Transcripts For BLOOMBERG Countdown 20160106

For which i apologize. Manus you are welcome. It is countdown. What a day, what a day for the markets. Money going into treasuries, the yen. Let us talk about north korea detonating a bomb. You see the dollar move, the yuan at the weakest since september. Going into the weakest currency, down a quarter of 1 . Doubling on top of this, you have manufacturing data in china. The private manufacturing data showing the secondlowest reading in 10 years. Yuan,come in terms of the you have the offshore and the onshore. Offshore hitting the lowest in five years. The pboc setting the lower level for the yuan for the lower level. This is something we will talk about to hans redeker. The difference between these two has on drupal in the past has quadrupled in the past aggressive response, in terms of the north korea and chinese stories. In hong kong. Ting these are u. S. Equity futures. And the nasdaq down 8 10 of 1 . Lets get the caroline hyde. Caroline the manus come a thank you. North korea has conducted its Fourth Nuclear test. They detonated a Hydrogen Bomb in a underground test site in the far northeast. By thefirst detected u. S. Geological survey at 5. 1 earthquake read it is a setback. Yuan has sunk to a fiveyear low after trading, and the lowering of the Interest Rates for the seventh straight day. Stocks and hong kong fell to the lowest level in 2. 5 years. The slump has slowed Economic Growth. Staying with china, and a private Services Gauge has stumped to the secondhighe level. Low, prone to a 17month down from 51. 2 among earlier. President obama has announced a new guncontrol measure, surrounded by a group of shooting victims, his executive order broaen background checks. The gun lobby announced the measures denounced the measures. Constant obama the excuses for in action no longer due, no longer suffice. That is why we are here today. To debate the last mass shooting, but to do something to try and prevent the next one. [applause] cheapne chief petrol petrol shows the sector had record by 17. 4 million. Reported a 9. 1 decline in deliveries last month. That was better than novembers 26 plunge. Debating whether to ban donald trump from entering the country, the news comes after more than half a Million People signed an online petition calling for a bar on the front runner in the candidacy. Was signed byon about 40,000 people. It will be debated by mps. For more on those stories, terminal customers can see those. Manus airline hide there. Let us get into the markets in asia. Heidi is standing by. We have lower china readings, Nuclear Detonation in north korea. Take us to the market. Six of 2016,day pretty eventful to put it mildly. Of course, we have geopolitical tensions being thrown up by the nuclear test in north korea. Like the yanks saying have expired after three consecutive days of gains. We are seeing the china story play out. First of all, we had the pmi that felt to a 17month low. Really casting doubt on the rebalancing story we have all been tracking. And the offshore you one and the onshoree yuan take a look at shanghai. This is sparking more intervention growth in the equities market. A 10th of aup by percent, really extending those gains. That fell about 7 in the first few days of trading. After sessioning lows down by about 3 10 of 1 . Stocks, again, what of the worst performers. Oil price ande also the china slowdown story. I do want to bring up some of the stuff we have been watching today. The bank come back online, after being suspended. This is a company that is trying to send up a hostile takeover of its biggest shareholder. Therta also sinking, after automakers Manufacturing Association said there is no financial bailout being discussed. It is really a day we are looking at the yuan, and quickly, the bank of korea coming out and saying it expects that these moves to be shortlived. And that extends right down to the intervention. As the case may be. Back to you. Manus thank you. That intervention is disturbing and lots of markets. Let us turn our attention to north korea. They have conducted their Fourth Nuclear test, detonating a Hydrogen Bomb in the northeast of the country. It is a step back for u. S. And chinese efforts to convince the leader to restart disarmament talks. For more, lets head to seoul. Peter, very good day to you. There any doubt about this test, as to whether it is a Hydrogen Bomb . Peter well, yes. Immediately, several Nuclear Scientists we spoke to today are raising serious questions about whether it was really a Hydrogen Bomb. Mainly, because the magnitude that was registered from the magnitude 5. 1 was even less than what you would get from anatomic bomb explosion. Bombs you know, hydrogen just to ignited, you need several atomic bombs to trigger it. And so the feeling is that if it was a Hydrogen Bomb, the magnitude would be significantly higher. And so, right now, at least initially the response is wait a minute. The claims byg North Koreans at this point. Ofus as usual, the veracity the what the North Koreans tell the world is in question. Let us talk about the implications in terms of north korea, and perhaps a quick take globally. We are getting initial responses from iran. Bomb tests,he hate these are coming in constantly across the bloomberg terminal. Are they considering further measures against north korea . Talk to me about the geopolitics. Peter yes. Even china, which has typically , or behind north korea supported in many ways, came out strongly critical of this test. Clearly, this sort of universal criticism, condemnation of this test. So obviously, tensions are going to increase again along the 38th parallel. And south korean president came out strongly condemning the move, particularly in light of the fact that the relations seem to be improving a bit since last september, when a similar tension arose in north korea. When a Nuclear Attack now, it seems back to square one or maybe even worse. Particularly, if it is true that a Hydrogen Bomb was tested. Manus peter, thank you so much. Our bureau chief in seoul. For more, let me bring in hans redeker. He is head of global strategy at Morgan Stanley. Let us get right to it. Manufacturing numbers disappointing around the world. If you are talking black swans, we have them all in the first