good morning welcome to "street signs." i'm joumanna bercetche >> i'm julianna tatelbaum. these are your headlines. italian equities sink and the banking index falls to the left level in almost three years after the coalition government teeters on the brink of collapse. the spread between italian and german bond yields hits a five year high

>> translator: i've already clarified with minister salvini during our meetings that this crisis he triggered will be the most transparent crisis in the history of the public. wpp shares jump as new business helps the advertiser post better-than-expected sales in the second quarter. and a mixed session in asia as chinese food rises, and the yuan is set at an 11-year low after a choppy week of trade good morning it's a busy friday morning there's a lot to get to. i want to bring you some flashes from the monthly iea oil report. just to look at some of the main headlines, iea cited global oil

demand growth estimates has been shaved by 100,000 barrels per day to 1.1 million barrels per day. the global oil demand has risen from january to may by 520,000 barrels per day, however they also say this is the lowest increase in years. the lowest rise for that period since 2008, actually, if you want more detail they pointed specifically to iran oil exports they say they dropped. no surprise there. in july they dropped by 130,000 barrels per day to 400,000 barrels per day. so this is per the iea the actual exports from iran at 400,000 barrels per day. a big drop from where we were a year ago actually in this report they cited production cuts out of iran and venezuela just one more headline to bring you. they're saying that non-opec supply will -- is expected to

forecast by 1.4 million barrels per day. it will continue to grow in the future even though opec plus has been cutting, the non-opec supply is expected to go up. not a lot of movement in crude and wti, we know that from the last couple of sessions the reports that saudi arabia may be looking to do something to put a floor under the drop in oil prices julianna will give us more breakdown on what's happening with the global markets. >> no shortage of excitement today in markets similar case last friday there's no rest for the weary. today in europe, front and center is italy. political crisis returned to the foreafter mateo salvini called for fresh elections and announced the end of the coalition with five star this has been something we've all been watching closely. there's been months of infighting, now he's finally said he will pull the plug italian assets underperforming,

but overall stoxx 600 holding up okay, down 1.6%. that's masking the big divergence between italian assets and the rest of europe. ftse mib down 1.8% as you can see, much steopper declines one of the question questions will be when will he be able to hold those fresh elections italy is due to present the 2020 budget to the eu by mid-october. so will they be able to secure the budget process before then or will we -- will it wait until after? italian assets reacting negatively i want to take your attention to one stock in particular. bayer sha eer shares are tradin 7% higher this morning that comes on the back of a report that they're potentially looking to offer an $8 billion settleupment around round-up

shares have plummeted since the monsanto acquisition now they are spiking here. they have over 18,000 outstanding cases around this weed killer. the fact they are potentially going to offer a settlement, will they be able to put a line underneath this massive headwind they've been facing. shares reacting positively to this news. we'll see if this story becomes a reality. that's just a report as of now bayer shares reacting positively let's get back to italy. the big story of the day when it comes to different regions, banks, as you would expect, underperforming here intesa down about 3.6% banco bpn down 5.5%. the link between the government and what happens on the yield side of things impactful for the italian banks.

>> there's a lot of red just looking at those banking stocks. indeed we are seeing a shakeout in fixed income as well, this on news that italy has been plunged into a fresh political crisis, sending italian bond yields higher deputy prime minister mateo salvini called forever fresh elections and announced the end of the coalition government following months of infighting with their partner, five star. tensions piqued earlier this week over a mountain rail project. giuseppe conte is poised to recall parliament and hold a vote of no confidence next week. he criticized salvini for his attempt to bring down the government >> translator: i've already clarified with minister salvini during our meetings this crisis he triggered will be the most transparent crisis in the history of the republic. it's not for the interior minister to decide the timing of

a political crisis it's up to the interior minister and his responsibilities as senator and leader of the lega party to explain to the country the reasons that bring him to interrupt early and brusquely the actions of government. >> italian newspapers have been quick to speculate on possible dates in autumn, which would be unprecedented in the post-war era. a poll could take place as soon as october 13th. andrew sheet s joins us to discuss this further some of the banks down 5%. italian bond yields up 20. i want to start with the italian bond yields it seems looking at the price action investors have

