johnson. guy: 3:00 p.m. in london, 10:00 a.m. in new york. from london, i am guy johnson. taylor riggs in new york. alix steel is off today. i'm sure it feels like a monday. welcome back, america. taylor: thank you. of course, it is a back to work feeling here on this tuesday. we are coming off at jobs report on friday. we are trying to get a hint of this reflationary trade that is underway. maybe some of the safe havens within the technology sector, which is a relative underperformer today. you are still trying to eke out some green.

you want to talk about a reflationary trade, 1.37. certainly something as you think about breaking through on a higher yield day for the 10 year yield. should we do it> ? bitcoin 50,000. i hear el salvador making it legal tender for their country. guy: you would have thought it would have gone up on a day that a country decided it is legal tender. i'm not sure it is a good marker that it actually goes down. we will talk about that later. on the u.s. 10 year, i think the correlation between the weekly vaccination rate in the u.s. 10 year is worth paying attention to. you guys are back at work. labor day was meant to be this marker that everybody was going to start drifting back to the

office. corporate america would be back at its desk. the delta variant scuttling those plans. now jenny joining us to talk about what was meant to be. it was meant to be this big return. some of the firms are sticking with that. some of the smaller firms are pushing things out later this year and maybe next year. >> that is exactly right. without this was going to be the big return. for a lot of the biggest wall street banks, they are back, but not the way these executives wanted to be back. you have got masks back on. you have got social distancing and conference rooms. many of the beloved restaurants and bars everyone would go to, they are closed and may never come back. this much heralded return to a new normal we have all been pointing to for months and months has not come true thanks to delta. we are now waiting on what is that new date everybody is going

to be pointing to as to when we might see this new normal? taylor: thank you. we want to go global as well because china trade surging to new records in august despite some of the port disruptions we saw from those delta virus outbreaks. michael mckee looking at those numbers. what do we have? michael: it is really a question of in spite of good news from china. we saw the chinese trade surplus with the rest of the world and the u.s., the u.s. in blue, both rising in the month of august despite of delta variant. a little bit of surprise. what happened? in spite of the delta variant, we saw the imports and exports of china rise significantly. imports grew more than 30% during the month. we saw exports up 20% in

the same period in spite of that closure and the lockdown in china. exports and imports surprisingly rose. the surplus grew with the two biggest trading partners, not just the u.s., but with the european union as well. that is the second biggest trading partner, by some measures the biggest when you include all the countries. maybe a supply chain problems people to try not to try to buy more. the other question that is out there is china's forex reserves were reported lower today. that is a surprise because it is in spite of the fact that the trade surplus went up. citigroup analysts are speculating maybe capital flight is picking up in china as xi jinping cracks down on companies and economies. guy: we will monitor that data

carefully. as always, thank you very much. taylor mentioned it at the top. bitcoin undergoing its biggest test. el salvador becoming the first country to adopt it as legal tender. joining us now is bloomberg's bailey which holds. is this going to be a widespread phenomenon? how is this going to work? >> what we are seeing in el salvador is the country has set up these bitcoin atm's so you are able to spend that as you wish. the country making big purchases to be able to deploy that. we are seeing looking at bitcoin that the general reception has been pretty poor. bitcoin is down 2.4 percent. obviously, it is a volatile currency. there have been protests in the

country's capital. people in the country do not quite understand how bitcoin works. they are giving away bitcoin in an attempt to encourage nationwide adoption of bitcoin in the hopes that will spur a widespread adoption of the cryptocurrency as legal tender. looking at the way bitcoin is trading and some of the technology issues, it has been quite rocky. the cryptocurrency is still trading above that closely watched $50,000 level. taylor: we always managed to get in crypto. thank you for joining us. we are going to go from crypto to some of the broader sentiment we have seen in the general market and options market. it is a little glum despite these market highs. this is according to amy of rbc capital market. she will be joining us next.

