tv Bloomberg Daybreak Asia Bloomberg June 14, 2017 7:00pm-9:01pm EDT
♪ >> the fed is pressing ahead with its rate program. it will eventually move -- boost weak inflation. >> the dollar shrugged. most fled back from the baha'is. >> the washington post saying special counsel investigating president trump for possible obstruction of justice. money onf puts its china, raising growth estimates
for a second time this year. we have world coverage here on "daybreak asia." we will be live in tokyo later in the program to talk with japan airline accepting bitcoin as a payment method. >> of course, we are watching the fed decision. the other story out of the capital was the shooting of a congressman during baseball practice. we will have a live report a little later in this program. this is "daybreak asia," live and asiamberg's u.s. headquarters. i am betty liu, in new york where it is after 7:00 p.m. >> it is after 7:00 a.m. here in hong kong, i am shery ahn. we have seen the fourth rate hike after the financial crisis. expected.h not surprisingly did not get a huge reaction from the market. betty: not a huge reaction at all. we made up some of those losses right after that said decision. of course now there will be lots leaf reading on when the
next set hike will be and when it will unwind their balance sheet. that will be the topic that dominates the conversation around the fed. i want to mention that about 45 minutes ago we had news from the washington post about robert --ller looking into investigating trump for possible obstruction of justice. hop into my bloomberg quickly and take a look at what happened to the s&p many futures. drop, it looks quite dramatic here. downid see a definite move after that news came out. i think it drive some the point about how nervous people are about the trump presidency, and that we might see proceedings like this that will eventually lead to what they call impeachment proceedings. that is the whisper around washington.
that gives you a sense of the nervousness in the market. shery: i sense of nervousness you can also feel in the tech sector there. we have seen the tech selloff come back in the u.s. it is also felt in the u.s. -- asian trading session. new zealand, the only market that is open. we did get data out of new zealand. the first quarter gdp missed estimates, growing at 0.5%, instead of 0.7%. the stock market gaining for a third consecutive session. the kiwi dived after the data was rising before that. it is now losing around 0.2% after two days of strength. the futures market looking like 0.5% down, when it comes to asx 200 futures. the asx has done well. we have seen three of these with strength. the aussie dollar unchanged and strengthening a second
consecutive session. we do get jobs data out of australia later. nikkei futures down as well. we saw losses in the past three sessions for that nikkei 225. the japanese yen, a strength of their, 109.34, strengthening a second session. the boj beginning a two-day policy meeting. we also have switzerland, the boe, with policy decisions this week. the focus today, this morning, will be the fed making good on its pledge to keep normalizing monetary policy as it raises key rates again, signally one more hike this year. painting a clearer picture of its balance sheet reduction plan. there is janet yellen speaking on the balance sheet. ms. yellen: the plan is one that is consciously intended to avoid and tog market strains,
allow the market to adjust to a very gradual and predictable plan. our globals bring economics and policy editor, kathleen hays, with more. kathleen, we were just talking about peter coy in the last hour. they could not have picked a worse day to raise rates. gods or: the fed the economic data gods were playing a joke on the fed today. he saw how weak the cpi was, how weak retail sales were. the fed said, the risks are balanced. they see the weakness, too. but it is temporary. drop in prices, they will stick with the headline gauge and core line gauge. janet yellen said a tight labor market would boost inflation. jump into the bloomberg with me now.