week. Korea, just make some sense of where we are globally at the moment. Hans we are globally in an environment where Risk Appetite is getting hit. The weakness in the manufacturing should not surprise anybody. What we have seen over the past years, the buildup of too capacity. We are in an environment where global trade has never been as developed as it is read that actually means that the transmission mechanism, which you may find in asia into weaker Manufacturing Activity into the u. S. , that does not surprise me at all. The weakness in manufacturing is important to notice. But it is not a surprise. Question is not where is the next big impact from their . It is actually possible impacting u. S. Demand. That is the next big question. When you look at the u. S. , you have this divergence between the domestic demand situation and the manufacturing situation. Is the domestic demand situation, well, we have small indications that domestic demand seems to be weakening. We look at our own gdp tracker, it is currently running at 0. 5. When you look at gdp tracker, it is at 0. 7. It has been coming sharply lower over the past few weeks. What really concerns me is that for most of the u. S. , in the early part of winter, especially on the east coast, we had good weather. Manus we will delve into that later. We have a heck of a lot to get to. We will talk about china. Hans redeker stays with me. Let us talk about the yuan and china. Is onshoreoffshore gap hitting a record. After cutting the rate to the weakest levels in 2011, the move could signal a major shift in the peoples bank of china. We have our bureau chief, nick. This is a big question for global markets. This devaluation train that the day seven. Tion, what are you thinking . Nick it is very difficult to interpret what the pco be his thinking. Transparency is not a watchword. On one hand, we had very clear evidence the reporting yesterday and again today that the government does intervene to keep the yuan, to prop it up. Yesterday, when it was hitting the dollar, they were aggressively defending a. We know they are intervening. What we have heard is that they are doing this to maintain stability, to prevent volatility in the yuan. But it does seem there is a dive it a little bit lower. Obviously, that will be a boom to chinese exporters, as the economy weakens. And they will not have to use the reserves they have in using to defend it. So it does seem a weaker yuan does serve the government. Manus talk to me about the divergence. I talked about it at the start of the show. The differential between the onshore and the offshore. Why is it such a critical story, as it were, for us a bloomberg at the moment . Talking about are really is a situation where on the one hand, the offshore is treated without capital controls. That is the voice of the market, where investors believe the currency should be. Theonshore is something government can really control, there are capital controls and they can intervene much more easily in the onshore market. When you see that divergence, it does suggest there has been government intervention. That theyre able to keep the currency down a little bit. Is overseas, where the yuan treated more freely, it is pushing down against the dollar. That is one explanation. You could really write a whole book about the spread between the onshore and the offshore. That is one way we are interpreting it right now. Manus nick, thank you very much. Meanwhile, the chief economist has told bloomberg that china has not been doing itself any favors with this economic policies. It is a challenge for china, to transition from investmentheavy or investmentled growth to consumption they have annoyed do it for quite a while. Every time they get to a box in the road, they tend to revert to a standard policy that focuses more on investment, real estate. Rather than investing in policies that would support consumption. Manus hans redeker is still with me. Look, we heard the details in terms of the chinese digging around in the yuan market. Where are we with this . This differential i talked about at the start, nick talked about the ability to control the what is your perspective from the fx differential . Hans the view i take on this is that we need to understand under which circumstances the currency is weakening. I think it is most important topic here, how much of that capital flow do you see moving from china into the outside world . Now, china is not included that means there is more opening of the capital account. So even if you operate investment on the account, promoting inflows and making it more difficult for the outflow noe, the capital account is longer as sealed as it used to be five years ago. So you have the possibility of capital being exported from china. That is actually a key point. While many are focusing on the theange rate, and if Exchange Rate would stabilize it would be so much better for global risk, i think that interpretation is actually wrong. What you need to look into is the capital outflow. And there we have to think about, ok, there is an f x component. Let us talk about currency reserves. When currency reserves are declining, it actually tells me liquidityl dollar conditions are tightening. We have here is a choice between the weaker dollar and the conditions in an environment where emerging markets are facing capital outflows. So that means that either we have the problematic coming to us, in the developed world, while we see decreasing inflationary pressures, while the region exports that into the developed world. Or alternatively, we have a situation where global dollar liquidity conditions become tighter. It is not good for asset markets. Manus which do you think . Hans the good thing here from an analytical point of view, it does lead to the same result. Actually, it is negative for Risk Appetite, Capital Markets. It is a huge strike for Capital Markets. We are talking about the surprising power, which is challenged, if china is trying to get more competitive. Or we talk about global liquidity conditions, which are becoming tighter. Why the decline in global currency reserves . Make no mistake. When currency reserves are falling, we have a monetization affect. That actually means the decline is going to lead to a monetization of Bond Holdings of central banks. Everything else equal, it actually means higher bond yields. You push yields up to which is not good for Capital Markets. And in this environment, we are currently and that explains nervousness in the Capital Market to a substantial extent. Stay with me. We have a lot more to get through. Here is your day ahead. If youre just getting up and having your coffee, we get final ratings on european pmi that european, spain, france, germany. And as a whole at 9 a. M. , is what is expected from the market. 