Minutes, we are joined by hsbc advisor stephen king. Francine first, chinas yuan has triggered the biggest twobase hit law since 1998, fueling concerns that market volatility will slow growth. Manus the peoples bank of china lover the reference right today, just one day after cutting it by a record 1. 9 . Lets find out how the markets are reacting. Dollaryuan. D you im going to show you the flipside today, yuandollar. Effect,u get the down which is more important. The yuan sinking for a second day. The twoday drop, 3. 61 . That is the biggest twothey drop since 1994. Ripple effects are being felt across global markets. Chinas Central Bank Says there is no economic or financial basis for the Exchange Rate to fall continuously. Ill let mr. King decide whether that is the case. A Ripple Effect is being felt in bond, commodity, and stock markets. Look at the msci emerging market index. I showed you a oneyear chart. Was ther, september 3 peak for the period. From then, through to yesterday, the ms ei emerging markets index fell by 20 . You know what 20 means. 20 is a bear market. Emerging market stocks are in a bear market, not helped by the china devaluation and the impending u. S. Interest rate hike. Or will there be a rate hike . One of the many questions being posed by this devaluation is, will policymakers reignite a currency war to we can Exchange Rates and revive faltering exports . This is a currency we dont get to speak about every day on bloomberg, the dong. The vietnamese dong. Look at what happened today. Big move up in the dollar. Vietnam has widened the dongs trading band to allow the currency to weaken. The dong can now trade as much side of theher fixing said by the monetary authority. Today, the dollar is 22,040 against the vietnamese dong. The amount trying to bolster this economy, which is projected to grow this year. Want to look at the dollar against the Malaysian Ringgit today. Malaysias currency plunging beyond four to the dollar for the First Time Since 1998. Blame it on china. Blame it on a slowing economy. Blame it on controversy over finances linked to the Prime Minister. I can show you 20 interesting charts. We will start with four. See you later. Manus lets bring in our chief asia economist correspondent, and the current standing by in hong kong. What does this mean . What is this telling us . Enda the slump today came when we had really bad economic data, signaling that the socalled stabilization really has come to a premature end. It reinforces the narrative that china is deliberately weakening the Exchange Rates. We dont know whether to go and continue with this devaluation. Two days isnt going to be enough to turn around the china export story. Whether they followthrough will be key. We have seen mixed signals. Today saideporters that china intervened in the market when the currency was going to do far south. Theres still a lot we dont quite know yet. Francine how are chinas neighbors responding . Obviously, the commentary has been currency war, but it is definitely a currency skirmish. The amount today widened the trading band for the dong. They singled out chinas actions as a threat to their economy. Weve heard other policymakers far,ain that china so weve yet to see a race for competitive devaluation. Fort of the currencies emerging markets in asia have weakened quite a lot. The Malaysian Ringgit down to its lowest since 1998. There is no guarantee it will bounce back given week external demand around the world. Imf, this is the one that fascinates me. What did they say . They tentatively welcomed this move. I guess classic imf language. Outwardly it is a green light. It is a step in the right direction. If you read the remarks they put out today, they also say, we have to see how this new Exchange Rate regime pans out. It is kind of a watch and wait process. They also said theres no direct impact. I guess making the currency market like civil will be a positive. If it turns into china nakedly devaluing the Exchange Rate, i dont think that is what the imf as in mind. The imf has given it the green light but with a cautious tone. Francine thank you so much for all of that, enda currnan. Manus lets bring in our senior economist in the house, stephen king. My question to you is this, has china unleashed the dogs of how and they are trying to bring them back in . The rmb has been a strong currency over the last two or three years. Every other country in the world has tried to devalue against china. Maybe they are getting some of their own medicine in return. The narrative is tricky. China is saying we want a more marketdetermined Exchange Rate, but the timing is a bit suspicious. The trade was terrible over the last month or two. Maybe there was a disappointment about the extent to which domestic policy has had an impact. Therefore, there is a suspicion that china is playing the same kind of game everyone has been playing for the last two or three years. There an important underlying theme here. In the past, everyone thought that one countrys growth was good for every countrys growth. Now there is a suspicion that one countrys growth is the consequence of devaluation. Everybody is stealing from another country. Francine lets also bring our Bloomberg View columnist from tokyo. You wrote a great article saying, give china a chance. You think the move deserves praise. I do. China is the second biggest economy in the world, the worlds biggest trading economy certainly, and anything that causes turmoil in china is bad news for everyone. What china has done is valid, logical, and perfectly justifiable given what stephen was just saying. Look at japan. The yen is down 35 in less than three years. The imf say that is fine. The Australian Dollar is down about 10 this year. China devalues by 2 and everyone freaks out. There are effects we have to think about. In many ways chama china in many ways, china is acting rationally. They are taking steps to boost stocks, to avoid defaults, and here they are taking