see is how that turquoise line is back, steadily lower. the white line, that is wages. they have come off their low but plateaued and started to go down. that is a connection janet yellen is making. unemployment will rise and boost inflation. over the medium term we will get back to target. cpi, down four months in a row. weak. sales are week. -- they say the second quarter will look better. the president of the minneapolis fed says inflation is moving back toward 2%, year-over-year. we did get the balance sheet plan. janet yellen saying it could begin relatively soon. most people thought you would need to see one more rate hike in september, toward the end of the year for a balance sheet reduction. do not know what she is
thinking, but that is what she said today. betty: kathleen, stay with us. we will have a ceo and longtime the fed watcher. diane, what would be your best guess? when does the fed reduce their balance sheet? would say january, but they want to get it in before the end of the year. i would say december. data, that four letter word, they no longer say it. this is a forecast-dependent fed. it is interesting, how they throw away the inflation numbers. i do think there will be transitory stuff. as kathleen pointed out, those wage numbers, you have to watch those. if you do not get the wage numbers up, where will we get inflation from? won'ten: you said the fed hike until december. is that because they won a firm reading on second-quarter gdp to see us inflation does rise? does it jibe with what you see? i think it will take a
while, as janet said. cellphone issue -- usage, temporary decline in prescription drug usage. it takes a step down, then takes up again. i would like to see stronger wage growth. it slowed down again. the fed is going to say, this is millennial's. i talked to a bunch of firms, they are saying that is not the case. i would like to see more wage acceleration before we get there. a heatedhere will be debate about tepid inflation numbers within the fed. assume that does not happen, which is the first ago -- another rate hike, or that unwinding of the balance sheet? diane: i think we will see another rate hike before the unwinding of a balance sheet. another reason we will not see it in september, we are set up
for an epic showdown over the debt ceiling. both democrats and republicans positioning themselves to fight it out. , the did cut spending other to raise it. this is not what the debt ceiling should deal with. it creates policy uncertainty, along with other had noise -- headlines the noise we hear from washington. over the summer, it will be hard for financial markets to adjust to. that is the reason the market might wait. fed -- theys in the were dissenting for other people and that is important. we've been talking about inflation is coming, the fed believes that as well. when it does come, what is it going to look like? have had other fakes before. we have had inflation being hotter and then suddenly a few months later, he goes back again. what is i going to look like
when we finally no inflation is here? diane: we have to see it in services, where you would see less competition from goods. until we see it there really firming up, i just do not see it. it will have to be things like restaurants, not showing it yet. or places you travel, hotel rooms, which are backing off because competition from airbnb, they are not seeing as much of this inflation as they once did. i would say that given the fact did at anss than you airplane, we should be quality adjusting. maybe we are paying less for less. economics 101, the phillips curve. inflation is supposed to go up. mentioned, i should not say broken, but the phillips curve is flat. is it broken? has the labor market changed? does the fed have to adjusted dign -- parapara
digm. diane: i do not know. i am concerned about. i am concerned about. i'm not buying that lower wages are transitory thing related to aging and the wager -- labor force. growth, but tight labor markets with no wage gains. we have a lot of people you cannot pull back. firms are starting to train again and bring people in. but where is the participation rate? that is a nod to how much can we really count on that? i am worried about that. shery: an interesting question to janet yellen was the an angel conditions in the u.s. the fed did say they don't necessarily target it.
take a look at the bloomberg. you can see it shows financial conditions have become looser after the last two rate hikes. given these distortions in the financial market, will the fed need to move faster on rates, given how loose financial conditions are? diane: that is the main reason they have to raise rates right now. the fact that we have easier conditions, cash outs, refinancing picked up in the last week. we cut interest rates are be lower today than when the fed it raised rates. and they are. that is unusually normal. the fact we see the fed raising rates as financial conditions ease, that is the only thing normal about the economy right now. it is justification, the one place they have solid footing to say rate should be higher because financial conditions are easing. of course, those can flip on a dime. betty: diane, always good to see