20 of data as the u. S. Started off with mortgage applications. At midday, this is the focus for markets. The minutes from Federal Reserve december meeting. When it raised rates for the First Time Since 2006. Up next, the crucial minutes what can we expect from the fed release . The innerworkings workings of the Federal Reserve, the december meeting. Stay with us. Manus 6 22 in london. Let us get the Bloomberg News flash. Caroline hyde is here. Caroline the head of volkswagen has apologized to the American People. He was speaking at the Consumer Electronics show in las vegas. The Current Issue with the diesel engines is certainly nothing to be proud of. Customersinted our and the American People. For which i truly, for which im truly sorry. And for which i apologize. Caroline we will be bringing diessr own interview with shortly. After thee fallen asian review reported that the u. S. Company would reduce put byquarter out 30 . Shares have piled up and retailers, amid lackluster sales. On temporary limits imposed european baggage flights have been lifted, less than 24 hours after the unprecedented announcement that attracted widespread criticism. The airline had told passengers they should fly without checking luggage on eri european flights. Stories,on those terminal customers can head there. Manus we have u. S. Data on the mortgage applications. We have the trade balance at 1 30. And composite pmi at 2 45. 7 00 p. M. , that is when the market will be focused in on the december meeting the minutes. Let us bring in hans redeker. He is still here. There is a whole variety of things we can focus on the inflation outlook, what is going to be the key for you . This was a unanimous decision. We will try to work out the thinking of the fed. What is key for you . Hans see here is what is the , like you to be increased further from your. The question is, what type of phase . And what type of framework will they operate . They want to see a reaction function from the fed. So the market wanted to see clear year on year end, how the slope of the curve is going to develop. When it comes to the impact this is going to have on currency doubt thatreally interestrate policy in the u. S. Is really the driver for the u. S. Dollar. So it has a tactical impact, but it will not go beyond that. I think the real reason why the u. S. Dollar is strong, and has a lot to do with repatriation and adjustment from emerging markets back into the dollar. Manus for our viewers here, this is the big move in the dollar. Going back and we had huge cycles that we talked about earlier in the week three games reflecting back to the clinton and reagan era. You are saying Interest Rate policy is not necessarily going to drive momentum here. It is going to be something else. What . Hans what is behind it, we need to look into a couple of things. Number one, since the 2000 and sawwe dollardenominated debt, the creation, outside the u. S. Increasing at a faster pace than outside. The amount of total leverage in emerging markets was reaching a record level. That is at the same time were leverage in the u. S. Has not changed, when compared to Lehman Brothers levels. What we are talking about is the deleveraging and capital exports, back into the u. S. , those savings are repatriated back into the u. S. Is staying with me. Brexit inalk about gre bavaria. The only way to get better is to challenge yourself, and thats what were doing at xfinity. We are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Manus 6 30 in london. Let us get the bloomberg first word news. Caroline thank you. North korea has conducted its Fourth Nuclear test. The regime said detonated a hydrogen device that underground test site in far northeast. A 5. 1 first detected as test by the geological society. Sunk to arrency has fiveyear low in offshore trading, after the intro bank lowered the rate for the seventh date in a row. Stocks in hong kong fell to the lowest in 2. 5 years, and slow Economic Growth will extend last years losses. Staying with china, a private Services Gauge has sunk to the secondlowest level in a decade. The survey fell to a 17month low down from 51. 2 a month earlier. Obama emotional president announced new gun proposals. It is excited correct to broaden the definition of who qualifies as a gun owner, tracking stolen weapons. The gun lobby denounced the news. And smith wesson sword. Ooard. Red. President obama the constant excuses for an action no longer suffice. That is why we are here today ay. Not to debate the last mass shooting, but to prevent the next one. Rol ande cheap pet low Interest Rates powered the auto industry. Ofting the year 2000 record 17. 4 million. Volkswagen still reeling from the scandal, reported a 9. 1 decline in deliveries last month. While that is better than novembers 26 plunge. And the u. K. Will debate whether to ban donald trump from entering the country, after more than half a Million People backed an online pet ition. One willne a rival also be debated in parliament. For more on those stories, customers can head to the top. Manus give me a quick sweep on the markets, equity futures in shanghai are rallying. London is 20 points lower. Run us to the market. Caroline a heady cocktail of concern that is from michael hewson. And simpleplain concern, and we have south korea down. And indeed, chinese stocks. Goingso, the nuclear test on in north korea. All of that really adding to the phenomenal concerns we already have in the market. Plummetast tension, the in china. Volatility is here to stay. A mixed reaction in china at the moment. It is up 1. 