>> buckle your seat belt, i bet it will whip around today. >> tom farley, thank you for being here. >> we'll see you tomorrow. >> mike santoli, appreciate it we'll all see you tomorrow "squawk on the street" begins right now. good morning and welcome to "squawk on the street. i'm david faber along with jim cramer and sara eisen. you can see we are now set up for what would be a higher open a half hour from now when we begin trading for this tuesday here on the new york stock exchange yesterday, though, was the worst day of the year for stocks with the s&p of course falling about 3% the dow was down by more than 950 points it did end the day down 767 points this primarily on tensions between the u.s. and china over trade. of course china did allow the yuan to fall to an 11-year low

against the dollar late yesterday. the u.s. treasury in the day labeling china a currency manipulator. since then china's central bank has stepped in we' we'll speak with white house chief economic advisor larry kudlow in a few minutes. you and i were talking yesterday, jim, about what we might expect in the market during the course of the day the move down in yields and the 10-year in particular also caught a lot of people's attention. here we are a day later. we looked like we'd be down sharply after other markets opened down. we have now rebounded at least in the futures market. what are your expectations >> i think that you can't buy enough opening there was a lot of money committed on the sell side i don't know how much short, between when we announced there was going to be designation and probably right to the special last night apple 185, microsoft down 5,

facebook down 20 these were very big prints over and over they just kept hitting the bids, hitting the bids, hitting the bids they were obviously wrong but they're going try to prove themselves to be only early. so people who are buying this market at the opening you must know something no one else does, which often means that you're wrong. >> as we well know just a tweet from the president, not to mention even a comment from mr. kudlow during our upcoming interview could change people's perceptions. >> totally and the white house did not think what china did last night was important at all. >> the white house did not think? >> no. >> what do you mean? >> we know that they took some action, which made it so they were not manipulating last night, so to speak the white house just felt it was nonsense. >> they'llprobably just say, look, it shows they're manipulating it's tightly controlled and they can do whatever they want to the currency it's worth talking about what it means to be a currency manipulator. it's symbolic, right it doesn't mean anything in practice. >> thank you why didn't we say that

yesterday? >> but it does mean that it's an escalation right? it's embarrassing. it's kinds of a badge of dishonor for china it's not clear whether the imf, which is the next sort of step here, is going to agree with the u.s. so basically what it means is the first time the u.s. has done this since president clinton in 1994 it means that china is breaking the rules when it comes to currencies we knew president trump was going in this direction. >> he said it in a tweet. >> he spelled it out in a tweet. >> so you're germany where you're selling bmws and you're selling mercedes into china. at what point, even though you have sheer hatred and contempt for trump, do you join and say, listen, let's say that the chinese should be -- japan made tough comments why don't the germans act? or are they that craven that this is about mercedes and bmw

and volkswagen markets are they that craven >> i think if the president were reaching out and trying to build an international coalition, maybe. but he does everything unilaterally, you know that. will germany agree yeah, they're feeling the pain they hate the chinese currency being weak but china can make a pretty strong case that they're just letting it go where the market is telling it to go which is weaker because their economy is hurting. people are asking did they blink last night setting that yuan rate maybe it's not in their interest to have a sharply weaker yuan. they worry about capital flight. >> if they blinked last night, the white house hasn't recognized it, which i think is important. >> right, right. this morning they haven't recognized it. >> to sara's point, jim, acting unilaterally, many people say if we stayed in tpp we wouldn't be having these conversations. >> i think that a call to america especial

merkel, which is stressful, is warranted right now. but i also think -- remember, i went to a lamborghini factory in italy. where do you think those go? they go to china they go to china everybody is -- volkswagen, porsche, all these companies are focused onto selling into china. the germans want to take advantage of it even though they make less money. >> i guess the larger point right now for those who are market participants in any different asset classes is we're in uncharted territory it is certainly a heightening of tensions the headlines today, sara, are not just about a trade war but a currency war as well i'm not quite sure what that means exactly. >> the strategists and the fx desks are going through some of the scenarios are how this could get even uglier and the market is paying attention. we've seen these crazy hundred-point swings in the futures. jpmorgan spells out two scenarios they think are more likely number one, that the u.s. could intervene in the currency

market it would be highly unusual, may not work at all. usually we don't go at it at all. >> we had a bunch of guests yesterday who indicated all the difficulties, or a number of them, of trying to do that given just the size of the market alone. >> it would be quite a statement, though. >> and the impact it would make. >> also the commerce department could change the rules for what it means to be a currency manipulator and pile on sanctions or tariffs with that but again, trump is doing that anyway, the president. >> the president wants 25% on everything it's easier to cut the tariffs if china complies when it's elevated at 25 that's the plan. >> you, me and carl sat at this desk for years now talking about the asymmetric response china might have at some point it hasn't happened. >> there's that clear option with selling treasuries. >> although many people say that would hurt them. >> they have whittled down treasuries. >> i'm talking about on the corporate front which is things we've also discussed would there be something they could do to hurt apple or

starbucks or any -- and i mention those names. >> huawei is the patriotic buy. >> huawei has been the patriotic buy. >> if you want just a metaphorical stock. >> and do they really start to try to create a more robust, to your point, patriotic response amongst the population in some way. >> 50% of the companies are now hurting very badly i think that if you get gdp below 6, then you're going to see someone wanting to be at the peace table. >> what does all this have to do with the price of earnings multiple for verizon >> well, the answer -- thank you. i don't like the ethe real that's fraught with people who sell futures down and stocks down after hours and distinguish themselves as complete morons. what i like here is let's say you focused on earnings for a nanosecond with the exception of marriott, everybody is good. everybody is good. tyson had a good number

yesterday. >> tyson had a good number. >> buried in the tyson quarter was how much pork the chinese took from us the pork numbers are up big. let's say -- remember they said last night we're not taking ag if you look this morning, the only company that's going to come up with an african swine flu vaccine, they can't. they can't so you could argue that the pork is going to go somewhere else. i would argue that the chinese have no choice to buy our pork let's watch. >> so china recorded $9 billion of farm products $18.5 in 2017. >> the president tweeting that we're in a strong position joining us now first on cnbc is president trump's top economic advisor and director of the national economic council, larry kudlow always great to see you, larry. >> good morning, jim thank you. appreciate it. >> all right, larry, are we in a situation where we are struggling for a commercial agreement with the chinese, or

do we want a new cold war and contain the chinese? >> oh, well, look, the president said many times that he's willing to negotiate we're still planning on the chinese coming over here in september. i mean this latest -- the president was not happy with the progress when secretary mnuchin and ambassador lighthizer went over to shanghai, so he wasn't happy. there were no ag purchases, as you know he's also very unhappy with the fentanyl story he's very heartfelt in his concerns about fentanyl, killing americans as well as chinese and others so he moved toward 10% tariffs on september 1st on the remaining $300 billion but i want to say that in the course of his tweets and his conversations with the trade team, he would like to continue negotiations he would like to make a deal it has to be the right deal for

the united states. but, no, we would much prefer a commercial transaction but on the other hand, jim, i'll just add this parenthetically, the president is defending the american economy and china, as you know, has had a lot of unfair trading practices. we can go into that later if you want to. but the point is the president is determined to defend the american economy by the way, and i hope we get to this, the american economy is in great shape. it is booming. there is no inflation. retail sales, even things like cap ex, durable goods, wages, salaries and jobs, we're in terrific shape the chinese regrettably are not. >> let's go back to this fentanyl issue, which i understand is made not nearly enough in the media. this is something the president feels personally very important and his advisers think it. wouldn't it be easy for the

chinese live up to what they said and go after the companies that are making the fentanyl that are killing our people? it's just a sign that they're even listening to what trump has to say. >> it'sa tough point, jim, and you've got your finger on it i was at that dinner at the g-20 in argentina, buenos aires, last whenever it was, last december and actually that was the first topic that president trump raised with president xi and at that time, president xi without hesitating said he would take care of it. he would make the penalties for fentanyl selling the worst perhaps that meant the death penalty. he would stop the sales of fentanyl so you're quite right, this is a heartf heartfelt issue. you know my view on these things i don't understand why the chinese can't seem to get there. we will see. again, i want to emphasize this

morning as much as i can, as difficult as things may be, and i know the markets are a bit volatile, but the reality is we would like to negotiate. we're planning for the chinese team to come here in september things could change with respect to the tariffs the president said if you make a good deal or good progress on a deal, maybe he'll be flexible on the tariffs. on the other hand if there's no progress on the deal, then the tariffs might get worse. but he's open to it. that's really the key point. >> yeah, but larry, it's david in the year and a half or so we've been watching these potential negotiations and the time that you've come on so many times and we've asked you about them, i can't remember a time when it's felt worse i mean it can't feel any worse to you than it does right now over these key issues, can it? >> well, i don't know. these things go up and down. there's a lot of disappointment last may, a couple of months