a conventional step in the right direction. Is, what does it do next . Manus stephen, are they acting conventionally . Are we being overreactive . Stephen it is a conventional response. The problem is that every economy in the world is weak. You cant devalue jupiter or mars. Because it is a very large economy, it is likely to have a bigger impact on the rest of the world than if it was a small country like the u. K. Or australia. China is the second biggest economy in the world. As aaluation from china much bigger impact on the rest of the world. Francine just saying it all depends on what comes next. What does come next . It seems like a policy mistake or a policy mishap. Stephen what weve seen so far is a small adjustment from the chinese themselves and it is how the rest of the world is interpreting this which is becoming a problem. If china wants to move toward a more market determined Exchange Rate, that is fine. Think it is particularly likely, but you can see how people elsewhere in the world would think that kind of thing. In look at the u. K. Back 1992. It doesnt just leave as a small adjustment. It leaves as a big adjustment. That is what the world has worried about, that the Chinese Government has done something that markets could worry about in the future. Manus is this the beginning of reigniting a currency war . Weve seen the vietnamese react. Weve seen substantial reactions in some of the currencies. What do you reckon . There certainly will be some pressure on global currency markets. The question for me is, what does Prime Minister abe do . Does he double down on weakening the yen . I think we have to remember that in many ways, japan started this currency war. Europe in some ways advanced the argument and now we have china acting very logically to their domestic events. The reason why im optimistic about this is, im hopeful that this stabilizes china, allows officials to take a deep breath and focus on the reform process. China needs to improve the fundamentals of it economy. It is so obsessed with maintaining growth. If this takes pressure off the economy, i think this is a good thing. Francine thank you so much. Willy in tokyo and stephen king stays with us. We will be talking oil and the fed next. Manus lets look at what is on our radar this wednesday morning. A report released by the International Energy agency is Forecasting Global oil demand to slow to 1. 2 billion barrels a day in 2016, down from 1. 4 billion this year. It says that should mean nonopec supply growth grinding to a halt next year as Lower Oil Prices take their toll. Francine london is facing transport misery. It comes as unions demand improved terms for operating a new nighttime service. The union will stage back to back 24 hour strikes starting on august 25. Daimler is the latest company taking on the french 35hour work week. The german carmaker wants staff at one of its factories to put in more hours. The company hinted that it would take operations elsewhere if no deal was reached. Agreed topearson has sell its stake in the economist magazine. The company disposed of the Financial Times last month. The deal and effectually ends pearsons role. Manus u. S. Prosecutors say they have broken up and alleged Insider Trading ring that use hacking to access press releases before they were released to the public, passing them to associates in america who traded shares in boeing, hp, oracle, and other stocks. Over five years, the hackers infiltrated new sources. Five u. S. Traders have been arrested with four more still being sought. Francine will chinas move reignite currency wars in asia . We will delve into that a lot deeper. Francine manus welcome back to the pulse. We are live on bloomberg tv and radio. Lets get a little more on chinas currency moves, which have prompted a global reaction. Heres a few of the voices. China has no respect for president obama whatsoever. You have to take strong action. How can we compete . They continuously cut their currency. Theyve been doing it for years. This isnt just starting. This is the largest devaluation theyve had in two decades. They are making it impossible for our businesses to compete. They think we are run by a bunch of idiots. If you compare that to what brazil or japan has done in the past year, yearandahalf, i think the scale of it was shocking and unexpected because of chinas own past. Fundamentally, is it going to toe china and take it back the state we had before 2007, unlikely. It does help but it is not the central driver. The real perpetrators of the currency wars have been in the g 10 rather than the emerging markets. Emerging markets have had to respond to it. Youve seen a number of countries in the g 10 devalue their currencies directly or indirectly and emerging markets have had to respond. Francine will this reignite currency wars . For some in the region, the surprise devaluation couldnt have come at a worse time. The longest losing streak in almost two decades. Manus joining us is stephen king, senior economic adviser at hsbc and bloomberg columnist mark gilbert. Saying iterson there is all down to the g 10. They started this. Chinese, they are beginning to go with a bit of a bang. Mark will he made the point about the yen. He is right. The yen against the dollar is now 20 in a year. There hasnt been a lot of screaming about that. We are perhaps pointing a finger at china that is a little unjustified. 30 to is talking about 50 declines Going Forward. Worldn said it, in a where every economy is weak, how do you mix the music . You make everything louder than everything else. You cant do that in the currency market. Is a problems because we are looking at an Interest Rate hike from the fed and markets were caught offguard. Stephen yes. People are going to have doubts on whether the fed can move in september. Does every country in the world what a weaker currency . Only one currency can go up. It is the u. S. Dollar. The more the dollar rises, the more other countries are exporting domestic difficulties to the u. S. Data shows that theres a chance of a september rate hike. It was 54 . Mark if you look at the bond market, 10year was almost 2. 