Be time to tighten soon. More like two and through. Scandal forces steve wynn from the helm of his empire. And, a tsunami of earnings reports. I am pretty confident with the capacity to deliver in our business. We will stay disciplined within the capital framework. We are interested in being the most profitable. It is all ahead on bloomberg best. Ramy 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 for the year. 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 suggests for the first time it was about Risk Management and position reduction. Perhaps by the cta trend followers. This is about earnings, and it has been about earnings for the last week and investors are saying maybe tax reform is not a great story for all companies. They are starting to really dissect that. That created a little selloff. That got investors spooked. We are getting some price discovery right now. I think this kind of selloff, this disorganized selloff, this will only go on before someone steps up and says there is an opportunity in the selloff, and it does not have to take that long. We did not think things could get worse. Those people were wrong as we went into this morning. Overall Global Equities from this time yesterday have lost 2 trillion in market cap. We are on the verge of markets getting a little disorderly. And you get Central Banks interested and regulators interested as well. The equities selloff extended to asia and europe after stocks in the United States recorded their biggest oneday drop in more than six years. Credit suisse buying back one of its Exchange Traded funds, triggering losses on muted market swings. Pretty interesting story. It has ironic element to it here all 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. This was a Credit SuisseExchange Traded note. We had reports earlier they were considering buying it back because of the rise in volatility, so this was a bet against volatility. Now the bank is confirming we will fight 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. Down about 2. 4 . Big drop, far cry from the drops in asia and the u. S. It is a global contagion. We have gotten ourselves into a momentum market, all it takes is a little prick and the air comes back out. An aboutface for volatility today. 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 second to first month futures spread versus the s p 500 index active contracts, that is what it is tracking today. We are trying to get this normalization and volatility. It hasnt worked yet. We are still working on normalizing and we are not there yet. What a difference 24 hours makes. The Dow Jones Industrial average recovered from yesterdays drop. It was not a straight up move, it went down, up, down, little changed, but then we closed to 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 it 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 Interest Rates being low for quite some time. The short answer is i still think it is early and the implications are not significant. Nomura has apologized to customers that bought those Exchange Traded notes, writing, we sincerely apologize for causing significant difficulties to investors. This is a list of products we believe can be bought that individuals and institutional investors. If you look at some of these products advertised in 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 long side doing fine. These are popular products. That nomura statement was interesting because it is basically apologizing and saying 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 about 300 etfs that are leveraged and track volatility. I even put oil futures in this category of products that use derivatives and are hard to understand. I think they are trading tools, where as the large majority of etfs are investment products. Thats the distinction you will find with the issuers trying to make right now. Bank of England Holding rates unchanged. Sterling surging as the boe turned more hawkish, suggesting it may need to raise rates faster than previously indicated. I would say the market is interpreting this as a hawkish hold. Very different to the dovish hike back in november. What was interesting about the Market Reaction was in november, you saw sterling drop by more than 1 , gilt yields drop. Today, you are seeing the exact reverse of that in other direction. Markets have started pricing in a rate hike in august and the probability of a rate hike in may was just over 50 . Now it is roundabout 75 . Is may likely . We have been looking at that for a while. So, they did not say one in done. More like two and through, so the central bank has given us fair warning another rate hike is coming. That seems to be the stamp that is on its now. U. S. Markets entered a technical correction yesterday as the Dow Jones Industrial average and s p 500 fell 10 from the closing highs in january. Stocks were hit hard in asian trading. The buzzword of the day is still that this is a healthy correction. We are somewhat in alignment with 1987. We did decline a little additional, then we rallied. That is what we are looking for. We have a good chance today could mark the low. Ideally we close down the day 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. Adopted without objection. The u. S. House of representatives voting to pass a twoyear budget deal ending a , Government Shutdown that started at midnight. The bill raising federal spending by almost 300 billion and extending the debt ceiling for one year. President trump is set to release his 1. 5 trillion infrastructure plan on monday. Plus, the blueprint for the 2019 budget. 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 look for to the daca forward to the daca debate that will dominate the conversation next week. Ramy still ahead as we review the week on bloomberg best, banks, oil producers, and automakers among the Companies Reporting earnings. Plus, we dig deeper into the turmoil that shook markets with three officials from the Federal Reserve and some of the most respected voices in finance. Up next, more of this weeks top business headlines. A south korean court throws a curveball here and jay y. Lee goes free. If you can be stunned and not surprised. That is the reaction here. Ramy this is bloomberg. Ramy this is bloomberg best. I am Ramy Inocencio. Lets return to our global tour of this weeks top business stories. Starting with the formal transition 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. Powell inherits the fed at a great time, but there will be a lot of challenges. The main one is how the fed will 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 extension, the fed raised rates by 3. 