ago, when it seemed like the chinese were pulling back. it's ebbed and flowed. that's all i want to say on that point. and again, the issue is i believe the president is still very much open to the negotiations i do want to say a couple of other things worth noting. on the chinese yuan and the treasury department's declaration that they have been accused of manipulating their currency, i mean, look, they're down 10% in the past year or so. so that is something that we can't tolerate now, ironically, that actually lowers prices. that takes the pressure off any consumer price increases at home but that's the wrong way to do it that abrogates a lot of pledges and promises and after all, if china keeps devaluing its currency, then money is just going flow out of there. it's already started we know that production and

supply chains are moving out of china. we know china firms are desperately trying to cut prices to mitigate the effects on u.s. consumers. we don't have to buy -- you know, a lot of these tariffs, let's narrow in on this because i think there's some misunderstanding there's a lot of elasticity of demand american importers can go elsewhere -- >> sure. >> -- for certain goods and services so i think we're in pretty good shape. i guess i'm scratching my head, jimmy, i'm scratching my head at the idea that consumer prices are booming because of tariffs the pced flator is up less than 1.5% so there's no inflation and in special instances where there may be some consumer issues, it's a very tiny part of overall consumer spending. jimmy, consumer spending is booming. it's the best part of the economy.

retail sales, they're up like 6% or 7% annually the last three months so i just don't understand why people are harping on that. >> larry, it's david and we follow that closely as you know here every morning you mention all the leverage in a way that we may have with the chinese. but there are many people who believe they have got leverage with us too, which is just to wait just to wait us out, wait till the election, take their time. much longer time frame than we have it's not a democracy, obviously. their leadership doesn't have to answer to the people in the same way ours does. doesn't that give them an advantage here over time if they just say, hey, you know what, we're just going to step back and let this thing sit >> well, look, that may be their political analysis maybe yes, maybe no. i will just say this, the economic burden of these tariffs is falling almost 100% on china. so their economy, which has been deteriorating, you can look at any long chart of chinese

investment, retail sales and so forth, and you see a steady downdraft. their gdp, which is probably inflated by several points, is coming in lower and lower. in other words, my point is with respect to our disagreements and with respect to the president's tough negotiating with tariffs, i think china is getting hurt significantly much more than we are, as i said before. so okay, if they want to wait, maybe so but the chinese economy is crumbling. it's just not the powerhouse it was 20 years ago everybody knows that as i said before, supply chains are moving out the demand for their goods is moving to other places a lot of people are coming back home very important, lost in the tax reform debate, lost in the tax reform debate, we're seeing now because of our new tax laws companies are repatriating their revenues and their profits and

their whole factories and their productions to the united states some of that is coming from china. >> who >> by the way, it's about a trillion dollars, which has not been adequately counted yet in the overall revenue flow for the budget gap separate subject but nonetheless, my point is this, with a 21% corporate tax rate and tremendous rollback of regulations and much easier tax policies with respect to repatriation, you're seeing american firms move back all those inversions, jimmy -- >> mylan is moving back because they're getting acquired, aller january is moving back because they're getting acquired but that's not jobs, that's just tax rate stuff that's not anything else they're both being required. they both inverted and now they're both coming back. >> that is correct, but remember you've got home company administrative offices and so forth. you're also going to have factories moving back in from other places around the world,

including china. so my generic point, china can wait, that's up to them, but i think they will continue to do great damage to their economy. the american economy is very strong theirs is not. >> you're giving a textbook reason of why the dollar should be strong and the chinese currency should be weak. so why go after them on manipulation their economy is getting hurt a lot more than ours the new threat of tariffs only puts more pressure on things like capital outflows like you're talking about clearly the currency is a very sensitive issue for the markets, larry, so what are you guys hoping to accomplish here? >> well, look, the treasury department has monitored this very, very closely at the direction of the president secretary mnuchin has been all over this for a long time. at some point in time, if they are violating our laws, wto laws, and frankly g-20 laws of currency stability, we have to take the action. we just have to. i mean the issue of law -- >> i think you had a better case

eight years ago when they actually were artificially keeping their currency weak. now the dollar is up against everybody and china is getting hurt so it makes sense for the market to guide their currency lower. >> well, look, we've seen china in the past defend the currency. we don't see that right now. and as i said earlier, the best we can determine, roughly in the past year it's actually been a little more than a year, it's about 14, 15 months going back to april 2018, it's dropped about 10% in nominal market terms. that's not acceptable. again, we have to keep our laws intact there's g-20 deals, there's wto deals, so we did what we have to do >> all right, larry, let's clear up something that happened last week all the press reports, which i think have been pretty inaccurate about the white house, said that you, mr. lighthizer, secretary numnuchin, were on one side don't do this

tariff our old friend, peter navarro, saying do the tariff. >> i don't have any comment on that what i will say is the trade team, including myself, stands 100% behind president trump. i went out with that last friday i repeat it today. we understand what he's doing to protect and defend the american economy, so we stand 100%. there's always internal discussions. i have no comments on that we are there look, the president -- you know, let me just make this generic point. the president is a transformative president he's rebuilding the american economy, and we've had some considerable success these things are not easy. and that includes trade imbalances so what we're trying to do is have fair, free, reciprocal trading with china we asked them to abide by international trading laws with

respect to ip theft, voice transfers of technology, cyber tariffs, nontariffs, you know that story as well as i do we've talked about that. the president is trying to defend america's economy farmers, cattlemen, manufacturers, autoworkers, high-tech people, you name it. i saw a stat the other day, just ip alone, intellectual property alone, if we were able to reclaim what we have lost by unfair practices of china, it might come to $600 billion back to the united states and maybe more now, nobody counts that $600 billion as a benefit to our consumers and our business, but we should because after all, jimmy cramer, you know the united states, our innovation, our inventions, that's the crown jewels of what makes this the greatest economy in the world. we can't allow that theft. hanging numbers on it is very interesting. it's at least $600 billion

so that's the kind of thing, sara, we have to do. the currency is part of what we have to do there's no motive other than to try to have a fair and free and legal and reciprocal trading system you've got to have international rules and every member of the g-7 stands behind us on this one. >> all right, larry, i agree with you, this is the strongest i've ever seen the economy and it's also an unbelievable moment in terms of inflation. it's just not there. why do we need the chinese at all? why don't we just say, you know what, pound sand, chinese, we don't need your market we don't get much from you we don't care about what you do with apple or starbucks or yum china or whatever. be our guest don't let them sell any ipos in this country how long would they last, larry? how long would they last with this current sense of we don't -- we're a long gamer and we do not need the u.s.? >> actually, by the way, i've always felt the u.s. and

president trump have the long view a lot of people don't understand that because his long view, as i said earlier, is to defend the american economy and the great progress we've made. look, jimmy, i think if you can have a regime, and i'll just call it free, fair and reciprocal trading, the president has said numerous times his ultimate goal with respect to the world trading system is zero tariffs, zero nontariff barriers and zero subsidies. there are benefits there are considerable benefits to truly free and lawful trading. there are consumer benefits and business benefits on both sides. i believe if china lowered its trading barriers and make other reforms, the united states economy, which is so competitive now, so competitive, we are the class of the world economy, we would export tons and tons and

billions and billions and billions of goods and services that would help to rectify our trade imbalance. i believe there are benefits there are on the other hand, unlawful practices may erase those benefits, so we will see again, i will repeat the president and our team is planning for a chinese visit inform september we're willing to negotiate movement towards a good deal would be very positive it might change the tariff situation. but then again, it might not, i don't know i wanted to make one other point, especially to you, jim cramer we've been watching cap ex business investment which has slowed a lot in recent months. i just want to insert this i'm looking at the last two months of durable goods, the nondefense core cap ex, it's starting to boom we're running 5%, 6% annual rate the last six months. i think that's been ignored

because our tax cut plan was geared towards that. we had it for a while and then in the face of very severe monetary tightening, we seem to have lost it now it looks like it's coming back so i think that's a very -- another big plus for our economy. >> larry, i still talk to a lot of ceos who are not in a position to feel like they can make those big kind of decisions in terms of capital investment right now because of the uncertainty. obviously they are companies that are typically dealing with international markets as well but these are amongst our largest companies in this country. what do you tell those ceos who say i don't know what the playing field looks like if i don't know what i return on capital is going to be, i'm going to wait. >> it's a fair point, i've heard some of the same things. a lot of those ceos are going to move their production and supply chains out of china, and that does take some time. so they're going to do what they're going to do. we are trying -- look, we are trying to make it easier for

them we've been negotiating it wasn't us who pulled back we went to shanghai. ambassador lighthizer, secretary mnuchin went to shanghai we're wide open to negotiations on this. that all would add some certainty. but it takes two to tango, you know that, so we'll just see how this plays out but we must protect american interests here we just must >> larry kudlow, thank you so much for coming on "squawk on the street." always great to see you, sir. >> thank you, jimmy. appreciate it. >> a quick programming note from us as well coming up on september 19th, vice president mike pence will join joe kernen at cnbc's alpha conference we never did get that speech from pence. >> that was the cold war speech. >> that was last year. there's another one expected that hasn't yet occurred, i don't believe. there was rumor of another one where he was going to come out. >> he's not about trade.

