welcome, everybody the trade juarez cattiwar escal fevered pace the president raising tariffs in rapid response to china this morning boosting tariffs steve liesman in wyoming with mark carney. take it away. >> reporter: thanks, melissa with mark carney, governor of the bank of england. china escalated tariffs, president trump escalate it. talk about the global effects of the trade war between the u.s. and china. >> obviously can't comment on today's effects, but if we take a step back what has been happening is the direct effects between the u.s. and china of the actual tariffs, you know, they're starting to get up towards potentially over the course of two, tree-year period

about 1 percentage point lower for usgdp if they remain in place. there's the direct effect. what is happening globally is a confidence effect on business, business confidence, not just in the u.s. and china but across the supply chains and more broadly because it is not, as you know, just a series of measures between those jurisdictions. we had issues with usmca, we have issues around auto, we have issues around steel. we have issues in terms of the technology complex, if i can put it that way, and those effects are at least as material as the direct trade effects those effects are impacting all of the economies around the world. >> right. >> that's what is starting to happen now that's starting to play into the outlook for the global economy, and whether you are directly involved or not it is impinging on the outlook for example, for the uk, it is starting to affect our outlook. >> i think people need to

understand you as the governor of the bank of can dan and before that goldman sachs and played a role in the global response to the crisis teeing that background up for the next question, which is are global central banks, do they have the tools to address the fall-out from an extended trade war and how well are they positioned right now to address overall global economic weakness >> well, let me start with the second bit, which is that we obviously have less policy room than we did in 2008 or even than we did several years ago rates are very low certain countries are doing quantitative easing so there's less room. the major central bank with the most room is the fed because of the strength of the u.s. economy. we have less room, but we do have room and we do have an ability to use that room the judgment has to be is when do you deploy that fire power. the question that's beginning to emerge because of the scale of the trade effects is are a

number of central banks going to ease policy for their own reasons, and then collectively will it provide an offset. the one thing that won't happen is that changing the level of the bank rate in the uk, for example, doesn't change materially the cost of capital for a business in the uk, and certainly not a business in the u.s. or elsewhere. you know, 25 basis points doesn't make a difference there. what it can make a difference to though is demand in the uk and demand in other jurisdictions. and it is that effect which also provides some stimulus so the direct effects, not just of the tariffs but i really would emphasize the uncertainty that is being created by this series of measures that are happening and happening in a way that is -- is somewhat unpredictable. >> reporter: so we have our set of problems you say we have shipped to you you have your set of problems, which fed chairman jerome

problem mentioned today, brexit as an issue for the united states i want to ask if you can be sure to keep your problems over there, but i don't think that's the right question how much has it affected the uk? is it substantially responsible for the negative second quarter outcome that you had in your growth numbers and do you foresee that continuing? >> okay. the short answer to the question is yes but let me break it into two parts, which is in the very short term, the first quarter was a little stronger than people would have expected second quarter is negative third quarter we think will be positive, but the underlying pace of growth is relatively weak up and down between those various quarters, those are companies building inventory in the first quarter because they thought trade disruption might run them down in the next quarter. it is noise, real activity, but it is noise in terms of the underlying pace of growth in the economy. now, let me step back to the second bit, which is how is the uk economy doing since the referendum it has done

pretty well. we've got unemployment at rates, you know, lowest in 45 years wages are growing just south of 4% inflation is basically at target all of that has happened in a world where there's been a lot of uncertainty because of brexit and what shape it is going to take it is an analogy to the trade war. this gets to what we were talking about a moment ago in terms of what can monetary policy do. we brought it down in the uk, we did a variety of things and that is supported other aspects of the economy. while business investment is running almost 25 percentage points below its previous trend, businesses in the uk have quite reasonably said, wait a minute, i'm going to wait until -- if they have any exposure to europe, upstream or downstream, they decided to wait and see what are the new rules of the game going to be to be back to globally, that's