turned complacent about the political risks ahead. all of this has come to a head in the last 24 hours looks like we are staring at a potential election what do you make in the move in fixed income and is the rally justified? >> we were sitting at local heights of where italian spreads were versus germany. morgan stanley's european fixed income strategist liked italian bonds several months ago they closed that recommendation a couple weeks ago because you were at the lower end of that range. that's the problem you face. they're not cheap relative to haven't history. you know you'll have uncertainty going forward. and i think you also potentially have the risk that investors were forced into italian debt recently because it was the only thing with some sort of positive carry that they could byuy, whic

is a vulnerable situation. we're at a time of year where fixed income is weak, and you're still in a period of increased volatility >> you're a cross asset strategist you look at different asset classes. in the past there used to be strong links between italian periphery yields and what was happening in the italian banking sector not so much so if you look at the last six months. italian yields performing, tightening versus bunds, the banking sector as a whole in europe has been under pressure with this increased volatility would you expect a resumption in the correlation and a strengthening again of the financial linkages >> that's a good question. not necessarily. i think what we are seeing is the capital position of the european banks is better which i think is one thing that

justifies the lower correlation, but also the problem the european banks are facing is not a sovereign debt holding problem, it's a low interest rate profitability problem where italy affects the european banks more is not necessarily through the holding of the btps or the market worrying about btp exposure, but does this mean that german yields stay lower for longer trading near post-crisis lows in valuation, there's a lot in the price, but it makes the sector take that much longer to recover. >> why aren't we seeing much of a reaction in the euro today it's trading higher versus the dollar, but it doesn't seem to move this is a major political risk, but no reaction. >> this is a fascinating point the way the euro is trading has changed. this is a key thesis of morgan stanley's foreign exchange team.

we think the euro will be more like the yen going forward a defensive risk-off currency because europe is running a large account surplus like japan, because investors are now underexposed to europe and european assets, and european investors have a lot of overseas assets when things go wrong they repatriate the other challenge the market has with regards to euro and euro weakness, the ecb, their ability to cut is limited. this question of the economy slowing, what are central banks going to do, the fed can always cut a lot more, a lot faster than the ecb will be able to that's why we think the euro will be stronger and not behaving with the same core ligs as before. >> many people have a negative outlook on the data. germany standing out, italy as well, euro, the currency is not

moving german bund yields are at record lows here. what is the trade you would advise investors to do to express a bearish view on how things will develop in europe? >> i think it's hard i think there is a lot of negativity in the price. when we in our cross-asset view are trying to express negative views, u.s. assets are a much better place to look for the hedges at this point if we think about anything in cyclical in europe is already trading at historical kind of extremes and low valuation. the euro is cheap. we don't think it will behave negatively if things sell off. i think invests are not all that exposed to europe in the first place. i think the positioning for european weakness is largely done or has largely been priced out. i think if investors want to hedge, it's looking at where will the global slowdown go next >> plenty to pick up on in our next discussion. let's get into some of the

corporate news we're watching. wpp, they have posted better-than-expected second quarter sales. the key sales metric dropped by 1.4% beating estimates and improving on the previous quarter. the advertising group reiterated its full-year guidance and said it looks to continue recovery under its new boss >> big individual stock movers today in europe. one other stock we're looking at, uber says its price war with lyft is easing but the second quarter revenue growth decelerates. more after the prak. break.ofi, get and get your interest rate right. so you can save big. get a no-fee personal loan up to $100k. did you know that feeling sluggish or weighed down could be signs that your digestive system isn't working at its best? taking metamucil every day can help. metamucil supports your daily digestive health

