The bank of england says it may be time to tighten. Scandal forces steve wynn from the home of his empire. And, a tsunami of earnings reports. I am pretty confident with the capacity in our business. We will stay disciplined within the capital framework. We arent interested in being the largest but being the most profitable. It is all ahead on bloomberg best. Hello, and welcome. I am ramy inocencio. This is bloomberg best, your weekly review of the most important Business News, analysis, and interviews from Bloomberg Television around the world. Investors enter the week on edge after the dow dropped 2 , then , on monday, the plunge continued. The Dow Jones Industrial average losing 1175 points, a 4. 6 decline, now off 1. 5 . Last week, we had the selloff occur in the context of a monotonous rise in treasury yields, whereas today yields have come off a little bit. That sort of suggests for the first time this was about Risk Management and position reduction. This is about earnings, and it has been about earnings for the entire last week and investors are saying may be tax reform is not a great story for all companies. That created a little selloff. That got investors spooked. We are getting some price discovery right now. This kind of disorganized selloff, this will only go on for so long before someone steps up and says there is an opportunity in the selloff, and it does not have to take that long. Overall Global Equities from about this time yesterday have lost 2 trillion in market cap. We are on the verge of markets getting a bit disorderly. You get regulators and Central Banks interested. The equities selloff extended to asia and europe after stocks in the United States recorded their biggest oneday drop in six years. Credit suisse buying back one of its Exchange Traded funds, triggering losses for the muted marketet on swings. Pretty interesting story. It has an ironic element to it here at all in investment banks have been waiting for in recent months and years is the return of volatility. Now volatility is back and the first product is blowing up. We had reports earlier they were considering buying it back because of the rise in volatility, so this was a bad et against volatility. Now, the bank is confirming we will buy back this note in the next two weeks. The implication of that is that investors will lose money. The stoxx 600 worst day since june 2016 come up big drop, far cry from the drops and asia and and the u. S. It is a global contagion. We got ourselves into a moment to market. When you are in a moment to market, all it takes is a little prick and the air comes back out. The vix tumbling after its biggest spike ever, but the spike already did its damage. Right now, we have not had a normalization in the vix curve. If you look at the spread versus s p 500 active contracts that is , what it is tracking today. We are trying to get this normalization and volatility. We are still working on normalizing and we are not there yet. What a difference 24 hours makes. The dow recovered from yesterdays drop. It was not a straight up move, though. It went down, up, down, little changed, but then we close to d near our highs. The market selloff sorry, we rebounded. At what point do market selloffs translate into real economic ramifications . Where would it have to go to see that show up in Consumer Behavior . I think there is a sigh of relief at the Federal Reserve. The market is finding out stocks dont only go up. We just eliminated a significant amount of shortselling, which was a proxy for picking up yields, which was a reflection of low Interest Rates. The short answer is i still think it is early and the implications are not significant. Nomura has apologized to customers, writing we sincerely apologize for causing significant difficulties to investors. This is a list of products we believe can be bought that by individuals and institutional investors. You look at these products tied to the vix, where they were a few weeks ago is a tremendous shift. Is this shakeout done . We will see. Half the assets are gone because of the inverse side. You still have the alongside doing fine. These are popular products. That nomura statement was interesting. It is apologizing, but says we think it is ok for individuals. I think these should be labeled or made clear these are power tools, or you could call them exotic, but there are a couple that made the news this week. There are 300 etfs that are leveraged and track volatility. I put oil futures in this category. I think they are trading tools, whereas the large majority of etfs are investment products. That is the distinction you will find big investors like blackrock making now. Bank of England Holding rates unchanged. Sterling surging as the boe turns hawkish, suggesting it may need to raise rates faster than previously indicated. I would say the market is interpreting this as a hawkish hold. Different from that of his hike in november. Hike what was interesting about the Market Reaction was in november, you saw sterling drop, gilt yields drop. Today, the reverse of that in other direction. Markets have started fully pricing in a rate hike in august and may has come more into play. The probability of a rate hike in may was just over 50 . Now, it is 75 . Is may likely . We have been looking at that for a while. They did not say one in done. More like two and through, so they have given us fair warning another rate hike is coming. U. S. Markets entered a technical correction yesterday as the dow and s p 500 fell 10 from the closing highs in january. Stocks were hit hard in asian trading. The buzz word is this is a healthy correction. We are somewhat in line with 1987. We did decline a little bit additional and then we rallied. We have a good chance today could mark below. Ideally we close down the day today and start up next monday. To even bring up 1987 is farcical. That was down 23 in one day. The s p is still up 70 over the last five years, and unchanged over the last three months. The motion is adopted without objection. The u. S. House of representatives voting to pass a twoyear wretched deal, ending a budget deal, ending a Government Shutdown that started at midnight. The bill raising federal spending by 300 billion and extending the debt ceiling for one year. President trump is set to release his 1. 