you. and bloomberg's kathleen hays with analysis on the fed. we will talk about that for the next few hours. let's get to first word news. >> reports from washington say the investigation into a legend russian meddling in the election is now asking whether president trump try to obstruct justice. the washington post says robert mueller's move was a major turning point with the president being told by former fbi director james comey that he was not being investigated. officials now say that change after comey was fired. the third most senior house republican and for other people have been wounded in a shooting in virginia. majority whip steve scalise was shot in the hip and is said to be in critical condition. it happened at a congressional baseball practice in alexandria. motivesis examining the
of the gunmen, who was shot dead reportedlyery he attacked to the republican party on social media. in london the apartment tower were 12 people died is still burning 72 hours later. were injured, and many people are still unaccounted for. police warn the number of victims is certain to rise. the blaze took hold rapidly and some say they have been complaining for years about the risk of fire in the building. the imf is++++++ shery: this is "daybreak asia,"
i am shery ahn in hong kong. betty: i am betty liu in new york. markets did react to the fed ike -- fed hike. ramy inocencio has more. >> i want to show you what is been happening in terms of how we end this said day here. this is how it was. although it looks mixed, this was off session lows. dow jones industrial avenues at a new record, up only 0.2%. 21,374 is where we stood here. s&p 500, i want to show you how
this turned out over the course of the day. you can see the s&p was flatlined most of the day up until 2:30, when the fed came out with its announcement. markets took a little slide. we did expect what was going to happen with the 25 basis point hike. we ended up near the flatlined. let's dive into the bloomberg back to the left side of the screen. i want to show you the function, the sector health of the s&p's 11 sectors. out, want to point financials up zero .2%, as well as information technology, down 0.5%. stocks have been much, much lower. over the course of the afternoon when janet yellen was speaking, and ended inlosses the green. technology was the reverse, higher in the day. as chair yellen started to speak a he went down to near session lows, down 0.5%. there are talks by some analysts that it was a growth to value rotation. let's take a look at what is happening in terms of individual stocks. the bank stocks up, goldman sachs up 1%. the best of the banking stocks. technology stocks, most were in red. we saw some reaction on
the dollar in treasuries, as well. how did they do? see the actual graph, it is basically a horseshoe shape. the bloomberg dollar spot, you can see we were talking about the weaker than expected inflation and retail numbers. themthose came out, we saw deep. as chair yellen started to speak, they came back up. this is a similar look when you look at the treasuries. the u.s. two-year, which is more sensitive to movements in interest rates, came down and then up as chair yellen spoke, ending at the day 3.5%. the other yield at 1.2%. shery: thank you for that break. let's get a bond investor's take on yellen from cumberland advisors. editor global politics
kathleen hays joins the conversation. david, let's start with the dot plot. you are saying it is becoming an event on the bloomberg. dots are always a function of said futures. , youhe end of this year can see market pricing from the overnight index loss. you are telling me that after 2017 when it goes to 2018 and 2019, they become irrelevant. why? david: we are going to have a new fed. probably five of the seven or's -- seven governors seats will be new personalities. janet yellen is it 72, 73. see her being reappointed. stan fischer is i think 75. there are vacancies in the fed.
the trump administration been very slow to officially announce. were have been some names, have seen one definite announcement. it looks to me than any of the forecast coming now in the dot plot are meaningless because they are in six or seven or eight months be out of date. i do not put a lot of stock in the dot plot at all. if you look at the history of there were wild forecast that narrative time went by and they were shorter. let's get tohleen: something closer to home, the consensus we got from the current dot plot, for one more hike. i want to collect another bloomberg chart. it speaks directly to janet yellen's forecast. it is a bet that inflation will rise and stop weakening. i'm showing the breakevens, that
-- the twos, fives, tens. they are all pointing down. a direct contradiction to what janet yellen sees happening the economy, happening with prices. what do you see? david: in the bond market, we spread trades,e particularly for u.s. citizens. the u.s. tax bond was trading above the taxable treasury yield at the long end, is still is. it is one thing for the fed to say, we are going to forecast inflation, it will get to 2%, and we will act now. that is ok, it is forecast-driven rather than data-driven. those forecasts are not realized often and they have been extended and extended. we expect that to happen again. we do not see inflation pressures. kathleen: what is the risk? they are going to start reducing
the balance sheet gradually. they are getting an important process in play. what if inflation does not rise, what is the risk to the economy for investors? if the fed goes too far -- right now it has not gone's -- done so. it has not done any shrinkage at all. then, you can tighten conditions. you reported earlier how financial conditions are easier. that is what gave the fed room to make this hike. it was not based on inflation or weak retail sales or soft gdp two quarters in a row. it was based on easing financial conditions that allowed them to normalize for one more quarter step. if that continues, we will get more of it. that is interesting, i brought that up thinking the financial conditions were
