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tv   Bloomberg Daybreak Asia  Bloomberg  May 17, 2017 7:00pm-9:01pm EDT

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betty: tumbling strikes, spiking volatility. treasuries spiking the most since july. markets unsettled now by the drama in washington. yvonne: no secrets were handed over in the white house, a special prosecutor is to lead the investigation. betty: tencent's investment in gaming is paying off. there are risks in china, but state-backed
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companies can offer some security. we have the world covered here on daybreak asia. mountain view,m california later in the show at the google io conference. betty: and we have the latest market reaction on the market movements in washington. this is daybreak asia live from u.s. and asian headquarters. i am betty lou here in new york where it is just after 7:00 p.m. yvonne: it is just after 7:00 a.m. here in hong kong, i am yvonne man. hour seems wery are getting another headline. in the last 60 minutes we learned at the doj is bowing to political pressure and appointing a special prosecutor for the russian investigation. betty: someone very well-respected, robert mueller, the former fbi director. this might perhaps bring a sense of calm or push the positive
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button in terms of all this , did donald trump try to influence the fbi, politicize it? this may go some way toward calming those fears. we saw that in the market, the dow down 370 points. some may ask, what took so long? we have seen the growing chaos. what took a lot -- what took the market so long? yvonne: some say we are long overdue the vix jumping the most since brexit. a lot happening in the calendar. japan it gdp and property prices out later this morning. let's look at how things are playing in the asia session. new zealand's continuing to extend, down 6/10 of 1%. the dollar continuing to see the dissent. 42. kiwi at .69
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australia, we were looking to extend the 1% drop, 62% drop at the open. that is before that ever surprising aussie drop. .7432 for the aussie dollar now. tokyo, chicago futures pointing to a 1.7% drop in tokyo today. similar to what we have seen with the nasdaq. 20,000, the nikkei getting farther and farther away. the yen surging the most since november. sitting --l just hitting 111 now. let's go to jpmorgan for the technical levels on where the dollar can continue to fly. we have to keep it in perspective. it is the second day we have seen moves lower of -- lower than 1% in the u.s. some of these moves are not
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uncommon. we have seen such high levels of euphoria. we were due for that pullback and this could be a healthy correction. some are calling it. betty: some, but it depends where it ends. where is the bottom? we will continue to monitor that. let's take a look at where the markets did end up today. the dow falling 370 points. the s&p and nasdaq declining. the nasdaq down over 2.5%. let's get first word news with courtney collins. >> president putin says he is frustrated that what he called u.s. political schizophrenia over white house ties to russia is undermining efforts to reset relations. speaking alongside the italian prime minister, he says allegations president trump passed classified information to a russian delegation in the oval , and onlyfalse
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intended to foster anti-moscow sentiment. in sixell the most months as controversy surrounding the trump administration prompted concerns over the likelihood of tax reforms being passed. apple has $240 billion in cash abroad, but 93% of its total reserves. trump has proposed a tax cut to repatriate offshore holdings. the stock fell the most since november. the s&p 500 fell about 1.5%. veteran investor mark mobius says there is no question there is -- in china. but they offer a level of security. he said the plan economy means major sectors do not suffer in a downturn. mobius has said the u.s. should participate in china's east-west silk road initiative. and investors have reason to be optimistic. >> at the individual company
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level there is no question there are risks. but when you look at the major state-owned enterprises and banks, there is no risk. this is a planned economy. the government decides what will happen to these companies. and whatever is required will be done. >> we will hear more from mark mobius later in daybreak asia at 8:40 new york or hong kong time. 10:40 from sydney. tencent investment in blockbuster and gaming is paying off. companylargest internet posted quarterly sales that passed all estimates. a title such as honor of kings a drove up one billion plus users on wechat. the $300value of of billion, they are beating traditional sectors and define the slowdown. global news 24 hours a day, powered by more than 2600 journalists and analysts in more
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than 120 countries. betty: thanks so much, courtney. let's get to work top story, unfolding drama in the white house unsettling the markets. dallas and s&p dropping 1.8%. major indexes saw their worst session and eight months. joining us on set is su keenan. this is maybe where the rubber meets the road in the market. su: let's take a quick look at the close. we talked about minor moves of less than 1%. the s&p had been up 11%, now falling by more than 1% here. let's go to the big movers. financials were down 1.7%. traders are scrambling in advance of a fed rate hike. j.p. morgan chase showing the size of the declines we saw in banks. apple taking a big hit, there is
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concern microsoft, oracle, alphabet, all these tech companies have offshore tax concerns. and other advantages that had been built into the pipeline. you have an american apparel maker that has been marked down hard. let's go into the bloomberg. when we talk about the vix being up in a big way, we talk about risk off, risk on. this shows it in blue, versus financial conditions and white. what we see here is a take lower -- tick lower. tighter financial conditions as investors are concerned. yvonne: let's continue the conversation, speculation about the alleged comey memo. odds ofl play down the
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a june rate hike. we saw a dramatic drawdown when it comes to those futures. let's bring in kathleen hays, she is here with the latest right now. kathleen, there are talks of this memo surfacing. people see -- say they need to see the proof. what led to markets to selloff? firsten: that memo surfaced late yesterday. markets do not have a chance to react in the u.s. the initial report verified by many news organizations putting it much more front and center. not a speculative document, but something people seem convinced exists even though we have not seen it. been eight days since a donald trump fired his former fbi director, james comey. he appointed a very prestigious former fbi director. but people are still saying, this could be his deepest crisis
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of his very short so far administration. republicans on the hill, backing donald trump. wall street though, losing faith. certainly in the reflation trade, that that will actually was -- exist. rates,rnight interest investors not waiting. we are combining those two metrics. odds of the june rate hike up were down as-- much as 50% earlier today. if there is a logic -- we do not know what will happen with donald trump. if you look to 2016 when the fed thought it would hike rates four rates onceonly hiked by the end of the year. the chinese stock market selloff. so much concern about volatility around the world, it made the fed is slow down. if it is a crisis for donald
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trump, if it continues to roil markets, less than a month on june 14, will the fed the comfortable to hike the key rate or decide it is prudent to sit back and wait? we do not know yet. but that shows you potential logic and what the treasury market is doing and how the rate hike has not changed. betty: how about other markets, how did the bond markets react to this? kathleen: bond market traders jump in and out. it is a haven. increasingly,rds the obstruction of justice, impeachment, etc., those words are thrown around much more so. out of the salt conference, ceo thathards, the does a lot with a distress bonds spoke to bloomberg television. he thinks there is a lot of doubt. he thinks trump trade is over for stocks and the markets. here is what he said. haveere is trump trade we
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all but embraced and driven the markets to new highs in equities. it is coming to an end here. [indiscernible] it may have to be that we get through this so we can see the policy measures. it is a rosy scenario for bond bulls. jump into the bloomberg. you can see the 10 year note yield is back below this range from 2.3% to just above 2.6%, trading around 2.2%. this has been quite a move in the rally. it is a cliche, the markets do not like uncertainty. theypeople are uncertain want to hop out of the riskier assets and jump into treasuries and wait and see what happens. a week from now we can say, that