this is bloomberg. ♪

taylor: big reports coming out of goldman sachs. they are cutting this year's u.s. gdp forecast, citing a harder path ahead for the u.s. a consumer. ritika gupta has been going through that report. what did the details tell you? ritika: we got that weaker u.s. jobs number. we have goldman sachs cutting their forecast from 5.7% -- 25.7% from 6% -- forecast to

5.7% from 6%. switching spending from goods to services. that fiscal support being reined in. all this could impact the u.s. economy. let's take a look at this chart here. you can see this blue line is the u.s. gdp forecast taking a dive here in september as those covid cases continued to surge. i will say they are raising their forecast for next year by 4.6%. guy: it will be interesting to see how the delta story works its weight through the -- works its way through the u.s. economy. what does the next month look like? how is september going to set us up for the rest of the year?

amy, what is the setup? what are the options markets telling us about what september is going to look like? >> the options market has been pretty glum, but it has been glum all the way through the summer and is also pricing a lot of demand for downside protection even through year-end. this does tend to happen as markets continue to hit highs. investors have more they need to protect. sometimes it is a function of that as opposed to necessarily believing there is further downside ahead. taylor: are you seeing a lot of hedging going ahead as we look at these record highs that need protection? >> definitely. one dollars and sense stat i like to look at is when you look

at how many puts in september, versus calls, that is up to 46 times. in the summer, that was trending around 25 to 30 times. the average is around 15 times. that gives you a sense of how much downside power is in the market now. it means the tail right now is that the market goes higher. people believe the positioning is to the downside. guy: where are the best trades to be made now? maybe you want to be looking at the other side of the trade, looking at the market going higher. how do you see that happening? how do you want to position for it? >> i think options people naturally think what is the absolute worst thing that can happen? at this point, the market is well hedged for that.

meaning we continue to get headlines that the delta variant is worsening or tapering is on schedule. the market is already prepared for that. what they have not positioned for is a better-than-expected outcome if taper gets rolled more than a couple months down the road, or it turns out we have actually pete in terms of -- peaked in terms of delta variant. if you are going to gear for upside, when you think about it on a payout basis, trades like that are very attractive if you believe there is a path forward for any upside sale. >> i am curious what the treasury market is telling you when hedging in the equities market options is happening because we are not getting the traditional hedging that treasury would otherwise

provide. are you seeing that? >> i know what you mean. i think that is part of it. the way that it gets played out in the options market is less from owning protection as it is from selling volatility. we have gotten to the point, and this has been true for a while, yields are so incredibly low. it is so difficult to find yield anywhere. where do people go? they sell options volatilities. maybe that is throughputs or calls. that is how they are harvesting extra yields. that is a function of why you are seeing overall options levels not that high. guy: how is the market set up for key events? i am curious about what the next earnings season is going to look like. the market continues to be set up with a relatively low bar. the expectation is that stocks

are going to be. the narrative i hear from corporate leaders is they are facing problems when it comes to labor shortages and material shortages. at some point that is going to have an impact in terms of margins. i am wondering whether the next earnings season is set up to be that moment. >> it is a great question. one of the ways we try to answer that question is going to buy sector. when we look at what the options market is implying across different sectors, the highest places domestically where we see the most expensive options relative to other sectors is retail. the second is xli through industrial. you are seeing that bleed through the options levels. outside of those domestic, not a shocker, but china. those are the three biggest pockets when you look relatively across all liquid etf's.

taylor: coming off that jobs report friday, what changed for you in these markets? >> not too much. part of it was that the market was well hedged going into this. this was true in july. this was true in august. all the metrics we look at around how terms structure and so on -- guy: this all sounds pretty straightforward. the market is protected to a downside.