supportive of growth. about the risk for the economy. after this decision, we saw the spread fall below 80. 188 showsberg chart 9 how the spread is falling if you layer it up with economics, it is falling. is the treasury market sending warning signs on the u.s. economy? traditionalu use a view that a flattening yield curve is a warning sign of economic weakness slowdown or recession or close to recession, that would be a traditional view as we are seeing it. there is another force of work in the world, coming out of the eurozone. at that is affecting the intermediate and of our treasury market. when you look at the spread, i
cannot see the chart. i do not know if you can get the spreading yield over the last five years between the 10 year government bond and germany versus the 10 year treasury here , you would find the spread is widening. why? the negative rates in europe are pulling down our intermediate rates. there was a force at work that blends the yield curve from its traditional work. i believe that is still in play. draghi has said we will keep going for a while longer, so that force is still in place. kathleen: your anticipated my question, that is what i wanted to ask. you follow global markets, global central banks so closely. draghi is still going to keep going. is meeting and they are nowhere near ready to exit. when you look at it from a global bond market perspective,? what you take away from that? -- when you look at it
from a global bond market perspective, what do you take away from that? this great fear we will have rising interest rates, do not buy any bonds, the world will come to an end, has been wrong and has been wrong for years and it still is. one thing about japan, there are changes taking place in japan. we do not know who the next governor will be. we do see the bank of japan going to neutral rather than adopting more negative rates and talking about normalizing their yield curve. it is a change taking place in japan. talking about that change, the consensus is that japan will eventually at the drop of the ¥80 trillion target. thank you for joining us, cumberland advisor chairman and ceo. kathleen hays also joining the
in hong kong. a beautiful, sunny day. open like the markets good higher. we are 30 minutes away from asia's first major market open. betty: it looks gorgeous there. 7:30 p.m. wednesday in new york. started out stormy but ended up being a gorgeous day as well in new york. the markets closing just about flat. can't make up its mind about what it heard from the fed today. i am betty liu in new york. shery: i think a lot of us cannot make up our minds. i am shery ahn in hong kong,, you're watching "daybreak asia."
>> the fed it says it intends to push ahead with its rate hike program but ones that we can inflation may pose a problem. policy makers agree to a third rise in six months and indicated one more this year, while also setting up details of how they intend to shrink the fed's balance sheet. janet yellen said unwinding could begin relatively soon if the economy continues to expand is expected. ms. yellen: this morning's reasoning -- reading showed weakness in a number of categories. it is certainly something we will be closely monitoring in the months ahead. we are focused on making policy decisions and outlook. we will be looking carefully at incoming data. as always, revising our outlook as appropriate.
36qatar said to be buying up warplanes even as it is isolated by its neighbors and criticized by president trump. congress last year approved the sale of 72 jets. was accusedore doha by saudi arabia and others of supporting terrorist groups and iran. hosts a u.s. central command with 11,000 military personnel. german chancellor merkel expects the u.k. to stick to its brexit timetable. even when the finance president and french president said that you -- the e.u.'s door is open. she said she would not speculate on any subject, especially on whether brexit happens or not. japan has found itself eclipsed by china in start up activity,
boosting efforts to link foreign venture capital with homegrown entrepreneurs. the government back to cool japan fund to says it will contribute $10 million to become the largest limited partner in the focus fund of 500 started. is a san francisco venture firm specializing in early-stage investment. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am courtney collins, this is bloomberg. is investigating the motives of the man who shot and wounded a top house fourlicans, for -- and other people outside washington. tell us what we know about the shooter, who was shot dead? >> he has a history of several an allegedcluding violent incident in which he struck somebody and fired a shotgun.
he also has a history of incendiary political language on social media. he was cast to getting donald igating donald trump and other republicans in recent posts. neighbors said he is been firing guns at his property in rural illinois, as well. betty: we knew he was a bernie sanders supporter. are thereof that, concerns this could become more widespread? is he a lone wolf? what is the mood like on capitol hill? having seen a lot of these shootings over the years, it is hard to know in the first 24 hours like this whether he is a lone wolf or not. that is, whether there could become the cuts are not. the mood here on capitol hill was already very bitter and partisan.
