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tv   Power Lunch  CNBC  August 5, 2019 2:00pm-3:00pm EDT

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but now he puts the tariff on after the shanghai talks, and china thinks what trump is doing in bad faith, so we're going to slap this currency evaluation on him. >> great to get your perspective today. thank you so much. max baucus joining me there. that does it for exchange. thank you for joining me i'll go join tyler for "power lunch," which begins right now >> kelly, thank you very much. we will see you on "power lunch" in just a few seconds time i'm tyler mathisen, and welcome, everybody. we start today with the major market sell-off. the first few hours have been something. the next two are going to be really, a, important, and b, very, very interesting right now, the dow has just flirted with its session lows of the day. just second ago, as the trade tensions with china heat up. the dow down 773 points at the lows of the day, and we will tell you how much more pain may be ahead not just today but in the weeks
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and months ahead at the center of the drama, of course, today the currency clash. president trump accusing china of currency manipulation as china lets the yuan fall we have got the details of the punch and counterpunch plus, the consumer crush the names the trade war could hit hardest, as well as which ones could actually benefit from escalating tension "power lunch" starts right now >> lows of the day on the dow right now, 781 points. the next two hours will be big trade headlines sinking stocks today. kayla tausche covering all of the trade angles for us, as she has for months now but let's begin with bob pisani at the new york stock exchange hey, bob >> and tyler, today's declines are very broad based everything, except maybe gold and utilities. let's take a look, down 1.5% to
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3.5% technology stocks down, bank stocks down. consumer discretionary down, energy, industrials, all down about the same however, even consumer staples are not faring that well look at the walmarts of the world, costcos of the world, even kroger, i have been pointing out kroger gets 100% of its revenue in the united states even kroger is essentially down about 2% that tells you something it tells you that some investors aren't simply taking down exposure to the market overall, which makes sense given how pricey stocks were going into the month of august. right now, this looks a little like early may i have been saying this all day. trade talks broke down in early may. the u.s. hiked china tariffs, the markets were down big time oil down 16%, the vix was over 20 in early may. that's exactly what's happening today in early may, the vix is at 23 right now. bulls say we're one tweet away from a rally going back up again. maybe. the problem is that the positions are much firmer now
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amongst the two countries than they were three months ago this is not may. now we've got currency issues coming into this there may be other retaliatory measures outside the tariffs that are even more serious that really is what the markets are worried about. this could escalate. there's some technical damage being done the russell 2,000 and the dow transports are below their 200-day moving arg the same level for the s&p 500, we're not there yet, 2790 is the 200-day moving average, and that's about 50 points away. back to you. >> as we sit here, basically at session lows bob, thank you china retaliating against the u.s. for that latest round of tariffs. kayla tausche does have the latest from washington kayla. >> kelly, state media reports say china will cease purchasing agricultural products from u.s. farmers as retaliation for president trump's escalating the trade war to include new tariffs on the remaining $300 billion in imports. the headlines via shen waw news agency hit in the middle of the night in china, perhaps to make
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certain that president trump got the news here in the u.s in a series of tweets earlier this afternoon, trump called china's currency manipulation historic and said china has always used currency to steal our business and factories, hurt jobs, depress wages, and more. earlier today, he called on the federal reserve to respond in a text announan outside ally described the move as a real miscalculation by trump. which is notable because often advisers suggest it's part of a grand plan this time, they're suggesting it might be hard to put the genie back in the bottle >> kayla tausche in washington following the developments of the day for us for more on the fallout as the trade war with china esclatsz, the only way you can put it, let's bring in stefen sealing, a former undersecretary of commerce for trade, also managing partner with bridgepark, and meredith
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sumpter. welcome to both of you stefen, you heard ambassador baucus say just moments ago with respect to the tiff between president xi and president trump that xi has more tools than he does true >> he certainly has a lot of tools, arrows in his quiver. he has patience that the ambassador mentioned he also has the state control of his media. and he has, frankly, a government where he does not need to run for re-election. and as a result of that, you know, he has time in many respects on his side, tyler. >> also if he tells the central bank, the bank of china, to do something, they're going to do it >> make no mistake, the pboc is reacting and responding based on direction from senior officials, including president xi >> meredith, have currencies now become weaponized? >> not to the extent that investors are speculating.