6 , that seems to be as china really starts to add stimulus to its economy. We know they have been supporting stocks that major hit he saw on monday. But also lowering the currency rate to what is it now . Weakesticant low, the and five years. That is offshore and onshore, somewhat stimulating buying of stocks. But it is sending shivers down investors spines. Where does china go in terms of policy, when you have the data coming in so much weaker than the official data. The private Gate Services really showing that that growth area is not going as fast as we thought. Keep an eye on the Foreign Exchange market. The haven we have been hearing about it money moving out of the dollar and getting into the yen. You see it is currently stronger by about 30 . The dollar is down 3 10 of a percent. The south korean currency is lower on the back of these early that test in north korea. Money going into the debt market, the haven of sovereign debt. Debtou see the 10 year coming down. A heady mix of concern. Back to you. Manus it is, indeed. Our bloomberg story this morning says since 1999, hsbc is cutting application by 50 . Some fundamental rethinking about what is going on in markets, where to put your money in 2016. We will get the pmi data in europe this morning. With italy, france, germany, to follow. These are the final readings, of course. Then we get figures from the eurozone as a whole. That is going to be at 9 30 gmt. That comes just a day after the euro area inflation came in weaker than protected. Germany did not help that story at all in terms of the ecb target. Hans redeker is still with us. At the very start of the show, you said i am worried about the export of deflation from china on a global basis. Europe, nowhere near the inflation target. It is a milestone away. That we should not forget actually, there are two ways we to look at this. Number one, the direct impact. Theave the weakening of currency, but we have to think about what is the cost of the currency . It has a lot to do with what you find in emerging markets, too. Overcapacity, and if you wanted to utilize the capacity, you tend to decrease prices. And you see that in many asian countries, where Producer Prices are negative territory with the exception of one or two countries. In the empire asian regions, anybody else is reducing negative exports and exporting the global trade into the global trade. Manus deflation risk weakens bringing Morgan Stanley, what you expect the ecb to do . Hans what theyre going to do rhetorically . Basically, preparing something to do. You have not seen anything yet. We have seen quietness. And that actually creates a quite dangerous situation from an Exchange Rate situation. If the European Central bank were to be relatively quiet, uted to them underperforming inflation, at the same time you would see emergingmarket currencies depreciating, that means the trade rate terms it is all against sterling. But that deal would appreciate. That is actually another negative factor, and respect to european inflation. So we are currently seeing, what we have seen the past month, is that while people are steering the eurodollar coming off a bit, what they should look off if the trade index of the euro. It is painting a different picture. Because other currencies are depreciating against the u. S. Dollar and even faster pace. Manus take me inside, the focus on the trade. I get that. But the risk is looking down the eye of the euro swedish krona. They have said very publicly that they are ready to intervene. Will they . Are they getting into a war they cannot win . Hans it is a type of packing. What you do tend to have as when currencies are weakening, then there is more and more countries theh try to peg against weakening currency bloc. The contrary is happening in the u. S. Dollar bloc. It is becoming smaller. You see google are canceling, look at azerbaijan. Other countries, china as a force, you cannot solve those aspects read the dollar becomes smaller. People are pegging against the weakening dollar. Manus how low can you go . Hans i think we need to look into the corporation countries, summoned to look into. The other point you mentioned, sweden. Are selecting to intervene in the market, in order to have their deflationary thresholds contained. Other helps it, too, that focusing is going on. This is the last time. They were not very successful, absolutely. But when you have an apparently you as ash kronor, private investors saying i am buying a swedish asset, i am actually getting compensated via the Exchange Rate. Rateot Getting Exchange undervalued, im getting compensated by the asset. That actually means a foreign flow of funds moves into sweden. Therefore, when they intervene, there is a possibility to buy cheap swedish kornroner. Manus the u. K. Prime minister David Cameron in bavaria today not for beer but conversation with Angela Merkel. Yesterday, he told lawmakers that the ministers would be allowed to decide for themselves which way to campaign for the u. K. Referendum. Be a cleare will government position, open to individual ministers to take a different personal position, while remaining part of the government. Let us get coupons nichols. He is our International Correspondent in bavaria, not with a beer. Thank you. He needs Angela Merkel on his arm, his debutante. Hans he is arriving in a very tense situation. The sister party on the refugee issue, merkel are selfs puzzle. Latest decision to let cabinet ministers make the own decision on brexit. The irony is that David Cameron it may be losing members of his own cabinet, but he is traveling all over europe looking for allies. I sure hope he has enough pages in the Prime Minister passport. He is in bavaria today. Was in austria, he was the first british Prime Minister there in 30 years, seeking allies. On this question of leading members of his own cabinet lead, the chancellor was puzzled. They continue to think it is a strategic mistake, according to a german official. They cannot figure out what his overall strategy is on this. At the same time, the issues remain. Right . The last time we spoke was back in december, in brussels, it was clear David Cameron came there with an ambitious agenda. They did not get that in brussels. He is a lot of work to do, namely on how long of a wait time he will have on new arrivals to the u. K. Within the eu, they are receiving benefits. Manus let us just take up on that. Angela merkels coalition, you mentioned the coalition of refugees. Is either side backing down. Hans no. Bavarianays, the sister party is digging in d. They are insisting that you cannot have her transport minister make these comments in the bill overnight. You cannot have any sustainable refugee policy unless you set an upper limit. 