we have elevated levels of inequities, which the risk is that week crying higher and that is what the market is not set up for. i am wondering, the markets have been doing this for a while. we have been grinding higher. i cannot remember the last time we had a major correction. it was quite a while ago. what are you looking for it when you look at the extreme tails in terms of the risks that could provide a shock for this market? >> this is the constant problem for people who think about hedges. just a quick anecdote, after 2008, everybody and my brother came to me and said i definitely need to hedge. we cannot have another event like that. five years later, it has been able market. every cio said we cannot afford to keep rolling these hedges. this is the problem with these

hedges, you keep rolling them. one day there is a massive tail event to the downside, but people don't know how to time that. that is the perfect storm problem in options. the best thing you can do is you can structure the trades so they carry in a cheap fashion, the cheapest of they can. one way to do that is by utilizing that skew so you are owning at the money clip, but you are selling really expensive out of the money clip. four you are doing one buy call. you are trying to take advantage of the fact that expensive downside risk is there. you still get some downside protection, but you are trying to carry that cost effectively. taylor: just big picture, sentiment wise, do you get the feeling where the clues that there are fully invested bears

here because there is tina and fomo, but nobody really wants to be in it. >> i think that is part of it. nobody is excited about this market. we had a joke a couple months ago. we called it the ed sharon rally or dave matthews rally, they seem to keep doing well, but nobody likes them. it continues to do well. you see that because as the market rises, people still demand downside protection on it. taylor: i think 15 years ago i liked dave matthews band, amy. maybe i will give you that one. thank you as always. amy wu silverman. we can discuss your take on some of our music choices during the break. health stocks, we are continuing to follow those, are down today. maybe concerns of the slowing

economy and what the delta variant means for those. this is bloomberg. ♪ ♪

>> it is time for the bloomberg business flash. deutsche telekom has agreed to sell dark unit for $6.1 billion. it is one of the biggest transactions in the european telecom sector this year. softbank have announced a share swap plan that will increase the german company's holding in t-mobile u.s. the firm is adding an operation in assets under custody. it is selling 31% because of

expected earnings from the acquisition. it is bringing its program to more black and female traders and salespeople to london. the firm is hoping to replicate the success it had on wall street. it is aimed at recruiting black or female candidates working in other industries. the bank has hired 70 people across its business. that is the latest business flash. taylor: thank you as always. we want to turn to what some of the sell side is seeing. morgan stanley analysts planning on health care stocks today -- leaning on health care stocks today. >> you saw the shares of amgen just now. that is one of a half-dozen stocks in which morgan stanley cut its rating. we are talking johnson & johnson, merck, are genex, and

jen lab. it is not like there is one overarching reason why morgan stanley is more negative on these companies. in a lot of cases they figure there is nothing to push them higher. they don't look as attractive as they were a few months ago. that is what is going on in terms of the groove. it is a different story in a sense. you look at health care stocks in the s&p 500. historically, they have struggled to keep up with that benchmark. even without weakness, the second most heavily weighted group in the s&p 500 are about 13.5%. some of the stocks that have weighed on the group this year

are among those that morgan stanley cut ratings on, merck, amgen. to these stocks at least, the firm's call kind of like pouring gasoline on the fire to some extent. guy: you need to segment the health care sector. health care has fallen 19% year-to-date. moderna has been a driver of that sector. you strip that out, and the sector has had worse performance. there are a handful of stocks that have carried the health care sector to the underperformance it has had thus far. if you carry on seeing this, how big a weight could this be in terms of the broader market? >> it is definitely an issue. moderna has not been in the s&p

500 that long. most of the gains in the stock this year happened before the company went into the index. that is another piece of the puzzle. i think in terms of the dow jones industrial average, amgen, johnson & johnson, and merck all part of that 30 stock benchmark. health care is not doing the s&p 500 any favors. health care stocks in the russell 2000 are up. guy: thank you very much indeed. we have china trade numbers coming up. surprising on the upside. difference between domestic and foreign demand. president xi jinping pushing his comment prosperity line. we will talk about that next. this is bloomberg. ♪ this is bloomberg. ♪

taylor: we go global. we are going to china's exports,

which surged in august thanks to suppliers boosting orders ahead of the year-end shopping season. take a look at this. george saying today that blackrock's china question is a tragic mistake that poses risk to client money and u.s. security. here to break it down is leo miller. let's start with maybe some of the more economic perspectives of this with the export orders. do you see that as sustainable? >> the reason people are so surprised today is there has been a narrative that china is slowing down dramatically and the economy is in trouble. that was never true. investors like to grapple on a particular narrative. the stock market is in pain. authorities are panicking. i think we see the slowdown