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actually, china has been manipulated its currency but to prop it up in the hopes a trade deal could be secured this year. i think the real story here is the loss of confidence in beijing that they're going to get any kind of trade deal with president trump that beijing could live with. >> so what they have effectively done, then, meredith, to play it out so that i understand it is they have backed away from supporting an artificially holding the currency stronger than it would otherwise be and have now let it decline to below seven. >> let it decline to below seven, and in a carefully managed way. this is beijing here, but tongue in cheek, we had chinese analysts overnight commenting having this new psychological threshold be broken shows the huan is a more market reflective currency than what it had been previously so the key here, and even the
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state news agency is calling this breaking point the throwing off of shackles that eventually would have needed to be broken as well. so china, let's be clear, china is not interested in a freefall of its currency at all but what they are saying is they're allowing them to reflect the real market pressures, the external headwinds that this trade confrontation has brought to bear. >> stefen, it's interesting to me that this is all perceived as a blow to the u.s. this currency move when in reality, as larry lindsey kind of described, it's a blow to the chinese. it offsets the impact of the u.s. consumer of any kind of tariff it means they have less purchasing power on the world stage. how is this somehow winning against us other than knowing that it's going to make the president unhappy? >> not only blunts, to your point, the impact of the tariffs, but it also has real long-term costs for china and not just around potential capital flight
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their corporations have huge dollar denominated debt that just became more expensive they purchase a lot of commodities like oil, which are dollar denominated as a result of that, all of those purchases now for china just became more expensive but to meredith's point, let's not overreact to the devaluation. i think it is more symbolic still at this point than it is actually going to have a profound economic and financial impact but what i think it does mean is china is now preparing for a longer battle as opposed to having some near term resolution and some long term sustainable outcome in our trade dispute >> it just seems interesting to me they're choosing a way that while it's headline grabbing may be shooting themselves in the foot when they could do other things like say don't buy starbucks. if they really wanted to hurt the u.s., ight >> i presume a lot of those, you see even with the reports on how the chinese are supporting huawei there's a real sense of patriotic duty in china to
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support their companies and their economy. and so as a result of that, i do think we see gird for a longer battle than the market might have expected in the not too recent past. and that's what -- >> pricing that all now in >> and that's already in trade flows. the commerce department came out with in the first six months of this year, trade with china is down 14% that's both our exports and our imports. as businesses are now saying this is going to be too volatile, too uncertain, and we're going to decouple our supply chain with china. that's going to have an impact on prices for consumers but fundamentally, it's going to cost the chinese economy and lead to lower chinese employment, which is the one thing their government is primarily focused on >> meredith, there was a lot in that answer, the multiple answers there. i want you to pick up on it, particularly the idea that china may be hurting its own interests in that there's going to be
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capital flight debt that's going to now become more expensive oil that's going to become more expensive to buy in their currency among other things, is this then what -- and the economy is slowing. is this then what the president means, our president means, when he says china is paying these tariffs? >> china is taking a long-term view of what this economic confrontation is going to mean and it's preparing for a long-term fight. so when you look at the risks that markets are pricing in today, our view is that those markets, that market risk is really just a few of are we going to get a deal this year or not. the real market risk here is have markets and our investors realizing we're on the precipice of what is likely to be a multi-year economic confrontation with trade, investment, export controls between the world's two largest economies. so some of the declines we have seen today, our sense is really it's just a start. some of the longer term
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structural risks still need to be baked in. >> we didn't even get to the question of what's going on in hong kong and the security issues there when i hear, meredith, and i'll wrap it with this, stefen, you, too, when i hear several guests over our last week say confidently that both sides have too much to gain and too much to lose for there not to be a deal, what's your reaction to that is that being naive to say that? meredith >> my sense is that for xi jinping, he is not comfortable with the deal that has been floated by washington such far as such, he is not going to be making concessions to this state-led economic order that will be enough to appease president trump. so the deal is off for 2019, almost certainly we have a 65% probability that president trump will move forward with those tariffs on september 1st, which will harden both sides our take would be much more bearish than what they're
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saying >> let's get your thought on that when people say there is too much at stake here, common sense is going to prevail, they're going to get a deal. >> i think it's not the right question the question is what is the deal so if the deal is buying soybeans if the deal is around intellectual property protections, we may in fact get to some deal sooner rather than later. i'm not disputing meredith's overall timeframe, but if the deal fundamentally addresses the state support of the chinese economy, i think it's going to be a multi, multi-year process, and maybe a generational process. so what we might get to is incrementally helpful deals that help the u.s. economy and help u.s. businesses compete fairly with china but we're not going to have a panacea anytime soon >> thank you very much appreciate it. >> let's check out the markets now as the dow has shed about 1500 points since the fed decision just five days ago. dom chu is here with the latest moves as we're down 760.
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>> this is now near just above the worst levels of the day. let's take a look at the worst performing stocks now. they range here, but the reason why these five stocks are up here right now is because these are the five biggest point detractors in the dow right now. so as we're down 760 points, boeing, by the way, is shedding about 78 points roughly from the dow because of that. apple is down about 71 points, so down 770 overall, down 70 just from apple and 78 from boeing visa is shaving about 57 points off the overall dow, goldman sa sacks about 54 points. so a lot of that move is just boeing, apple, visa, goldman, and home depot there are out performers but none are positive. verizon is only off about a quarter. coca-cola is shaving about three