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is quite a move. will we be saying there is more drama? the bond bulls will say, see, we told you. it is not the year we get above 2.6% and stay there. betty: speaking about uncertainty, more breaking news from the justice department. trying to alleviate uncertainty about whether or not robert mueller's appointment had involvement from the white house or president trump. the justice department saying the mueller appointment, robert mueller being assigned to special counsel, they told white house after this order was signed to make it official. this is again, reassurance you could say from the justice department, saying this is all independent of the white house. some not satisfactory to of those opposed to what is going on, that is nancy month -- nancy pelosi commenting earlier,
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saying it robert mueller is a man of integrity, but mueller's special appointment cannot take the place of an independent commission by congress. there is much more to this story that we will continue to roll ahead. we saw it finally hitting the markets. ahead, other stories. a record run for tencent as investment pays off. we will look at what a billion plus users can do for a company. this is bloomberg. ♪ yvonne: more on how the white house is trying to contain the fallout. this is bloomberg. ♪
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yvonne: we are counting down to asia's first market open this morning. japan futures heading lower on the back of this selloff we saw on wall street overnight.
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some of the worst days we have seen in 2017. the computer follows the follow-up from the comey firing and the russian investigation special counsel appointed by the doj. more on japan in the next couple minutes. specialwe are expecting a fiftr of expansion for japan. thedollar-yen, 111 against dollar. this is daybreak asia, i am yvonne man in hong kong. betty: i am betty liu in new york. let's stay on the story out of washington. president trump in the midst of his biggest crisis since he entered the white house. markets unsettled by the drama. the doj has appointed a special prosecutor to oversee a legend links to russia. that, as a president deals with the fallout from the alleged memo, that claims he gave classified information to moscow. bloomberg congress editor is
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tracking all of this. we just had some more comments from the justice department saying the white house was told of robert mueller's appointment after the special order was given. how significant is that development? >> this appointment may go a fairly long way to calm congress -- calm calls in congress for a special independent counsel or commission to investigate the whole russia-trump controversy. the initial reaction from both parties has been almost entirely positive. -- jason chaffme etz called it a great selection. and dianne feinstein said it was excellent, as good as it gets. ago,u heard a few minutes house minority leader nancy pelosi praised his integrity bit also said -- integrity, but also
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said it does not take the place of an outside investigation. there was one statement by chuck grassley, republican, who said he was concerned -- he cannot the special counsel overseeing the fbi investigation may make the investigation go dark, and whether it may keep other investigations -- whether it may preempt other investigations from going on. betty: there are still a lot of question marks. take a moment and tell our viewers a little bit about robert mueller and why he seems to be garnering this praise on both sides of the aisle. he is one that is widely respected. laurie: yes, he was fbi director for 12 years. he was named by george w. bush and took over a week before
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9/11. year term and10 president obama asked him to stay on another two years. he served until 2013, when he was replaced by comey. one thing mueller is known for is after 9/11 when surveillance was being ramped up, he joined comey in threatening to resign if the government overruled the thatce department opinion domestic wiretaps without a court order were unconstitutional. so he got a lot of praise for that from a number of people, including democrats. yvonne: good to get your take on that. joining us from d.c. unnervingt turmoil is the market. gold, the vix moving overnight. the biggest threat is the slowdown in u.s. car sales. let's bring in a japanese ceo,
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joining us live from ceo -- from tokyo this morning. the fact we're still talking about comey one week later makes it a big deal. the news we got on the special prosecutor now, it really proves to be a distraction when it comes to trump's growth agenda. how does it dampen risk sentiment at the moment? as a whole, is there a sense we do not know how far it could go? >> i think there is a huge uncertainty. in washington unfolds, the big spectacle. we want to see the deregulation agenda driven further. you want a strong white house to lead the tax cut agenda. and that is being put into question. you could end up with a lame-duck president. yvonne: how long can this last? are we in for a rough session in asian markets today? we see the dollar-yen dipping below 111.
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could it be continued selloff we could see? jesper: for all intents and purposes, for today's market, there is no point guessing the way we are going, given the risk of sentiment going on. you are likely to get dropped in the market of 1.5% to 2%. you haverm in japan, corporations a very conservative in terms of what they have been looking for out of the united states, out of the currency. look at toyota corporation. the biggest bailout of a car company. their budgeting for a dollar-yen over the next 12 months going forward. buffer built into corporate expectations. from that perspective, today's drop could be a buying opportunity. betty: i wanted to point out to
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get a closer look at the dollar-yen move, let's go into my terminal. ne wasn see what yvon describing, the fall in the dollar and the strengthening of the dollar-yen. it raises concerns about export growth, particularly for the automakers. even though they have the buffer built in, they cannot be happy with the direction of the yen. not only that come about whether it will have a dampening effect on inflation, on the boj's ability to slow fed inflation. how much will that be a factor for the boj? from the bank of japan's perspective, the ups and downs of the currency have an impact on headline inflation. but at the end of the day, the good news out of japan is, yes,
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japan remains geared into the exchange rate, remains geared into the global economic business cycle. for the first time in 20 years, domestic demand is beginning to gain traction. that is what we are looking forward to in the gdp statistics, where domestic business expenditure is likely to show that corporate japan, for the first time in 20 years, is reinvesting for growth and a local and domestic japanese economy. betty: thank you so much for joining us. we will watch more on the reaction in the markets in tokyo, but also gdp numbers coming up in 20 minutes. plenty more to come. this is bloomberg. ♪
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betty: we are following the breaking news with the doj appointing special counsel to the russian investigation. we are hearing from the president himself on this
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appointment. president trump saying he welcomes the appointment of robert mueller, who was the predecessor of james comey of the fbi come on this russia investigation. the appointment of the special counsel is very positive, not according to president trump. he is looking forward to this matter, to conclude quickly. and he is saying a thorough investigation will confirm it was no -- there was no collusion into the trump camp meddling into the russia ties. the question is, how this could change the russia investigation? a lot of stake for president trump. he is confirming he is welcoming this appointment for now. let's continue on with that, latest story and breaking news in a moment. we are looking at plenty of earnings that came out overnight. especially with tencent. it is a gaming payoff story for
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$.10, with a top score for earnings. we will look at those numbers coming up next. this is bloomberg. ♪ i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers.