he's not about commerce. he's about the existential conflict they're two different people talks about the south china sea and about religious persecution. >> larry kept saying they're open to negotiations. >> that was big. >> was it? >> that meeting is still on in early september. >> that comes right after -- on the heels, as we used to say, when we used solid cliches, the tariffs being raised to 10%. >> he didn't say anything about 25%. it's very larry kudlow he comes out cool, sort of the high emotions that we got on wall street and makes it sound reasonable that lays out their strategy china is hurting worse than we are, they are absorbing the impact of the tariffs. i think what we saw, though, in the market yesterday, jim, still closed down 700 points is that there is going to be an impact on the u.s., whether it's business investment, whether it's on earnings and citigroup did come down and

take down 2019 and 2020 forecasts. >> i don't think there's any doubt that electric use has come down a bit some of the commodities have come down. larry was right that some parts of the economy are doing better but not housing. >> also the point to what is going to be an increase in capital spending -- >> well, durable goods orders were good. we have to see whether they contribute to gdp because they subtracted in the second quarter and that was a problem. >> do you think chinese gdp will fall below 6 >> they're not going to let it fall below 6 it is so political for them. they also have a lot of stimulus they can pull, fiscal and monetary and they're ramping that up. >> good luck it's not working. >> but a slowdown to 6 for them is different we can't compare growth rates like that. they are slowing, no question about it. >> yes remember they have got a lot of public companies now that's why i posed to larry the idea of shutting off their capital. there's a big chinese offering yesterday. >> jim, do you really believe we

would benefit from stiff-arming them entirely? it is the second largest economy in the world in saying something like that, aren't you -- it would seem to me you're saying no to all of the benefits that do come, ways that people perhaps aren't as capable of seeing from global trade. >> how about 25% for everything versus that? >> 25% on everything coming from china? >> yes versus that. saying we're not going to let you list ipos. better, worse? that's what they're thinking that's what they're thinking now. >> you do the ipo route, you do the access to capital route and that's an asymmetric response that i think gets retaliation from chinese. >> asymmetric versus asymmetric. we're making a very big deal that it switched to a currency war. you used a phrase that chilled me you said the nuclear option. and for a nanosecond i thought thermo. >> god forbid.

that's in the markets and sort of unknown is what would happen if they started telling treasuries there are notes that are saying watch these auctions yes, it would hurt china, yes, it would hurt the u.s. [ bell ringing ] >> i think we do have to point out that this is not -- larry summers talking the worst in 2009 can we remember what did we do -- it's not that. >> he's going to be on "squawk alley" today. >> general macarthur that would be something. that would be a great visit. >> he's talking with the "squawk alley" crew later this morning stocks, remember them? there's the heat map back at headquarters a lot more green on that board as we open higher here you heard the opening bell here. stifel celebrating their 129th

anniversary. hey, we'll speak to the company's ceo in the next hour over at the nasdaq, business first bancshares yesterday we were down sharply, today we open up as you see on the dow at least there 147 points >> that's kind of moot -- that's kind of muted. >> you're warning people not to buy the open. >> no. that's a -- looks, nine times out of ten it's been a fool's game maybe this one, maybe this is the one where you buy apple at $3.70 and you say the credit card will be -- you've got to buy it despite china do you want to make that case? someone can. >> apple was hit hard yet, down 5%, worst performer on the dow. >> it went to 185. >> it takes that impact of the weaker currency. >> right. >> and the new tariffs. >> i wouldn't be surprised if that stock gives up a lot of that stock it was at 185 yesterday at 5:30.

185. now, whoever sells it there, that person comes back because that person needs to make themselves right it's an ego thing. >> i look at an alphabet, for example, which did more or less a round trip from what had been -- was a well responded to earnings report from the company. and now right back down on obviously the weakness overall in the market. is that something that conceivably you start to think about given the price earnings multiple >> they do have more europe than i like and europe is slowing more than we are, but that was a remarkable quarter it was a quarter that was a statement quarter. the biggest worry when i read that quarter was senator warren and the breakup of alphabet. that was my biggest worry. this company is doing so well that they are putting whoever they want at the top of the queue and they are choking capitalists. >> gave us a bit more transparency to remind people, gave us some actual numbers when it came to the growth of their cloud business which is still dwarfed by aws or azure is

growing quickly. >> the ceo there, the head of cloud -- >> the person who replaced diane green. >> very aggressive they're doing quite well. >> you've got people who are looking at opportunities like alphabet which went up after those earnings and came down just as much. >> look, microsoft's azure is doing fabulously did people think amazon web services ticked down from 40 to -- >> 37. >> is that really -- that's the great t-cell someone was on yesterday trashing faang okay, you can always sell faang. last wednesday you were making a fortune. that's a little rear-view mirror it's not my thing. >> technology is the best performing sector right at the open that was the worst hit yesterday. >> i know that sounds like it's completely anecdotal, but you just need one semi conductor company to say the world isn't

coming to an end i'm still aghast at what happened last night. it was almost as if it was just a huge, huge seller who was so wrong. you rarely see -- >> are you talking about after market >> you're down 12 points on your sale these things color people's minds when we left here. i'm surprised we didn't see tv trucks because of that errant seller but it's a thin market i've got a guy who just does algos. there was nobody on the other side of the trade. >> plenty of people just do algos. >> wouldn't you love to do that? you don't have to make money, you just do algos and charge a lot. >> you hire a bunch of ph.d.s in physics and math. >> why don't they go to work for nasa why do they have to wreck our markets? >> well, they used to. maybe some still do. >> if you look at the why. dow futures were down 500 on the

manipulator affixation >> how about 2015 in the summer? we look at the vix the chinese made that incredible move remember when the chinese were accused of playing the 200-day moving average >> but they reneged on it because it's not helpful for them because they have to worry about capital flight and wealthy investors pulling money out on decreased investments. >> and atms at las vegas sands. >> it does feel like we're very vulnerable to a headline, a tweet, a fix. >> we've been there ever since the president got elected. the president likes to keep us off balance. i will point out the marriott was down 5 on that quarter and it's not even down. >> it took a big charge from the hack. >> people didn't read the -- they just read the headline. >> i did want to come to a name you follow closely, iff. >> count the ways that they blew

the quarter. and they have a very good ceo. >> take a look, shares are down over 11% after they reported earnings clear low a deal that they did in may of 2018, a $17.1 billion deal, suboptimal the company comes out and says, let me share this with you iff was made aware of allegations that two frutarom businesses operating principally in russia and you krak made improper payments to represent afters of a number of customers. preliminary results indicate that improper payments were made and that key members of senior management at the time were aware of such payments >> we're right back to where that equity was almost this is criminal >> yeah. >> it's criminal it's not civil and if the top executives knew it, yes, there's some

formulations that were good. but when i've had the ceo on many times, top management was a key asset. >> of this acquisition. >> oh, my. >> this was a $7.1 million deal. >> this was to get key different products that were for niche companies that will become mass companies. frutarom was something the analysts disliked. jpmorgan had a sell on it. then they did an upgrade when iff was able to raise the money. it's very rare you see such a horrible paragraph about compliance very rare. >> people said the legacy results weren't that great either. >> no. they were subpar you've got minus 4 on cost of currency this was the growth engine so andreas has to come out and explain who's leaving and has to be a little more nuanced about what it means to lose, if we

lose top management at iff what does it mean. it's a people business you're competing against some other great companies. >> and again, we're showing you the dow, but iff shares down about 10.5%, international flavors. >> i see your iff -- >> what are you raising me >> take two supinteractive. this was one yesterday there was a dominant story that the president was thinking of violent games are going to hurt america. grand theft auto did have a remarkable quarter. >> do they not have these video games in other countries that have murder rates far below our own? >> there's been no sign whatsoever that the president is right about that there's no sign that they're right. nba 2k is extraordinary. >> it has nothing to do with the number of guns that we have in our country. it's video games video games.

