Small the kinds for the major averages a second day of small the clients. Half an hour ago, the three major averages it line ever subjected climbed ever so slightly higher, but as major averages did climb ever so slightly higher, but as trump was speaking we have big 7. 5 s in this macys down from hitting a sevenyear low after the cfo earlier at an Investor Conference and annual investor date to say that the Company Expected margins to be 1 lower on a yearoveryear basis and as a result, they will be engaging in rigorous costcutting costcutting in order to maintain the earnings forecast. Of course, how much can you cut costs . Investors not cheering that. We are seeing other retailers falling, including kohls, foot locker, and nordstrom. This is an ongoing theme this year, retail, as is riskoff. When you look at the haven bidts, we are seeing a today. Today we are seeing a big haven bid. Haven bonds are rallying. Gold is up 1 . The yen is also higher. Spikinglso have the vix 5. 5 . Not a huge spike, but it is well above 10. The reason i say even with stocks that near alltime highs and there is a bit of a riskoff , we go to the bloomberg and look at g btv 5706, it is pretty interesting. We have the nasdaq, best of the stock indices, in white. Yellow, gold, orange is the yen, and blue is the 10year yield. The first 2. 5 months of the year, sideways trading range great but then around march 15 come when the fed raised rates for the third time in about a decade, we see that stocks continued higher, gold went higher, yet went higher yen went higher and the 10year yield back near or at levels last seen the election is that this is really pretty interesting to Pay Attention to, considering that we have stocks at alltime highs, but we also have this strong haven bid on the year, joe. Joe thanks, abigail. Whatd you miss . South africas economy fell into a recession for the First Time Since 2009. Gdp contracted 0. 7 in the first quarter, surprising economists estimated as much as a 1 expansion. Joining us from london, gabriel sterne, head of Global Macro Research at oxford economics. Gabriel, weakness in these emerging economies notwithstanding, you are out with provocative claims recently arguing that emergingmarket hard currency debt, the borrowing that sovereigns do in currency not their own, typically dollars, is structurally undervalued. Explain to us the are the argument. Gabriel thats right, joe. What im doing is trying to find a little bit of alpha, which is not so easy these days. But there is alpha in an unfashionable place this dollardenominated debt. The reason is as follows in the phase now, when original sin is kind of over by that i mean it used to be the case that veryvernments found it difficult to issue in their local currency and out the markets are very tolerant. The local currency issues come even a decade or so ago, just 15, 20 of the total government decade now they are well over 60 . That in itself means that because sovereign debt is such a small proportion nowadays of total debt, what is the point of defaulting on it anymore . Brazil would be the extreme example. Dollar bonds in brazil around 2 of gdp. Even if things get bad in brazil, what on earth is the point of defaulting on that tiny share of gdp . Scarlet my question to you, then, is is this reflected in what Ratings Companies are saying about emergingmarket economies . They are fairly negative on these economies, and whether ratings agencies say, they cannot do much about that. Gabriel i think ratings sometimes get behind the curve. I think they are a little bit behind the trend here in the sense that partly because rating agencies themselves use the matrices of defaults based on history, and i think history is not necessarily good view of future here. For example, they would say now b sovereignsbb to default in 10 years, based on history. I think it is a bit less now. I think recovery values are a lot higher nowadays in the sense that if you defaulted which the imf is pushing people to do debt, dontfile the do big haircuts can just deal with of liquidity problems, but pay out in full later on, then it doesnt hurt you very much anymore. I think ukraine is a very good example of that. Julia and obviously, the settlers ukraine, where the dollar bond is far more superior than the domestic debt. But you cant compare that with greece and what we saw there, and the right down writedowns, and the imf pushing for some kind of report falling or what they can get away with. Gabriel greece could be and almost tempted to say that greece could be the last great default, except we have venezuela waiting in the wings. Those 2 countries are very well, not unique, but very different. There it is all about dollar debt, and they are very unusual in that respect. They certainly cannot control the debt buyer having about of inflation. Doubt of inflation. It is an external currency in a sense. A lot of the em sovereigns nowadays, they can inflate the debt away. In ukraine, rather than impose a big haircut, that is what they chose to do. That is the trend. In a way, greece and venezuela are probably the very highprofile cases that might just disguise the trend and let , sovereign investor make some alpha in the meantime. Joe gabriel, scarlet ask you about the ratings agencies and the degree to which their they perhaps are not realizing times have changed. What about Market Pricing . When we talk about the rising rate cycle in the u. S. , the strong dollar, worrying about the hard currency debt, how much are we talking about the undervaluation by your measures if the historical patterns dont hold anymore . Gabriel well, i gave you the historical pattern, and to some extent markets will be ahead of ratings, because that is their job. But i would estimate that if you actually allow for what i think are possible recovery values and a slight decrease in the amount of default, it could easily be that on a fundamental basis, you actually gain 50 basis points right across the sovereign