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points off and pfizer, about seven. they're outperformers, but just to put it in perspective, the reason we're seeing such outsized moves, apple and boeing a large part of the dow negativity story today >> thank you just how much more pain is there in store for investors let's bring in joe duran, the ceo and founding partner of united capital brent schuette is chief investment strategist, and michael farr, a cnbc contributor and president and ceo of farr, miller, and washington michael, i'll start with you, as you just heard, there's a lot of pessimism with our guests over whether we get to some big banner deal with china just given the way thicks have turned in the past week, should the market be pricing in and maybe it's pricing in today, 25% tariffs on the $300 billion worth of chinese goods >> i think the market is clearly telling you it's unhappy today, and it certainly doesn't like yesterday's valuations it's already working on its own repricing, i think to try to
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figure out how much future volatility will give it some pricing comfort. we're going to go to a price now where we think things are probably a little more reasonably valued. overall, the year is still pretty good, but yes, this is a very tough sort of a day for markets to see that, geez, we were waiting for this fed rate hike that gave us some encouragement. the president came out with tariffs quickly afterwards, and now we have the same level of instability again, and it's rocking investors, and they're voting with their wallets. >> joe, what about those who say maybe it's no accident that we're down 1500 points since the fed meeting? the cause and effect here, how much would you attribute to the rate cut, how much to the president's tariffs and what's the interplay between the two? >> very little to do with the fed, honestly. this market for the last several months has been all about the tariffs. and the reality is that the ten-year bond, the fed is not playing with the ten-year bond, and we're at 1.7% something,
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when we were in the 2s just a week ago that is not the fed. that's the impact of the global economy. you have germany down below half a percent. minus half a percent, and we don't know how long that might go what is happening is the whole world is repricing risk. a flight to quality, and you have a lot of silence, not a lot of talk about what's happening in iran, with another tanker taken. what's happening in not just tarifffes but hong kong, brexit occurring in a couple months you're going to see a yield really safety, not even about yield. how do i make sure i survive we had a pretty good year so far. i think you're going to see quite a lot of volatility. again, not necessarily anything negative, but we might see another 3% to 7% decline, maybe a 5% to 10% decline. maybe even a couple before the end of the year. you need to be prepared for that >> brent, let me turn to you joe picked up on the decline in the ten-year note. which has inverted the yield
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curve. i don't mean to wonk out here, but inevitably we must and get in touch with our inner nerds. what is that telling you about not only the economy in the united states and around the globe but what it could say about the future for stock prices we know that bond prices are where they are, high, and rising because people are playing a safety trade here. but what is the implication of that inverted yield curve where the shorter dated maturities are paying more than longer dated ones >> well, i think that's the big question in the past, it's determined that when that happenhappens, recession occurred and ensues. this time it's different a lot of that has to do with the tariff impacts, and there's slowing global growth, but if the tariff impacts come off, and this is the important part because we do think and disagree somewhat with the prior guest, we think the president is malleable, so the comment is
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that the sides have firmed i'm not for sure the president has firmed on his desired outcome. i think he wants a good deal and he's not willing to risk recession to get a great deal. and so the falling market may cause him to backtrack like it has in the past, and that's one thing people are looking past and overestimating just how idealistic this president is, and perhaps they need to kind of soften that a bit because i do think the falling market has one silver lining. i think it potentially causes the president to pull back on his tariff threats >> we haven't seen that yet. i'm not saying he's going to react minute by minute to the tape he has twitter and could easily, whether it's him, whether it's an adviser, you know, it's been pretty quiet, and remember, he started this going back to those tweets last week, saying that china was not following through on its promises. >> yeah, i guess you leaked on friday, i believe, that a senior official said that the president would possibly consider not putting the tariffs on september 1st if china did what they were supposed to do so i do think there is still
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malleability i guess the question is where does that come in, and perhaps a couple more days like today would give the president attention again. while i know he's hardened right now, i don't think that's necessarily that hard in the future if the market continues to fall, and the fourth quarter got us closer to a deal, and perhaps a couple more days like today would get us back in focus again. >> michael, woe talk about coming into a day like today with $14 trillion worth of yields negative globally, what do we come out of it looking at, and how much are we -- how many distortions are we seeing created when the ten-year is down to almost 1.7%? you know, if you have people speculating about currency intervention, which takes the form of bond buying, are we going to retest the 2016 lows? are we going sub-1.4% in the ten-year where does it end? >> if the trend is your friend, you have to start looking at those levels those would be the levels of support or resistance depending on how you're looking at yields versus prices. you know, every one of these
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sort of market moments in the past when the president has shocked us either by his tariffs on mexico and everything coming out of mexico, has been fairly short lived. maybe this one will be maybe it will last longer. but most of those have presented buying opportunities you know, at the end of june, we were at 17.7 times earnings for the s&p 500. we're now in the 16.5 times range. things are becoming more reasonably priced. on your program on this show before, when we have been talking about more value oriented stocks, stocks with more solid balance sheets, that kind of boring can be beautiful. and boring is never fun on a day like today but it's a lot more beautiful than a lot of the high flying nasdaq stocks. so this is a time when investors, i think, really need to take a look at their long term horizons and know that long-term investors earn their stripes by enduring markets just like this.