>> a good call to walmart, pretty powerful column today saying how powerful business can be as part of the solution. >> remember what happened when mike korbat decided we're not going to finance the guns. how about when dick's decided we're not going to take the hit. so if dick's can take the hit and dick's is far more levered versus what walmart can do, but they're not viewing it like tobacco like when cvs pulled out. >> we are up about 0.88% on the s&p 500 right now. >> even qualcomm is up. >> even qualcomm, which has the largest single exposure to china, but that's because they sell so many darn handsets in china. it's the largest marketed by far for automobiles, for wireless phones, for you name it. >> so you go long -- if you're

betting against china, obviously, you short qualcomm, even though it's down substantially. >> i suppose so. what are they going to do, cut off -- they're going to have a deal and not pay qualcomm intellectual property fees you're saying chinese growth will slow so dramatically nobody will buy a new cell phone? qualcomm gets paid -- >> every negotiated deal you're absolutely right. another stock that's up. shake shack, nois ice acceleratn in comp stores and. >> humanization of pets one of my favorite things, and zoetta's cannot solve african crime flu fentanyl and african swine flu are not talked about enough. >> shake shack, same restaurant sales up 3.6%. >> that was good they're also expanding and putting a bunch of shake shacks

in beijing a little contrary move. >> also capping off what has been a very strong quarter for restaurants. >> restaurants have been amazing. there's also grub hub deal with shake shack. do you think it travels? >> shake shack >> do you think shake shack travels? i don't think it travels grub hub has got to get it to you in four minutes. >> i could have cold fries, cold cheesy fries >> speak for yourself. >> not the burgers maybe bonds have stabilized guys that's a big factor. >> crude is still below 55 where's the 10-year right now? >> 1.77. we're off the low super scary range. >> the calm before the calm? i don't know what's going to happen we're all -- you know, my wife was saying why do you always have trump as your number one feed in twitter? and i think the answer is, that's pretty much -- when you announce a 10% tariff on twitter, what that says is that it's pretty much takes the place

of a press conference, except for those moments earlier press conference >> and you seem to believe you can get a tweet that says forget ten, we're going to 25 september 1. you think that's a possibility. >> yes. >> that would hurt the u.s. consumer, would it not that's the strongest part of the economy. >> there's no -- right now if you look at steel prices, they're not up >> we haven't seen the consumer tariffs yet. 10% won't be as bad at 25%. >> walmart had unbelievable numbers. costco had amazing numbers target, terrific numbers what are we supposed to do yes, okay, i can come up with a couple j.c. penney, suboptimal situation. sears. barney's. >> barney's bankrupt, end of an era. >> j.c. penney, how many years have we been discussing suboptimal >> actually all the department stores are still struggling a bit. >> oh, my. look at macy's with a 7% yield what's your take on that >> it's now higher than the

10-year treasury yield. >> that's what i was looking at with macy's was the yield, which gets us back to the conversation from yesterday macy's yield was 7.37% >> they have fixed the balance sheet to a large degree. >> so that dividend is safe. >> they have got to turn around traffic and sales. >> well, it's kind of like the witness. you said we'd be safe in philadelphia i was wrong. >> the other thing quickly on bonds that everybody was talking about yesterday was the inversion went even more bearish. most bearish since 2007. whether that was a recession signal or just an extreme reaction. >> let's get to bob pisani and get more on what's moving this morning. bob. >> good morning, everybody's modest move to the upside. we're being led higher by global industrials and global technology stocks. these are cyclical stocks. the important thing is there's your energy stocks a little bit weaker, but industrials, banks, consumer staples doing a little bit better mentioned semi conductors also on the upside. yesterday was a teaching moment

for the markets and for all of us to be reminded of what a broader trade war would look like not just tariffs but a lot broader than that. take a look at the s&p futures 6:00 a.m. to 6:00 p.m. yesterday, the futures moved in a 120-point range. 120 points on the s&p, not the cow. this is probably a three standard deviation move. it's outside of 99.7% of all normal trading patterns. there's the bottom that we hit of course that was when they were declared a currency manipulator. we started moving up after they started stabilizing the yuan earlier in the evening and then they made more positive comments and here we are at the highs for the day. but the important point is 120-point move in the futures, you do not see that very often it's a reminder of what trade wars could look like we tend to think tariffs are the trade wars no, no, they can be a lot broader than that. trade wars include customs wars which are the tariffs right now but can also include currency.

this is what freaked out the markets and began to realize, oh, this could be a lot bigger than just tariffs. you can have other things, other kinds of economic sanctions. sanctions on individual companies. it can get very complicated. in history there's been even more serious things. there's been physical blockades that have occurred and even actual wars. so this can get out of hand very quickly. the market kind of moved to remind us all about how complicated this can be. i think that's very important. if you take a look at the people who argue that it's just $300 billion and we have 10% of $300 billion in tariffs is $30 billion and doesn't mean that much, well acti, it's not just number it's psychological effects and cap ital expenditures issues and gets really complicated. i made a joke about the food stocks being down 2% yesterday that's a sign when kroger is down almost 2%, it's a sign they're taking down exposure, they're not just reducing industrials, they're taking exposure down to the overall market that's a sign here that you've got a problem when people don't

want to involve themselves in simple things like food stocks you can see this sort of mixed today. so the market took down a multiple on the overall stock market yesterday if this keeps going, if things get more complicated, they're going start taking down earnings numbers. they already have essentially. we've been point this out. put up the second quarter earnings estimates now all the big cyclical sectors had negative numbers for the second quarter. materials, energy, industrials, technology, all down compared to the second quarter of last year. these numbers with the possible exception of industrials, they're all down again for the third quarter. that's because they have slowly been taking down the estimates the hope here is that this year will be flattish that's the word i've been using for a couple months now. that's the bull scenario but if this gets more complicated, if that currency war gets even worse, these numbers for the third, fourth quarter will get worse and go way into negative territory. that's the threat the market essential lly made yesterday.

we're seeing reductions in qthrow and q4 yet. we hit close to 24, close to 25 yesterday in the vix so that certainly was a little bit of a warning sign remember, we have been a lot worse. we were way above 30 in december back february of last year of 2018, i think everybody remembers we hit 50 at one point. so, yes, there was some panic there but it certainly wasn't off the charts kinds of panic. guys, back to you. >> okay, bob, thank you. bob pisani of course reporting on the broader market at this point. >> let the market come in. nothing of substance happened if the white house didn't require last night's stabilization, so you're going to retest, see what happens. maybe test the lows of yesterday. maybe get a little near it then you've got some opportunity because i don't think the world is ending, but that opening once again, you just pick people off, annihilate the gunslingers

there's no need for it there's nothing happening. look, apple being the template what's happening at apple, no one really cares today the stock goes up 4, people buy it up f4 for whatever reason. people who don't understand the way the markets work they're losing money already that's not the goal of any investor or trader. >> so we're 5.5% off the highs for the s&p. >> not down enough. >> not down enough. >> the casualty here is we have a huge up year so you're sitting here -- >> 14%. >> -- very closely with stephanie lankin she's done a remarkable job. let's listen to some of the binges bob pisani said the earnings may be down but the stocks are actually for the most part not down as much. you're stuck with this scenario where so many stocks have gone up so much from the december bottom that you just don't know where to start to buy. i think that's what's gripping the market down 6, down 8, down 10.

>> this trump put, right, clearly this is causing some market disruption. how much pain is he willing to tolerate as it relates to the stock market, because in a single tweet he could say i called my good friend, president xi, and i told him i want a truce and we're going to have talks. >> a golf game the market goes up a thousand points. >> they already said they're going to buy agricultural products and they haven't. they had that conversation at the g-20 we got what we expected and now here we are. >> the market is craving some type of peace deal >> the market doesn't understand that there's a faction in the white house that just disagrees entirely with what larry said, i think. that really doesn't want a trade deal. >> speaking of larry, the national economic council director larry kudlow was our guest earlier here on "squawk on the street." >> that was a very heated discussion between you and larry. >> what are you talking about? heated me and larry

we go so far back. >> larry is a friend. >> we talked about the leverage that china has versus the u.s. and/or do we have more leverage. here's what mr. kudlow had to say. >> i think china is getting hurt significantly much more than we are, as i said before. so, as i said before okay if they want to wait, maybe so the chinese economy is crumbling. it's just not the powerhouse it was 20 years ago everybody knows that as i said before the supply chains moving out. >> it's not ready yet they are open for business. >> they are but aren't going to take $508 billion imports coming into the country certain industry where china is the only supplier. >> i think when you go back over

the white house saying no exemption for apple. what is apple supposed to do. >> they have to eat it i'm sorry. they have to either pass it along or accept the fact there's going to be a tariff on their products. >> we've come out with a policy that favors samsung. right? samsung versus apple make them in korea, no tariff. we came out with a policy that subtly is in favor of korea over the united states. interesting. they have not really thought it through. >> that's one way to think about it. >> i like to think about it that way. >> do you think 10% tariff on iphones will hurt demand >> depends what verizon and at&t do. >> depends if apple eats it and doesn't pass it on. >> they did a lot of discounts this quarter they just made in china. look, let the market come in i'm not -- i don't hate the market today i just don't want it buy up.