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a.m. cloudy in hong kong this morning. minutes away from asia's first market open. betty: 7:30 p.m. wednesday in new york. a lot of news pouring in after the markets have closed. the markets down, as you can see. down, given this continuing follow, the firing of former fbi director. robertecial counselor mueller appointed. i am betty liu in new york. yvonne: i am yvonne man in hong kong. you're watching daybreak asia. now, first word news. >> the stakes are rising for
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president trump. hasdepartment of justice appointed a special counsel to oversee the fbi investigation of russia's allegedly attempt to influence last year's election. former fbi director robert mueller has been named. president trump immediately says he hopes the matter will be concluded quickly. the doj says an independent inquiry is in the public cost interests. public's interest. the speaker says he has full confidence in president trump. lawmakers must follow the facts wherever they lead. he was trying to sway republican unease after claims about the president. he told party figures on capitol hill that their job is to be responsible and focus only on the facts. the bond market seems to be saying the upheaval in washington could throw the fed off its rate hike plans this
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year. the chances the bank raises rates next month is about 60%, based on the current rate. it is down from 80% a week ago. the chances of a hike in september are also falling. notfed's future market is pricing in a full height until november. until november. allegedly diesel emissions failed. negotiations continue and may result in agreement. the case alleges the use of illegal device is to disable pollution controls and enhance performance. volkswagen admitted in 2015 to using similar technology. and, the producer of "the wolf of wall street" is speaking with the justice department to end a lawsuit that alleges the movie was funded from a state
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investment fund. lawyers are asking a judge in los angeles to extend the deadline on a suit so they can carry out further negotiations. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am courtney collins, this is bloomberg. yvonne: courtney, thank you. ware counting down to major market opens ithe asia-pacific. what should we be watching for? let's get the latest with our markets reporter in sydney. great to have you, it is risk aversion. political risk we have seen out in the u.s.. is it a meaningful shift where the market is focusing? is it now away from monetary policy and the economy and more toward politics? it definitely seems like a this morning. that was the sentiment in the
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u.s. it is definitely going to futures in asia, futures pointing down more than 1% in japan and australia. yesterday.ttle bit we definitely side in u.s. trading hours. rose the most since exit -- brexit. all the talk about volatility has come roaring back. we will have to see how much and how long this sentiment prevails in asia. betty: we will have to see that, how much longer. how much longer that will last, flowing through. let's focus on one stock market, australian stocks. influenced not only by this sentiment, but has been
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moving, slipping below its 50 day moving average. what is going on here? recall, last month we were talking about market participants and how the 200 might hit the 6000 level. that would be the highest since the financial crisis of 2007, 2008. that has lost a bit of steam. technical analysis shows we will probably see a few more losses going forward. longer term, over the next year or so, the markets should come back. that is also being reflected in the fundamentals. if you look at the index constituents, for all 200 putting us atis just over 6000 in about a year. for the next few days, probably headed down.
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but we will see how much and how far that holds. eye onvivek keeping an the markets in asia and declines here. let's turn to the companies we have been watching outside of this come outside the mess in washington. google announcing updates for artificial intelligence and assistance at its annual developers conference. our tech reporter is there, joins us now. assistantsow digital is getting hotter and hotter. you had alexa, siri. why did google stress these announcements today? mark: it is the second year in a row that ai has been the big theme for the mobile developer conference. google wants to position itself as having the best ai services users will use and developers will build four. the biggest announcement today was around the cloud. they released a new chip they
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will offer -- and ai chip to google customers that will accelerate the speed of machine learning and research and advancement. going to be put to the test when it comes to video script on the conductor market. what does this mean for google? does it fit into their broader strategy? not going out and video intel could be a big threat. google is trying to accelerate the speed of machine learning. they are recruiting more with facebook, amazon, microsoft. they have to look beyond advertising, which still accounts for 90% of their revenue. the cloud business is one of the fastest growing, it is a gigantic market. they are positioning themselves as a machine learning and ai company in the cloud. yvonne: market, great to have
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you over there. he is live from mountain view, california. tencent, investment in blockbusters and gaming is paying off with a record quarterly sales and profits the top all the estimates. let's take a closer look with our reporter selina wang, live from new york. good to see you. the strategy from tencent is paying off. another reminder how powerful tencent's dominance in gaming is. the big surprise here is an original game they created. it piggybacked on things that made league of legends popular. they convinced more than a billion users to buy in app games. it will continue to be a big revenue driver and in shows that
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investing in original content is paying off. a netflix-like strategy. what is the strategy? selina: there is more margin pressure than expected. that is because of these investments in other areas. we are talking about cloud, ai, and original content is a big piece. i think investors are not too concerned. this is a company that keeps transforming itself. they have gaming, social media, and are now a studio-like company. they invested in wonder woman, and the latest king kong movie. there will be modern -- margin pressures. i am looking forward to that "wonder woman" movie. will it be a standalone? selina: i do not think it will happen like alibaba.