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welcome back to stre"street signs. china's central bank set the yuan weaker than the 7.1 for the second time this week. it's the second day in a row that the pboc lowered the rate president trump voiced frustration over the strength of the u.s. dollar. he blamed the fed's high interest rate level for keeping

the currency level el rated. he said the central bank's policies was making it more difficult for america's biggest manufacturers to compete on a level playing field. new data out of china shows food prices jumped 9.1% from a year ago the price of pork soared by 27% as the country continues to battle african swine fever producer price inflation contracted for the first time in three years. the index is seen as a game of corporate profitability. the trump administration is reportedly delaying a decision to grant licenses for u.s. companies to do business with huawei according to bloomberg the move is in response to china's decision to stop buying u.s. agricultural products. it's just the latest tit-for-tat move in the trade war after president trump said he would impose a 10% tariff on 3$300 billion worth of chinese goods last week. let's look at asian markets. a bit of a mix of moves. the nikkei 225 ending in

positive territory broader chinese markets ending lower despite what is a broad stabilization in the yuan relative to what some had feared let's get back to our chat andrew is still with us from morgan stanley i want to pick up on president trump's latest tweet more frustration over the strength of the dollar this is more of the same of what we heard from him. now the fed has been backed into a corner largely so in terms of the dollar, are we bound to see some weakening or do you think the demand for safe havens and the relative offer of the dollar and relative yield of treasuries is enough to actually keep the dollar strong? >> yeah. this is a huge debate in the market i think with the dollar, i think what's so fascinating is you get disagreements between people on what will happen with the dollar even if they agree with what will happen with the economy and the central bank

we think the dollar are weaken and this goes against the perception that the dollar is a flight to safety asset the way it's different is the way the weakness would play out. we think the global economy has weakened, the u.s. economy will catch up to that, you are past the peak in the dollar's yield advantage, the u.s. economy's growth advantages, even if you look at the correlations in markets, how has the dollar been moving versus equities, it's not been equities up, dollars down, it's been dollars and stocks moving in the same direction if that's the pattern on the way up, we could see the dollar be less diversifying on the way down we'll see what happens >> what about in the fixed income space, there has been questions this week if u.s.

treasuries could enter into negative territory is that something you could see happeni happening? >> it's not on our forecast horizon. it's not something we're currently expecting. but look, i do think you have this -- you have this broader challenge where, you know, the world is looking for yield, u.s. treasuries are one of the few assets that still offers a positive yield relative to inflation expectations the biggest challenge now, is that we just went through this period in july where both the ecb and the fed came out with statements in press conferences that were probably disappointing versus what markets were expecting they would deliver what was the market's response expect them to deliver more. so we just went through this period of modest disappointment now we're setting ourselves up for a september/october period where a lot is in the price of what central bank also deliver the indication of how close they

are is in the mix. one reason why we're cautious on markets is this concern that central bank expectations have been raised. >> markets just want the kool-ai kool-aide. >> if you were powell what would you do now what should the fed do >> i think the key thing for the fed -- i think the fed has an incredibly tough job i think that it's easy to sit back here as an investor or a market strategist and say the fed should do this and that. if they only had done x, everything would be fine that is easy back seat driving for the market, what is important is to understand what is the fed's framework what are they focused on importantly how focused are they on financial conditions, this risk that if you leave raids ro low for too long, and communicating that more specifically than the amount

they cut is the important thing for markets. we talked about the movement of the yuan, and initially when the pboc made that fixing with the yuan moving above 7, there was a bit of a freak out, this is unprecedented the weakest level the yuan has been in years. with the ppi numbers today, clearly it paints a picture of china disinflationary back drop, if anything deflationary back drop what does this mean for china's ability to actually start exporting that deflation to the rest of the world, given that the currency is weaker, and the country is going through deflation. what are the knock db -on effec? >> you're seeing that in pricing. you look at inflation expectations in the u.s. and europe, they're near the lows. this is one of these fascinating questions. there's this potential that if china wanted to, it could do a

dramatic fiscal easing and infrastructure spend it's difficult for anybody to know will they do that but in some ways it's the dog that has not barked. we're not seeing copper prices increase we're not seeing chinese inflation increase we're not seeing signs that sort of really all-out stimulus is under way. so i think as long as that's the case, the market will view this as growth continuing to slow in china and the effects of trade overwhelming or at least matching any domestic stimulus >> it makes the job of other central banks extremely difficult in that environment. we'll talk more about that in a moment i want to talk you to uber shares there fell in extended hours trade after the ride hailing company posted lower than expected second quarter revenue. the firm was hit by record net loss of 5$5.2 billion that stemmed from a spike in costs related to its ipo elizabeth schulze has been tracking this story. losing 5 billion in one quarter