i don't hate the market because it's not likely. the likely tweet is a more golf game tweet, to use an analogy, than i hate president xi you're not going to get i hate president xi you're just not. a good friend. am i glad i'm not his good friend do you want to be his good friend >> we're waiting good friend, currency war, trade war. >> like guaido, i'm not waiting. >> good morning, rick. >> i never thought i would live long enough to see a turnaround tuesday story in the "wall street journal." it really is appropriate as a matter of fact i did my first lumber trade around 1908 and they had counter trend tuesdays back then it's morphed a bit but it is real many traders subscribe to it, which makes today a double question mark. you could argue long end stabilizing a base point or two

better fed start two-year note deals. when you look at it this way, you can hardly see stable saix the stabilization occurred in a hand-off between yesterday's close and last night's trade and where we are today you can really see it on 24 hour chart of tenure. yesterday during the full trading session when cash closed at 1.7 is the low yield. okay if you look at what happened when we reopened outside our time zone, we had a low yield of 1.67 now, i only look at closing yields but it is appropriate to look at that because if you just look at a multi-day chart, yes, we've stabilized and thais the right word, but we're really not bringing any traction. i look forward to the auction today for three-year notes after this big rally in price dropping yields down to see how much demand there is. if we look at boons two-day there, spread between that is contracting. we're taking the brunt of this maybe one of the reason is they are already so negative.

it isn't a good dynamic narrowing that spread. we get drawn into bad policy global 54, 54 1/2 is currently their worst level in terms of negativity and many have brought this up. there is a credit differentiation going on you can see it in hyj versus, investment, barclaybarclays, hih yield. we've popped on the spread widening still very well behaved but maybe we're not done so we need to monitor these finally, the dollar index. foreign exchange markets are getting all the press and deservedly so. talk about double standard wrapped in a conundrum wrapped in semantics what's manipulation and what isn't. it's a very dicey topic. in the end, the dollar index if you look at the chart started may 1st trading around 97 3/4. our high close going back 27 months was the fed date july

31st at 9851 we're 3/4% below a high. reflecting for whatever reason all the demand for dollars globally david, sara, jim, back to you. >> all right thank you, mr. santelli. >> going to put you on the spot right here right now. >> me? >> how did oxy do on the buy >> which buy, anadarko buy >> yeah. >> it could be somewhat problemat problematic. do you believe -- by the way, they are also facing a challenge for carl icahn, don't forget to put new members on their board of directors replacing them. unclear where that's going to end up no doubt where crude is right now it's going to be somewhat challenging. >> end up doing that. >> the price paid by oxy from

that beating them annually. >> i want to say if i had been an apple analyst, but they are so in their bunkers because they are afraid, i would have come out and talked about the apple credit card, which is available today. it's a very big deal i have it. it's very easy to get. will people use it versus get it. >> what's the advantage to having an apple credit card. >> instant seeing what you've got. no fee tremendous for -- engine built by goldman where you get a credit line. rate will be low and apple gets a share of the interest without risk that's a good trade. >> broader market for a second, jim. >> we went down enough. >> to the extent we're discounting the possibility of further tensions and increased tensions, what is an appropriate multiple will you know when you see it? >> look, we always have to take our key from bonds how do we not take it from bonds? >> right. >> how do you not look at 3%

yielder and say i have to have th that i just have to i look at utilities. what does dominion give you 5 for. it's a pretty good company i'll take it any day of the week. >> verizon is down this morning, the fact it does have a dividend above 4% and largely domestic company. >> you're going to make disney. >> already given up 1.5 dollars. ridiculous trading. >> sara, on disney, which i believe you'll be dealing with on the closing bell. >> are you coming? >> no, i'm not i'm going to remind cord cutting, espn is an important part of this company yes, the streaming business is going to be extraordinarily important. disney plus that day when i spent with igor and was there was amazing and they did an incredible roll out and price point, everything else, sure. >> also studios in the park. >> don't forget how many people have pulled out this year, whether it's directv, overall

the numbers. it's still an important business for them, espn. >> what nasdaq stock bounce first? >> i don't know. >> roku. >> always. >> that's cable. >> no matter what. >> that's cable. >> cord cutting, the umbilical what are you going to be covering >> i'm outside today i'm going outside. >> join us on closing bell. >> i'll probably have to throw you some love. look at this look at this including people i didn't even know we had. >> from outside. >> people on tomorrow. yeah, this is josh silverman doing amazing thing with etsy. footprint, sustainable, sustainability and talk to steve mcdougal that's interesting -- a-rod. sports. >> you are just hitting it all over the place, aren't you >> most definitely. >> i like it. >> you like that >> currency manipulator. >> i cannot wait let's be outside

i want everyone to come by i'll have an open mic. good weather >> grilling again? >> grilling for. >> grilling, grilling. >> no, i'm not grilling. that's beyond meat beyond meat, by the way, is one of the great stocks this year. a safety stock. >> it is beyond meat, i'll give you that jim, we'll see you later out there somewhere on the stairs grilling or whatever it is you're going to be doing. >> let's get to bertha. >> reporter: apple sold off on very strong volume over the last couple of days we're seeing a nice bounceback when you look at the churn on a one-year basis you kind of start looking at how the leadership has changed here on the nasdaq the nasdaq composite is absolutely flat from a year ago as we were breaking out to all-time highs last august that's when we had the momentum. apple was leading, it certainly isn't now. this morning we've got the chips bouncing back.

kla with a strong earnings report and saying on their report they are seeing a mixed picture for customers in china kla being a chip equipment company. they are saying some companies are pushing back a little bit. there are other companies that are forging forward and moving forward on new orders and new technology we are seeing overall the chip equipment makers today getting a nice bounceback as kla is up higher not seeing it there at the moment take my word for it. the real leadership, though, has been coming from software. that's what's been consistently strong, the sector up from a year ago, 11% from a year ago and microsoft is why let's head to rick santelli with this morning's data check. >> thank you very much, bertha june read on job openings and labor turnover affectionately known as jolt's record breaking. 7 million. why is it record breaking, 15th,

1-5, handle in a row when did it tart april of 2018 was the first time over 7k and we've had nothing but 7k since arguably a bit better than expected sequentially follows upwardly revived 7,784,000. jolts is difficult for traders to put into their strategic puzzle like jobless claims and many other data points, it certainly is reflective, at the very least, of a firm jobs market david, back to you. >> thank you, rick santelli and good tuesday morning welcome to "squawk on the street." we're live at the stock exchange. an hour into trading after what was the worst day of the trading year yesterday you can see we are rebounding a bit. s&p has been up as much as .88 so we're hanging right around sort of the levels we've been at

since we first opened this morning. >> markets rallying after the worst day of 2019 with u.s.-china tensions in focus we did speak with larry kudlow about the escalating fight and china's currency drop. listen. >> we've seen china in the past defend the currency we don't see that now. as best we can determine, roughly in the last year, it's been a little more than a year, 14, 15 months going back to april 2018, it has drop 10% in nominal market terms that's not acceptable. again, we have to keep our laws in tact. there's g-20 deals, wto deals, so we did what we have to do. >> explaining why the treasury designated china a currency manipulator when the treasury

has declined to do so several times before i think this was the point that was hardest for him to make because a lot of currencies are down 10% over the last year over the u.s. dollar. the dollar has been super strong president trump hates the value of the dollar. you know what, china's economy is weakened and they are getting pressure from tariffs. larry made that pressure about 20 times in the interview. i would actually argue that china is letting its currency do what the market is telling it to do, which is weaken. the next step they go to imf for mediation between the u.s. and chi china. there's no real impact they could sanctions or tariffs but china is hoping for a resolution or talks around trade before that. >> kudlow did try to paint a somewhat optimistic picture saying they are scheduled to speak in september, pointing out at any point things could get back on track. right now, of course, they are not on track. >> doesn't appear to be. china responded to the u.s. ooft

the u.s. designated a manipulator last night joining us with the latest on the escalating fight eunice yoon. >> thank you show you the newspapers. remain stable despite manipulation fluctuation, rate normal this message is being said in english as well as chinese because the message is just as important for domestic audience as it is for international one after the big selloff yesterday beijing would be very wary of a repeat of what they saw in 2015, 2016 when a devaluation led to capital flight as well as panicked investors in beijing it seemed to be everybody understood the government would make good to stabilize. there was another message aimed