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they see it as a really core part of its overall infrastructure, something they want to keep in-house. that is what they're saying now, at least. and merchantyments transactions with businesses, that is the area they want to grow, the commercial aspect of it. it is gaining traction. financials say they will delay ipo. it is part of the reason they are doing that, poor performance as they lose margin profits. are slowly losing grip to tencent, which is inching its way up. that does not sound like an area where they will do anything in terms of spinning off for independent moves. selina wang, thank you so much. we will have more on tencent in a moment. research,f internet
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she is joining us next to talk more about tencent. this is bloomberg. ♪
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♪ yvonne: this is daybreak asia, i am yvonne man in hong kong. betty: i am betty liu in new york. we had a lot of news flow over the last hour concerning robert mueller being appointed as special counsel by the justice department. more comments from members of congress, including mitch mcconnell, saying mueller's appointment shows the russian probe into the 2016 election continues. speaker ryan saying he welcomes a mueller's appointment as special counsel. has gotten accolades from both sides of the aisle. i want to read statements from
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the white house where president trump said he welcomed a mueller's appointment. and "a thorough investigation will confirm what we already know. there was no collusion between my campaign and any foreign entity. i look forward to this matter concluding quickly." this is president trump saying he was not obstructing the fbi investigation and that there is no link between his campaign and the russians. yvonne: still a big question mark for what this means for president trump. where does mueller take this investigation now? we heard from nancy, saying this may not be enough. there needs to be a special commission involved in this to get more of an independent look into the russian ties possibly coming from the trump administration. once you have a
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commission and the public gets the public gets to judge for themselves is what is saying.elosi yvonne: and the memo from james comey, willie testified to congress? will it be private or public? a lot of questions up in the air. we will continue to follow it. tencent as we have been talking about has been investing in blockbuster video and gaming. they have topped all estimates. let's discuss that with the head -- in hong kong. take us through the evolution of tencent. wectarted as the owner of hat. our colleague said it became a hybrid. they have a subscription-based
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now. is it the right move for tencent? it seems things are moving quite well. >> tencent's business model is transforming. now they are adding more cloud computing, more payment. they are doing well with online streaming. if you look at the percentage based -- breakdown in terms of revenue, it is the rising proportion. a strongs holding foothold in the gaming business. that is why we are really positive. yvonne: you mentioned the top one was robust. the bottom line is not as exciting? of take a look at the cost video, it is up from 80%. you can see how fares the competition is with the likes of alibaba and baidu. reducing pressures here? the margins, it is 3.6%
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below our expectations. that is because of the exchange. that margin is much lower than the traditional margin. it is the same case for the payment. they are doing well online, off-line, taking market share aggressively from alibaba. going forward, it will be the case. is the margin and protecting that margin the only headwind you see for the shares? jessie: yes. in the near term, the market decline will be the only concern. i am still very positive on the long-term fundamentals. up likee of wechat goes
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online streaming, in my be possible to merge in the long-term. betty: in terms of the stock for alibaba and tencent, they have outperformed the s&p by miles. it is incredible if you have been in the stock. you have ridden the stock higher for quite some time. is it almost priced to perfection, both of these shares? tencent and, alibaba have been outperforming dramatically. the valuation was quite expansive, which is why we only $.14 laste price by night. if you look at the global internet universe, it is trading at 46 times. it is based on our target price,
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close to 40 times. we will be careful in terms of further evaluation. betty: before we go, you mentioned the competition from tencent and alibaba, wechat and its growth. what will you be looking for when alibaba reports its results? jessie: we are looking for a topline growth of 53%. upside from the bottom line where it is about consensus. we're looking at the conversion rate and the growth of the cloud computing and the market share of a. -- pay. yvonne: great to have you here to adjust those earnings for us. we are waiting for the japan gdp numbers coming out any second
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now. first quarter preliminary numbers, the estimate was for 1.7% of the seasonally adjusted quarter on quarter numbers. growthd continue to see from the 2.2% of the previous quarter. possibly market fifth straight quarter of continued expansion out of japan. how is this going to play into stoking inflation? better-than-expected numbers for gdp. surprise forside the quarter. -- stills the gdp negative territory. we have not seen those numbers yet. business spending quarter on quarter back to positive territory. they are expecting it to be at negative 4/10 of 1%. we saw positive the previous quarter. private consumption also seeing a boost, up 4/10 of 1%, just shy of what economists were expecting. it is that headline beat on the
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adjusted numbers, quarter on quarter. will it be a cyclical recovery, when we see global growth recovery? or will it be helping the long-term prospects for japan? betty: you are seeing an interesting reaction in the currency markets. seeing a spike in the dollar, a lower yen here. we see the dollar heading above 111 now. quite a reaction to these gdp numbers. gdp coming in for a fifth straight quarter, up 1/2 a percent. can get stories in today's addition of daybreak. bloomberg subscribers go to dayb on their terminals. it is also available on mobile in the bloomberg app.
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♪ this is daybreak asia, i am yvonne man in hong kong. betty: i am betty liu in new york area cisco systems plunging after hours after a disappointing sales forecast that underscores the challenges facing its hardware business as the industry shifts toward cheaper software-based networking products. sales declined to percent from a year ago. revenue of $11.9 billion, far short of the estimated $12.5 billion. yvonne: noble asked lenders to replace a revolving credit facility with a $2 billion loan after an unexpected loss last week.
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mitsubishi said to be arranging the new facility. offering too be under 95 basis points above. noble have years of losses and downgrades. betty: apple has launched initial production of a four inch iphone in india. work will begin in bangalore. taiwan tosing assemble the phones. they had originally targeted a start date of april. at the indians farm phone -- smartphone. japan, we just saw the gdp numbers come in. kathleen hays with a little bit of context. it,leen: when you analyze it is a 2.2% rate. that is what economists are looking at.
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2.2% beat thet forecast. we were looking for 1.7%. it was 1.2% in the fourth quarter. 2.2%, longest stream of growth. five straight quarters of gdp. that has not happened it since 2006 during japan's last period of the stability. tokyo for three weeks, a lot of people were talking about this. there is so much pressure on the boj to boost inflation. haves growing, wages started to rise, you have a tight labor market. consumption up 0.4%. business spending had been negative, down zero point 4%, now up 0.2%. rate is -0.8%.
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this is something prime minister abe can apply. we are producing the kind of growth we need to see that inflation rate go higher. that is the glass is half full. when will you show us the money? this report looks like good news for japan in the world. you mentioned the negative deflator. we are slightly worse than what economists were expecting, -0.8%. how is the boj going to react to all of this? that strucke thing me, japanese people are used to such a long period of prices not rising. a lot of households do not want to see inflation rising. it is a tough hurdle to cross. betty: kathleen, thank you.