spectrum. And then if you add to that lower risk premiums that markets priced in, maybe you get a bit more than that. We are not talking huge, massive gains, but in this era, u. S. Come emld trading investors moving up the risk scale, i think there are a few good cases where you can make brazil to turkey to zambia where you can find good value just on the basis of by the debt debt, and those people cannot be bothered to defaulting because it is not worth defaulting. Just not priced correctly. Julia can i ask you a question attention, slightly less frontier market, and that is the United States bond market. You were talking about the prospect of using inflation. Why does in the fed why doesnt the fed do that, inflate the Balance Sheet . Gabriel oh, so you bring the conservative out of me now. [laughter] gabriel too long out of the bank of england. I think it would be a bad idea. But the u. S. Stays very manageable, and if anything, we take the opposite view that the trump trade looking like it is on wanting faster and faster, notwithstanding what we just heard from the unwinding faster and faster, nonwithstanding we just heard from the president , the markets are probably right to keep those bond yields a bit lower than they were a few months ago. Joe gabriel sterne, great stuff. Head of Global Macro Research at oxford economics. Thanks very much for coming on. We want to check again on the markets, which are fading a little bit in play action. Heres the intraday look at the s p. Not talking about a big selloff, but near lows of the day, down about a quarterpercent. Lets look at a few different Asset Classes to put some perspective. Nasdaq faring a little worse down to. 3 . Gold obviously, or not surprisingly, i should say, catching on the riskon move. And 10year yields got a little lower than that early in the day. Reporting that china may be inclined to continue buying more treasuries. We are at levels not seen since about november 10. The immediate wake of the election. A little bit of a riskoff move. Coming up, apple takes on tough competition. We will have more from our exclusive interview with apple ceo tim cook on a voice controlled speakers. This is bloomberg. Miss . T whatd you apple putting its first major new product in years at the center of a home tech empire. It is an effort to keep customers in its ecosystem. In an exclusive interview with ceo tim cook, emily chang sat down to discuss the future of the tech giant and why he is challenging amazon and google. What wee hear have tried to do is fill the breakthrough speaker first. Is it is deep music is deep in our dna, dating back from itunes and the ipod. We wanted something that, number one, sounded unbelievable. I think when people listen to it, they will be shocked over the quality of the sound. And of course, it does a lot of other things, and all those are important as well. Wantedted to a really highquality audio experience as well. Emily you are focused on how this will reinvent music in the home. Will i be able to make a phone call, order groceries . Tim there is a lot of things you can do with it. One of the appendages is there is a lot of things that siri knows how to do from sound. We will start with a patch of those, as phil showed today during the keynote. And and there is nice follow one activity there as well. Emily talk about ecommerce. Ecommerce is important to these devices. I can order paper towels. Does this tell us about apples desperation in retail . Aspiration in retail . Tim i wouldnt read into it in that regard. Apple is a company that wants to deliver cares deeply about music and wants to deliver a great audio experience at home. We reinvented in the portable area and we think we can reinvent it in the home as well. We know that people want the speaker to do more than that. And obviously, we want a speaker to do more than that. We are sort of combining what has been thought of to be 2 distinct a given things until now. Distinctly Different Things until now. I think people are going to love it. I know they are. Im a user. I think they will be blown away by the experience. Emily how long have you been working on this . Tim multiple years, multiple years. The Underlying Technology here is something to behold. And to get the experience that we wanted and the quality we wanted, like apple products in general take multiple years to do, starting from the Core Technology and building the product. Emily you have people out there saying, finally what took so long . Tim for us it has never been about being first anything. If you think that, we did not have the first mp3 player. We did not have the first smartphone. We did not have the first tablet. There was a tablet shipping a decade before. Few people used it. Arguably be shipped the first modern mp3 player, first modern smartphone, first modern tablet. But we were not first in any of those. It is not about being first come it is about being the best, and giving the user and experience that delights them every time. We dont let that impatience result in shipping something is just not great. It is the 10th anniversary of the iphone. You have unveiled the new ios. What is that tell us about what is next . 11 i can tell you that ios is unbelievable, but for iphone and ipad. Doesnt global things from it does incredible things from peer to peer payments. An area i have great personal excitement about im excited about all of it, but im really excited about ar. You saw the demos being done today. I think it is profound, and i think we today, as we get this developer release out in the hands of the developers, we will have the largest augmentedreality platform in the world. And i think we have launched people,large numbers of and im incredibly excited to see what some of the developers are going to come up with. Emily exactly. Vr talked a lot about ar and with regards to developers, but what about consumers . When will consumers see apple ar . Tim that is another one of those things im not going to answer, but with Core Technology, as a platform owner, the first thing and arguably in some ways the most important is to build a foundation, and from that foundation you can do many things off of it, but first you have a solid foundation. I think the developers are going to love what they find in the developer built on ar. Scarlet that was apple ceo tim cook speaking exclusively with our emily chang. Julia time for the Bloomberg Business flash, biggest business stories in the news right now. 100 billionaised of investor funding could the socialmedia site fails to keep pace with rivals. The last funding round was in 2015, valuing the company at 11 billion. The company said its new valuation is slightly higher, 12. 