towards the trurp administrat tp administration, that is the u.s. is creating international disorder the reason they said that was because they were slamming the government's decision -- the u.s. government's decision to label china a currency manipulator. in fact, the central bank said the u.s. move is unilateral, protectionist behavior that violates enter rules the bank pointed out that china doesn't meet the u.s.'s three criteria for the label you guys are talking about earlier, secretary mnuchin has said that now he would go to the imf and have a conversation to eliminate unfair competitive advantage of china's action. central bank addressed that as well saying that the imf believes the yuan exchange rate is generally in line with fundamentals so from beijing's perspective, the evidence is in china's favor. the latest developments would make it seems as though the escalation of tension is just going to get worse, but i spoke

to a source who consults with the chinese negotiating team, and he said that china does want to have a trade deal so you're probably going to see a lot of firm and strong rhetoric but the action towards the u.s. is going to be much more moderate for an example, he said that yesterday we heard the chinese announce they are going to suspend the purchases of american agriculture imports but he said that the chinese were really careful in choosing the word suspend as opposed to, say, cancellation because they wanted to send the message that china still wants to reach a compromise with the united states. >> that's really good color. eunice, thank you very much. from beijing tonight imf did put out an article in july and said currency in line with fundamentals and becoming a more market friendly currency. the problem is the u.s. is the largest shareholder in the imf

and largest holder of funds. it puts them in a tough spot especially since they don't have christine lagarde. joining us chief equity strategist david kostin. welcome. do the events over the last 48 hours change your opinion of where the market is headed >> no. the forecast for s&p 500 remains 3,000100 at the end of the year. that's about 9% above where we are now. if with frame what happened at the start of the year, the market is trading around 14 times forward earnings, peaks last month around 18 times earnings so all -- almost all, 95% of the return of the market this year that been, or was, driven by evaluation expansion as opposed to something more fundamental like earnings. put in context, 6% decline in the market, an adjustment in valuation something more

fundamental. i would argue the general thrust of what's taking place fundamentally is pretty much in line. >> what's an appropriate multiple given the very least increased tensions with china and the possibility this is going to drag on for quite some time. >> that's our basic assumption that that's going to continue. but the question is what's the basic -- what's the appropriate multiple in a 1.7% ten-year u.s. treasury yield environment risk premise the highest it's been, way above long-term ample, almost 400 basis points. think about ten-year treasury yields 1.7% and earnings yield to the market at 5.7%, 400 basis points that's a very wide relative history despite 250 basis points or so historically so there's definitely a risk on the trade and tariffs, et cetera. >> has that move in treasury surprised you? >> it has in terms of swiftness and magnitude of decline. >> 2.7 before the fed cut last week a week ago. >> correct others i would say to declines, it's difficult to model

president trump. so he had the fed cutting rates, which is a good thing. equity market, equity friendly next day, 24 hours later, there was a tweet about tariffs. so that makes it a little more challenging, obviously so what are you focusing on with clients right now is a couple of strategies the first is services compared with goods so services providing companies as opposed to goods producers. that is an important dynamic in fact, i was on this program a couple months ago talking about as a strategy. the reason for that is that the companies that are services providing a more domestically facing, they don't have as much exposure from a tariff point of view better growth in terms of earnings and roughly the same valuation. think about the companies, microsoft at the top of the list, amazon, google as examples another strategy more dommicly facing, adp, paychecks. >> small caps underperformed. >> small caps. that's correct the question is about what

happened exactly, trajectory of the economy. some of the larger companies had more durable business models, more stable gross margins. that's something in this environment where we have a lot of uncertainty that's attractive to find, as investors to find companies with those at ricketts. >> your partner, chief economist at goldman put out a statement saying no trade deal by 2020 election now we are estimating three cuts in 2019. so added another cut to his forecast what are the implications for the market >> i embrace that view in the sense we've already had one cut, another likely to take place in september, another in october. the likelihood of a trade deal has diminished we have a trade barometer that is basically inferred from what's happening in the performance of stocks that are selling to the united states and vice versa u.s. companies. >> the lowest it's been. >> 7 right now, in context, 75

in april, now 11 the probability of a deal based on the equity market would be very, very, very low that is part of our equity strategy baseline forecast you have a 10% tariff is, in fact, levied, if you will, on incremental $300 billion of imports. >> david, what gets us up 9% by the end of the year. >> basic fundamentals of the economy are reasonably strong. unemployment below 4%, real wage inflation for the first time in a long time. you still have consumer confidence to reasonably elevate. not as strong, readings, nonmanufacturing survey weakened slightly, still in expansion territory. the broad thrust is the economy still grows and call that roughly 2% inflation roughly around 2%. most companies growing resolution in line with nominal gdp so that's sort of your top line, then we have a lot of worry and focus on our team about what's happening with

margins. we have pressures in terms of tariffs. clearly labor inflation is an issue, good from a social point of view, bad from potentially risky from margin compression. we have 3% earnings growth this year you have bond yields that's an important issue. we talked the very beginning 1.7% on ten-year treasury yields, equities in that context, bond yields extremely low. they risk premium applied to equities very, very high not a lot of improvement necessarily. that will get you to roughly 3,100 in the market. >> what are you telling your clients to do with consumer stocks, stocks that are exposed to the new round of tariffs that they go through in september retailers, big department stores, walmart, those type of stocks. >> so from a performance -- relative performance more in line, neutral waiting not tilting overweight versus underweight basically in line with the thrust of the market, which is prodly speaking moving

higher a lot of companies still looking to buy back stock, which is a supportive mechanism, which is why broadly speaking the market likely to do better and we're focusing on the margin where do we find stocks outperform in a market modestly rising. >> very quickly yesterday, how many phone calls did you get what's the level of sort of panic or complacency out there right now. where is sentiment >> our sentiment indicator we havepredicated on investors in the market is a very, very high level. it's about 100, meaning it goes 1 to 100, extreme level. that's because we're in the earning season right now and most companies coming in roughly in line with expectations. the macro versus micro, we're in their earnings season, which is more microfocused despite the focus on the rates and the trade tensions issue very much microfocused.

>> david kostin, thank you always good to check in. >> good to see you. >> when we return, evercore founder roger altmann will join us to discuss trade war with china. plus more on the trade rally following the worst day of the year for stocks, we're seeing a bit of a turnaround. dow is up, nasdaq up 1%. meer, it got clobbered yesterday. "squawk on the street" will be right back ood at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade. - when i see obstacles, i create opportunities. (soft music) - when i see adversity, i find a way.

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as you can see yesterday and this morning we are off the highs s&p up a third of a percent. we had been up as much as 1% in early going. we're only 46 minutes into the trading session. of course markets are rebounding, at least a bit as you see after what was the worst day of 2019. yields also hitting lowest levels we've seen in nearly three years. perhaps in part because of repricing in terms of the feds steve liesman joins us with more on that side of the story, an important part of the story, steve. >> david, i'll get to that in a second i want to tell you one of the first fed comments in the recent, james bullard saying interest rates are in the right neighborhood he has penciled in one more quarter point rate cut but the fed has already done a lot to cushion the u.s. economy from the trade war and, quote, can't realistically move monetary policy in a tit for tat trade war. that said, the market is pricing

in moves in what is a fairly dramatic repricing there's a 74% chance of 50 basis point cut in september and 73% probability of another 25 basis points coming in december with even some chance of half point cut. march 2020, a 54% probability of yet another quarter point cut. let's add it up so you don't have to market pricing in a full percentage point of cuts between now and march. goldman saying in light of goldman trade policy, expect as for rate cuts, and increasing global risk, we now expect third 25-point basis cuts in october for a total of 57 this year. all this puts the fed, well, in a similar place where it was before the last meeting with the market pricing in rate cuts very aggressively raising the question if the fed and markets are on the same page or if the fed is letting itself getting boxed in by market pricing the way it might have been last

time. >> steve, the new mantra is mid policy, mid cycle adjustment, it's out the window and that actually this could be the start of an easing cycle i'm reading more and more about that i saw the dollar weaken substantially yesterday part of why a ten-year dropped to 174. >> right the question is whattes a mid cycle adjustment and what's an easing cycle we talked about the former mid cycle adjustments that were 3/4 point cuts you get from 3 to 4 you're in an easing cycle with a lot of discussion whether or not, sara, rate cuts are the right anecdote for a trade war and whether or not it will offset if the problem is really the cost of capital. the fed chairman was pretty interesting in responding to that question at the press conference saying it works through the confidence channel maybe it does. maybe it helps the market stabilize and helps ceos eventually make capital spending