4000 a day are the numbers they are talking about of new arrivals. All of this has been in the plane. Yesterday, authorities in cologne talked about how they describe some of the attackers on an assault on new years eve. This is an explosive situation. We think they were described as being of north african or arabic descent. Ons has poured a lot of oil the fire of what you do with new arrivals here in germany. Authorities are careful to say they do not know where the actual precise that ground is, whether these potential attackers whether they were new arrivals or have been known elements to the police. Everyone is pledging to get to the bottom of it. Last night, there was a rally in cologne working on womens rights, st. Marys to be more done to protect the security. Womens rights are very important to german society. Manus thank you very much. Hans nichols, our international respondent. The north korea news that they apparently have tested a nuclear bomb. This is coming from france. They are condemning them of the reports of the nuclear test. We are waiting for confirmation, calling for strong reaction to the north korean situation. Of course, you have in bringing you these reactions throughout the morning. If youre just tuning in, north bombn has tested a nuclear overnight a Hydrogen Bomb test has gone off. We have seen a variety of Global Leaders respond. Money going into the yen, coming out of equities, those are the market responses. Let us focus back to brexit. We just heard from hans nichols, hans record is with me. , thewe are, Morgan Stanley house view, will we get a referendum this year . I have been told it is too early to price sterling. Too difficult . Hans brexit is one element of that. But what you have to consider is that you have fiscal tightening, an impact on the economy of that. I was talking before that we are very likely to have tightening of liquidity conditions in global markets. That is important for sterling, and respect that the currency deficit of 4. 7 , which needs to be funded. The question is can you funded that at the current Exchange Rate . The answer to that is going to be much more difficult. So you have three elements which are weakening sterling. And i think that the announcement we have seen yesterday, that cabinet ministers can now place themselves wherever they like and respect of britain in or out of the euro. And that is going to highlight a problematic for accidental vote for the camera and could not get so much out of the europeans because theyre occupied with other things. The refugee crisis, is britain really a top of Angela Merkels agenda . I think the negotiation is coming at not a very pleasant time for britain. What David Cameron make it out of there is maybe not enough to vote. Ce them there is a therefore, the possibility and risk of a no vote is increasing. Manus very quickly, 10 seconds, well will then that risk manifest itself . Hans the initial reaction is bound to position. Therefore, the initial impact is in sterling. The second round effect is all 150, ireaking 140 guess you would have a figure rise on the break of 4515. Manus there you go. Hans redeker. Thank you so much for being with us. Let us see what 2016 holds for Morgan Stanleys Foreign Exchange team. From self driving cars to virtual reality, what to look out for as the worlds Biggest Technology show kicks off in las vegas. Manus 6 50 in london. Let us get the Bloomberg Business flash. Caroline hyde. Suppliers have fallen, after the asian review reported the u. S. Company would reduce the Third Quarter output on the latest iphone by about 30 . Inventory debuted in september, and they are piling up in china and europe. Thanks to like lackluster sales. Union started a walk out at 6 30 in leipzig germany. This is in the runup to christmas. A bloomberg source says Valeant Pharmaceuticals will name a new ceo, while Michael Pearson is hospitalized after contracting severe pneumonia. It is to clarify the new management structure, ahead of the biggest conference next week. Manus volkswagens head of brand has apologized to americans for the scandal. He was speaking at the Consumer Electronics show in las vegas. The Current Issue with a diesel engines is certainly nothing to be proud of. We disappointed our customers and the American People. I am trulyuly sorry, and for which i apologize. Manus hans nichols is standing by in berlin. We noted this yesterday. He is doing the apology thing. Where are we . Is this that trying to recover confidence . Need to dostill something for the 400,000 vehicles they do not have a regulatory fix for. My colleague in las vegas, where i am not, caught up with him. Here is what he had to say about getting an epa fix on what volkswagens working on now. We are really focusing now on solving the problem, solving the issue and getting the approval of the epa for our solution. Keeping the customers happy with us. Talking to the customers here, they are very supportive. I think our fans are doing a great job. Our First Priority is really to fix the problem. Hans volkswagen is losing market share in europe. In the united states, december sales down 9. 1 . That is a banner year as auto sales are breaking records in the u. S. Volkswagen did introduce a new concept car, and electric bus not quite like the old hippy bus when her hair was a little shaggy are greeted i am excited about this. It has a maximum range of 233 miles. The only reason you should be driving a bus is if you have a family. And if you have a family, usually never be in a car for more than 233 miles. 060, let me look at the specifics, at 6. 