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we will continue to watch reaction to these gdp numbers of 2.2%
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♪ faced apacific markets volatile day after the upheaval in washington and wall street. s&p and dow saw the worst session in eight months. >> kremlin says no secrets were handed over to the white house. a special prosecutor to lead the investigation. >> the drama building in washington may have far-reaching implications. some say it could throw the fed off its rate hike course. >> top marks for tencent. blockbuster titles are driving one billion plus users to defy
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the slowdown. >> this is the second hour of "daybreak asia." coming to you from bloomberg headquarters in hong kong, just after 8:00 a.m. >> just after 8:00 p.m. in new york. what a day in the market. what a morning it has been with news pouring out. we will see how the markets react the u.s., trying to calm news about this russian probe. leak of a memo yesterday is giving doubts to how independent the fbi -- about trump trying to influence the fbi. with robert mueller as a special counsel, driving home that this investigation is indeed independent. >> we are seeing this move in the markets, nikkei opening down to 36 points at the open.
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these gdp numbers were surprising for the first quarter, at 2.2%. still not enough to turn about risk sentiment. brace whenre hearing it comes to the asian trading session. markets focusing on what happened on washington, not taking kindly to that turmoil. gdp numbers from japan coming in. more of a focus what is going on with the yen, giving us gains after surging 2% overnight. we are seeing the dollar somewhat steady after a six-day drop. japanese markets are falling for a second day, losing 1%. --er regional equity markets shares down about one half percent in sydney. we have the korean yuan falling
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as demand for high-yield assets wanes. claims that the u.s. should trade stronger. trackingnd space, bonds moves that we saw on the 10-year note, jumping the most since july, falling to a near one-month low. just a tad, with u.s. stockpiles falling for a sticks week. -- for s sixth week. a risky session in trading day. the dollar yen breaking through its 100 dollar averages. the next is the 200 day moving average. much on market
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reaction. let's get to first word news. >> tencent investment and blockbuster and gaming is paying off. posting regular quarterly sales as titles such as "honor of " drove millions to spend on gaming. china's online giants are leaving traditional state sectors and defying the slowdown. apple's legal battle with qualcomm is heating up as the chipmakers whose iphone makers -maker oveon's -- sues r claims of not complying with obligations to pay for patented technology. apple says the fees paid should be on the number of qualcomm chips used, not the price of an iphone. the justice department is preparing to sue fiat chrysler if talks to reduce diesel
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emissions fail. a suit could be filed this week, although negotiations could result in agreement. it alleges use of illegal devices to enhance performance. volkswagen admitted and 2015 to using similar technology. an investor says there is no question there is risk in china, but state backed companies offer opportunity. he says the government will make sure major sectors do not suffer in the downturn. he says the u.s. should participate in the china and u.s. trade initiative, and says investors have reason to be optimistic. >> is no question there are risks. when you look at the major state-owned enterprises, major banks, there is no risk. this is a planned economy. the government decides what is going to happen to these companies. whatever is required will be done.
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>> we will hear more from mark newus at 8:40 hong kong, or 10:40 in sydney. this is bloomberg. ♪ >> president trump has welcomed the naming of a special prosecutor to investigate the russian alleged meddling in last year's election. behopes that the matter can settled quickly after the fbi picked former director robert mueller. so far it seems the reaction has been quite positive. do you think this will calm news about a comey memo? ismueller is very percent -- very respected. even democrats on capitol hill, dianne feinstein thought he was
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an excellent choice. really we have not heard much from capitol hill on what republicans would like to talk about which is tax reform, which is the obamacare repeal. the things they hoped they could do with a republican president. all of the oxygen has been around the talks about comey and the investigation. >> what is next? house speaker paul ryan was standing by trump in this issue. what about the other republicans? how is the gop feeling? jodi: so far they are not breaking. they are supporting the president, or certainly seeming to. we heard earlier in the week majority leader mitch mcconnell said he wanted the trauma to end. and bob corker, who has the foreign affairs committee, --
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heads the foreign affairs committee, says need to stop this roller coaster. we are hearing the beginnings of this wanting to end. but the question is how soon they can get back to the business of legislating. big think that is the question for investors. is all of this going to affect the legislative agenda? will it put on ice things like health care and tax reform? jodi: that is the worry. that is what we have seen in the markets the past 24 hours, real concern. there was a hope of change in the u.s. tax code, infrastructure, changes like a. those are being put on hold. it is hard to see how you get back to that with all the drama surrounding this investigation. we will wait and see.
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we have not heard much about the legislative agenda lately. >> thanks so much for that perspective on this news in the last few hours. speculation about that comey memo spurring republicans to treasuries. should this affect fed thinking? kathleen hays is here with more. are we jumping the gun thinking that rate hikes are in jeopardy? kathleen: it is hard to say, politics taking center stage in markets around the world, -- the fed concern can be the following -- if stock markets fell off, if bond yields rise -- we have the opposite, they are falling. they have to respond to market conditions potentially. the market is not waiting to
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see. we have perhaps the greatest crisis of trump's presidency. republicans are backing trump so far. you are seeing a terrific chart our bloomberg news team put together looking at the future fund market and overnight interest rate swap market. of the ratelus odds hike coming in june. they fell as low as 58% wednesday trading in the u.s.. people are not waiting. look at 2016, the fed says it was going to raise rate hikes 4 times. the chinese stock fell, and markets around the world reacted. the fed backed off. they could not move amid so much international turmoil. that is what could happen. are we there yet? no.