5 and 4. 25 , then they lowered rates to combat the downturn by 5. 5 and 5. 25 , so big moves. They dont have a buffer this time around. They will probably have to play with unconventional Monetary Policy tools and this will be up to the new fed chair to manage. Yellens final act, the Federal Reserve slapped wells fargo and their board with a cease and desist letter after the close of trading on friday. The vendor had its rating cut by three analysts and felt by the and fell by the most in two years after the fed banned the bank from growing until a it 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 goodtypically you see the fed talk about board oversight, 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 seemed 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 speed that up. A south korean court has suspended the prison sentence of the samsung you Like Samsung Electronics vicechairman jay y. Lee after he appealed the jail term. The sentence was cut by half, to two and a half years although , he is now free to go on four years of probation. If you can both be stunned and not surprised, that is the reaction today. We are stunned the high court which was reviewing the Appellate Court process in the Seoul 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. Yonhap news agency is 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 for a fifth day and led cryptocurrencies 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 big regulatory questions coming up. All over the world you have regulators, including in the United States, 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 buying cryptocurrency. Is a general there feeling it could be too risky to allow credit card users to buy on credit, cryptocurrencies, especially some that are more especially some that are more suspect or less well known. Bitcoin is marching towards its second day of gains and comes as u. S. Securities regulators spoke at the Senate Banking committee yesterday, and calling for greater oversight of cryptocurrencies without proposing industrykilling measures. The message was, we have this under control and they understand these technologies pretty darn well. There are a lot of interesting areas on the margins where legal clarity could benefit innovation, but the hearing was really 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 raised its takeover bid to 121 billion from 105 billion. They call this the best and final and are not willing to negotiate up a higher offer. The question is, is it enough to get qualcomm to the table . The short answer seems to be no. Qualcomm turning down what broadcom called its best and final offer at 121 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 and is not going higher . Qualcomm is saying broadcom is not appreciating the value of the acquisition, the potential resolution of its licensing dispute with apple, and the opportunities to expand as 5g Technology Becomes a thing. The founder of wynn resorts hasnt stepped down as ceo and chairman amid allegations of has stepped down amid allegations of sexual 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 Sexual Misconduct allegations have been circulating and investors are watching closely. 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 an important market for wynn and where the company nets most of its earnings. Its announced big expansion plans. Im sure the gaming regulators in macau are watching this closely as well. Even as the company has let steve wynn, massachusetts regulators are aggressively continuing their probe into wynn. This is significant news. 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 in the resorts. If massachusetts regulators find some systemic blame or 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 takeover. 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 being divided, the finance ministry, which has gone to the spd. How much of a concession is that from Angela Merkel . Might there be some grumblings within her own party . It is a big concession. It was seen in her party the cdu should keep the finance ministry , considering they were ahead in the polls in the election. But the spd made a strong case they want to have this powerhouse so they can make their mark in european policy as well. The currency 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. We have a twoway trade finally . That is exactly what is happening. As shakespeare said, even the path of true love is not smooth. Nothing goes in a Straight Line. This was going in a Straight Line and is a reversal. For a given event like the bank of england, new zealand, you are getting bigger moves in the currency than we would ordinarily see. Two important numbers from china did not look pretty at all. The pboc are talking about current account liberalization, particularly the bond market as particularly in the bond market as well. So we are getting some twoway moves. Ramy welcome back to bloomberg best. This week Bloomberg Television spoke exclusively with the president s of Federal Reserve regional banks. First, bill dudley has been outspoken in his view the recent fluctuations in equities will have no impact on Monetary Policy. Kathleen hays caught up with him on thursday. The little decline we have had a inditex we market 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 very marginal. So probably not change our thinking about the Economic Outlook. If it were to go on further and be much more persistent, then it could start to affect household and business spending behavior. That could influence the Economic Outlook. So far, i think it is small potatoes. I want to put on the table that as i was thinking about this today 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 about why the market is doing what they are doing. In the First Quarter of 2016, it was not just the mark