part of what is happening worldwide. people are saying, okay, i have exposure to chinese supply chain or u.s., let me see where it settles out. that's why it is having a bigger effect. >> i have to ask you a direct question here. you only have 75 basis points of ammunition left in your primary tool, your interest rate it looks like you have been stubbornly holding on to that. is that ammunition you are holding on to in case there's a hard brexit? >> well, there's two things. there's a couple of paths the uk economy can take, there's at least three. one is there's a deal and there's a deal and some degree of the deep economic relationship is retained now, in that world we are starting from basically full employment, inflation at target, businesses with a lot of fire power on their own balance sheet, good financial condition, and we're likely to see some of the investment in the economy pick up. that's a world, i know it doesn't sit with the theme of the day, but that's a world where actually we probably would be raising interest rates at a

limited -- you know, limited pace, gradual extent but you get the point. now, in a world where there's no deal and there's no transition, the other extreme, which is a possibility -- not a given, but a possibility. then in that world we would expect that we would lose demand from europe in the short term. there probably would be an adjustment domestically as well of consumer spending, so demand goes down. we will have to make a judgment in that world because the supply capacity they'll take on also will go down this is an economy well-integrated to europe. it is going to take a while for businesses that are very flexible, labor market is flexible, but you have to redeploy that. it takes some time it is the balance of those two effects. on balance, i said this before, my personal view which we probably would ease into that world, that scenario, but it is not a given and it depends on how it shakes out. >> changing gears. last issue, governor carney -- i

really appreciate your time and thoughts on this -- you dropped a bombshell in the luncheon there. it is almost like a mic shot you are exiting this job, almost like a mic drop. you said we need to go to a global virtual currency. it is a 23-page speech it is very heavy give us the thumbnail. why can't -- >> i want to know, did you just read the conclusion of the speech >> no, i read 14 pages and then i jumped to the conclusion. >> okay. so what is the point >> give us the thumbnail why can't the dollar be the global currency. >> the dollar is the global currency, we know that the challenge is that the u.s. share of the global economy has been reducing. the dollar share of payments -- not just financial assets by payments, a loft of payment of s that have nothing to do with the u.s. make payments in dollars. the u.s. to its credit is relatively strong, doing better. the fed has been doing the right thing.

they have adjusted policy, tightened policy as it was strengthening. now they're doing the right thing, but they adjusted and it is relatively strong that means the rest of the world policy is tighter than it needs to be, and that feeds back on the u.s. economy in a way that ultimately slows this economy. it leads to a substandard outcome. in a world where you only have limited policy space, it is a dangerous to be. so the trade issues we're talking about are reinforced by the structure of the monetary system now, you asked a big question so give me a second. >> i have. all right. >> now, the issue is you don't jump to something new overnight, and what we want in a multi polar world, think we would agree we have european engine, the u.s. engine of the economy, a multi polar world, you need a multi polar currency the question is how you get there, and i laid out ideas of

how you get there. >> the bottom line is all of the pressure on the difference in growth around the world would not fall on the dollar exchange rate. >> yes. >> it would be spread out if it was a global basket of currency is what you are saying. >> it would be spread out as a global basket of currency. it is better for the system as a whole. it raises that equilibrium level of interest rates. >> right. >> it gives central banks more -- it gives people watching greater returns on their savings. >> certainly we are thinking about it governor carney, thanks for joining us. >> thank you for having me. >> good luck through the brexit process, the trade wars and the growth issues out there. >> thanks, steve. >> thanks very much. >> reporter: back to you guys i guess in -- >> we are at the nasdaq with a long list of things to wish him well on. steve, thank you steve liesman with the bank of england governor, mark carney. mike khouw, what do you make of this in the price many of the most recent ramp up of trade tensions with china? >> one of the things i found interesting myself was he was