is quite an achievement. >> system of that was ipo related expenses stock options, driver compensation a large loss but also a miss on sales if you look at this report from the big picture, revenues missed at 3.$3.17 billion, that was 14 growth year-on-year. that's compared to lyft's 72% growth year-on--year year in the quarter. so we're hearing how did uber have such a big loss one is that uber is invested in many more businesses than lyft ub heer has a huge emphases on eats business. uber also has an international presence that lyft doesn't have. lyft is a u.s. player and uber is global and has more competition in other markets >> in terms of what we heard from lyft, part of the encouraging message was the price competition was easing

between uber and lyft. in the part of uber's business that is competitive with lyft, are they seeing that kind of pressure ease? >> on the earnings call they acknowledged the pricing war seemed to be at a stabilization point in the u.s that's the key thing here with uber if you look at the revenue breakdown by region, latin america revenues declined 24%. that's a sign that the price wars likely are not quite as stable there at least signs that the competition needs to continue to be fierce and in other markets that's the case. >> are we potentially in for higher pricing coming out of these companies? is this the only way the business model can survive >> that seems to be the model. this gets to that question of how do they ultimately become profitable companies how do they make money with these massive amounts of losses. analyst s ask are price hikes th only way to do that? we might think we can have these other businesses like freight

and autonomous businesses, but that looks a long way off. >> and there's pressure coming from the labor unions now pushing for the higher wages thanks for breaking down the price action for uber. coming up, uk gp growth is forecast to flat line this s arter amid heightened riskof a into diehno-deal brexit we'll break that down coming up. ♪

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. welcome back to "street signs. i'm julianna tatelbaum >> i'm joumanna bercetche. these are your headlines italian equities sink and the banking index falls to the left level in almost three years after the coalition government teeters on the brink of collapse. the spread between italian and german bond yields hits a five-week high as mateo vsalvin calls for fresh elections. >> translator: i've already clarified with minister salvini during our meetings that this

crisis he triggered will be the most transparent crisis in the history of the public. bayer shares hit their highest in five months after reportedly proposing an $8 billion settlement for thousands of round-up cancer lawsuits. wpp shares jump as new business helps the advertiser post better-than-expected sales in the second quarter. all right. we got the uk gdp data for the month of june, gdp came in at zero percent month on month. that's lower than 0.1% month on month. the second quarter gdp now, which we have all three months, we have them all, april, may, june, is showing a gdp

contraction of minus 0.2%. that is worse than all forecasts. also worse than the bank of england forecast who had flat, zero percent growth for the second quarter it looks as though a big part of that is on the back of no surprise here, the manufacturing output just to give you those numbers the second quarter manufacturing output came at minus 2.3% for the quarter. this is the biggest calendar quarter fall since the first quarter of 2009. just looking at some more of the other outputs, services output for june came in flat month on month. this is the fourth month of sag nati stagnation looking at this number, there was a negative 0.1% month to month, we got zero percent for the month, but minus 0.2% for

the quarter. a lot of weakness showing up in the manufacturing space. what is your take on how the uk economy is doing here? >> we had a big inventory build up going into the first brexit deadline quite a lot of manufacturing took place it was inevitable some of those inventories would have to be worked through in the second quarter it looks like that's what we've seen that uncertainty around brexit probably hurt investments in the quarter >> we have seen business investment down 0.5% quarter on quarter, that's worse than the market was expecting we're looking at huge untertc uncertain uncertainty. what's your outlook for business inve investment, any way we see businesses more positive laying down more cash >> i think the outlook is bleak

until we get some more clarity on brexit. this raises the risk of a recession in the near-term >> okay. interesting you say that, so far the strong pillar of the uk economy, the one bit holding up is the retail space. and personal spending numbers. if you look at things like consumer confidence about personal finances, because real wages are higher, it's been steady compared to business uncertainty about brexit is that going to be the next shoe to drop is it consumption-led, this next quarter of weakness that will come in the uk >> i think it's likely with the uncertainty that's built up after the change in prime minister, you could see a pull back don't forget we had a hot summer it's too hot for people to go out shopping lets of reports that retail sales will be down in the second quarter. that chance is high. >> equally wage growth is still very high. the bank of england, i was there last week, they're still guiding