3 billion. Uber told employees that more than 20 people have been fired after a Company Investigation into Sexual Harassment claims. According to a person familiar with the matter, the company did not name the employees who were fired. Macys shares are plunging today after a warning of tightening secondquarter Profit Margins. The worlds Biggest Department store says growth margins are a full percentage point below the year ago period. Macys says the cost to maintain earnings forecast, which it reaffirmed today the next Earnings Release is august 10. And that is your Bloomberg Business flash. Joe and we have some breaking news ahead of the testimony tomorrow from former fbi chief sorry, thursday, before james comeys testimony on thursday he is going to stop short of saying trump obstructed justice, but he is planning to detail his conversation with trump. We will get detail on the conversations he had with President Trump, but according to people familiar with his thinking come he is likely to stop short of characterizing it as obstruction of justice, and he is also said to have coordinated his testimony with Robert Mueller, who is leading the Russian Investigation currently at the fbi. Scarlet promises to be mustsee television, which sets us up for a programming reminder. On thursday, we will bring youthful coverage and analysis of his testimony before the Senate Intelligence committee. At nineheduled to begin 4 30 a. M. Eastern time on bloomberg television. This is bloomberg. Oops. Joe one more thing, this evening bloomberg is hosting the inaugural invest summit. The former trump advisor and colony northstar executive s, bothn, and jim chano at the event tonight. Scarlet that will do it. This is bloomberg. Got it right this time. Scarlet i am scarlet fu. Miss . Miss . Whatd you momentum has been driving the stock market, no matter the recent headlines and impact on oil markets we are seeing growth at every turn. One trader observes that something has got to give, and for him, he believes that value will take over from growth. What were looking at is the ratio of the russell pure value versus russell pure growth. I have it reversed on the headline so ignore that for a moment. Pay attention to that big dip at the end, because that shows you how value has underperformed growth. It shows how cheap it has been compared to growth in 2016. Everyone buying on the hope of what is to come think tesla, netflix. When is the value going to be recognized . He says it will eventually run out of fire. Julia the question is when. It is interesting when you talk events,e possible risk yet the vix down in the doldrums. Im going to debunk one of the myths out there. The s p reallife correlation the correlation between individual stocks. And that is the white chart that you can see there. The yellow line is the vix. Below stock correlation has been suppressing the vix low correlation, then stocks are moving at odds with each other and there will be less toplevel. If you look at this, actually, what were showing is realized correlation has been rising as the vix has been falling. Not a good enough reason to talk about the suppression of the vix. Realized relation is and what is going on. Good one, because the declines throughout you were cited as an expedition. Julia exactly. Talk about it in november, december, january, but not since then. Joe speaking of risk, gold at the highest level, the white line, highest level of the year. Safehaven stuff and all kinds of reasons there is really only one chart you need to look at some the real yields, for tips. Gold in the white line versus the market fiveyear target duration in the blue line. This goes back to early 2015. These 2 lines line up perfectly. If you want to have an understanding of what is driving gold, first you look at where the market is looking at real Interest Rates going forward, and that will give you a pretty clear answer. Cuts away all the noise. Scarlet we are always looking for ways to cut out the noise. The market closes next. We have the major indexes falling right now, but not very much. Declines anywhere from. 2 to. 3 . Theyve been consolidating. Of risk makes sense given the events we have been talking about. Scarlet from new york, this is bloomberg. Julia whatd you miss . Falling for a second day. Gold climbing for a third day. Julia it joe we want to welcome you to our closing go coverage every day from 4 00 to 5 00. Scarlet u. S. Stocks closing lower, they took a bit of a dive in the final two hours of trading before coming off the lows in the last 30 minutes. It was good for decline of almost if the points. The dow and the s p coming down seven points, the nasdaq the big loser, all ive. 33 . I only saw commodity names, Energy Companies and providers of Raw Materials topping the decline. Lets look at some individual names worth mentioning. Macys trading at the lowest since 2011 after warning investors that Profit Margins are tightening. A new headache for investors of the embattled Department Store chain that are dealing with shifting secular trends and online competition. Advanced micro devices, a leader in the s p 500 gaining almost 7 , reportedly back in action according to the chief Technology Officer who make comments at the global tech conference in san francisco, saying amd