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so no time for panic take a look at your portfolios and look at the numbers. think about your long-term goals. that's where you have to go. >> joe, to michael's point, you need to know what you own. you need to know why you own it. you need to know why you would either sell or buy more of it. do you in any sense see a day like this as an opportunity to buy, which i thought i heard michael just say >> i don't think so. not yet. there's too much unknown and i would point out one thing that we haven't spoken about what's been going on with the russell 2000, the smaller companies, they should be benefitting a lot from lower rates. they're not really impacted by china. what you're seeing is we're starting to get a backlash in our own economy. that would be a concern to me. i would just suggest that you make sure you're allocated right, that you're not overweighted to equities with the runp we had, and if you're a balanced portfolio, you're doing
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well with the balance rates. don't do anything brash. just be prepared to tilt your portfolio into doing something into quality focus on dividends because the lower rates go, the better off you are, and again, be prepared for the fact it's been really remarkably quiet for many years and it's unlikely to continue. we're going to see a lot more volatility, probably from here to year end. >> michael, i know you well enough to put words in your mouth but i didn't really mean to there so i'm not sure that you really intended to say today is a buying opportunity, but that pullbacks are buying opportunities. >> yeah, i would go more with the latter, tyler. this feels like we're sort of at the beginning of something that could last a bit longer. this really seems to have started last week. seems to be picking up steam now. but you have to have that list and as prices go down, we know that warren buffett has his list we know that warren buffett is not looking to panic and think about oh, i have to get to cash or anything. he's out there thinking, gosh,
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is something cheap enough to get me interested? you have to be in position ahead of time for days like this, and for trends like this and tyler, johnson & johnson down only 80 basis points today. i'm not supposed to mention that, i'm sure, but it's really holding up pretty well >> brent, we'll give you the last word. how do you think people should be positioned? >> well, i agree with not panicking. on days like today, the last thing you want to do is sell into it. as i mentioned, your selling may cause the president to backtrack, kind of what happened in the fourth quarter. i think of the people who got whipsawed then they sold based upon things they thought were going to happen and the market rallied within three months to highs. >> you want the sellers, you don't want to be one of them >> exactly right that's the oddity of the current situation, is that the sellers cause the actions to change. certainly, i think the other thing we haven't pointed out is the federal reserve is now lowering interest rates where they were tightening or threatening to tighten more in the fourth quarter
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they're now easing i think the bias is for them to continue easing to stem off any potential ill side effects i think they'll act hopefully more aggressively in the future because i think july was 25 basis points wasted. they need to do more than what they did then because that did not cause the yield conserve to steepen, it did not cause inflation expectations to higo higher >> we're about to hit 800 points down on the dow. we're looking at session lows here >> this new launch of tariffs, though, i think, kelly, does change the calculus for the fed. this gives them new information. >> yeah, and that's exactly what we're seeing everyone in the market try to price in right now. look at the tech sector, down more than 4% the dow is down more than 3% right now. 797-point drop we'll keep a very close eye on that, but we're at new session lows joe, brent, michael, thank you all, guys. appreciate it. even if the market, you know, is
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shrugging it off >> mike santoli is here with trading nation michael. >> kelly, thank you very much. going to survey the damage in another part of the market this sell-off hitting another corner pretty hard energy stocks in freefall as it raises worried among oil demand. leads rr bring in your trading team, ari. energy and energy stocks have underperformed when the market was rallying they're getting hit harder than the market today what does this tell you about the trend here and whether it's time to start thinking in a contrarian fashion about energy stocks >> i don't think it's that time to start thinking in a contrarian fashion towards energy you hit it, a bearish trend. and a poor risk/reward, how we see it in general, the sector is just not been rewarded when oil rises to the same degree it's been slammed when oil falls here's some numbers.
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west texas crude oil up over 110% since bottoming back in 2016 and up over 30% since bottoming in 2018. yet energy has underperformed through both periods there so i think that's telling. and on top of that, let's chart the biggest stock within that sector, exxonmobil, turning lower from the bearish slope of its 200-day moving average we define that as a resumption of a down trend, so when you have the biggest stock in the sector acting as the headwind too, and what is a broad list of bearish trends in the sector, we recommend underweight selling, avoiding, stay away from energy. >> all right, yeah, certainly not being spared the dow down, the s&p 500 down 3.07%. as we speak. gina, energy, is it just kind of the same global story here or do you think that it's being unduly punished at this point? >> no, actually, i think the
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fundamentals look just as bad as the technicals if you look at the fundamentals, we're looking at a situation where you have growing stockpiles, growing inventories, possibly meeting waning demand that's just a recipe for disaster and the problem with the oil industry is that it moves very slowly, so it can't really turn on a dime. it's not going to shut off a whole bunch of oil wells just because of a few demand numbers, so this takes time to play out and inevitably, it means that you just sort of suffer as the market slowly right sizes. and so if in fact that continued waning demand continues to disappoint, i think that oil prices are going to be softer, and you compound that with potential strengthening dollar if the rest of the fx market gets weaker, that's also negative that's a double whammy >> yeah, obviously part of this whole kind of deflationary