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this could be a one-day wonder. we have a special counsel to look into this matter. donald trump wants it to end quickly. maybe we get back to watching the economy and central banks. for now this makes us aware this could be a big event for the markets, certainly the middle of 2017. >> it reignited this rally on treasury yields. is this going to last? >> if you are a bond barrel, seems like every year something crops up in the way of a successful trade. it is this obstruction of justice and impeachment and things people are raising around donald trump. bruce richards, the ceo of marathon management, speaking to bloomberg television, thinks this is showing that the trump end fors coming to an stocks in other markets. trade that hasmp
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driven the markets to new highs in equities is coming to an end here. >> [indiscernible] that wey have to be have see whether we get these policy measures in. >> this is the time of your roses bloom. if we look at the bond market, look at 7616. a 10 year note yield. this range has been in place for months now. the 10 year note yield is back below the support level. are the gates open for a further rally? that depends on what happens with donald trump next. there is uncertainty. how long this lasts, we don't
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know. this is the thing that causes investors to buy bonds as a haven. whether it moves the fed, we don't know. people will be watching this very closely. >> how high and how fast they can go with rate hikes will be the question. sealing the deal. we will have details later on in the show. >> up next, different directions. why they got between china's a and h shares is widening. we will figure that out. this is bloomberg. ♪
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♪ >> this is "daybreak asia." gap between chinese domestic and all share shores has widened, with h shares about 20% while a shares are flat.
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morgan stanley comprised to 3700. you have slashed this quite a bit, your composite target, from 4500 in november. cut some 16%. is this mostly because of this de leveraging campaign? >> there is no change in relation to earnings. earnings very strong for the onshore and offshore list and stocks. our assumption was too bullish. what we have had is a more general position liquidation triggered not just by short-term interest rates, but the more aggressive financial sector regulation. yvonne: it is a bit more of a broad-based. jonathan: it is. we assume it will get to 18.3,
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the 10 year average. we talk about the divergence with china, composed of hong kong and u.s. listings. i want to talk about the divergence with shanghai and hong kong shares as well, which you have alluded to. it has been quite interesting. gapan see that valuation has narrowed quite a bit. there are a lot of outflows coming into hong kong. do you think investors will see hong kong as the way to seek shelter? jonathan: you still have a valuations at a premium to h. those southbound flows are running at about $1 billion per week u.s. those of the biggest flows we are getting. yvonne: can off show -- can offshore still perform without the arbitrage? in mind thear
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domestic pension funds are likely to commit significant funds to the offshore market going forward. the flowabout 3% of for the year. the pension fund awarded -- that will perform -- betty: even though you are taking down your price target for the shanghai composite, you are keeping your 5c manic viewpoints. i will quickly name them off. health care, mass-market consumption, environmental protection, technology, manufacturing, and aerospace. on the one hand, you are taking the price target down to a shorter-term view. the long-term is very much contact right? jonathan: those five themes are likely to generate earnings
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growth higher than the overall market. they have policy support. for example, health care -- they are the way the market has evolved in japan and south korea. we think that they work. we invite them to the stock portfolios that we run. >> speaking of stocks, i want to pull off the chart that shows metal prices, how they have run, represented by blue, and how chinese stocks have followed along. it is not always a one-for-one correlation there, but they do track pretty closely. what about that area, the resources area? what kind of opportunities might there be in the chinese market? jonathan: you are showing the shanghai market, which is more industrial. , you wouldup hanseng
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see that same decoupling earlier on the visible chart. this is more a cyclically influenced index. our view is that china's recovery is a two-year phenomenon that has been going through 2018. we think property stocks will be up again, not as strong as last year. we think this decline in metals prices will be limited overall going forward. and for shanghai, the earnings situation is pretty intact, particularly on the financial side. >> how long do you think this forced deleveraging can go forward? chinese stocks on a rebound, the national team also stepping in. pboc injecting cash liquidity into these systems. can they actually catch up with this e.m. rally? jonathan: it is macro prudential policy. we were writing about growth to
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gdp, which they used country cyclically a year ago. trade has globally recover genetically. in its best position since 2006, we think. china can begin not to reverse credit to gdp, but slow the growth of credit to gdp. it is important that these money market rates go up slowly. we think another 50 basis points to come, and that we do not get a break in liquidity in the financial system in china, a spike of five percent or 6%. >> we have to talk about japan. we got net surprising headline number for gdp. a fifth straight quarter of expansion for japan. does this offset inflation being so slow to pick up? does it matter if the boj does not reach 2% inflation?
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jonathan: if you look at corporate earnings in japan, the quarter we have had has been a complete standout. it comes back to when i initially, the underlying global macro environment is the most positive we have seen in 10 years. >> morgan stanley chief em strategies manager. we would like to show you are tvteractive tv, you can type . you can rewatch the interview we just did with jonathan. you can also receive instant messages from our show, talk about anything you would like to see whether next lineup of guests. this is only for bloomberg subscribers. click sure you check it out on tv .
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this is bloomberg. ♪
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>> this is "daybreak asia." yvonne: let's do a quick check of the latest business flas headlinesh. an interview unit -- indian unit expanding sales at its fastest pace in two years. net income rose 6% to $184 million through march, compared with estimates of $170 million. unilever is recovering momentum after the government's ban on high denomination rupees caused a cash crunch in india. >> cisco systems plunging after a disappointing fourth-quarter sales. challenges facing its hardware business as the industry shifts towards cheaper-based products. sales declined 6% from a year
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ago, indicating revenue of $11.9 billion, far short of the estimated $12.5 billion. yvonne: struggling commodity trader noble asked lenders to replace a credit facility with a new $2 billion loan after an unexpected loss. usj is said to be arranging the new facility. the singapore listed company is pointsg 185 to 195 basis above libor. how are the markets in the asia-pacific going to react to the stock plunge in the u.s.? there is the evidence. in the early going, first 30 minutes of trade for the nikkei. you can see red across the board, nikkei down 200 32 points. -- 232 points.
