York and onceew again, a series of negative headlines. Is point around north korea that they say they have successfully tested a Hydrogen Bomb. With north korea, it is very hard to vera why the facts. To verify the facts. Guy it reduces the size and increases the yield of the device. As a result, maybe one step further forward to them being ale to put a device on missile and hit targets around the region. Another reason for global instability and regional instability. Which is more significant this morning, another geopolitical event or another market event . The chinese once again letting their currencies slide a little bit further. In august, that huge move. It just looks like a blip now. Risk,an north korea tail nuclear. Weaker fix. N, a we talked about manufacturing numbers. Theas been offset by Services Data. That is going to be a concern for a lot of people if that is not a oneoff. Guy we will talk about that later. Mohamed elerian lays out some of the risk. Investors are going to have to deal with this. This financial repression is coming to an end. Markets looking a little softer here in europe. Lets get the first news with Caroline Hyde. Caroline north korea says it has conducted its Fourth Nuclear test. It says it that needed a hydrogen device in the far northeast. The explosion was first detected after a magnitude 5. 1 earthquake. It is a step back for u. S. And chinese assets to convince leader kim jongun to restart disarmament talks. The chinese yuan has sunk to a fiveyear low after the central bank lowered its reference rate for the second week in a row. Stocks in hong kong fell to the lowest in 2. 5 years. Staying with china and a private Services Data has slumped to the Second Lowest level since it began a decade ago. The economics pmi survey fell to a 17month low. From 51. 2 a month earlier. Chinese market rallying today. It looks like chinese european equities are going to open a little softer in about 27 minutes. This is what were looking at at the moment. The fair value calculation gives you a headsup on what we think the market is going to look like at the open. Nothink down about 2 2 ,. 2 . Let me get my decimal points in the right place. What is interesting is once again, the dax looks like it is going to be softer than most. Down by. 4 rather than. 2. This is how the headlines are playing out in the fx markets. A weaker fix for the pboc. That is a concern for a lot people outside of china. A lot of people are going to trade off the back of that in todays session. A big move for that currency pair. Won. Rwon, weaker my producer puts cable because he wants to remind me how poor i am in new york. What am i doing here, guy . Guy interesting. I think that could genuinely be the reason for putting it in there. We will see data from john lewis, which will be interesting. It will probably give us one of the best indicators as to how the retail story is developing. It will be interesting to see the two sides of how the brickandmortarinternet story have developed throughout christmas. Maybe there will be some shopping on this side of the atlantic. None for you, though. Jonathan in all seriousness, though, north korea says it has conducted its Fourth Nuclear test, detonating a hydrogen device. The move marks a setback in the u. S. And chinese efforts to convince kim jongun to restart disarmament talks. Lets go to peter. Is there any doubt about the test and whether it was a Hydrogen Bomb . Scientistsnuclear that we talked to today are questioning the veracity of the claim, mainly because a Hydrogen Bomb explosion would create significantly more magnitude than what they registered today, 5. 1 . As they would point out, it mbs toseveral atomic trigger a Hydrogen Bomb. That would have a significant magnitude. What registered today was not they would expect from a Hydrogen Bomb. For the next two days, i think there will be some digging through the data and seeing whether the claims are true. Explosion. N there was a nuclear test and obviously that is going to, as we are seeing today, significant tensions are rising. Good news, particularly in the peninsula here. Guy lets talk about how the authorities are reacting. What happens to with markets and Monetary Policy, i am curious. Do you think we are going to see any kind of impact into the south korean economy . Do you think, as a result, we might have some kind of monetary reaction . I know the central bank had a meeting a little earlier. Peter yes, i think you are right. I think it is a kneejerk reaction. What we saw today was the finance ministry, the bank of korea, had an emergency meeting. It almost seemed routine rather than a sense of panic. They were calm and assured and came out and said, look, we have seen this before. Yes, the currency is hurt for a few days, but it gets back to normal. More is thatesting they are more worried about china and what happened in china today than the nuclear test. Sensibilityou the of what is going on in north korea. The sense is that Economic Activity will be more impacted by what is going on elsewhere rather than north korea. They are more worried about exports to china and those factors plus domestic spending. We talked to some folks on the street today and they said they are not worried. They said this has happened so many times before that it is getting old and they are more worried about what is going on globally and the slowdown happening elsewhere. Guy great to get your take. Thank you very much indeed for your reporting. U. N. Gap has widened lowered its rate. Itld shift a major could signal a major shift in thinking from the pboc. Walk us through why this move is significant. Say . what can i this is the great wall of china. The pboc works in mysterious ways. On a serious note, it is strange that they have chosen to do this today. Slumped, the stocks creating a bit of concern in the markets. Yesterday, reportedly buying market fears. Ming they decided to upset markets again with this move the move today, the weakening and the fixing, was not a huge move. They weakened it by. 22 . We have seen them do. 1 . What really matters is the principle of the thing. On august 11, when china devalued the currency, they said they would take the previous Closing Price into account. We have seen todays fixing, about. 