9 seconds. You have a top speed of 112 miles per hour. And then, heres my favorite part. You can get 80 battery on just 30 minutes charge. That is the perfect amount of time to leave your family on the roadside, go for a little walk, enjoy nature. Manus, normally i talk about the cars i am going to buy you. Maybe a porsche, aston martin, this is one you can get for me. Manus . Manus i wish anna was here. She is not. I can see the entire family, the entourage road trip europe. Nichols on tour. Hans, thank you. We will stay with cars at ces. Faraday future has unveiled its electric concept car at the text showcase in las vegas. They poached engineers from tesla and spacex. But bloombergs business, randall says that one that mobile is not a concept car the world is waiting for. Tom welcome to the future ferriday future. Whatever that is. Future is a supersecret startup that wants to compete with tesla. Car,treleased is concept announcing plans for a billiondollar factory in nevada. They want you to know they are for real. Concept car has a motor for each wheel, able to go from 060 in under three seconds. Putting it in the same club as the worlds fastest supercars. Horsepowering 1000 and a top speed of more than 200 miles per hour. And it will come equipped with sensors for great driving. The chasis it is built on will forecome the chassis whatever the country wants to dream up. Pretty sweet. Unfortunately, this is still just a concept car built for a race track. And most concept cars never get built anyway. Another problem . There is already an electric car that goes from 060 it is called a tesla, and it has been putting the ferrari to shame for years now. The big reveal is basically that it was to be like the tesla of the day, at some undercurrent point in the future. But the time it gets there, there will be a lot of other electric batmobiles to compete with. Koreasp next, north Hydrogen Bomb. We will bring you latest reaction and analysis from the pyongyang. In the meantime, france condemns the news that north korea has detonated a Hydrogen Bomb. Says they are considering further moves against north korea. We are seeing the international condemnation. Where is the money flowing . Out of south korea, bottom of your screen, going into the dollar. Is coming out of other currencies into the japanese yen. The japanese yen is rising against all major currencies this board. Checking in before we go to the european board, they have u. S. Futures indicating lower. Lundgren is down by 90 points. Count to go, this is tdown. We live in a pick and choose world. Choose, choose, choose. But at bedtime . Why settle for this . Enter sleep number, and the lowest prices of the season. Sleepiq technology tells you how well you slept and what adjustments you can make. You like the bed soft. Hes more hardcore. So your sleep goes from good to great to wow only at a sleep number store. Find the lowest prices of the season, going on now. Save 600 on the 1 rated i8 bed. Know better sleep with sleep number. Manus going nuclear. North korea says it has successfully tested a Hydrogen Bomb. Confidence crumbles. Chinas yuan falls to a fiveyear low as private Services Gauge lunges to a Second Lowest reading in a decade. And as volkswagen unveils its new green concept car, the head of vw brand apologizes to the American People for the emissions scandal. Welcome. Its countdown. What a morning weve got for you. North korea said to have detonated a nuclear bomb. Money flowing in a variety of directions. Money is coming out of south koreas won. We are seeing levels we havent seen since september. Weve got global combination condemnation against north korea. Lets check in terms of the other stories. Weve got draghi in the markets. Yuan, a reading of manufacturing, the Second Lowest in a decade. The offshore yuan is hitting ever lower lows. The peoples bank of china lowering their fixing on the onshore yuan for the seventh day in a row. The yuan is moving. This is a critically important issue for the markets to deal with. Slowdown in china. For globaltions risk, yuan under pressure, money flowing out of american equities. Im going to show you the u. S. Equity boards. All of the u. S. Equity futures indicated a little bit lower. Let me bring you back in terms of our european futures board. This is how we are set to open, down 0. 2 . Down 0. 7 . Icated money coming out of equities. Global geopolitical risk is rising. Money going into the yen. Dollaryen, you are seeing moves there. Money going into the yen, going into treasuries. Lets get to caroline hyde. Caroline thank you. North korea says it has conducted its Fourth Nuclear test. Pyongyang said it detonated a hydrogen device at an underground test site in the far northeast. The explosion was first attracted as a magnitude 5. 1 earthquake. It is a setback for u. S. And chinese efforts to convince leader kim jongun to restart disarmament talks. Chinas yuan has sunk to a fiveyear low in offshore trading after the central bank lowered its reference rate. Stocks in hong kong fell to their lowest level in 2. 5 years on concern that the slump in mainland equities and slowing Economic Growth extends last years losses. A private Services Gauge has westped to the second lo level in a decade. Down from 51. 2 a month earlier. An emotional president obama has announced new guncontrol measures. His executive order broadens the definition of who qualifies as a gun dealer and bolsters background checks in tracking a stolen weapon. The gun lobby denounced the measures. Some predicted a jump in quarterly revenue. President obama the constant excuses for inaction will no longer do. No longer suffice. Thats why we are here today, not to debate the last mass shooting, but to do something to try to prevent the next one. [applause] caroline cheap petrol and low Interest Rates powered record u. S. Car sales in 2015. 17. 4 million cars and light , volkswagenwhile still reeling from the emissions cheating scandal. Deliveries last month. That was better than novembers plunge. U. K. Equities will debate whether to ban donald trump from the country. The move comes after more than half a Million People backed an online petition calling for a bar on the front runner for the republican president ial candidacy. For more on those stories, terminal customers can head to top go. Manus thank you very much. Lets get into these markets. Theres a lovely bit of irony. Haidi lun has got that for us in terms of the shanghai composite after the roughandtumble. Where did we end . Haidi the real action is at that last hour of trade. Shanghai wrapped up those gains, finishing the day up by about 2. 