York. Are in for tom keene and Francine Lacqua. Michael risks are back off as china falls. Were back where we were a week ago. On ahan all time lows twoyear and fiveyear yield. Lets go to vonnie quinn. Vonnie in china, the south market stocks fell to their lowest level in 13 months. The shanghai composite index down 6 at the close, falling 47 since last june. Outflows will speed up. It may be a while before things are normal on that is to coast. 48hours after the blizzard travel is a mess. 25 hundred flights were canceled or delays. In washington, federal. Overnment offices remain shut Denmarks Parliament will approve a plan allowing officials to confiscate valuables from refugees, the latest crackdown on asylumseekers. Backers of the confiscation plan says the money will go toward the cost of refugee care, but the idea is criticized as a violation of human rights. The Islamic State has stepped up Operations Command to plan more terror attacks in europe according to the European Union crimefighting agency. The agency says they want to carry out attacks similar to those in paris that killed 130 people. A meeting will highlight a longstanding relationship between the vatican and iran. The iranian president will meet with pope francis. He is on a trip to italy and france. Theyll discuss these efforts in syria and iraq. Global news 24hours a day. Im vonnie quinn. Some data . Michael how we are trading in the early morning. U. S. Futures and european stocks are lower. Oil, everyone is concerned. We are below 30, pushing money away from stocks worldwide. Yield is below 2 . In germany, but deals breaking lower. China, no help. The biggest drop in the shanghai composite since january 7. A gold, it is quietly building over 1100. Sensexitive note, the index in india is the best performer. It is up by 2 10 of a percent. Jonathan we have a saying in london, it is called scraping the barrel. The shanghai composite, the headline in Global Equity markets. Down 6. 4 down to a december 2014 low. The twoyear yield all time low, 0. 46 . Brent crude above 30 a barrel. For me, a big surprise, conventional window would say conventional wisdom would say when mario draghi hinted at more qe we would have a weaker euro. It is flat this morning. Michael you would have expected that to continue going lower. It felt when he first spoke, but it has gone back up. Ive found a really interesting Economic Indicator for europe telling the story of the last few years in one product swiss watches. Swiss watch exports have been declining for the last three years. That we havelowest seen since the great recession, down 3. 8 last month. The whole year 2015 they fell to a new low. If people are not buying swiss watches, the highend isnt spending the kind of money that is needed. Johne they went up after brought back some from davos last week. Michael maybe that is why tom was late getting back to the states. He had to get watches. Vonnie they were down 25 in hong kong. Michael that shows you where the economies are performing and where they are not. Jonathan in switzerland, the euro swiss down to 1. 10, a little bit of pain. Well talk about that later. To thestocks tumbling lowest level in 13 months. In hong kong, enda curran joins us. Great to have you. It is simple, but hard to answer. The market went down, at one point approaching 7 . How do you find a single catalyst . We are more than six off. Hs into the sell there is no sign of a letup. A fragile sentiment over china. The latest excuse was capital outflow, which in and of itself is a concern. Inund 1 trillion left china terms of capital outflow. It is a sustainable figure. It is worrying the government and unsettling investors. It is book of investors and companies are worried about the weakening yuan, so they want to put their money in a stronger currency. Unless china clamps down harder on capital borders. It is about risk aversion and a selloff on shanghai boards. There is sign of a Circuit Breaker yet. Michael our chief economist for bloomberg and intelligence in beijing suggests this isnt about the chinese economy, but the world doesnt understand that. Enda theres a big disconnect. You have the fragile sentiment on chinas markets, the stock markets and the yuan. The stock market is disconnected from the real economy. On the real economy, we are seeing some stabilization. All the Growth Drivers like are slowing down. There are a growing gdp, crucial to what the government is trying to do. Rebalancing the economy being driven more by domestic demand rather than external demand. It is inlieve that, the nearterm. The yuan is the wildcard with what they do with that and how it impacts global trade. Thank you for giving us your time. Lets go to the Goldman Sachs senior european economist, kevin daly. Convictiontion view remains that the european economy will remain resilient. The data point yesterday, german business confidence, is that a crack in that . Kevin the has been volatility for sure. You hit the nail on the head in the last report. In terms of market volatility, there has been a clear economic catalyst. It has been a mark of nervousness in event. Looking at developments, the fall in oil prices, the weakness in oil prices, we think that will be broadly neutral for growth with a bruise from oil prices of setting negative effects from market volatility. Lower oil prices is negative jonathan what we want to pick up on is the economic backdrop. You say there are no data points they can reconcile that we have seen such a volatile market in 2016. The manufacturing recession globally the lead across the bleed across. Kevin i dont want to sound complacent. We are monitoring it. Arelatest activity monitors consistent with growth around 3. 