5 trillion infrastructure plan on monday. No one is showing any fiscal restraint whatsoever. It is basically Congress Giving the government a home equity line with no upward limit. I would not discount the bipartisan nature of this. 72 democrats went along in the house, and this will pave the way and we should look forward to the daca debate next week. Still ahead as we review the week on bloomberg best, banks, oil producers, and automakers among the Companies Reporting earnings. We dig deeper into the turmoil that shook markets with three officials from the Federal Reserve and some of the most respected voices and finance. Up next, more of this weeks top business headlines. Jay y. Lee goes free. If you can be stunned and not surprised, that is the reaction here. This is bloomberg. Ramy this is bloomberg best. I am ramy inocencio. Lets return to our global tou r of the weeks top business , beginning with the formal transfer of leadership at the Federal Reserve. Jerome powell has taken over. He inherits a u. S. Economy in its third longest expansion on record with unemployment and inflation both near historically low levels. He inherits the fed at a great time, but there will be a lot of challenges in the mediumterm. The main one is how the fed will manage the next crisis. Because powell will most likely preside over the next downturn in the economy. In the previous expansion, the fed raised rates by 3. 5 and 4. 25 , then they lowered rates in the downturn by 5. 5 and 5. 25 , so big moves. They dont have that buffer this time around. They will have to play with unconventional Monetary Policy tools. This will be up to the new fed chair to manage. Yellens final act, the Federal Reserve slapped wells fargo and the board with a ceaseanddesist letter. The lender had its rating cut by three analysts and felt by the l by the most in two years after the fed band the bank from growing until a convinced authorities it is addressing shortcomings. This is a harsh order and unique. The fed itself called it unprecedented. Typically, you see the fed talk about board oversight come but ht, talk about putting in controls, but the asset cap is what was unique here, saying wells fargo cant grow its assets until it shows it has made progress on this, and that could have some longerterm effects. It also seem to indicate it was not happy with the pace of wells fargo cleaning up its act. They have had some time to clean it up, and i think the fed is looking for them to speak data. Speed that up. A south korean court has suspended the prison sentence of jay y. Lee after he appealed the jail term. The sentence was cut by half, although he is now free to go on four years of probation. If you can be stunned and not surprised, that is the reaction today. We are stunned the high Court Reviewing the Appellate Court process in the Central District court behind me, they have not exonerated jay y. Lee. He still has a sentence, but they have allowed him to walk free. He has already left the courthouse by a bus to the detention center, where i suspect he will collect his belongings. He has been there for nearly a year. The Yonhap News Agency saying the man who was convicted in the same courthouse in august to a fiveyear prison sentence for various corruption charges, he will be able to go home this evening. It is a stunning reversal because this of all the different options the Appellate Court could have come up with, this was the one that legal experts said was the least likely, second to only being completely exonerated. The bitcoin slide continues. The currency declined and lead currencies lower as the selloff deepened and investors migrated towards havens. What is the biggest concern right now . Is it just more regulations coming . Is this why we continue to see the selloff . There have been a couple of regulatory questions coming up. You have regulators starting to send subpoenas and ask some tough questions about some of the big problems we have seen in bitcoin recently. On top of that, you have big banks and credit card issuers putting freezes on by uying cryptocurrency. It appears there is a general feeling it could be too risky to allow credit card users to buy on credit, cryptocurrencies, especially some that are more suspect or less well known. Bitcoin is marching towards its second day of gains and the moves come as senators spoke yesterday, calling for oversight of cryptocurrencies without proposing industry killing measures. The message was, we have this under control and they understand these technologies pretty darn well. Theres a lot of interesting areas on the margins where legal clarity could benefit innovation, but the hearing was quite a success. Broadcom is trying to force qualcomm to come to the bargaining table for what would be the Biggest Technology deal ever. The chipmaker has raised its takeover bid to 121 billion from 105 billion. They call this the best and final and are not willing to negotiate a higher offer. Is this enough to get qualcomm to the table . The short answer seems to be no. Qualcomm rejecting the bid in history. Turning down what broadcom called its best and final offer at 120 billion and leaves the future of the proposal to be decided by shareholders next month. How