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down.d asx down 0.5%. all of this coming from news of robert mueller overseeing this rusher investigation -- russia investigation. yvonne: it was quite a feat, even though we have seen a negative deflator. it is not enough to help the equity markets here, which will be focused on what the yen is doing. yen has stabilized after news of robert mueller being assigned to the russian investigation. not enough to recover from the day plusses -- the two as we have seen. 111 for the yen right now. yvonne: coming up, we are
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looking at tencent, paying off blockbuster content. stocks soaring, profit growing. we will look at those impressive numbers. ♪
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♪ 8:30 in a is beautiful look outside singapore. half an hour away from the open of trading there. betty: a gorgeous day indeed. you are watching "daybreak asia." let's get you first word news. stephen: stakes are rising for president trump. the department of justice issued a special counsel to oversee the fbi investigation of the russian a legit influence in the election. former fbi director robert mueller has been named. donald trump hopes the matter will be concluded quickly. the doj says that an
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independent inquiry is in the public's interest. a people in washington could throw the fed rate hike off, chances now at about 60%. that is down from about 80% a week ago. chances of a move in september are also falling. the fed funds futures market is not pricing in a full hike until november. apple shares fell the most in six months as the controversy surrounding the trump administration prompted concerns about tax reforms being passed. apple has $240 billion in cash abroad. trump has proposed a tax cut to repatriate offshore holdings. stocks fell the most since november. s&p 500 fell 1.5%. ivanka trump's clothing brand is facing chrysostom from labor rights activists for relying on chinese factories that they say they thought one dollar an hour. china labor watch says it investigated two producers,
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saying employees are forced to work more than 12 hours a day, 60's week, for $360 per month. the group has investigated apple suppliers in china. the u.s. imposed new measures against iran for developing rockets, while suspending sanctions went to its nuclear program. -- sanctions linked to its nuclear program. the administration is continuing to waive sanctions over the nuclear court, something that donald trump has called "the portable iran deal." -- horrible iran deal." this is bloomberg. yvonne: let's look at how the asian markets are shaping up. looks like it is a risk aversion across the board. we were asking for some volatility, and we sure got it. >> creeping back into the
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sentiment, investors decidedly cautious. stocks and currencies taking a hit while bonds are being bid up. tumbleseeing the nikkei points, falling the most in a month. on volatility, a gauge of pricing's for nikkei 255 jumping. ahead of the data we are getting this morning. taking a look in sydney, we have .t. waiting on the benchmark. concerns around the fed normalization path, and even the rise in gold miners. that is not offsetting the drop in base metals player. mr. eales -- material stocks dropping. dropping 7/10 of
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a percent this thursday. ae fund manager said they had constructive talk in barcelona regarding proposed changes. looking at the asx 200, may not be turning out too rosy for that benchmark. in april there was a hoping for a 6000 level. this week the benchmark is falling further below its 50 day moving average, and may fall below 5680 in the short-term. fundamentals are looking intact, at least in the long run. analyst price targets for all 200 companies are putting the index above 6000 in the year. morgan financial says, don't despair. the trend is still intact. for now, losing momentum. betty: the declines not helping any at all. not losing momentum is tensioned
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shares. -- is tencent shares. blockbuster video and gaming results spikes all estimates. tell us more about this original content strategy at tencent. we are seeing tencent becoming this hybrid of facebook, amazon, marvel, and netflix combined. they beat all estimates for revenue and profit this quarter. most of the gross -- most of the growth was bolstered by their mobile game, specifically "honor of kings," which was the top revenue grossing game in the ios store in march. analysts expect it made as much in april alonean and will contribute half of revenue for 2017. betty: we keep asking this
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question -- how do you value a company like tencent? they go into ai, videogames, the cloud -- what is the priority for them? lulu: they are mobile gaming and advertising business is buying them more time to go into cloud and finance, ai, and hollywood, as you mentioned. future,rvices of the they see as infrastructure. it takes a lot of money to invest. -- a lotd and finance of competition in that space. for content, we are seeing them produce more in-house content, becoming a content factory. that takes time and also money as well. the fact that they have to businesses that are producing money -- have two businesses that are producing money is good news. betty: you mentioned about the headwinds, which was margins.
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i 20 to take a listen. -- i want you to take a listen. markethe near-term the decline will be the only concern. i am still positive on long-term fundamentals. uptime goes, if scale goes with we chat and online streaming, i would see the market go up in the long-term. betty: so in the long-term she says these margins could expand. does it justify these investments they have made into cloud and video content? lulu: both of those businesses are very important in supporting. existing business -- in supporting their existing business as well. spend thet want to users as of now. they want to target users more precisely. ai would be powering that.
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they want to tweak their technology. for hollywood, that increases stickiness, letting users stay on the platform longer. that works together in synergy. we see a pretty healthy loop right now for the country. betty: looks like this strategy could work out well for tencent. a great breakdown of the tencent earnings. asian in for structure investment bank -- a deal excited put the french lender in charge of $20 billion of assets. the news comes as the aib builds up financial and structure needed to finance 100 billion in registered capital. from what more do we know now? >> this is a milestone for them. this allows them to warehouse securities, and at a later stage
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when they are ready, they can deploy or get asset managers involved to grow those securities. ,t is about keeping them safe growing their value of course. there were eight thanks involved in the bidding -- 8 banks involved in the bidding process. i was told the reason they chose bnp paribas was because of their footprint in europe and the u.s. they have $9 billion in liquidity, though the bank itself has registered capital of $100 billion. he says this custodial deal could be expanded. take a listen. >> we could go beyond the $20 billion a few years down the road. maybe this is when we would consider appointing other custodians. we may need to appoint custodians for specific needs, such as local currency assets. we will see how this works out in the future. tom: that was the vice president
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and chief financial officer at the asian structure investment bank, talking to me exclusively about this custodian deal. he says the next milestone for iib will be securing a credit rating. betty: what does this mean for china built and road initiative? tom: it speaks to the growing maturity of this bank. it was controversial when it first launched, that the dalton road initiative was launched. companies like the u.s. under the obama demonstration taking a skeptical view of the bank, whereas countries like the u.k. got on board very quickly. there was a division between the u.k. and u.s. over the bank and its priorities.
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more countries have been getting on board. pains to stress it is not headquartered in china is one ofton project their projects, but they focus on many other projects as well. things like urban development, telecommunications, also focusing on regions that the belton road does not cover. a lot of their funds are going toward power projects and transport projects. they have 77 members. the president saying they could get up to 85 by the end of the year. they funded about $1.7 billion worth of projects last year. that is expected to take -- to tick up quite significantly. this is about the bank get into this more mature level. betty: thank you so much tom.