narrative is very much oversold. manufacturing may have plateaued. services has significant weakness in certain parts because of covid. there are problems. i think the idea that the economy is weak is wrong. it is a lot more stable than the current discussions. guy: what do the import export data tell you? the rest of the world is booming. europe is looking strong. the u.s. is looking even stronger. china from that perspective is looking good. inventories need to be rebuilt. domestically, the picture looks different. could you compare and contrast the internal and external dynamic? >> exports are booming. imports are doing pretty well. that does not mean that this consumer consumption search that everybody has been predicting since last year is happening. it is not. if you look at retail data,

things are mediocre. they are not being hit hard. overall what you are seeing is manufacturing continuing to do ok. if they can avoid covid shutdowns and being hit hard by delta, then services is pushing along. retail is not flailing. property is the big weak spot in the economy. you are not seeing a strong domestic consumption search. you are not seeing this abject weakness everybody is talking about. taylor: you sort of see that when you look at a divergence between china's ppi and cpi. you see these higher and higher ppi numbers. are you getting a sense that china is exporting that inflationary pressure? >> we have been tracking this closely for months and months. we are not seeing china export inflation. you are seeing a channel for

inflation when it comes to commodities. you see it in iron ore and other key commodities in particular. there has been a bid to manufacturing and through to property inflationary pressure channel. you are not seeing it in the retail sector or the service sector. you are not seeing it register as inflation and cpi. the very specific problem the world and china are having now is not exporting inflation. guy: the people i talk to that seem to know what is going on in china are anticipating we are getting policy action soon. we have seen hints of it. we have seen announcements. do we get more? how does it work in terms of the way policies going to roll out over the next few weeks and months? >> if we are talking about

stimulus support everybody has been anticipating, a lot of it has to do with how covid is either contained or not in the coming weeks and months. back when there was a reserve requirement ratio cut in june, a lot of people thought that meant officials are panicking. the economy must be much weaker. that was not true in the data. it is not looking weak. there is not abject weakness in the important parts of the recovery that would force the officials to push for reversals of conditions to really blowout supports. i think we will see targeted support. i think the idea that the officials are seeing such weakness that they are being forced into additional fiscal monetary support, we are not seeing that in the data. taylor: what about further government support and

headlines? we have headlines every day about common prosperity. you have another discourse on the other side saying we still want to support the private sector. how do you square the two? >> i think this is the part of the equation investors should be focusing on. the economy is not the worry. it is the policy environment. i think this policy environment is going to get trickier and trickier for not just months, but all into next year. i think we have a 15 month runway into the party congress next year, which is the twice a decade conference where big changes are made. one of them will be whether xi is getting one term or two terms , or he is president for life or who his successor is. there are worries the economy is slowing down. that is the worry that there is going to be a tense crackdown roller coaster between now and then. we are just at the beginning. when they overshoot, which i

think they have done a little already, then they come back and tell institutions and foreign investors this is not something you should be worried about. stay the course with us. then they go do something big. this is not the end of this. this is the beginning of a long roller coaster for the next 15 months. we are going to see a lot of different policy changes affecting the investment environment. guy: talking about the fact that blackrock is on the wrong side of a life-and-death conflict with china. i just want to distill it down and take some of the emotion out of it. does china want foreign capital right now> ? >> china absolutely wants foreign capital now, but i think we are in a window where there are priorities that are more important than treating foreign investors the way they think they ought to be treated. there has been this idea for

years now that beijing and xi jinping would never kill the golden goose. they have got this beautiful situation where lots of money is primed to flow into china. why would they ever do anything to affect the mindset of investors who want to dump money into china? there are financial considerations that are more important than anything happening in the capital, investment flows. overall china does want to continue to make its markets more hospitable to foreign capital. that does not mean it is going to prioritize the interests of foreign investors. it does not mean the environment is going to be predictable going forward. taylor: could you go as far as to say china for now remains on investable? -- uninvestable? >> i would not go that far.