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crouch that the overall oil markets are in we'll see if they have it right. thank you very much. for more trading nation, head to our website or follow us on twitter, @tradingnation. >> thanks very much. let's get a market check that was michael santoli let's get a check on stocks which are now at session lows. if they're not right at it, they're very close 834 points now a better than 3% loss on this very busy, busy first monday of august the s&p 500 also down more than 3% and the nasdaq flirting with a 4% decline, down 300 points on nasdaq check out the semis. they are getting walloped. the smh, the etf that tracks that group, is down more than 5% on the day, and 10% in the past week 11%, really, as trade tensions escalate some of the worst hit names on semis falling as sales lag during the quarter, nvidia, micron, amd, all under serious
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pressure look at nvidia, down 7%. and on semi-conductor down nearly 11% >> the oil market is closing for the day. let's go to dom chu. >> energy markets up front and center oil prices have been lower all over the place today they did take some peaks at positive territory for both west texas intermediate and brent crude prices, but wti off by almost 2%, $54.66. present crude down, no surprise what's driving the action lower, like tyler was saying, the escalation in the trade conflict, war, whatever you want to call it, between the u.s. and china. a world flowing with oil and the prospects for slowing global demand outweighing the latest reports that iran has seized yet another oil tanker in the persian gulf region. if you look at prices, they did rise intra day for u.s. based wti crude, after they said gen scape estimated a drop in the
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oil prices at the oklahoma storage hub. it comes from weekly oil data from the american petroleum institute that comes out tomorrow afternoon, 4:30 eastern time, and then the official u.s. inventory oil data wednesday morning. but for now, prices are definitely skewed towards oversupply and weakening demand concerns versus anything that can happen geopolitically for the middle east, at least for now. back over to you >> thank you very much, dom. with the dow down 840 points or thereabouts, let's check back in with bob pisani at the new york stock exchange >> tyler, the key point here is the whole market is essentially down 1.5% to 3.5%. it's true that some sectors are down a little bit more let's just take a look at the big dow decliners. some of the big technology names like apple are notably weak. if you put up the list there, visa is weak, which is a big global payment processor, big exposure to the global markets overall, goldman is weaker on
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the lower yields and united technologies also weak, but even defensive stocks, if you want to throw in the names here -- many are down 2% as well. procter & gamble, for example. coke is down 1%, johnson & johnson. these are names that normally would hold up well they're not down as much, but they're still down the point is the overall exposure to the market is being taken down because there is perceived to be much higher risk, and it's not just 10% tariffs. much wider potential risk now the currencies are potentially involved other kinds of things could happen in a global trade war besides tariffs that can be even worse, and that's what the market is concerned about. a lot of people say hey, this was like this in early may and things turned around it's true, it's like early may a concern about new tariffs, s&p is down, oil is down, the vix goes to 23, 23 in early may. this does look a lot like early may, but the sentiment is a lot different this time around back to you. >> thank you very much, robert
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>> president trump hitting two of his favorite targets today. really in one fell swoop china and the federal reserve. he tweeted that china dropped the price of their currency to an almost historic low it's called currency manipulation are you listening, federal reserve? this is a major violation which will greatly weaken china over time so is he right about china, and what can the fed actually do about it steve liesman is here to join us the fed would say they have very little to do with the level of the currency, wouldn't they? >> exactly they would say that before i talk about that, i want to give you a headline that just came over fed governor, kansas city fed governor saying they're monitoring markets and committed to sustaining the expansion. >> to your point on that, the timing did coincide with the fresh lows on the market, but it doesn't appear the substance of anything they said, correct me if i'm wrong, would be a reason for that we just dropped another 100, 150 points >> they were about this issue of
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the fed payment system i interrupted your show with about an hour ago, and this came out of that discussion they took a moment to say they're monitoring developments. fed chairman jay powell and almost every other fed official has said explicitly, they do not make monetary policy to affect the exchange rate. in fact, powell has said several times managing the value of the dollar is the purview of the administration the treasury, specifically and the treasury does have an exchange stabilization fund. in the past, as recently as 2011 in the wake of the devastating japanese earthquake, the fed joins with the treasury and other nations intervening to weaken the yen the fed has a choice whether to join the treasury in intervening. it would be unprecedented, however, in recent memory for the fed or even the treasury to intervene not in coordination with at least one and usually several major nations. beyond that, many economists are skeptical intervention even works when it contradicts where
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the market wants to go that's not to mention, guys, the u.s. has agreed to not intervene or use policy to intervene in its currency in several international agreements it has. >> and the form it could take of bond buying. >> well, it would be a currency thing they would do. >> historically, they bought japanese >> they could do that. >> we're talking about the entire japanese curve is negative right now, and yet there's speculation. >> that would be interesting if the u.s. owns a large amount of negative yielding foreign bonds. the other problem they have is that they do not have direct access to the domestic chinese currency market. they have only access to the overseas part of it, and that is not as large or as effective, it would be we would be -- we are in fact right now with these presidential comments and the fed being in the position it's in right now, this is historical, and it's really important to watch how this plays out as the issue of chi
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china's currency and its role in the global international financial world is better defined and debated, argued, and -- >> speaking of historic, the dow a moment ago down 873 points that's the biggest move we have seen in quite some time. >> it tells you, i think, the market does not like tariffs, and the economists all downgraded the look for the economy. >> stay with us. we want to talk more about the currency moves and the tariff issues the yuan hitting an 11-year low. joining us is cathy lean, managing director of fx strategy at bk asset management tim seymour is a fast money trader cathy, talk to us about what you think the significance of crossing seven to the dollar is, and what you make of the market reaction here across all asset classes today, the stock market down more than 800 points. >> well, clearly, this is significant because this is a record low that we have seen the chinese yen, and i think what's