do you say we dont like the deal when the deal is 82 a share and your stock is trading at 62 a share and is not going higher . Qualcomm is saying broadcom is not appreciating the value of its acquisition, the potential resolution of its licensing dispute with apple, and the opportunity to expand as 5g Technology Becomes a thing. The founder of wynn resorts has stepped down amid these allegations of harassment. The board said it appointed the current president to the role of ceo and remains to committed to upholding the highest standards. Help us to understand the events leading up to this moment. These social sexual Sexual Misconduct allegations have been circulating and regulators have voiced their concern about the issue, and they have reached out to wynn, wynn macau executives, and key directors to make sure they are fit for their roles. Macau is a very important market for wynn and where the company nets most of its earnings. Im sure the gaming regulators in macau are watching this closely as well. Even as the company has let go of steve wynn, it is still facing pressures because of that linkage to steve wynn. Massachusetts regulators are aggressively continuing their probe into wynn. Both nevada and massachusetts said they are probing allegations of sexual harassment. Massachusetts said it will be taking a look at steve wynns personal stock holdings. If massachusetts regulators find some reason why he should not continue to be a shareholder, he would have to sell it and that would further put the company in a position where it would be vulnerable to take over. In germany, the political stalemate that has lasted since september appears to be over. Chancellor Angela Merkel reached an agreement on a Coalition Government with the social democratic party. Among the positions, the finance ministry, which has gone to the spd. How much of a concession is that . Might there be some grumblings within her own party . It is a big concession. It was her party, the cdu, should keep the finance ministry considering they were ahead in the polls in the election. The spd made a strong case they want to have this powerhouse so they can make their mark in european policy as well. Yuan weakening as much as 1. 2 in shanghai, the biggest move since the 2015 devaluation after data showed chinas trade surplus was cut by half. Do we have a twoway trade . Thats exactly whats happening. Even the path of true love is not smooth. Nothing goes in a Straight Line. This was going in a Straight Line and is in reversal. Volatility is infectious. For a given event like the boe, new zealand, you are getting bigger moves in the currency than we would ordinarily see. Import numbers from china did not look pretty. Basically, the pboc are talking about current account liberalization, particularly the bond market, so we are getting some twoway moves. Ramy welcome back to bloomberg best. This week, Bloomberg Television spoke exclusively with the president s of three regional banks. Bill dudley has been outspoken in his view the recent fluctuations in equities will have no impact on Monetary Policy. Kathleen hays spoke with him on thursday. The decline we have had today has no implications for the Economic Outlook. It proceeded a very large rise, so it stops here, the implications for the Economic Outlook are marginal, so probably not going to change our thinking about the Economic Outlook. If it were to go on further and be more persistent, then it could start to affect household and is no spending behavior, and and business spending behavior, and that could influence the Economic Outlook. So far, i think it is small potatoes. I was thinking about 2015, when we came into the year and the fed was going to hike rates in march and then there was brexit and a big selloff in the chinese stock market. The fed passed in summer and in september, only one that year, so clearly there is a point where markets and market volatility have an impact on the feds path. It depends on why the markets are doing what they are doing. In the First Quarter of 2016, it was not just the markets. Commodity prices were falling sharply. This was putting pressure on emerging market economies that were dependent on commodity exports. China was going through a difficult adjustment, so it was not a market event or say. Market event per se. It was the things happening in the Global Economy. The Global Economy is doing fine. On friday, in the job report, wages finally started to accelerate them a. More inflation, not just three rate hikes, four in 2018 possible. What do you see . I think it would depend on how the economy evolves. It is premature to say how many. Three rate hikes in 2018 seems like a reasonable projection. If the economy looks stronger, could three turn out to be more . Perhaps. If the economy looks softer or inflation does not materialize, then the fed could go slower. The jury is out. Ramy coming up, more conversations with Robert Kaplan and neel kashkari. They shared their Economic Outlook. Plus, more exclusive insight from some of the biggest players in Global Finance putting back intoys come ba context. I think the markets are still vulnerable to a slowdown in growth momentum. Ramy this is bloomberg. I am confident that we will achieve our objective to ensure price stability. All of the ingredients and requirements are on the table. We have a robust growth. Broadbased growth in the euro area. We have a rising investment activity. We have an increase in unemployment. Decrease in unemployment. We have very generous financing. For both private households and corporates. Inflation will come in the mediumterm and that is our goal. The price stability will be there. And that is why i think that, in this year, we can accept the purchase of our program in order to bala