5 . It is not spectacular, but it has been reasonably stable. We are monitoring closely, but so far, it we havent seen evidence of Global Growth weakness and aggregates. You cannot focus only on manufacturing. Some of the developments we have seen recently will be positive for growth. We are negative, but some are neutral. Michael how much is europe exposed to what happens in the chinese economy . The u. S. , a relatively closed economy, doesnt have as much at stake. Europe is more of an export led economy. Kevin there is the risk of exposure. The effects are reasonably sizable. On the latesthat news weve had has been on the market developments rather than the Economic News out of china. There has not been a huge amount of Economic News at of china. Although europe is more exposed than the u. S. , china is exports to europe. Not so much a consumer of european products. Michael is the real danger that chinas exporting deflation . You look at what mario draghi was saying the fed has been concerned about the progress of inflation. Is that the real concern . Kevin one thing that we have tried to get across in our recent research has been though Research Developments has been neutral for growth, it has been significantly negative or inflation. The fall in oil prices, equity prices, the rise in the euro, developments in the broader commodities complex they all drive inflation blower. Inflation lower. It is that that mario draghi is responding. It will be lower for the second quarter. Average inflation for the euro area has been largely flat. 1 . Forecast for december is significantly negative effects on inflation. Michael we will continue discussing the impacts on europe and the rest of the world. In the next hour of bloomberg surveillance the state of prices inflation. The ceo of zillow, Spencer Rascoff, joins us. This is Bloomberg Bloomberg surveillance. You are looking at hong kong, a nice evening there. Michael good snow has turned to mush on this new york morning. This is bloomberg surveillance. I am mike mckee with Jonathan Ferro in for tom keene and Francine Lacqua. Vonnie the german engineering has a profit outlook for the year. It highlights their confidence slowdown ine the china and the oil slump. The ecb president mario draghi is firing back at critics of his policy. Itsays it must meet inflation goal to maintain credibility. They are trying to keep investors convinced they will the economyulate and prices dont go enough. Swiss watch exports fell for the First Time Since 2009 at they were down 3 for the year because of a dropoff in asian sales. If wealthy taurus were buying watches in europe. That is our Bloomberg Business flash. I know the swiss watch exports also include parts, people like swatch make all the parts for the luxury watchmakers. Jonathan not just the demand from asia but the strength of the swiss currency was a problem. Crude is a big headline this morning. Extending its drop below 30 a briefly this morning. We joined by the executive energy for energy. Stuart wallace. Up 10 on friday, down 5 on monday. The days where we got excited about a 5 move oregon. That we are looking now, is a question we ask everyone. Interests,n is open is at a record high . Record open interests with declining prices should signal more shortcoming. The options market, everything you need to know about the panic. 25 options. Iraqi oil, highcost producers, very resilient. Aereo draghi talking about the credibility issue at the ecb. I wonder if there was a red ability issue at the central bank. A simple question to you, kevin, showed Central Banks be chasing this move and commodities with more stimulus . It is nothing more than impact on the ecb at the moment. Typically they would not respond to nearterm inflation. Typically Central Banks will look through the impact on oil prices on inflation, the reason is because it happened too quickly and passes through to quickly, beyond with their policies can have an impact. Central banks look at the oneyear to twoyear inflation area pressures. The reason they are so sensitive is because of the impact on Inflation Expectations. Particular, but also household notions of Inflation Expectations fall and they are influenced by currency inflation, oil prices in particular. They are responding to the dangers of the secondary effects. Ask you abouto storage. Were hearing reports there is no place to put excess oil,. Utting pressure on prices yesterday on surveillance, we could see prices in the teens because theres too much oil and they cannot store it . There is a capacity for the storage. You can actually go a little bit above. It does make logistics difficult. You have seen a back load of ships waiting to unload. In terms of what that means for prices, low teens are in the teens. One thing i would say, the lows at the end of the 1990s adjusted for inflation, 17 or 18. Is that the price forecast . No here it a possibility . Of course. Everyone is waiting to see where the supply comes out of the market. Berra probablyi said, nobody knows nothing at this point. Coming up, we do find a rose among the thorns. Dwyer, u. S. Equity strategist, he is a raging optimist. Is he still . Bloomberg surveillance. Jonathan welcome back. This is bloomberg surveillance. Pictures of the governor of the bank of england testifying for a treasury select committee, along with a few other stability officials. kevin Goldman Sachs daly. A question for you. . Hat is he so scared of so frightened of that he was not so frightened of in the summer of 2015 or 2014 . Kevin he has been done a disservice by some of the reporting. Says that the decision would come into relief over the turn of the year, he did not say that rates are likely to rise around the turn of the year here and he said the distinction was likely to be more clear. I think it has the answer is now is not the right time to raise rates. Central bankers typically will not give guidance to say when they are likely to raise rates, because they cannot. Evens will change. Events have changed. Will change. Events have changed. Jonathan he knew how it would be interpreted. He was also aware of what he was saying in the speech or 2014 in the summer, and