decisions. but whether or not it really works is something to be seen yet. >> i don't know. they still seem to pursue these policies whether or not they work i'm not sure buying equities in japan is actually doing much to stimulate this economy or, you know, to boost inflation materially, but they stick with these policies. >> i think that's right. i think what they do, sara, and you know this as well as i do is what they can do they don't really have other tools to address plus there's an issue of all the political pressure that the fed is getting these days. they say they don't respond to it but it comes almost every day from the president of the united states. >> steve, thank you. >> pleasure. >> steve liesman let's stay on topic, joining us kathy jones, charles schwab, chief income strategist. nice to have you we're at 177, also mentioned the income deputy cio. kathy, what's your interest rate forecast given everything we've heard, move down in yields we've

seen dramatically over the last week. >> we have jutted our expected range down to 175 at the low end. that was prior to the events of the last couple of days. so we may have to adjust it down to 150 or even 125 if this persists. >> what is the if? >> if this trade war escalation persists. >> 125. >> it could be that's sort of a worse case scenario for us. we really came into the year expecting 175 to 2% to hold. looks as if this persists, continues to ratchet up, continues to weaken confidence on the part of businesses that stop investing or are reluctant to new invest, it could get worse. but our base case scenario was 1.75 on the downside so we're here. >> we're there now, although another couple of cuts perceivably from the fed >> presumably if the fed is

doing its job and working, you actually are should see the yield curve steepen. we started to see that with last rate cut initially the yield curve steepened a little bit so long rates move up from around 2% that, of course, has all been undone in the last couple of days. >> when we see these stunningly low yield levels and big drops, how do we as an equity investor know whether it's a scary move about growth and where we're headed or whether it's an opportunity to buy stocks that are paying much higher dividends than you're getting in yields in the bond market? >> good morning, sara. i think this move in rates, related to china tariff issue. the other two important dynamics have been decline in inflation expectations i think steve was just talking about how the fed is going to in responding to that also european rates, move in freshry rates started the move to further negative rates in europe

ultimately those two things have, a larger component of inflation and following foreign markets than a dire look on the growth front those are things ultimately, won't be immediate, but those are things, risky assets, equities, oriented fixed income as well. >> ashok, in a market like this, talking to pms those with a credit focus, what are you telling them in terms of value and fixed income market right now. >> it's hard with a lot of europe in negative yields, we have a couple of things we think are going to end up playing out first foreign investors, they have been an important component in the u.s. bond market for years. the low level of rates and relatively attractive credit spreads in the u.s. compared to other markets, we think we'll see foreign interest in u.s. income and credit markets to continue to start increasing again. i think second where we're seeing the most relative value right now is a couple months ago was really oriented toward

floating rate instruments, bank loans and clos, areas where investors have been exiting because of concerns about fed easing cycle those represent value. particularly after yesterday the high yield market is looking good to us as well i would expect over the pretty near term we'll start deploying capital into u.s. credit markets as well. >> kathy, after the escalation in the trade war into the currency space, is the too alarmist to think china could sell its treasury holdings or that would be a place that china would go as a retaliatory tool >> it's called the nuclear option for a reason. >> i mentioned it. jim cramer didn't like that. >> it's bad for everybody, china as well as the u.s. so i don't think -- especially given their efforts last night to sort of mitigate the decline of the currency, i think the messaging here is they are not trying to go to that extreme they have -- i think one of the big issues people don't talk

about, china has a lot of u.s. dollar denominated external debt if they were to sell a lot of treasuries, drive down the dollar, that drives up their cost of servicing that debt. so there's a lot of reasons why they wouldn't want to go there you never say never but it seems very doubtful. >> kathy, thank you. ashok, thank you as well. >> thank you. >> when we return, big banks joining in on today's rally. stifle ceo joins us with rates and more, getting a check on averages, dow up 111 points. again, we've cut our gains in half since the open just about an hour ago. s&p rebounds half a percent after the worst day of the year for all three averages "squawk on the street" will be right back

welcome back, everyone i'm sue herera here is your cnbc update at this hour secretary of state mike pompeo says the u.s. has asked its allies to help protect shipping in the persian gulf area against iranian threats. this during an interview in

australia. >> what we've asked 60 plus nations to do is provide assistance in securing and deterring -- deterring and securing the strait of hormuz so commercial vessels can travel through there. so australia could join in a number of ways it's a highly capable, sophisticated military. >> iranian president rouhani has reiterated if the u.s. wants to open negotiations, it must lift all sanctions against his country. his comments came during a meeting with foreign ministry officials. he described american sanctions as, quote, economic terrorism, end quote. nobel prize winning author toni morrison has died. publisher said she died monday night at the medical center in new york she was the first black woman to receive the nobel prize for literature awarded in 1993 toni morrison was 88 years old you're up to date. that's the news update this hour i will send it back downtown to

you, sara. >> sue, thank you. time for etf spotlight today looking at financials ticker abe declining from yesterdayed selloff in what was the worst trading day for stocks in 2019 financials hit hard for the sixth day in a row, worst daily performance since december 2018. it was the second worst performing group in the s&p. tech was the worst yield move certainly hurts banks. joining us to discuss how investors are reacting, stifle ceo on set today celebrating a big birthday welcome, ron. >> thank you we were here, 129 years old for stifle. >> curious what broadly you're telling your clients during a period like this when trade tepgss are escalating and seeing 100 point selloffs on the dow. >> let's look back in a year the market has gone nowhere in a year, almost exactly where it was august 6th of last year. the ten-year down 100 basis points, equity risk premise up

we think markets are fairly valued here. what's going on today is that the u.s. is using its currency, meaning strong employment, strong consumer and strong markets to negotiate trade, which we have to do. that's something we tell clients, and there's going to be some volatility about this this trade has to get resolved. >> back to that environment where people say we're not particularly getting rewarded if looking at fixed income instruments had which i'm sure is among your client base. >> it's been that way for about 11 years. >> a decade. >> still the united states really only one of the real developed companies that have real interest rates when you think about it. >> what do you make of that, negative interest rates across the yield curve in places like germany. >> it's an anomaly i'm not sure i really understand. i really don't here in the u.s. we do have real interest rates although the ten-year getting close,

inflation expectation 1.6, ten-year 1.7, so we're getting pretty close. >> you turned cautious i remember on the markets last time i had you on. what was that a few weeks ago? >> it was. it was. >> are you turning more cautious now? >> actually, i think markets are fairly valued. we've had a pretty big selloff here when you want to look at it and take a snapshot, look at the equity risk premium, which is nearly 400 basis points now. so i think at these levels markets have some room to move up here. trade and what the fed does is going to be very important let's not forget one of the negatives can be brexit. people haven't been talking about brexit very much that's something i am worried about. >> really, you think it could have a significant impact. how would you see it playing out if there's a hard brexit at the end of october. >> i think there's a chance with a hard brexit that that could cause europe to go into a recession and we would not be immune to the impact i'm not saying that would put us in a recession but i think a hard brexit would be negative

for the markets today. >> those negative some rates getting worse. >> they almost have to if you're going to run -- have negative interest rates going into a recession, that will be interesting as well. >> you're not kidding. >> does it give you any consolation that the fed is now involved cutting rates, trade, eyeing other circumstances could cut more the market three times this year. >> i'm not sure i would be in the camp of three times. i think the fed has done a phenomenal job they might have done one too many increases last year they just fixed that i believe the fed will do one more cut, if i was going to try to guess but after that i'm not so sure that will be back to being neutral if they do one more cut in my opinion. remember, look, employment is strong the economy is strong, the consumer is strong we are dealing with a trade situation that's going to take some time. remember this, david, nafta. how long did it take nafta to get negotiated seven years. >> many, many years.

>> seven years. >> for people to think this trade is just going to get resolved next week, i don't think so but for the long-term health of the u.s. economy, by dealing with that $300 billion surplus that china has with us, trade surplus, it will be positive for the u.s. investor and u.s. market. >> we mentioned 129 years for stifle what's the second half of this year feeling like for you in terms of the company itself? >> we said on our earnings call we see a stronger second half, stronger revenues, stronger activity across the board. we're going to have ups and downs in the market. our forward look is for a strong second half of the year. >> even with this recent volatility in the markets. >> even with recent volatility we would like to see the vix below 20, a lot of deals that can be done with a reasonable market as i look forward, i'm optimistic about the second half of the year? >> why >> for us, we've gained market

share. we've done a number of transactions we've had 23 straight years of record revenue, if i can tout our own record here. all things -- knock on wood here -- this should be another one of those years. >> just wantedto quickly ask you about the retail investor, a $2 billion business there. where they are in terms of their investment and their sentiment levels. >> i have found especially over the last few years that the retail investors, certainly the ones i deal with, have recognized the time in the market is more important than timing the market. our investors look at opportunities -- they actually look at this as an opportunity to add the positions i see very little panicking and off sell so it's -- the investors engaged and i would say optimistic. >> ron, congratulations. >> thank you. >> 129 years i guess you'll be back to celebrate next year.

round number. >> a round number. >> i hope to be back so thank you. >> ceo. >> when we come back evercore founder and former fed secretary roger altmann will join us and i have if us thoughts on market volatility and more importantly ongoing u.s. trade tensions with china. more "squawk on the street" coming right at you. woman: my reputation was trashed online.