talking about how central banks and maybe the fed have less wiggle room or ability now than they had perhaps before the credit crisis. i'm not entirely sure that that's true. we have to first think about how much of an impact we think fed can have and what are we actually talking about and trying to mitigate it. is it an issue of trying to support gdp in the united states are we trying to focus on employment are we trying to focus on inflation. it is what we are talking about on this show, right? i think it is interesting because, of course, we have seen unconventional p unconventional policy. when you have unconventional policy like questioe, i don't tk they have that -- i don't want to see us go back to that. i don't think we need to there is almost unlimited room i would suggest. >> thinking about the amount you can cut, there's deceptive. >> entirely deceptive. >> right we could reverse course on the balance sheet, that would be

another tool remember the magnitude of what we were facing in '08. the magnitude of the crisis was -- this is nothing remotely close to that. the one thing i thought was interesting that he said was just thinking about brexit as sort of a -- not that much of a microcosm. a smaller version of our trade you have a lot of uncertainty there, right you have a date that might b certain but you don't know how it is going to shake out. >> right. >> they are the fifth largest economy in the world, so that will be interesting to see the point that i thought was interesting, he talked about business investment being down 25%. we haven't seen that here, but that's where i'm afraid that uncertainty creates uncertainty. i would much rather have a deal, even if it is not a great deal i would rather have less back and forth, you know. i guess it seems to me the actions have not been well-thought out i wish it wasn't the case. the president particularly cares

about the market. >> one of the things that keeps our economy strong, obviously we have to focus on what is going on the bus nieiness side, busins investment and so on obviously they will want to have some clarity, a path ahead when you have no idea which direction you are going to lurch in next, that is what jeopardizes. it is not the size of the tariffs. >> check out everything "options action" at cnbc.com. here is what is coming up next stocks get slammed today if you are betting on a bounce, mike khouw has a way to buy the dip for less plus -- calling all "options action" fans reach into your pocket grab your phone and tweet us your question @optionsaction if it is nice we will answer it on air when "options action" rushes

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see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool?

eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade >> welcome back to "options action". the trade war volleys coming "fast and furious" in evening. in the last hour president trump boosting tariffs to 30% from 25% and tariffs on another 35 billion will be up to 15%. stocks getting slammed with the dow falling on the lows. if you are betting on a short-term rally on monday, mike khouw has this at the plasma. >> one of the reasons people might buy a dip is obviously rebalancing your portfolio if you have a mixture of fixed income and equities, if we see one go up and the equities

portions go down, you might look to rebalance that might be one of the reasons people might be looking to buy a dip. generally we are long equities i have never seen a prolonged bear market where everybody in the business was doing well. generally we are long equities generally the economy is growing. one final point, even if the news we have had, bad as it has been, turns worse, it is not uncommon for us also to see bear market rallies we are considering considerable volatility and relative to the volatility we are seeing we are not actually seeing options premiums as high as they might otherwise be to give you some perspective, we have averaged just under 1.5 pearls intraday move since the beginning of the month, the vix sitting around 20, should be 50% higher than that when you are seeing moves of that magnitude trying to take advantage of the fact options premiums have not gone up as much as you might otherwise think and maybe looking for a bullish bet, so a

modest upside move, i think the trade one could make here, i was looking out to september you could buy the 295/300 call spread you would be spending about $1.20 to put that trade on so the pay-off will be better than three-to-one if we get a move up to 300, which, by the way, is approximately where we were at the beginning of this month. you know, this is something that works both ways. if you find yourself over allocated to stocks you can look to spy options as a potential way to hedge because implied volatility probably should be higher given the moves we are seeing. >> what do you think of this trade, karen >> i think it is interesting i wouldn't be surprised to see things bounce, right we could get different kinds of -- just as we get rhetoric that isn't good, we could get rhetoric that is good at g7. mike, would you be sort of planning on selling -- not waiting until the end but sort of selling this spread on a bounce >> selling it on a tweet maybe probably. >> exactly. >> that's actually probably all it is going to take. we are really getting whipsawed