that was more punchy on whether he would raise rates anytime soon. The criticism of that speech is more deserved, shall we say, and the backtrack he had to make from that. On this occasion, cognizance of how the speech was interpreted to strongly, he was more careful with his words. Blames case, the lies with how the speech was reported rather than what was said. Hadthan 12 months ago, we a discussion about the bank of england and if they would follow the Federal Reserve with a rate hike. It seems the spread between mark carney and janet yellen is wide. Kevin we do not expect the bank of england to raise rates until the end of this year. We have a number of rate hikes from the fed through this year. Have clearlyagues knowledge the risks relative to the forecast are now to the downside, given the developments on inflation. This is a recurring theme in sectors. The growth sector. What the inflation picture has. This central bank has to respond. Youll see some conversion. Jonathan kevin daly, thank you for joining us this morning. Later today, more conversations. The managing director of pimco. They will join stephanie ruhle. Add of the opening in new york city, futures are negative five points on the s p 500. Michael the pattern continues. A week overnight. Overnight. S p futures are down. Soyear yield is still barely. In the euro is unchanged. Crude oil is now over 30 a barrel. Lets get the bloomberg first word news. Down halfocks are their value since last june. The shanghai composite fell 6 today. From commodities to technology. Investors are concerned capital outflows will speed up as chinas economy slows. Another snow day for federal workers and washington, d. C. Traffic is slowly getting back to normal. 2500 flights were canceled or delayed yesterday, but that is fewer than the previous 2. President obama has banned the use of solitary confinement for juveniles in federal present. Solitary confinement can be devastating and have lasting psychological consequences. It would affect him thousand inmates. Malaysias Prime Minister expected of stealing millions of dollars was cleared of wrongdoing. The money that appeared in his private account was donated by the saudi royal family. He will not answer why he was given the money. Meeting to convince euroarea investors he is making good on his promises. He began his second year in office yesterday. Europe will see if he delivers on his pledges to takes the Pension System and update the labor market. News 24hours a day. Thank you. Back to the markets. William deed by vijlder. From paris. Economists stock market, markets in general, they have addicted nine of the last recessions. Do you think the stoxx 60and the move lower is becoming real, the feedback loop into the real economy . Is the mostt frequently asked question when i meet with clients, how it will impact the Economic Outlook. It is easy to understand why that question is asked against the background against a high level of conviction for european economists looking at the growth forecasts for this year. The difference between. Conomists is low historically, as you mentioned, the record is poor. Meaning that stock market declines is 70 in locations are not followed by a recession. If you look at the 30 of occasions in the u. S. Where there was a recession after a stock market decline, you need an additional factor. A financial crisis like in 2008, oroil like in 73, 70 four, 79, or killing inflation. We are not in that situation. That is why we are confident about Economic Outlook in developing economies. The most frequently replied response i always get from that question is that the economics in europe is ok and resilient. Yesterday, not so resilient. Looking at the dax among concerns of china, that is quite explainable of what is happening with the dax, it makes sense. It makes sense when there is a concern over an italian bank. It is not true to say economic fundamentals in Different Countries is not what is driving the stock markets. I will agree with your analysis. What is happening is that the Economic Data and outlook is only explaining a tiny part of what is happening in the markets. That is why, if you look at it from an economic perspective, you would enable the decline of the markets at the start of the year as exaggerated. On the other hand, without saying, and the list of uncertainties has gone significantly longer. What is happening in the markets, 1 the decline is coming at the start of the year. That means Portfolio Managers will be tempted to positions more quickly, because if they dont do that, they run the risk that the risk manager would come in and say you have to cut positions. It would be different if that would happen in the middle of the year to happen outperformance, then to have a session. There is no cushion. The second thing is that markets are pricing their risks. There is a big focus on if something can grow linearly. The concern about loyal is about oil is not that it is going down, but triggering consequences we have not looped that sufficiently. The same goes for china. A hit or risk out there. That there is a way for investor sentiment. Ofhael could this press extremely low growth rates throughout 2016 . Lending spreads are widening. Corporate is saying we dont want to invest in our economies . That is a possibility. That ise has to meant the case. What you are seeing, if you look thehe central bank, Monetary Policy environment, what is happening is that the effectiveness of the policy environments has been curtailed. It is not a surprise that mario draghi, last thursday, announced that in all likelihood there will be more already. It means that the feds have already changed sooner rather than later. In a way, that is a small comfort, especially for Business People that are concerned about the rising uncertainty and will hold off from either recruiting people or from making investments. It is striking to see that. Yes . Was in newio draghi y