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welcome back to "squawk on the street." stocks are bouncing back a bit after yesterday's significant selloff. top white house economic adviser larry kudlow telling us last hour the president remains flexible on china tariffs adding the u.s. had in his opinion the upper hand in these trade talks. >> i think china is getting hurt significantly, much more than we are as i said before

okay if they want to wait, maybe so, but the chinese economy is crumbling. it's not the powerhouse it was 20 years ago everybody knows that as i said before, supply chains are moving out the demand for their goods is moving to other places >> crumbling not the powerhouse it was 20 careers ago. that one i'm not quite sure of. >> 20 years ago. >> joining us on the phone now, you see in this picture there, evercore founder and senior chairman roger altmann roger, we've had john in the past talk about this past issue. you've been relatively instructive to paraphrase it's in both countries's best interest to get past the impasse and figure out a deal. do you still feel that way >> yes, i do but it is less clear to me right now that there will be a

constructive framework than i thought there would be two months ago president trump has tied his brand, as we've discussed before on this show, to u.s. stocks and to economic growth his record in those two areas is reasonably good. i was skeptical when we last spoke, and i still am, that he's prepared to see us enter into a period of prolonged financial market instability because it goes so much against his brand but if the u.s. and china were to engage in a true no holds barred all-out trade war, and the signals this morning are obviously a little less in that direction, but if we were, then that type of financial market stability would likely result, and i have trouble seeing president trump accepting that and embracing that. >> the answer we heard from kudlow to my question about

whether the chinese are just going to try and wait this administration out, take their time at the very least until 2020 and the elections do you think that's a possibility? >> the real problem here, david, is that there aren't any signals, at least that i'm aware of, maybe people like larry kudlow and ambassador lighthizer and secretary mnuchin, but no signals i'm aware of when it comes to the most basic chinese internal practices you might describe as economic nationalism or china first -- and what i'm referring to is forced technology transfer, intellectual property piracy and among other things periodic state sponsored commercial hacking, there's no evidence that the chinese are actually prepared to engage in reforms in

regard to these practices. and unless that changes, we're headed for a form of cold war with china and ultimately getting to constructive answer which involves reforms such as gradually lifting tariffs in exchange for actual evidence of changes in those behaviors, that's going to take years that's going to take a lot of diplomacy. that's going to take working with our allies. i must say president trump hasn't indicated much interest in any of those approaches he hasn't been interested in working with the allies, and i think that's a mistake i don't think he's shown that he has the patience to approach this on a multi-year basis, and i think it's going to take that. and of course, long-term diplomacy is going to be part of

this equation if we're ever going to solve it. i think the core problem is that china's internal behavior does not show signs of changing. >> so roger, i mean, the president certainly escalated this fight by bringing in the currency or maybe china escalated the fight by letting its currency weaken past a certain point. it felt like the market was just sort of digesting the whole tariff tit for tat, not great on the new announcement but the currency war really triggered some alarm bells what do you think it is about that and where does that even o go >> i think the difference between the tit for tat environment you referred to and then seeing that enlarge itself into a possible currency war, that's just a big difference from the point of view of investors and all people who

have a stake in this people often think you can just control your urrency, includin the dollar, any time you want by just twisting slightly some dial that's not correct if you look at the history of currency crises and instability you see it isn't correct i think a lot of investors think to themselves correctly that if we're going to slide over the edge into a trade war that encompasses currency or a currency war, that is much more destabilizing than just political rhetoric that's what i think you saw yesterday. i think that's one of the reasons china this morning, or last night, in effect, we saw, restored the trading level of

the yuan to the very high 6s, 6.96, 6.97 and decided it didn't want, at least for the moment, to let us go over that edge. that was a pretty profound decision china made. and obviously a stabilizing effect for the moment. i think the difference between political rhetoric and tit for tat trade negotiations and trade volleys and currency wars is a big difference. >> roger real quickly, a focus for both of us, of course. m & a activity, i'm not going to let you get away without asking. given market opportunity, i can't imagine if you're a board would sign off on a deal with chinese antitrust approval is this effect an effect or are you optimistic the second half will see a good level. >> david, it isn't having a depressing effect yet, although as you know back logs are always

backward looking if you start looking at something yesterday, it reflects conditions yesterday in terms of willingness of parties to move towards something. you have two countervailing trends here. one is overlay of global instability. by the way if we had more time we could talk about hong kong, kashmir, turkish invasion of syria, north korea and so forth. pretty negative global environment and global risks on the other hand have you this powerful global monetary easing cycle. it's unbelievable powerful we saw see what the u.s. ten-year is, fundamentally 175, german ten-year is negative 50 basis points and so forth. you're never going to see an environment where credit is more robust, borrowing costs lower. so for merger participants, that's an incentive.

so you have the tug-of-war between the darkening global environment, but the incredibly favorable financing. >> roger, i have to lead it there. there you go roger, thank you, always appreciate your time. >> always a pleasure. >> roger altmann, evercore. >> look at the leaders on s&p 500, a lot of sectors in rebound, technology services doing the best jim mentioned last hour, take two, zoetis, among biggest winners in s&p transdigm. more "squawk on the street" when we come right back

welcome back to "squawk on the street". rick santelli live here on the cm ter cme group floor with the gentlemen who went from the chicago pits

jim bee ianco. what do you think of what's been going on in the last couple of days are we really waging a war and is it a war that either side can win? >> i think it's definitely a currency war if this is not a currency war, i don't know what the definition of one is. the problem with a currency war is everyone loses. it's one side will lose worse than the other but no one will come out ahead >> i don't argue that it's a currency war if you look at intentions but i think that the whole manipulator issue is really a little bit fuzzy, okay because in my opinion, they've been manipulating the yuan for a while to hold it in place. now they decided they don't want to manipulate it that way and we're not pleased they're manipulating it in a different way. it really is a kind of semantic issues but the word comes in that they stopped holding it in for at least for an evening and then what happened next >> last night, the fear was, they were going to set the fix -- again, it's a country that the government fixes the

rates. so there you go, it's manipulated, but it's always been every day forever they were going to set it at above 7 for the fear they came in at 696. and that pulled the heat off the market remember, we were down almost 2.5% overnight on the fear they were going to go over 7 and challenge trump. but they backed off. >> if they can that easily go into a tit for tat, nothing has really changed in a way. but something has changed. negative rates continue. every time you have one of these episodes, what happens with negative rates >> we get more of them we get more of them. as a matter of fact, give me your cool statistics that you had. >> there's $15 trillion in negative interest rates. and it's 44% of non-u.s. bonds of the developed world >> and with u.s., it's almost 30% if. >> it's 27%. >> you know what, charles prince, once again, if the music playing, we have to keep dancing. it seems really what we're shadow dancing here in the end is everything something bad happens and we don't really fix it, it ends up stockpiling more

in negative debt >> negative rates are coming about because of qe. there's been $12 trillion of world qe that has piled in the money. it's a storage fee >> what country didn't do qe >> australia >> what is the situation with their banks? >> their banks recently were at all-time highs >> there's a lot of roads on this issue, but for the moment, we're at least stable. david, back to you >> still trying to figure it all out, too thank you, rick santelli now let's send it over to jon fortt with a look at what's coming up on "squawk alley". >> tech got hit hard yet so we have some tech experts and china experts today to determine what comes next, how to position that's coming up next on "squawk alley. here, it all starts with a simple...

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some of the weakness >> words about cord cutting and espn we tend to forget sometimes given all the optimism and the stock has done quite well since the big announcement i'll be tuning in to watch w araticlshould be. itas dmac ose yesterday. we'll see what happens today "squawk alley" up next don't go away.

good tuesday morning welcome to "squawk alley." i am jon fortt with morgan brennan and wilfred frost here at post 9, new york stock exchange carl has the morning off and we are going to begin, of course, with the markets stocks coming off their worst day of the year after the dow posted its sixth largest point drop ever. but back in the green this morning with names like apple and boeing leading major indices higher so what should investors make of yesterday's dive, today's rebound? joining us now to discuss is ubs global equities strategy keith parker and cantor fitzgerald global markets strategist, peter caccini. peter, you think the s&p could drop a lot from here you have a 2500 target on the s&p for