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significant about this is that the trump administration is weaponizing the u.s. economy so china is turning around and weaponizing its currency this is the only way they can effectively fight the battle because their clocks aren't as deep as the u.s., particularly on the trade front if you look at the selloff in the market and the acceleration in the short time, investors are nervous and rightfully so because for the past 25 years, the u.s. government has looked the other way with regards to china's currency manipulation. and if there's anything we know about president trump, it's that he's not going to look the other way when it comes to his trade partners, so investors are worried we're going to go beyond the 10%, maybe beyond the 25% tariffs and not going to take china's retaliatory actions sittingidally. >> even if people think china is hurting themselves by letting the currency weaken here, if the president responds by ratcheting tariffs up to 25% or more like cathy is saying, this is how the
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equity market is pricing that in that's one avenue. the other avenue is that the president looks at all of this and thinks about some sort of calming measures >> yeah, kelly, i would say steve talked about this being histor historic it's historic too. even though we're at all time lows, or since the chinese allowed it to flow effectively, you're at a place where china is blame not just tariffs but export restrictions and sanctions and all types of things this administration are now using in their toolbox since the u.s. has become a major exporter of oil, it seems like sanctions is one of the ways the administration works. back to currency, you have a dynamic where historically major moves in the chinese currency on a deval have equated with enormous volatility in global markets. remember 2015, s&p was down almost 12% a lot of that reason simply is people get very concerned about capital flight out of china. once you have disorderly
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movement in the currency, that's where we are >> let me jump in here we're now trading the september fed funds futures market with a 60% chance of a 50-basis point rate cut when we came in this morning, it was around a half point. 13% this morning, and some time around, i haven't watched it all day long, i know that there's a 100% chance built in of an additional rate cut, but it was definitely skewed earlier today towards a 25, and now it's 50. >> earlier today, there was a 13% chance of a half-point cut >> that's exactly what i said. >> and now to 60%? >> now we're starting to price in -- is it a fourth cut here? i'm sorry, give me a second here to do the math it looks like there's a 65% chance that we are at 1.5% to 1.75%. we're starting to price in we did one we're pricing back in that third rate cut that we had >> the december cut. >> now i'm looking further down the pike here to see, i do not
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see a fourth cut built in. it is somewhere in the outlook here, but right now, i would imagine another fourth 25-basis point cut could be priced in >> a fourth one. one fascinating thing playing out in the morning notes before all of this happened was people saying look how the president has outfoxed the fed look, jay powell cuts by a quarter point, you can say with some hawkish commentary afterwards, the president comes out the next day with a 10% tariff, and now has pushed the market into pricing in possibly four rate cuts this year >> yeah, look, i don't know who's being outfoxed here, and it's a shame that we're actually talking about a tactical kind of back and forth between the federal reserve and the white house. i do think you have a case looking at treasury bond yields, the problem with the global economy is this has all been di disinflationary. we look to japan and quickly see that it's very, very difficult europe is going down that road
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what china is doing is going to force other central banks to have to cut rates as well and move their currency. so that's the dynamic. and the irony is that the spread between the u.s. and germany is actually contracting at this point because people are piling into the u.s >> how much have we spent to outfox the fed on this i mean, how much is 800 points on the dow worth in terms of total market cap i'm not sure that was the most cost effective way to get his way on the federal reserve cutting interest rates >> let me turn back to cathy and i confess that currency moves and the currency markets make my head hurt. they're complex. >> sometimes mine too. >> they're very complex. and today, we're accusing or the united states is accusing china of manipulating its currency but really, what one of our earlier guests said was that it has allowed the currency to fall which to me says that that must mean that china was intervening on the currency's behalf to
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manipulate it to keep it stronger than it otherwise would have been. am i crazy to think that way >> that's exactly the way it works. when you have a currency that is managed by a central bank. in order to prevent big moves that we have seen in the markets, that are in line with kind of the direction where the economy is headed, they have to step in. they have to basically drive the yuan higher. we know the chinese economy is slowing, they're suffering as a result of tariffs. they only have two responses one, weaken the currency, or two, come out with some sort of big stimulus program i think they're going to come out and probably create some sort of environment where they're going to increase spending, maybe reduce some additional corporate taxes and things like that in order to offset some of the pain. i think, you know, at the end of the day, their hands are somewhat restricted too. and so they're just kind of causing the bleed to slow down i don't think it's unavoidable
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that we're going to have some sort of slowdown in growth or recessionary conditions in asia and europe as a result of this >> the currency moved in the direction you would expect based on the economics in paris. >> yes >> i think they let the currency fall, but they didn't appear to push the currency. that's the difference. >> steve - >> look, i think china has been playing their whole approach to global capital markets over the last five to ten years which is they want a stable currency. they cannot let this thing get out of control, and capital flight from china is a social issue that i think they care a lot about, and i think there's another side to this >> absolutely. or another shoe to drop. we'll see. guys, thanks cathy and tim. dow down about 873 points a couple moments ago at the lows >> let's take a look at the markets as we look here with about an hour and 20 minutes left in trade for this first monday in august the dow industrials are off 3% at 25636 that's an 847-point decline.