5 . You have seen a big move in the bond market as well. Manus how much more can the dollar appreciate . You sent us a chart talking about the overall move in the dollar. The dollar could appreciate another 20 over the next couple of years. Given the momentum, mark, what do you reckon . Mark trade weighted. The dollar in the last four years is up between 25 and 35 . The u. S. Economy seems to have survived that. Walt disney last week said they had a revenue shortfall in the quarter because of disneyland paris. There was 100 million that went missing. U. S. Companies are screaming a little bit. The u. S. Treasury secretary doesnt seem to be as vocal as you might have expected. Stephen the u. S. Economy has not been that strong. A lot weaker than the forecast suggested every single year. Some of our competitors continue to forecast strong recoveries in the u. S. Economy. It doesnt materialize. The strong dollar is possibly a cause of u. S. Undernourishment. A lack of growth. Manus if we look at Dollar Strength, theres three huge currency moves, korea, taiwan, and singapore. These emergingmarket currencies are all under pressure. Theres been calls for bigger drops in them. Is this the beginning of a new phase of Dollar Strength em weakness . Stephen it seems like it. The g 10 story is about euros, yen, sterling, and the dollar. Now it is becoming an emerging market story. The surprises on growth, the u. S. Has been disappointed. Emerging markets are a lot weaker than expected. They are under pressure to devalue their currencies. Mark i dont think you would have much appetite for buying emergingmarket currencies in this environment. Europe has done surprisingly ok. I wonder if the euro might be an alternative destination, and whether that in turn starts to be a problem for mario draghi and the ecb. If i was at the fed, this is going to give me pause. Wouldas at the ecb, i worry about my euro. Stephen our own forecasts suggest exactly that. We think people have been too optimistic about the euro against the dollar. If the fed doesnt raise rates in september, the euro might get a new lease of life. Manus so all those arguments about qe seemed to dissipate quickly. Francine thank you so much. Stephen king and mark gilbert. That brings us nicely to todays twitter question. Has china reignited currency wars . Tweet us. Join in. We are all there. Despite golds recent decline, australian miners have managed to shrug off the worst because of the aussie dollar. The situation has offered some rich pickings. Francine Australian Mining has picked up two acquisitions. Paul allen paid them a visit. Some more fresh gold pours into a depressed market. This 17 kilogram brick is being created in evolution minings newest assets. Out here, the appetite for gold remains as strong as ever. Heres the finished product. Despite recent falls in the price of gold, good fortune is still smiling on australian miners. This is 1500 an ounce. The whole brick, about three quarters of a million dollars. This is the whole it came out of. French minor la mancha began digging it in 2013, just as the gold price began its steep decline. Evolution shareholders voted almost unanimously to scoop up one of two recent acquisitions making evolution australias secondbiggest gold producer. Since november last year, almost a quarter of australias Gold Production has changed hands. Evolution ceo says foreign miners have been feeling the squeeze. Most of their production is in u. S. Dollars. It is tough to make money. It is mainly related to their position rather than the asset already the asset quality. It seems counterintuitive, but the mood around gold in australia remains upbeat. This month saw the formation of the new Gold Industry Group to promote the metal as an asset. Theres a level of optimism out there. Will be the gold miners at a cost higher than the prevailing price. As long as that situation prevails, the deals seem certain to keep coming. Francine up next, we get u. K. Job numbers. We break them down with stephen king. Manus join us all. We are all there on twitter. Francine welcome back to the pulse. Im francine lacqua. Manus and im manus cranny. Lets get you up to speed with the breaking data on u. K. Unemployment and wages. Average weekly wages over three months comes in at 2. 4 , a lot less than the estimate which was for 2. 8 . By 4. 9 claims declined thousand. We were looking for those to rise by 1000. The Unemployment Rate stays the same. Francine we are seeing quite a lot of pay pressure. This is a picture for the pound. 1. 5568. We need to put this into context. We are looking at a rate hike. We will know more about that according to Governor Carney by the end of the year. Lets bring in Bloomberg Intelligence chief european economist jamie murray, hsbc senior economic adviser stephen king still with us as well. Put this into context area wage growth slowed, but it is not the end of the world. Janie it is not. If you look at unemployment, it picked up a little bit the month before. It is now stable. Delay from q1. For the labor markets, it continues eroding flat. Manus stephen, how to use it . The obsession was with wages. They have eased. Stephen a slightly different take, the wage numbers are incredibly weak relative to expectations. What weve learned in recent years is that the relationship is different from how the bank perceives that relationship today. Workers are being priced into the market at lower and lower wages, which illustrates a level of flexibility the bank hadnt expected. The degree of slack in the labor markets may be greater than youd normally expect. Ase growth is not coming in high as was feared. With that lack of wage growth, it makes sense that the banks got plenty of space and time to consider whether they should think about raising Interest Rates. Francine when a