towards rate hikes in the future, even in an environment where every other central bank in the world is turning more dovish is it because of this strong wage growth? is that the one metric we need to keep an eye on? if things turn there, that should be the signal for the bank of england to start turning dovish >> wages are a lagging indicator. they're a factor of the lack of supply, of workers for the demand that we have. what's more interesting, if you look at the breakdown of employment growth, it's been part-time,ssisted workers. full thyme wo full-time workers are in decline. >> i want to come back to you, andrew in terms of what you're expecting from the bepank of england, should we see a no-deal brexit come through, what is your best case here? >> i think the bank of england has a big challenge in front of it the market has been too quick to

assume that you get a hard brexit outcome an they will ease policy aggressively. i think at the end of the day what brexit could represent, especially a no-deal brexit is a very negative supply shock to the economy. it's a negative for trade in the relative cost of trading until some new trade deal is agreed. it is a negative supply shock to the labor force. those factors are inflationary for a given level of output. you know, yes, you have something that would increase uncertain uncertainty, something that would increase the risk of recession, but something that is not a clear-cut instance where monetary policy can solve it also the bank of england has a limited amount of room to maneuver it's not at zero, but it's close. does it want to save some of that flexibility for when there's more certainty i think we probably have a bit more of a hawkish outlook or a less dovish outlook for the bank of england than the market does

because of those challenges. >> does a weaker pound help the uk economy here? >> not at all. it's been clear now tracking the trade data, tracking the economy data that the weaker pound brings about higher inflation for households, which consumption is the big driver for the economy. and for corporates, because they're so heavily integrated into the european manufacturing network, you know, change that t change demand. when the pound falls, they become more profitable in sterling terms they don't really export anymore. that expected gain from the pound falling doesn't really materialize. >> we're not really seeing whens adjust prices and global demand is not picking up the pace to drive further exports. maybe put that to the side for a moment and talk about the fiscal side of things with a no-deal brexit and a lot of excitement about fiscal stimulus coming through, what do

you think would be more effective in stimulating the economy, if we see a fiscal stimulus coming through from the government or monetary stimulus coming through from the bank of england? >> no doubt it would be fiscal a cut to v.a.t. would be powerful initially, but cuts to corporation taxes would help boost business investment and confidence that will still take a long time to feed through to the economy >> speaking of which, i want to bring you a reminder of some commentary we had out of the finance minister yesterday saying their planned three-year spending review will be postponed until 2020 due to brexit the 2021 spending limit will still respect fiscal rules, however. there's certainly a bit of head room but then again the big question is uncertainty around brexit how can you come up with a three-year spending plan if you don't know what relationship with the eu is going to look like it doesn't seem likely we'll get imminent fiscal boost. to go back to your rim nall

point of why you think the uk could enter into recession, what do you think the main catalyst is going to be is it a lack of stimulus or the data continuing to worsen? >> we have the external environment weakening quickly. eurozone is potentially looking at recession later this year the u.s. is potentially slowing as well. on the domestic front, the household sector is clearly losing confidence quickly. at a time when the savings rate is almost at a record low. if you get precautionary savings increasing, you will see a fall in consumption and that will tip us into recession. >> andrew, one of the fruits that was dangled in front of the uk when president trump came to visit was this big prosperous trade deal between the u.s. and the uk is that something you so he happening >> i think we'd be skeptical on that for two specific reasons first, trade deals are

incredibly complex they take time even if you think about, you know, the trade deal -- the free trade deal that was worked out between the krurp peen european canada, something like that takes years to work out. the second issue that is also potentially complicating thing here's is the pound. you have a u.s. administration focused on currency and currency strength you have a uk currency that has rarely been weaker versus the dollar does that complicate matters it's easy to talk it up and say something is easy. we think it's much more challenging to complete and probably get to an end point >> one final question before you leave us, i want to take it back to the communication coming out of the bank of england this is a question i asked the governor at the last press conference

they are guiding the market towards an outcome that the market doesn't necessarily believe and the market is pricing in interest rate cuts. governor carney is stepping down at the beginning of next year. what do you think the bank should focus on next term, in terms of helping tocy and the communication coming outmarket e reaction function better >> the bank's communication has been skewed by political influnsz sounding negative on brexit right now will hurt the bank ther subtle changes to their communication, they are hinting consumption will go up but only if brexit is smooth