17 of yesterdays closing level. People are speculating that this ofgoing back to the days fixing and how much trust they can have in the pboc policies going forward. That is really the issue here. They are not doing what they said they would do and the hope for transparency is not really coming through. The reaction function is key for the markets as we work our way forward. Thank you very much indeed. Lets get more from our guest now. Walk us through your views on what the chinese are doing, how they are handling the start of the year. We see the stock market under pressure. The currency looks like it is moving in an unpredictable fashion. Guest we are witnessing a continuation of what is taking place in the late part of 2015, which is that the chinese economy is slowing. It is rebalancing. What is taking place in the background is a bumpy landing in the chinese economy. That implies they need a much easier Monetary Policy. As long as the currency is egged, it is not the pboc making Monetary Policy in china. It is the fed. , the other to that dangerous element is this widening of the basis. The cnhcny spread, which suggests a good deal of outflow pressure and a loosening of monetary conditions inside china. There is money leaving the country or at least leaving the domestic Financial System in into dollar deposits, whether onshore or offshore. Jonathan this has been a slow, managed depreciation. Synnex cynics will look at this move and say the pboc has continued on doing whatever they want to do. Look at the big picture. Is that really what has happened . Arnab i think there is a justification for the cynicism. Far be it for me to come across as a cynic myself. The sdr rules are more about the exchange ability of the currency. A more marketable Exchange Rate is the direction we are heading. Obviously, the transition is going to be a bumpy landing in the chinese economy. This financial transition is bumpy. The piece of the puzzle that is most risk sentiment gauged is the cnycnh basis. That suggests it is a problem of outflows from china. Should entail is the absence of multiple Exchange Rates. You should have a single, unified Exchange Rate, not different Exchange Rates that allow for different kinds of arbitrage. Arnab is going to be staying with us over the next hour. Up ahead, we will hear from Mohamed Elerian as well. Why he thinks the asian volatility is repressed by Central Banks. Jonathan good morning to the city of london. Inminutes away from the open europe. Futures marginally lower, down by 10 points. Plenty of headlines out there. Lets go to Caroline Hyde. the head of vw brand has apologized to the American People or the emissions scandal. He was speaking at the Consumer Electronics show in las vegas. The Current Issues with the engines are nothing to be proud of. We disappointed our customers and the American People, for which i am truly sorry and for which i apologize. Caroline apple suppliers have fallen after nikkei a review reported the company would reduce their firstquarter output of iphones by about 30 . The smartphones, which debuted in september, have piled up at retailers in china and europe. Matheson, whod helped build credit squeeze into an electronic trading powerhouse, plans to leave the bank at the end of the month. He recently served as head of u. S. Equity trading. That is your boom your Bloomberg Business flash. Bankis the era of central and eventually coming to an end . Mohamed elerian, here is what he said. Much will depend on how policymakers in the private sector respond in the coming months. Regardless, investors need to be a lot more nimble because they would be navigating an increasingly volatile market. The age of financial volatility repressed by Central Banks is ending. That has stretched far beyond what anyone imagine during the financial crisis. Iew on this. Nabs v the financial repression has been a part of our lives over the last decade. Is it coming to an end . Other Central Banks still pushing and pumping as hard as they can. Arnab that is the key issue. There is a good deal of the ofmins no divergence divergence. I think he has a good point that the major player in the repression of financial volatility is moving in the other direction. We are seeing a lot of the consequences of that with the pboc and cnycnh. I think we will continue to see these bursts of volatility throughout emerging markets and asia. Asia is the epicenter of this problem. Much of the asian currency complex has adjusted against the dollar. The main one, the chinese one, has not. We will see more volatility, but i am not convinced that the iming isbank pump pr over. It needs to continue in europe. It is note u. K. , obvious that the bank of england is ready to go off to the races. In much of the emerging markets, we still need further easing. Agethan to his point, the of the Central Bank Intervention is not over. Hsbc would call it q. E. Extortion. Are we getting to the point where the Central Banks cannot deliver what the markets want like they did before . Arnab i think we are in for some more tightening. I think that there is an element of this kind of q. E. Fatigue or exhaustion taking place. It is not clear to me that we have reached the outer limits of Monetary Policy. I think more could be done