25 . We saw a lot of these really battered names, steelmakers, about half a dozen of them trading up today after the chinese president had visited one of these cold provinces. There was a Statement Released that the government would be pledging to help out some of these sectors facing overcapacity. Certainly, theres rumors of intervention prevailing. That lockup period for share sales was set to expire on friday. That will continue. That seems to have been behind some of the relief rally we are seeing across china. Minimal losses for the kospi given the scale of these geopolitical tensions in north korea. , the losses in the won bank of korea saying they expect that will be shortlived and they will intervene if required. This,are winners out of every time there are murmurs of a nuclear test by korea. The south korean weapons makers start to surge. Slightly lesser gains for some other names as well. I want to touch on the other big story of the day, which is the yuan. Fromve just a whisker away were already at fiveyear lows, but we are looking at almost record lows. Reserve data coming out tomorrow from china. That is going to be interesting to see. Manus thank you very much, haidi lun in hong kong. North korea is the top of our news agenda this morning. It says that it has conducted its Fourth Nuclear test, detonating a hydrogen device in the northeast of the country. The move marked a setback for u. S. And chinese efforts to convince kim jongun to restart disarmament talks. Thats head straight to sold. To seoul is there any doubt in anybodys mind . We are seeing global condemnation. The veracity of north koreas away,was questioned right mainly because a Nuclear Scientist we talked to pointed out that a Hydrogen Bomb, which it is the first time they claim to have tested it, would generate a significant magnitude far greater than what was registered today. Scientists point out, it takes several atom bombs to trigger a Hydrogen Bomb. The magnitude registered today was even less than they would find from an atomic bomb explosion. I think for the next few days, there will be continued questions about whether it was a Hydrogen Bomb or just another Nuclear Atomic bomb test. Manus lets get into the geopolitical responses. I mentioned shinzo abes response. France condemning the actions. This really unsettles the geopolitical kilter of 2016, doesnt it . Yes, very much so. Were startingere to improve after a similar incident in september, and it looked like things were getting better. Kim jongun even had a new years eve speech where he talked about improving relations , and then this happens, and everybodys condemning it. It is the kind of thing that the south korean president had vowed that north korea would pay a price. She issued that warning before this test happened. Setback, and escalation of tensions here. Manus peter, thank you. The on shore and offshore yuan gap has widened to a record after china cut its fixing right to the weakest level since april 2011. The move could single a major shift in thinking by the pboc. Our bureau chief in shanghai is standing by. This is the pboc interfering in a currency. This is an interesting start to the year, isnt it . Yes, manus. The pboc is a central bank trying to do a managed depreciation of the currency. Depreciation was a , which will benefit the economy. At the same time, they dont want the depreciation to the too fast. Otherwise, they may cause all kinds of liquidity problems inside the country based on the outflows the company has typically. Manus what are the implications for the divergence between the offshore and onshore yuan . Yuan would be a reflection of a freer market. You could, while the onshore market is one thats very controlled by the central bank, you could look at this as traders getting ahead, expecting depreciate want to the currency, and getting ahead of that trend. Manus ok, greg, thank you very much. A quick line coming across the bloomberg terminal. China objects to the north korean test. We are seeing global condemnation from the french, from the japanese, now the chinese objecting to the north korean test. As we get more global response, we will bring you those news. Gallo, me now is alberto head of rates at rbs. Lets get straight into the chinese story. Weve got this currency movement. What a week its been. Interventions from the pboc. Oil on the move. Tell me about the pboc. What do you expect in their ammunitions drawer this year . Alberto when people look at china, they think about a lot of reserves, a lot of capacity for the sovereign to increase government debt. The reality is, even if you are a trillion or, you can go broke. They have capital leaks, capital outflows. Even though they have capital controls, they have to potentially repair the banks which have been lending massively over the last 10 years. There are already some losses in the economy. The economy needs to transform itself. All this has a cost. We estimate the ammunition they have a similar to the losses already in the economy, plus the capital outflows during a period of three to five years. They have to use the ammunition very cautiously. Thats why they are deciding to devalue rather than spending more reserves or more sovereign debt to do stimulus. Manus that paints a fairly bleak picture when you stack up the pile like that. Alberto in 2016, the china slowdown will come back. Last year, everyone forgot about it. There was a lot of optimism. We said the china slowdown will come back and economies outside of china which rely on heavy industry, commodities, these economies are still going to hurt this year. Manus so we are seeing them turn towards the currency, in other words. We are seeing the offshore yuan depreciate more aggressively. The one thing that came through from Morgan Stanley, this is going to cause an export deflation, bad for risk environment. If we are seeing capital , what is that capital outflow meaning for the bond world . Alberto its exporting deflation. Low commodity prices, mining going into treasuries. It is good for european government yields. They are already very low. It is bad for central banks, which are trying to bring inflation up. This means more quantitative easing and more money printing from central banks, but also means its less effective. Ratese in a world of low and a lot of financial liquidity for longer, but this impact on the real economy. Manus alberto, stay with me. Alberto gallo joining us for the next 30 minutes. Up next, the