around i think really what is going on in this particular tariff battle that we're seeing is we're getting a tweet and then china is reacting. all it really would take is something from washington, not beijing, i think for u.s. equities to get a bit of a bounce some sort of easing of the tensions anything like that could cause a little bit of a relief rally even if we don't get a permanent fix. that's what the trade is you are trying to play for some sort of bounce off of here if you thought we would see an all-clear sign any time soon you would be comfortable buying stocks i'm not comfortable doing that. >> your inclination is you wouldn't actually put the trade on >> i will put this trade on and probably will put this trade on. that's one quick thing friday night, news is coming out fast and furious it will be interesting to see where the market opens on monday if it makes up the gap lower this afternoon, it may not make sense by that point. obviously we have to play it minute to minute if the futures are higher sunday

night, it may not make sense monday morning. >> futures could be higher on sunday night and there's a whole day in china during which the chinese could actually respond to what president trump has tweeted this evening a lot can change between now and monday morning >> yes, it is funny that a trade we see like, oh, i have 12 hours where i'm not able to trade it, is that what you're saying >> yes. >> you do have time though it is a september expiration, so you have whatever, 15, 18 trading days to have it work. >> all right up next, escalating trading tensions taking down stocks. if you are long, one of the best performing sectors this year, we will tell you how to do damage control. don't go anywhere. much more "options action" right after this ♪ >>

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what do you look for i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ ♪ welcome back to "options action". president trump this evening hiking tariffs on billions of dollars worth of chinese goods

this comes after china this morning issued new tariffs on billions of dollars of american goods. the market after this morning's announcement from china. if you are wondering how to hedge the gains you made on sectors that were recent winners, mike khouw is here with the playbook mike. >> i'm looking at the consumer staples sector it is obviously one of the best performing groups. it is a flight-to-safety type of an issue the thing that makes me a little nervous is, number one, we obviously have had a number of consecutive weeks of very poor performance in equities, relatively good performance in this sector. the sector to me doesn't look particularly cheap if we look at it, for example, on a price-to-earnings basis or absolute price basis, trading at all-time high. pe is close to the ten-year high if you look at it in other ways like enterprise and ebitda, it is at all times high it was a safety trade and i'm

not sure it is safe at this level. the nice thing of staples, because of low volatility and not as elevated as they should have been anyway, it sets up well if you have gains to consider putting on a hedge. i was looking at the october spread that would cost about $1.25. that's the ratio we are looking at it was trading just under 60 when i was looking at this it is protection that will kick in quickly by the way, if you are holders of names in the space, many are good dividend payers, you will expect to get dividends before it expires this will pay an 30 cents different kind, so it is a good way to hedge it i think. >> do you like the trade >> i do. i think it is interesting. i think that there's a lot of volatility near it, which i guess is what you are trying to capitalize on. i like it. i think it is interesting. >> in terms of staples as an area of defense, mike, in general?

>> well, i mean it has sort of proven itself already as far as that goes. >> sure. >> this is one of the areas along with utilities and some of the other spots that people have been looking at as a safe haven. things that are safe havens don't remain so forever. obviously if we get any kind of a bounce or reversal in the news flow you could see some weakness here certainly on a relative basis, and i don't think it costs much to hedge so why not. >> time for the final call your last word from the options tip. mike khouw, what do you say? >> options prices should be higher if you are making directional bets, do not use credit spreads. >> karen finerman? >> yes, i would probably be looking to sell some target of 110. they don't have earnings by the time of the expiration so you don't get the volatility, but i think, you know, it protects you almost ten points up from here it has had a great run i like the stock but i feel like the options are a little slump. >> that does it for us on "options action" catch us back here next friday at 5:30 p.m. eastern time. meantime, don't go anywhere. we have "markets in turmoil" starting at 6:00 p.m. right

after this quick break o make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies "options action" is sponsored by -

see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you

through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade jim cramer is on assignment tonight because of the big market drop. markets in turmoil stocks getting hammered as the president's tweets on the fed and china send investors running for cover. the dow closing down more than 600 points more than 90% of t 95% of the s0 fell the carnage on wall street started just before 11:0