i do not see that changing. it is interesting there was a today toa hearing for make it easier to obtain guns and things like silencers to use on a gun, that was canceled. that at see any evidence bill like that will be able to move a little later in the year. there have been multiple mass shootings in this country over the past 5, 10 years. it is not prompted any major push toward gun control. shery: what is the response from the white house? so far, they have expressed condolences for the victims. but we do not know much more beyond that. we will be looking forward to more details on that. alan levin, tracking the latest
shooting in the u.s. the markets are moving after the washington post reported special counsel robert mueller is investigating president trump for possible obstruction of justice. garfield reynolds has been tracking this. what we know so far? what we know from the markets is that it has set off classic safe haven moves. the yen, if we look in the terminal, we have a chart which shows the yen recently rallied on the cpi data overnight and yellen'sined after press conference. then it came straight back up, which is down on the chart, because it is a dollar-yen pro., on news of the trump similar dynamics in the s&p futures, which were also tracked. divedticular, the way it
down in asia once the trump news broke. we were already facing a nervous market picture for asia this morning. very mixed bag from the fed. may be dovish, no one seems to be sure. futures,the equity many closed before the trump news, were already down. what we are likely to see fornitely, a sullen tone the stock market says they open across asia this morning. ecoy: we also have other data out. aussie jobs, new zealand gdp. what can we expect to move as asian markets open? garfield: the jobs numbers will be very key for the aussie, which has been surprisingly strong over the last little while. markets, crossed asian it is not a huge amount of data coming. the bank of indonesia is due to
make a decision later in the week. and the boj, as well. betty: we talked about this earlier, we saw after the fed decision, the dollar falling. it is putting upward pressure on currencies and countries that do not need it, including australia and japan. what is that impact likely going to be? mentioned the aussie strength and the kiwi has also some ofong, even though its recent gains when the gdp data came out -- there is a lot of concern here in australia and elsewhere in asia that currency is our two strong, it is hurting momentum. if you look in the terminal, we have a chart here. the gap between the rba's tax rate and the fed's key rate
shrinking to almost nothing, the lowest since 2001. the aussie has been climbing or staying high. the rba governor is saying a stronger currency then warned it would complicate australia's interest to get going. at the same goes for japan and new zealand. betty: thank you so much, garfield reynolds, on the impact asia. let's bring in our bloomberg intelligence economic analysts. we were very much surprised by how aggressive the fed was with the balance sheet. and $60ion initial cap billion ultimate cap is simply too much. i could really drive the markets. just the weight on the consumer
sector, especially interest rates, a sensitive sector. betty: why do you think they came us so aggressively on this? yelena: they are clearly eager to start the process. they have been talking about it for some time. clearly, janet yellen's term is expiring next year, and she wants to get it done, put it on autopilot before she has to leave. betty: does it stay on autopilot with a new fed chair? yelena: probably. they put it on autopilot and make sure it works. we do not think they will be able to implement such an aggressive feat. swonk mentioned earlier on your program we have a debt ceiling coming up. there will be a lot of discussion on that. for them to start unwinding the balance sheet, the economy needs to do much better than it is currently doing. shery: what about the tone about
the economy? when it comeseaks to household spending, it seems to be more upbeat. are more upbeat because in the second quarter of this year, we did see a rebalance in the data, despite weakness and retail sales numbers. showing we will see a rebound in the second quarter because the first quarter was so weak. we are currently growing at around 2%. that is simply not enough for the fed to be so aggressive. isir goal for this year 2.2%. they said that will allow them to raise rates three times this year. buteems to be achievable, to be more aggressive than that, and knees to grow more than 2.2%. you say you personally got more clarity on
how the fed will coordinate a ?assive and active tightening, when rate hikes and balance sheets unwind? yelena: there is still a lot of uncertainty. this is very much appreciated. they are trying to move up a little bit. still, a lot of uncertainty because we do not know what kind of rate hikes we're going to see next year. there is so much disagreement if you look at the dot plot. we are going from a must know rate hike to a rate hike at every meeting. we do not know who will be the next fed chair. this uncertainty is something before theyleared go in continue with this balance sheet plan. thank you so much for joining us. you can find her commentary on
betty: we are counting down to asia's first major market open. japanese futures down 0.5%. bike upee the yen's after the report came out from the washington post that robert -- you can see that spike in the dollar-yen after robert mueller is looking into obstruction of justice against president donald trump. this is "daybreak asia," i am betty liu in new york. shery: i am shery ahn in hong kong. peach aviation the first japanese -- airline carrier to
accept bitcoin for tickets. .hey are trying to expand joining us is the executive vice president at peach aviation. thank you so much for coming on the program. talk a little bit about bitcoin itself. i understand you are trying to reach a new customer base. but if you take a look at the bloomberg and see how bitcoin has traded, you can see it has been pretty volatile. it is falling more than 4%. we have seen a huge surge in the past two months of more than 100%. who knows how long this will last. are you concerned about the volatility? >> first, the innovative airline, we are always looking for new ways to innovate and bring new choice for market.