>> we'll leave it there. thank you very much for taking the time to chat. japan's economy expanded for a third straight quarter in the three months through june amid escalating trade tensions and uncertainty over the global economy. makiko utsuda joins us from the nikkei gross domestic product for the quarter expanded 0.4% or at an annualized rate of 8.1% according to government figures. the faster than expected growth rate was largely due to rising consumption in private and business sectors japan had a ten-day string of holidays in may, and the longer than usual stretch helped boost leisure spending also strong demand for cars contributed to private consumption as new models were released during the quarter. also warm temperatures in may and june led to more people shelling out for air conditioners

economists say the robust consumer spending likely reflects people wanting to buy ahead of the planned consumption tax hike in october. business investment grew at a healthier rate data centers for 5g networks and labor saving technologies also agree. exports decelerated for the second straight quarter due to slowing demand in china and despite the healthy gdp growth inflation remains subdued. consumer sentiment is weak with the government index falling for ten months in a row. amid that the governor said he is more accommodative about easing further that's all from the nikkei the u.s. has issued a travel warning for hong kong. the state department has urged visitors to exercise increased caution in the face of

"confrontational protests and violent clashes that will likely continue." thousands of demonstrators are currently descending on the city's airport for a three-day sit-in aimed at attracting international attention. steve iseman told u.s. colleagues that the unrest could spur a major downturn. >> i have a strong opinion on when the next recession will be. the only thing i would say is -- are the major risks are the trade war and then the potential black swan is what's happening in hong kong and if things escalate further in hong kong that would have a real impact on the global economy. we'll take a short break coming up on the show, summer soccer spending in england reached 1$1.6 billion where is all that money going? we'll round premiere

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summer spending in england's top soccer league fell short of the record high but still totaled 1$1.6 billion players leaving the premier league have had the biggest price tags ahead of the new season which kicks off this evening. adam joins us with more. >> thank you very much yes. the premier league is back nine months ahead of premier league football all starting tonight with the european champions, liverpool at home to norwich city not a busy transfer window for liverpool. here we can look at the premier league as a whole. clubs chose to shut the window before the season starts they took that decision last season and now this is where we are after this season's window 1.$1.69 billion was spent by premier league clubs spain not a long way behind with 1.3 billion, boosted by acquisitions including eden hazard from chelsea, felix from benfica to atletico madrid and greaseman moving from atletico

to mars lonbarcelona. here's where the money has been spent. a world record fee for harry maguire moving from leicester city, obviously champions from a few years ago, manchester united champions from further back as well they signed a record number for signing harry maguire. manchester united, they let go of romelu lukaku he has moved to inter milan and they have not replaced him which will be an interesting step forward for manchester united. they'll step up their search for a technical director because people that handle the football side of things, potentially they're not cutting it according to their fans. we can look at the other big moves over the course of the summer in the premier league nicholas pepe, is he arsenal's record signing he moved from lille in france to

arsenal to strengthen the front line also strengthened at the back a surprise move on deadline day, david luiz, the brazilian defender, you can't miss him, he has joined from chelsea for around 9.7 milli$9.7 million the 32-year-old is moving across london to join arsenal interesting reactions from arsenal fans over what he might be able to do for their defense. the biggest move on deadline day, cancelo manchester city, the champions, they have strengthened again by bringing in another defender to play at right back so, a very strong looking manchester city, a strong looking premier league like i say, it all starts tonight with liverpool against norwich city >> very exciting let's go back to the european markets. a lot of red on the screen

the ftse 100 was initially up in the green. we dropped after that second quarter gdp print. manufacturing really being one of the main points of weakness there. italy also very much in focus. ftse mib down 2.3% this on reports that mr. matteo salvini, one of the deputy prime ministers in italy will be looking to call a snap election as soon as october investors are reacting selling italian assets and selling in the banking space as well as in periphery bonds. switching to foreign exchange, euro is stable as ever around that 1.1190 mark. 0.13% firmer on the session. cable trading on the back foot after the gdp number came out.