if necessary. I think there are a variety of Different Things going on in different parts of the world. One is that the u. S. Economy is recovering. Credit is recovering. It is transitioning to more of a normal recovery. The rest of the world, the diversions is very clear the divergence is very clear. Emerging markets are still going to a multiphased adjustment that has a lot further to run. The key is still going to be this divergence and that is the source of the volatility rather than whether Central Banks are turning off the spigot everywhere. Guy it is about bang for your buck. Central bank policy is unable to deliver what it says, then what does that mean for Asset Classes . What does that mean for correlations . What does that mean for the investment thesis on which so many portfolios are based right now . Arnab we are in this transition and the correlations and trends are changing. That is the mechanism by which this volatility is coming into the market and that will continue. On the question of whether the q. E. Has done what it says, that is the more complicated question. If we had not had this kind of Monetary Policy response, how different would things have been or how much worse . We would have almost certainly been in another great depression. It would have taken down much of the world in the wake of the Global Financial crisis because of the greater interconnectedness and speed with which markets move and impact the economy. Has served an important purpose. That we are reaching the limits of it is true to a certain extent in the u. S. It has largely done what it was supposed to have done. What has not happened in europe and emerging markets, much of the world, is a restructuring and reduction of the overhang of debt. There has been more of that in the u. S. That is why the u. S. Economy is doing better in many respects than most of the rest of the world. Guy thanks very much for your thoughts. He is going to stay with us. We are seven minutes away from the market open. Lets get to Caroline Hyde with some stocks to watch. Caroline some tech stocks that i want to keep an eye on. , at theemiconductor moment, in terms of its share price. They could fall. Why . Because apple is so important to them. This is a chart i want to show you. This is a fantastic function of the bloomberg terminal. It is supply chain analysis. I am sorry. It is tiny. See thatom in, you can apple, 78 revenue for dialogue semiconductor. That is a german chip company and they are likely to see the pain coming from those reports from the nikkei overnight saying rain incould see arm its rein in its output. Keep a close eye on any company that gets revenue from apple in europe today. We have already seen the Asian Companies fall on the back of that speculation. Aalso want to keep an eye on belgian chemical company. Some m a rumors surrounding that company, plans to sell one of its divisions. Todman sachs being hired find a buyer. Italians k with allianz. At last, pimco has ended the 31much losing streak. This is their share price over the past 12 months. Owner of pimco. End of the net redemptions as clients start to reinvest Capital Gains and dividends. Pimcoz is one to watch as finally turned it around. Guy looks like we are going to see a negative open in europe. Once again, the german markets under more pressure than most. Hammered since the start of the year. Suspect part and parcel of this story is individual stocks, but china, the reader into europe has been direct. Jonathan when we see bad data out of china, it is the dax they get punished. We have seen it on the ftse as well. We have two pieces of negative data. Korea,e tail risk, north and the other is what happens with china this year . You have the data on one side and the currency on the other. Difficult to navigate and difficult to understand. The volatility is something that will be staying with us through the rest of the year. We are four minutes away from the market open in europe. The market open coming through very shortly. Looks like it is going to be a negative one. Good morning and welcome to on the move. We are just moments with the start of the european trading session. Guy were going nuclear, north korea says it is successfully tested a Hydrogen Bomb. World leaders have condemned the move of. Confidence crumbles, chinas markets fall to a fouryear low. Stocks go to their lowest level in a decade. Driving forward, volkswagen unveils its new green concept car. The head of the brand speak to bloomberg about the emissions scandal. Jonathan 50 seconds with the open, a lot of action on the fx market. Futures in the red, futures down by around 10 points this morning. Heady cocktail of concern. That a Michael Keaton is calling it today. Heaton is calling it today. We are not seeing some of the bigger moves were expecting. Once again, china is front and center. Back again today, once again. Services lower than of course we are concerned about the yuan being devalued once again. Where is policy actually going when it comes to china . Seeing that currently being caps off. Again, that cocktail of concern also coming from asia and north korea. , that is Hydrogen Bomb adding to geopolitical tension. As if we didnt have enough already with the middle east. Is down about 10 . It any none state as well. Of course, the allimportant minute from the federal reserve. Meanwhile, you are seeing at risk aversion playing into matters today. And oil a little story about that. Trading lower because we expect u. S. Entry numbers stockpiles expecting to be on the increase. Meanwhile, money moving into the havens. Were the u. S. Borrowing costs coming down. We have money going into germany as well, clearly the havens are back in vogue. Indeed, the testing of bombs and north korea. Lets have