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the s&p 500 down about the same amount in percentage terms almost step for step with it nasdaq down 302 points or 3.78%, and there is the russell, splitting the difference between the dow and nasdaq, off 3.4% want to see the fangs? all right, send the children away this is nasty. here you go. there are the fangs. facebook, amazon, apple, big loser, down moyer than 5%. netflix, off 4%, and alphabet off 4% all under pressure they are in correction territory. that is down 10% or more from their recent 52-week highs >> and some extreme moves in the bond markets today as well the ten-year yield below 1.73% now, rick? >> 1.74%, the low i have seen is a whisker under 1.73%. here's something interesting, i have used this chart a lot it starts on the 31st, fed day what i want you to pay attention to is right before the press
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conference started on the 31st, we are trading 2.06, 2.07 in ten-year note yields down to 1.73%, the lows. now stands at 33 on the wide measure. if we look at, there's a differentiation of credit, at least in the etf market. here's july 1st of lge etf still looking okay you switch gears to hyg, the high-yield etf, it looks much different. and we see a lot of the spreads, especially the lesser quality, starting to widen against treasuries finally, the dollar yen. since july 1st, this is the carry trade gone awry. short covering, and it goes to the conversation we're having about the chinese currency if you look at the months where negotiations were purportedly going well, the chinese did their best to keep the yuan in a volatile, sideways market. not the case anymore >> thank you very much it is not just the u.s
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global markets also running in the red today on these heightened trade tensions and the retaliations let's get over to seema mody for a look at what's moving lower around the globe >> that's right. it's not just stocks here but even overseas, a notable move to the downside, putting into perspective the selloff we saw overnight. first in china, they're down about 14% from their respective highs. if you pivot to japan and south korea, those markets down 15% and 17% respectively from their 52-week highs. analysts say a weaker yuan is becoming a source of frustration for asian countries that compete with china in exporting goods like auto components and industrial related goods, and if the yuan were to weaken further, these countries could follow on that we have the philippines, thailand, and india, and there three central banks are expected
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to cut rates outside asia, an interesting market to keep an eye on is mexico down more than 20% from its august 2018 high that country dealing with political turmoil as well. >> thank you very much the dow flirting now with a 900-point loss it was down 893 just a few seconds ago, and as we watch it there, down 881. this next 75 minutes is going to be very, very telling. and interesting. meantime, casino companies are down big today especially those that rely heavily on revenue from china, but there is, contessa, some bleed through to u.s. based operators as well. >> before i get to the china stocks, if you look at eldorado which announces earnings tomorrow, it's about to become the largest u.s. casino business because it's buying caesar's it's down 4.33%. these are risk off trades. this is investors looking for a safer haven than casino companies that might have higher leverage sheets, but the china concerns are definitely dragging
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down the casinos with exposure in macao wynn has the greatest leverage to macao, and it's off 7.33% on pace for its worst day of 2019 los angeles sands owns more than 70% stake in macao it's off 4.5%. melco resorts down 6.3%. and mgm resorts, which relies less heavily on macao revenues is the best of the bunch, down 2.5%, but there's an impact in las vegas, because fewer chinese visitors are hitting the casinos. jeffries just today lowered its estimate for macao 2019 gaming revenue growth to 1% from 3.8%, to reflect this weaker third quarter. it points out pressures exerted by the trade war, the political turmoil in hong kong, even a typhoon last week. analyst david katz writes, signs
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of optimism are scarce >> even scarcer now. contessa, thanks president trump claiming today in a tweet that china is paying for the tariffs, not u.s. consumers. many disagree on that point. courtney reagan is looking at the areas of retail where prices are rising >> we know companies pay the tariffs first and then consumers. retail stocks selling off today on renewed tensions in the u.s. and china trade relationship because clothing, shoes, toys, those will soon be subject to tariffs for the first time here in recent history. many retailers had forecast an upside inflection in the holiday quarter in order to hit their annual financial targets, but that was before the new tariffs. the better than feared retail results we had so far may not be indicative of what's to come wells fargo estimates the median negative earnings hit from the upcoming 10% tariff on the list for goods after mitigating strategy is about 5% in the companies they cover, but it does range somewhere between 1% and 55%.
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so j. jill is the one they identified with the biggest risk, then steve madden and skechers carters, gap inc., urban outfitters are also names they could be in trouble because of the china manufacturing exposure, and each manufactures the majority of their own goods. they don't have another partner to help absorb the higher cost nike, adidas, lululemon, under armour, those names actually could be less exposed because of a couple things. number one, they have a global revenue stream they have diversified sourcing high margins, and a little bit more pricing power than other names. then you have the off pricers, tjx, ross stores, burlington, they're more insulated too because a smaller percentage of their goods they sell are bought directly from china and they have a strong negotiating leverage relationship with a lot of those suppliers because that actually has been a strong part of retail as of late tyler. >> thank you very much courtney reagan. >> apple, one of the big trade
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war victims today. those shares getting crushed they're down 5% or so right now. as you see there 5.5% roughly the stock on track now for its third day of losses. joining us now is tom forte senior da davidson and gene munster, founder, managing partner at luke ventures both of you like apple stock and i would say a lot. tom, why don't you make the case for why the stock has been overly whipped >> sure, the big opportunity for apple and you saw this in their june results last week was that they had 17% growth in their nonsmartphone sales. so what you're seeing is the company is making the necessary adjustments with their efforts in financial services and including payments, advertising while protecting consumer privacy, health care, and other spaces, to basically diversify their risk away from the
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smartphone so yes today is a bad day for apple. as china remains the number one risk for the stock with 20% of sales to chinese consumers, and essentially other products, made or assembled in china, that is concerning, but these efforts to diversify away from the smort pho smartphone that will drive the stock forward. >> i take tom's point that parts other than the smartphone business seem to be doing very well but the fact remains the smartphone business is by far and away the largest of apple's product lines and it is under assault in china and the revenues there haven't been exactly what they had been. >> that's true they improved in the june quarter. i think that it is important to note it was down 20% in march, down 4%, this is the china business in june and so i think that the trajectory while not growing is moving in the right