crucial minutes. What to expect from the fed when they released the details, the conversations, the opinions. It was all about that december rate setting meeting. Manus time for the Bloomberg Business flash. Caroline hyde. Caroline more striking at an amazon site in germany. The lockout started at 6 30 this morning local time after amazon workers walked out at six sites in the runup to christmas. Ande suppliers led by sharp pegatron have fallen after the Nikkei Asian Review reported reduced firstquarter output. Smartphonesof the which debuted in september have piled up at retailers in china and europe. Malaysia Airlines Says the temporary limits imposed on checked baggage for european flights have been lifted after an announcement attracted widespread criticism. The airline told passengers they should fly without checking luggage, saying headwinds would jeopardize the planes. Stories,on those terminal customers can head to top go. Manus we get data from the u. S. Later today. Trade balance and 1 30. Services and composite pmi comes in at 2 45. This is why people are paid big bucks to interpret the fed minutes. The fomc meeting when they raised rates. One man is going to help me for free, they say. It is alberto gallo. Alberto, the whole world is going to look for the nuances here about unanimity. What is going to matter to you . Alberto i think definitely the amount of consensus, the degree of consensus, is very important. The fed is pricing for hikes. This is a little too far compared to what the market is expecting, which is around two hikes in 2016. Risk,ow oil, geopolitical the china slowdown, stronger dollar against the yuan and em currencies, it could be very likely that at some point the fed needs to stop. Last year, they saw the story that the u. S. Economy is strong and they are Strong Enough to hike. People believed it. This year, if the fed needs to stop manus theyve only got the first one off the traps. Alberto but if they stop for one meeting, the market will think they are done. If they stop for two meetings in a row, the market will think they are done and it will have a bad reaction. In september last year, they didnt hike. Its about qe having worked and the ability to raise rates that are positive. Manus this goes back to stanley fischers comments over the past couple days. Rates are going to be lower for longer. Janet yellen said this isnt going to the a rate hiking cycle like in the past. They have to reinforce that. Is, theyve problem put themselves in a box. They sold expectations of our terminal right higher than 1 . Probably with all the headwinds around the world, probably could be 1 or lower. If that happens, if they stop prematurely, the story doesnt hold any more and the market could be very volatile. This is one of the risks we see in 2016. Manus with all of those issues in the box, shaking them around, do i start the year contrary to where we are . People say bond yields will be much higher. How do i look at the Interest Rate market or the bond market with those complexities at play . Alberto in the end, we are looking at slightly higher yields in the u. S. , stable yields in europe. Assets like risky bonds, stocks, very cautious. We started the year cautiously. We think last year, there was a lot of excitement because of qe 2, the fed hiking, china slowing , and geopolitical risks the market forgot all these things. We are having a very bad wakeup call. Manus i love when you said the market forgot. You are right. We go into a slumber moment where we forget the horrendous momentum we had last year. Lets see what 2016 brings to our door. Alberto going to be a rocky year. Manus theres the word of alberto gallo. Thank you very much. Youre going to join me on Bloomberg Radio later on. Now lets switch gears. Excuse the pun. Volkswagen head of brand has apologized to americans for the scandal. Herbert diess was speaking at the Consumer Electronics show in las vegas. The Current Issue with the diesel engines is certainly nothing to be proud of. We disappointed our customers and the American People, for which i am truly sorry, and for which i apologize. Manus hans nichols joins us from berlin. Clearly still a lot of ground to cover to restore confidence in the brand. Hans and they also need to regain market share not just in europe, but in the states. Sales numbers for december down 9. 1 in the states. They still dont have a fix to those 482,000 vehicles. We had an interview with him last night. Said about mr. Diess the differences between eu and u. S. Regulators. We have different technologies. We have several models involved. There will be some cars where the fix will be a software update. There will be cars where we have to intervene in the hardware. Comparable to the situation in europe, but not fully the same situation. A bit of news in that lawsuit filed on behalf of the epa for 80 million in damages, they still dont have an agreement on how to move forward. Vw presented a new emissionfree vehicle. Will you be buying one . Hans its all electric. That means you can only play your early bob dylan, before he went electric, when you are riding around in this hippie bus, although it doesnt look like a hippe bus. It looks quite sleek. It gets 233 miles per charge. You can get 80 of the parity the battery, which is part of the floor, in about 30 minutes. We should stress this is just a concept car. Dont ever get a lot of concept cars dont ever get put into production. Zero to 60 in 6. 9 seconds. It is a pretty sleek car. I think this is for me, not you. Manus i can see the whole nichols clan, road trip, europe. Next, 30 minutes away from the start of equity trading. Keep an eye on the european suppliers. It is said they are cutting production by 30 . Money coming out of equities. Its going to be a rocky start. Thats the news flow from my guest this morning, alberto gallo. On the move team, they are global today. Welcome to on the move. 7 30 in london. I am guy johnson. I am in london. Jonathan ferro is in new york. If you are looking for a confidence boost, you might find it in these headlines. North korea says it has successfully tested a Hydrogen Bomb. World leaders condemned the move. Confidence crumbles. The chinese yuan falls to a fiveyear low. And driving forward as volkswagen unveils its new green concept call car