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in a moment, mark mobius says chinese companies are a risky business, but there is a safety net. our interview with mark mobius is next. this is bloomberg. ♪
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>> this is "daybreak asia." betty: a quick check of the latest business headlines at this hour. a year after its first chip, google has shown version two. the ceo made the announcement at the company's annual developers conference, which usually focuses on mobile software. the new spotlight on hardware underscores the effort to transform google into an ai first company, and contender in cloud computing. google's plans may threaten intel and nvidia. yvonne: singapore airlines
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indian venture operates and all airbus fleet, but may recruit pilots trained on boeing. it is hired officers with at least 750 hours flying time to work on its slate of airbus. singapore airlines owning the rest. the carrier may buy long body jets for the long haul and may use the bowling triple seven. -- boeing triple seven. betty: a lawsuit that alleges "the wolf of wall street" was siphoned from a state investment fund. its lawyers are asking a judge in los angeles to extend the deadline on the suit so that they can carry out further negotiations. mark mobius saying china is a risk, but also measured security
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there. speaking to bloomberg in vegas, he looked across asia, saying india is becoming hugely expecting, but north korea continues to cast a long shadow. mark: it is a very big risk. it is in a situation when you are dealing with nuclear weapons. that is risky. by the way, it is a global risk. >> why isn't it being priced in? if you look at stock prices today, credit spreads today -- and i am not just talking about the u.s. -- developing and emerging markets. things are doing pretty well. why is nobody discounting this north korean risk? mark: people realize there is not much they can do about it. they say ok, i have to take it as a given. the world can be blown up with nuclear weapons, but life goes on, so i will keep investing. that's does not diminish the
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risk, it just hides it. marketsast that the don't include the risk. i agree that this is a special situation because it is nuclear. the reality is we have 40,000 u.s. troops subject to an artillery barrage that has nothing to do with nuclear. , withould be devastating extraordinarily high casualties. >> is there any way to quantify that risk? we are in the midst of a 300 points selloff on the dow. s&p 500 is still close to 2400. if we price that risk into the u.s. stock market, where should those indices be? >> it depends on what you think the risk is. the last eight times they came up with something to keep postponing it.
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it is a question of, what is the risk? >> would you put a number on it? said, you have it as a given, and go on with whatever valuations you are using. >> another way to put it is, if the world goes up in smoke, what good are your dollars? >> [laughter] not very good. let's look at another part of asia, particularly south asia, the indian subcontinent. has done minister modi quite a lot. how do you look at it right now? mark: i think it is terrific what is happening in india. let's remember it is a federation of states that have been very divided. now they are coming together, not only because of this tax
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law, but because of the internet. a whole change is taking place in the munication's between people in india. not only india, but all over the world. >> are the chinese beginning to find a way? they are taking some measures to control those risks. in your mind all risk of a disorderly unwind of excess leverage in the chinese financial system? mark: and an individual company level, there is no question there are risks. you have to be very cautious. when you look at the major state owned enterprises, there is no risk. this is a planned economy. the government decides what is going to happen to these companies. whenever is required will be done. just like in the u.s., with the subprime crisis, eventually people were bailed out.
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in china it is more so. the government is looking at this risk and is planning for it to make sure that the major sectors of the economy do not get hit. as an individual investor you have to be very careful. you could get hit very badly on an individual company level. >> he wants to know -- asking the question. >> you are showing an awful lot of confidence in the chinese ability to execute. mark: yes. history --know if mark: so far i would say they have done a very good job. betty: you can get your day going in today's edition of
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break" just go to dayb on your terminal and your bloomberg cap. you can customize your settings and the news that you care about. dab . this is bloomberg. ♪
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>> i think we are going to have to wait and see what the so-called allegations really are.
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so far they have been pretty thin. >> these are major allegations. while i am not disputing the articles -- i think they are instructive and raise questions, but we need to know the facts before someone says we have to have a special prosecutor, or that this means impeachment. that was a were thrown around in the press. don't we need to know what the facts are? that is what is important in the. >> it makes a huge difference, the actual words that were spoken in the february meeting between mr. comey and the president. the tone of the words, the context, all of that is important for us to establish, and we will. yan: we have an obligation to carry out our oversight, regardless which party is in the white house. that make sure we get all the pertinent information. the oversight committee has requested this memo and i am
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sure we will hear from mr. c omey about if this happened as he describes, why did he not take action at the time? >> this takes away from health care and tax, but we have to address it. knowing this president and seeing how he has operated over the last 4 months, it is hard for me to see this substantiated. >> no doubt there will be more reaction on the hill to the news that broke if you hours ago about robert mueller being named special counsel to oversee the investigation on russia and their involvement on the u.s. elections. let's take a look at the market reaction, the political turmoil. if you are in the markets, you would have lost your money, but if you are a billionaire, you would have lost billions of dollars in the market. discharge, the world's richest 500 people have lost in one day
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$35 billion. mark zuckerberg losing $2 billion. bill gates losing $1 billion. amazon founder jeff bezos losing $1.7 billion. he dropped to number three on the list now. he might be a little more mad. yvonne: a little less rich. it seems like the investor concern at the moment -- what does this mean for tax reform? apple was one of the biggest losers last night, down more than 3%. why we saw this rally this year was the expectation that this $240 billion parked offshore in cash equivalents would be repatriated to the u.s. we are not really seeing that. it seems to be stalled at the moment. it raises concerns about what will happen with trump's growth
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agenda moving forward. one to watch. we will wrap up on "daybreak asia." tell us what you are looking at. >> we will start off with that chart you just had. $35 billion by the top 500 richest people. to $4.58 trillion. [laughter] that is a bit exaggerated. that is what we have the moment. we have this drama taking place at the white house and tensions going on. what are the market implications here? how much of this is already priced in? looking at that, looking of course at property prices as well. that coming up at the bottom of the hour, as well as employment data from australia. betty: it will be adjusting to
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see during your hour how this mueller appointment fx volatility in the market. -- affects volatility in the market. rishaad: we will have a chart looking at volatility. gdp data inave japan. it was a pretty handy beat. abe talking to alex sato about that. also talking to former boj advisor. and property prices analyzed by blackrock real estate. ♪
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♪ david: do you get tired of people asking you what it feels like to be a woman ceo? mary: it's a question asked more than it should. david: do your children treat you with more respect? mary: my son reminded me last mother's day venture most important job is mom. david: the government put some money in general motors. did the government get its money back? mary: i will tell you that at general motors we will be forever grateful for what the government did. david: do your board of directors let you go in a driverless car? [laughter] mary: if it is from general motors, i think yes. >> would you fix your tie, please? david: people wouldn't recognize e


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