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direction. so i think that that piece is important, i think there is also a distinction how i believe the buy side is going to progress and view that hardware business that you talked about, that two-thirds hardware. today we're having some irrational behavior. this is not sober, clear thinking that the street is undergoing today it is irrational behavior how this impacts apple's hardware business i think in the future, this irrational behavior will be less likely because i think investors progressively will view the hardware as a service. something that is almost like a consumer staple. keep in mind that coca-cola trades at 23 times next year apple trades at 15 times next year if we simply apply that 23 multiple, we're at greater than a $350 stock that might seem ridiculous on a day like today, but i think it is in fact clear thinking. >> but to just push back gently a little bit there, apple has
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historically sold at a somewhat perplexingly low multiple, right? >> it has. and to get investors to change in this view about hardware as a service, takes time. and ultimately what tom was talking about, that's the substance of how that happened and over time you're going to see a shift in terms of -- different types of analysts will cover apple in three years than today. >> very interesting. tom, so where do you see the stock going? gene just made a cheer for 300 plus where do you see it going and how soon will it get there >> sure, so our 12 month price target is $270, if you want to stick with smartphones, there is silver lining in the iphone cloud now to the extent that next year we're looking for a 5g device and next year you may have unigrowth once again for iphones. so i think you don't have to just solely focus on the noniphone story for apple to get excited about the stock. next year is 5g becomes more
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significant on a global basis, you could see a return to unit growth for apple. >> gentlemen, thank you very much good discussion. tom forte, gene munster, good it see you both. >> thank you. the etf that tracks the home builder stocks down 2% today, even as mortgage rates fall to three year lows. diana olick is with us now hi, di. >> builder stocks should be loving the low rates, but the fear over more chinese tariffs is overriding rates. the average rate on the 30-year fixed was at 3.70% on friday, according to mortgage news daily. we started this year over 4.5% very roughly that comes out to about $150 savings on a monthly payment for a $300,000 loan. it also means more people are eligible to refinance. 8.2 million 30-year mortgage holders could qualify for a refinance and save at least three-quarters of a percentage point off their current rate that's according to a tally by
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black knight the size of the population is very sensitive to even the slightest rate moves since so many borrowers have already refied to low rates. it is also important to shop for your rate, about one-third of borrowers do not most say shopping for a mortgage is more complicated and they want to go with lenders they may already know and trust, even if it means leaving a little money on the table back to you. >> for you, we have not seen mortgage rates follow these huge drops in the ten-year. if we go back to the lows in 2016, we're talking about 3.4 to 3.5% for the 30-year fixed mortgage we're not seeing that yet. are they waiting to see if we stay down here at these levels or another reason why the mortgage rate can't fall >> we always say that mortgage rates loosely follow the yield on the ten-year treasury that is very important it is because mortgage rates are based also on mortgage-backed securities investors have to buy into mortgage-backed securities to lower rates. they want to have a yield.
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there will be some pushback. we start to get to 3.5%, you have both lenders who are going to pushback and also those investors in the mortgage-backed bonds who pushback because they're seeing diminishing returns on all of this it is not exactly to the ten-year yield, but you do see resistance at certain levels there are other factors in the market as well. >> diana, thank you very much. as we give a dow check, now down 875 points that is one of the largest sell-offs in percentage terms since the swoon of last october. i don't have the exact date in mind there it is on the doorstep of a 900 point decline as we have an hour or so left in today's monday sell-off. should investors like you brace for more selling into the close? and in the subsequent days barry banister, ahead of institutional equity strategy at stifle what do you see here, barry? we have been looking at a sell-off that is really broad. i don't think there is one stock in the dow higher today. coca-cola was up a little earlier.
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i don't think it is now. what should i do >> yeah, we did our third quarter outlook on this 12th of july, we had a 2850 s&p 500 fair value target now the range on that was anywhere plus or minus 125 if you look at how we did it. and we went to the top end of that range, but above 3,000, i thought the market was almost insane, it was overvalued. could we go to the bottom of the range, 2750, sure. but the issue we have is we had been making a bond call, we thought that the ten-year would go back under 2 and we were in the defensive stocks this would be utilities, reits, consumer staples, i can give you some names. >> good call good call. bond is under 2. defensive names felt better. >> i think that the thing that was misunderstood in the market is the geopolitical risk and when i say that, i mean domestic geopolitical as well. we all heard a lot about currency whether there would be an
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intervention by the administration and the currency. the real currency was that we had a record market, 5.5% dpi or disposable personal income growth, we had a best employment market in two generations. and so if you're the administration, that's your currency to go out there and strike a trade deal. so start, you know, rattling some cages, which is what they're doing. to me, just art of the deal, it was pretty obvious trump would do this. and he's trying to get the fed to cut rates and that's part of the deal. >> just a moment ago, we hit session lows with the dow down 894 points what are you watching to see when we reach that climactic moment like christmas eve of 2018 >> long way from the mid-september fed meeting. the probability of a rate cut, a little over 60%. i would like to see that rate cut probability move up whebefoi would say it is forming a bottom
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the market's behavior was after the powell pivot in the first week of june, we had fallen all the way from mid-2900s to 2750 on the s&p, powell visited and the market made a v bottom it looked like a u or l-shaped back half. and the earnings were well below the street i would like to see some alarm at the fed and then, of course, an armed truce on the trade front and postpone that issue into 2020 after the election >> barry, thank you very much. we appreciate your time today. >> thank you >> barry banister of stifle. we have come up to 30 seconds before the hour. and heading into the final hour of trading scott wapner and sara eisen gearing up for the closing bell. we were talking at dinner last night and we both, not that we know anything, we both sort of said the market feels like it is in for a rocky stretch.
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>> not like this, though i don't know either one of it had it this way. look, this was the -- this was the deal if you want to have a trade war with an emerging superpower as china is, you have to be prepared, i think sara would agree with me, for all of the fallout, the good, the bad and the ugly and what was a trade war, which now may be in sara's wheel house, a currency warn, this is the fear >> did your dinner go into the 9:00 p.m. hour that's when things really took a turn because that's when china does its currency fix and that was the fix heard around the world. >> we were having a saucy little roset, a nice rose at 9:00, as i remember at any rate to your point, scott, when you start something, you have to be ready that virtua


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