it depends on who is asking the question. if you are talking pension funds, you have a different risk tolerance than a hedge fund. there is a different risk profile for different funds. i think funds that are worried about the potential for the bottom falling out under them need to be careful. i think we can ride out the storm. we are ok. our advice is different depending on who we are talking to. i don't think the idea that overall china is uninvestable. this is just getting started. guy: if you were a french luxury company, italian electric company, what would you make of what you see in china thus far? there was this conception that the rich were going to take a beating, that that was the attention focus. there would be less buying of expensive handbags. the narrative seems to have

shifted that this development of the middle class is going to be good. that middle class will be a huge driver of consumption. how is it going to work out? >> i think when you are a corporate trying to penetrate china, you have to have a long horizon. you have to be willing to take your hits in the short term. if you are a luxury company with a presence in china trying to expand, you don't have that much choice but to have some presence over there and just roll with the punches. you are going to have to -- you don't want to ignore china's market. even if you wanted to, your shareholders probably would not let you. you have to have a nuanced view and understanding of what is happening. right now, it is not a very attractive environment for luxury goods because the government is pushing back against the idea that they are catering to the rich. two years from now, are we going

to see the same dynamic? probably not. they're going to be a lot of pitfalls. corporate have not shown themselves to be very good at seeing these obstacles before stepping into them. guy: great stuff. really interesting insights into what is happening. a bit of breaking news coming through relating to the all-important vaccines we are so much focused on now. a study relating to the j&j shop showing that covid infections halved in health care workers that received that shot. this is critical. we still don't know exactly what we are going to need to do in terms of providing ongoing resistance to covid-19. new variants are a factor in this. the expectation that we will need a second or third shot is still up for debate.

what else are we going to talk about? the u.s. ways and means committee getting started on the bidens infrastructure plan. this is bloomberg. ♪

ritika: this is bloomberg markets. i am ritika gupta. coming up, mike nova brad joining bloomberg tv at 2:30 p.m. in new york. this is bloomberg. let's check in on the first word news. british prime minister boris johnson has called for $50 billion in tax hikes to pay for improvements in social care. the payroll tax and tax on dividends would be increased. he says a global pandemic was in

no one's manifesto. in germany, the national election is less than three weeks away. a new poll shows support for chancellor angela merkel's conservative block has fallen to a record low 13%. she is leaving office. today, the bundestag endorsed the candidate to proceed her. women are unlikely to be included at the highest level. the acting prime minister. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. taylor: president biden needs democrats in congress to give him a political boost by passing what could be $4 trillion in his economic agenda.

there are deepening divisions in the party. that threatens chances of it happening anytime soon. here to talk about the challenges ahead, the director of economic policy research. i am curious of this two-pronged approach. does that still feel like the right way to go for you? >> thanks for having me. i think the biden administration made a decision at the beginning of this year to bifurcate the hard infrastructure from human infrastructure. when they did that, it became clear to those that were listening closely, democrats on capitol hill, they don't necessarily have the votes for the human infrastructure component. they have the votes for $550 billion in additional infrastructure eight. it is no surprise they moved on the hard infrastructure bill

first. we saw it passed with 69 votes in the senate a month ago. that bill is going to pass in the house. the remaining $3.5 trillion is something they can still strive for. they will spend the rest of this year trying to work it through. my expectation is it will get slashed at least in half to about a one point $5 trillion deficit number, which will be more consistent with past economic stimulus programs, like the $1.5 trillion tax cut republicans past in 2017 and the second covid bill, which was $1.89 trillion. something below to trillion dollars in the human infrastructure component probably several weeks if not months away. guy: the september deadline looking a bit shaky in your view. >> i think so.