as you rightly mentioned, we have a large number of foreign the stations and our flights are mainly non-japanese. we decided to step forward and do this initiative with bitcoin as a way to bring expanded choice. considering the volatility, we have to do this responsibly and in an effective way. we are now working to develop a payment system, as we have announced. that should be finalized by the end of this fiscal year. of course, we are taking a careful look at it. as a new revenue stream, it is a good policy for us. we believe expanding choice to that asomers, and to do they are accepting japanese yen and korean won, we see it as a new revenue stream. betty: did you do this out of
actual customer demand for accepting bitcoin? jose: a little bit of both. as you have seen, bitcoin and crypto currencies in general are having a bit of a moment now. this was the trend we were following. we saw we could step into this wave and see how we could ride it responsibly to increase our customer base. shery: how much of your business will take in bitcoin? is there a cap to how much payment you will accept in bitcoin? jose: we're looking to get the payment system operational by and of fiscal 2017. what we are looking at most of all is to begin doing transactions on air tickets themselves. for the initial operating plan,
it does not have a cap, perse -- per se. but it does have a target in terms of what we sell. after that process, we will expanded to ancillaries and other areas of our revenue revenue-- areas of our stream. betty: we you convert that to hard cash -- will you convert that to hard cash? [laughter] as you mentioned, it is volatile. what we are seeking from our business partner, we have our he announced we will do this with awayin japan, is to seek to stabilize that for peach and make it easier to understand for customers.
you have paid it to get one day and the value of your bitcoin has increased or fluctuated. question solve that and make sure customer see it as a benefit and not a burden? again, we are innovative. we have looked around and seen this as a trend, so we are going for it. betty: do you expect many of those -- if there are going to be any that use that, it sounds like you are betting that there will be, that it will be more younger customers? is this a marketing ploy to get younger customers on board? as you might know, peach is an interesting name for an airline. when we announced our brand and our brand identity, which is our strongest point, in addition to our service delivery quality, that already has yielded really
positive results with our market segmentation. when you look at traditional airlines in japan, you are looking at a 70% to 30% ratio of male to female. topeach that is a 53% female 47% male, with the bulk of segmentation from ages 20 to 30. this is already there. for us, it is not only to expand, as you put it, but rather to enhance the experience of our customers. shery: just quickly, we have heard plans to make peach a subsidiary. how are those plans going and how you compete -- how do you vanile to the noaa air -- la air? subsidiarye a
already. beginning,, from our the launch of operations five years ago, our strength has been our independence. and the holdings, the executive group has said peach will continue to manage itself and develop itself independently. in five years of operating, we of four consecutive years revenue and profit growth. that is a remarkable thing for any startup airline. from the holdings perspective, they are keen to let this force rse haven a really -- ho a really effective run. we have a different shareholding besides the majority. they are a separate airline.
we certainly watch what they do and take a look at other airlines. but it really has no effect on our long-term strategy, including bubbling our -- doubling our fleet by 2020. shery: thank you for breaking that down. you can catch that interview on daybreak,"ition of " as well. go to dayb on your terminals. you can customize your settings to only get news on industries and assets you care about. this is bloomberg. ♪
first major market open moments away. shery: so much more. we have eco data, aussie jobs. let's get a check of how markets are expected to trade. sophie kamaruddin opening -- watching the opening. data, the fedco kicking off. looking to set asian stocks lower at the open. we saw treasuries rally and u.s. stocks falling overnight. continuing recent gains, u.s. tech stocks did resume downturn. watch for this affect in asia. taking a look at stocks we could be watching when markets open, we are taking a look at toshiba shares. the stock fell nearly 4% yesterday. the company was to decide on shipping sales today. asahi is reporting it will likely be delayed.
it is said to have received the first round of offers from the likes of honeywell and others. plus, toshiba is manufacturing in july. nikkei, the reporting, they will demote toshiba to the second session as of august 1. for indianors, watch regulators penalizing its units there for anticompetitive conduct. in sydney, watch for those latest. is said to betal seeking a role in its financing. this company went into voluntary refinancing. report -- to cut 4500 jobs. that is a brief look.
>> the fed forges ahead on this rate hike path. the labor will eventually boost weak inflation. >> asian-pacific markets face the client after wall street flipped from heights. the dollar tearing those losses here he had anchor: the imf putting its money on china. the washington post says president trump is under investigation for possible obstruction of justice.