we briefly broke through 1.21, we have since recovered. and dollar yuan is the currency pair we've been looking at the fix came out weaker again today. this is the weakest close for yuan/dollar since 2008 let's look at the futures. the three majors are seen opening up in the red. a lot of volatility the last couple of sessions yesterday the indices did manage to eke out some gains as we get to the end of earnings season. let's talk about markets with andrew sheets from morgan stanley. this week was epitomized by a lot of volatility in markets there was one day where almost 70% of the s&p moved more than 2% in one particular day vix shot up on the back of that. how do you see volatility

panning out over the quieter summer months? >> i think it will reign high. we moved underweight global stocks on july 7th there's sill a number of challenges facing the market if we think about volatility it picked up in some places quite a bit. in equity markets, what's expected in terms of market moves has risen. in other markets it's moved less looking at foreign exchange, expected volatility there is low. due to a variety of factors, i think we're in for a challenging period for markets it will mean more volatility at the margin we'll see more volatility in currency markets >> i saw in your research that back in july you downgraded your global equities recommendation to underweight i look across assets, you have 25% of government bonds trading in negative territory. where are investors putting

their money? >> i think this is one of the major contradictions or push-backs to our story to say it's great, you're underweight equities, you're cautious, but shouldn't equities be supported because everything else is worse? the problem that markets have are a lot of assets are expensive. i don't think that means necessarily that equities go up. this is an environment where cash and defensive assets are the least bad things out there and one point i would make about the equity risk premium, which is a topical debate in terms of stock valuations vers bond v s o wa valuations, it's a valuation measure. just as the pe rash ktio doesn' guarantee the stock market will go in one direction or another,

this doesn't guarantee the same. over the next three to six months, i think a lot of changes and challenges are still to the equity market that makes us more cautious >> valuations are rich on both of those metrics going back and talking about hedges, you talked about volatility being high in equity indices, not so much in currencies if an investor wants to position for down side risk, are the best hedges found in currency space >> we think so the yen could appreciate significantly if volatility picks up we have a controversial view on the euro, that it could do the same thing i think a lot of investors probably don't share that view we think the euro would be defensive in that further weakness environment those are two places we would look for diversification for defensiveness out there. >> do you worry this trade war is now going to move to a full-grown currency war?

and that the u.s. administration will keep trying to jawbone the dollar weaker? >> i think the problem with trade tensions is all the signs unfortunately point to continued escalation i think that's been the sign out of the u.s. administration those have been the signs out of china. i think we've been in the camp that unfortunately this continues to drag on that's one reason why we downgraded equities to underweight. so currency is part of this, but it's surely not the only part. it's just an emerging part of the challenge. unfortunately things could change unfortunately all the signs that we see still point to continued escalation in december which is denting business confidence and is bad for growth. >> the fed in a way you could say has been underwriting the trade war and stepping in and cutting rates.

how much of a risk is there that they will say no, we're not underwriting it anymore? >> it is a risk. what's fascinating, we had a fed meeting at the end of july where chair powell came out and i think effectively said, you know, communicated a message that was less dovish than the market expected. the market had a have your cake and eat it mentality we'll get easing no matter what. so powell's message, even though it was dovish, he cut interest rates and ended the balance sheet runoff there's a risk that there's less support than we expected >> andrew, thanks for joining us that's it for today's show i'm julianna tatelbaum >> i'm joumanna bercetche. nt.congde exchange" is mi upex hey! i'm bill slowsky jr.,

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it is 5:00 a.m motion sickness, anybody wall street bracing for the end of a wild week of trading. the dow about 1,000 points away from an all-time high. can we end this crazy week higher the rate risk remains. yet another central bank outside america cutting its key interest rate new salvos in the trade war. china lowering its currency peg yet again to a new 11-year low, all this as america delays a key decision on huawei. uber, ouch investors losing more mone