the reality is the infrastructure bill has a deadline. the surface transportation act funding expires at midnight on september 30. the reconciliation bill has no expiration date. there is nothing in there except for things democrats want to do. as you know, there is nothing in d.c. that moves without a deadline. what i would encourage investors to watch is negotiations over the government funding bill, which is an october 1 two, and the debt ceiling around that same time. they are going to kick the can sometime into late october or mid november or december. taylor: as you are thinking about economic policy, the tailwind of fiscal stimulus, how much is offset by needing to pay for it by raising taxes or an ever-growing debt and deficit if

we don't figure out how to pay for it? >> that is exactly the right question. when i talk to clients, what i try to encourage people to keep in mind is democrats are going to raise only what they absolutely have to from tax revenue. the way to calculate what the tax revenue component is going to be is to back into it. when democrats say they want to tax corporations and wealthy individuals, that is fine, but they don't have the votes for most of it. they start with a spending level they can agree to. that is $1.5 trillion. what is the deficit appetite? probably between 700 billion dollars and $1.2 trillion. what you have left between the spending and the deficit is you are looking at around $500 billion in tax hikes. i can find that in the couch cushions without even touching the corporate rates.

the markets are overly optimistic that democrats are going to be able to march in lockstep to tax increases. guy: what do you think the final package on tax hikes looks like? >> i think it is a combination of three items. increasing audit funding for the irs. if you give them $80 billion, that will get you a net total of $200 billion in additional revenue. that is $120 billion just from closing the tax gap. cbo just scored that over the weekend. the next would be section 199a, which is a deduction the democrats would like to phase out. that gives you $178 billion.

just between those proposals, we have forwarded billion dollars identified. perhaps the corporate rate goes up to 25%. i know some in the business community are anticipating a 24% corporate tax rate. taylor: the flipside of that coin is during war times, you don't worry about debt, deficit. as you think about us coming out the other side of this pandemic, when is the right time to have a conversation about debt and deficit? >> in somebody else's administration. that is always the answer. i don't see anybody particularly caring about that now. coming from new orleans and louisiana, the delta variant has wreaked havoc on school openings across alabama, mississippi, florida.

that is just another crisis we have to deal with. the economy is still coming out of a global pandemic. i don't think democrats are interested in wasting time with a deficit neutral discussion. joe manchin is worried about deficit. i think that is going to be a moderating force to get the scale of this bill to come down. guy: final question, is yellen going to going to be more of a speaker

pelosi and minority leader mcconnell problem than secretary yellen. members of congress know the debt ceiling issue well. they know that default is not an option. we have seen filibusters about this in the past. senator ted cruz shut the government down for 16 days last time around in 2013. we could see some congressional anxiety and headlines. i don't think it is a secretary yellen problem. i think it is a political problem. guy: always a pleasure. thank you very much indeed. this is bloomberg. ♪

taylor: live from new york, i am taylor riggs. we have guy johnson in london. interesting dynamic going on in the markets. we come off that friday payrolls report, which was weaker than expected. you are getting this hint that the fed goes slower than expected. maybe as they focus on the labor market, they let inflation run a bit hotter than what they otherwise thought they would. you are up five basis points on the 10 year.

we think about some of the key technical levels. i know on an absolute basis, 1.37 does not sound like much, but on a relative basis, it is significant given the negative rates you are getting overseas. guy: absolutely. it is not just a u.s. phenomenon. we are seeing it across europe. sweden up 3.9. this is a global phenomenon we are seeing. equity markets giving back a little bit of what they gained yesterday in europe. volume is still superlight. the european close is coming up next. we will talk your all this market action. this is bloomberg. ♪ mberg. ♪

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>> the countdown is on in europe.

this is bloomberg markets: european close with guy johnson and alix steel. guy: 30 minutes to the european close. what you need to know out of europe? boris johnson raising taxes for workers and investors to pay for post-pandemic social care. the prime minister rutte speaking in and in person press conference at downing street. the world's largest -- slamming working from home, saying it hampers risk-taking. are we all going back to the office? if so when? we are going to be live in berlin with the details of that.