spoke exclusively with the dallas fed president to discuss whether the market correction has been severe enough. are three big issues that i see reflected in the markets that are consistent with what i am seeing in the economy. decelerating,

interest sensitive and economically sensitive industries are showing weakness, financial conditions have tightened. issues arese three affecting the markets but they are also affecting my thinking about monetary policy. time toing to take some see the depth and breadth of those three issues. >> do you think the fed should go on hold for now? >> my view is we should not take any further action on interest rates until these issues are resolved for better or worse. i would be an advocate of taking no action. for example in the first couple quarters of this year, my base case would be take no action at all. that may change if things improve but my view is we should be patient and give some time for the economy and to watch the situation unfold.

>> do you think the markets know something the fed has not seen? >> i don't know about that. we have been watching this carefully. i watched the markets very carefully. we have been trying to balance very tight labor market. toong consumer and trying meet our dual mandate. think it is critical in the job that i am in that we pay very close attention to what the markets are saying. it is important and that what they tell us about what is going on in the economy, some of these market forces including financial conditions can spill over and tighten the economy and cause growth to slow and it is critical that we are attuned to it. >> do you see that happening now? >> i think it may be happening now, yes. spreads have widened substantially. we have not had a high-yield issue for the next number of

weeks. i think it suggests last -- lack of access. history has shown me that when you see that kind of action, it tends to, if it's prolonged, lead to a slowing in the economy. in the dallas fed, we have an estimate for gdp growth for 2019 that is a little below 2%. say that whileme 18 would be strong, we think for stills -- fiscal stimulus will wane into 2019. the impact of the fed's rate increases will take hold and we expected some slowing in 2019. i think that is greater than we expected. i am watching this carefully. our gdp forecast for next year has come down a little bit. two but byse to 2020, we would be trending down to one .75.

has come down. global growth decelerating, economically sensitive industries, what we see going on with credit spreads and the shape of the yield curve is another thing that i watch carefully. >> is apple telling you anything about the state of the u.s. chinese or global economy? >> we have talked for some time. we have been seeing and i hear from contacts that chinese growth has been somewhat weaker. it is masked by the fact that they tend to use leverage, investment in state owned enterprise and infrastructure to meet their 6.5% goal. a lot of the indicators i am hearing is that chinese growth has been weaker. it does not surprise me that we are seeing more indications about chinese growth. the trade tensions have exacerbated that. >> was apple the tip of the spear? the iceberg above the water?

will we see more ceos coming out with warnings like this? >> i will not comment on any specific company, but i talked to many ceos per month. i hear that they are seeing weakness in china. -- dallass the fed fed president. coming up, staying with apple. sending shockwaves throughout the market, particularly evident among the luxury brands. we will talk about who was hit hardest coming up. this is bloomberg. ♪

>> now to asia after a steep selloff in u.s. stocks. apples downgrade is sparking fears that investors are punishing u.s. companies that are vulnerable to china's slowdown. view, how much of this is an apple story versus a story of every company whose growth

plans are predicated on china? >> this is a story of apple and china. it seems to be a stronger case for the chinese a slowdown. we are seeing the impact on u.s. but also on apple these other companies that rely heavily on china for their business. we are talking about companies like fedex who is talking about the china -- trade war having an impact on the business. or in the future that it could have an impact on the business. we are talking about starbucks, tiffany, daimler. all of these companies who rely heavily on china. we have already seen that hit on their stock prices. takinge is the market the next ion, those companies have already come out and said it's looking dicey in china for us. names, peoplexury

are looking for the next company that is going to come out. >> if chinese consumers have cut back on their purchases of iphones, what is next? it could be luxury goods. they depend on the same clientele that likes to splurge on big-ticket items. >> iphone is a luxury product. >> yes it is. given the chinese do not have that much brand loyalty toward apple, that was another key concern. it is the same thing with these luxury goods. the purchases by chinese consumers may be taking a different pattern. depended a lot on chinese consumers consuming these luxury goods outside of china. it seems now that it could be focused toward inside of china, they see more government cracked on these foreign purchases. we are seeing companies such as tapestry that is the owner of

coach trying to expand within china. their currency has we can do so much that they cannot buy as much outside of china. >> what are you watching tonight? >> the japan open. we have the yen flash crash. not to mention, japanese suppliers come back online. they were out on a weeklong holiday. we will be watching the japan opening closely. yenhether they buy into the or not. or the dollar on the flipside. you have to check out more of sherry's story on daybreak asia. the u.s. jobs report is out tomorrow at 8:30 a.m. eastern. chair will be speaking along with previous fed chairs.

>> bloomberg technology is up next. >> don't forget the job report tomorrow. have a great evening. this is bloomberg. ♪

emily: i'm emily chang in san francisco. this is "bloomberg technology." coming up, apple stock falls the most in six years after the bombshell news it cut its revenue outlook for the first time in two decades. china is in focus. apple has become the latest and biggest corporate casualty of the pullback by the chinese consumer, and the company says the trade war hasn't helped. is this just a china problem? will the rest of