>> this is the second hour of daybreak asia, coming to you from bloomberg's u.s. and asia headquarters. betty: it is just after 8:00 p.m.. i am betty liu. we have been of course digesting everything we heard today from the fed meeting and janet yellen's interactions with the press today. her statement, essentially, sort of adjusting the balance she came front and center for investors. what effect will that have on long-term rates? shery: it was a little bit more aggressive than i thought, especially the unwinding of the balance sheet and the fact that yellen just struck a little bit more hawkish time when it came to the rate hikes and everything else happening with the hiking path for the fed. we are seeing a bit of jitters in the market.
a bit of a flight to quality in asia. we are seeing treasuries gaining ground and yields falling in the asian session as they start to trade. that is had to sophie kamaruddin for detail of how the markets are opening through sophie: some jitters perhaps -- are opening. sophie: some jitters perhaps. could some saying that spark volatility in the coming months. we do have treasury yields continuing to fall after an 8.5 basis point drop overnight. with the fed delivering despite the weaker inflation, we had u.s. stocks falling and gold trading at a two-week low, up .2% for now. the dollar is also set to weaken further after the washington post reported trump is being investigated for objection of justice. the yen is strengthening at 10 9.48. it could approach the june 7 flow. they advocate falling .3%,
dropping for a fourth day. we are seeing weakness in tokyo. the kospi, just unchanged. south korea's five finance minister says he does not expect -- vice finance minister says he does not expect market reaction, but they will take action if there is volatility. in sydney, we are seeing shares dropped .3%. we are waiting on jobs data later this morning, but we are seeing the aussie pickup slightly towards that 76 u.s. cents and a. templeton reckons job losses will drive us to ease rates. after the gdp miss in new zealand, we are seeing stocks by the kiwi dollar slide here. they are expecting the currency to fall to 65 u.s. cents in about 12 months time. the commodities complex, we do have oil fighting, holding -- sliding holding near a low.
brent falling .25%. they've metals are looking mixed -- base metals are looking mixed. aluminum in the opposite direction here. supplies have outpaced demand in china. reforms we will see in china in the coming months. betty. betty: sophie, thank you so much with that early look of how the markets are trading right now. let us get to the first word news with paul allen in sydney. thanks, betty. reports from washington say the investigation into alleged russian meddling in the election is now asking whether president trump tried to obstruct justice. the washington post says special counsel robert miller move -- robert mueller's move marks a special turning point. he was told that he was not being investigated. officials now say that changed after comey was fired. the third most senior house republican and four other people
have been wounded in a shooting in virginia. the majority whip, steve scalise , was shot in the hip. it happened at a congressional baseball practice in alexandria purity the fbi says it is investigating the motives of the gunmen, who was shot dead by police. he attacked the republican party on social media. london police are warning the north kensington tower block fire is likely to rise to 12 people are known to have died and 74 others were injured. an unknown number of residents are unaccounted for pure the building is still burning almost went four hours later. survivors a the blaze took over rapidly. some say they've been complaining for years about the risk of fire. the imf is increasingly optimistic about china, raising its growth estimate for the second time this year. the fund expects the economy to expand by 6.7% this year, up 6.5% in% in april, and
january. it is unusual for the imf to update forecast outside of its scheduled announcements. even so, it cautions that deep reforms are still needed to rein in debt. >> we see the chinese government giving support, so we think that this is the right forecast. now, we do expect the economy to slow a little during the course of the year, but we think 56.7% forecast is the right one. paul: global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than one hundred 20 countries. i am paul allen. this is bloomberg. anchor: thank you so much. the federal reserve made good on all the signals that it would keep normalizing monetary policy key year as it hiked its rate again, signaling one more rate hike this year and painting a clear picture of the balance sheet reductions plan. i want to bring our global
economic and policy editor, kathleen hays. we talked a lot about how we want the fed to be transparent and tell us exactly what they are going to do, and they delivered, and we are shocked, right? seem jitterykets in asia now that they know the fed is closer than people thought to reduce the balance sheet. when the fed is so sanguine, i am waiting to see how this turns out. of course, it is widely advertised. 25 basis points. that is fine. another rate hike this year for a total of three? sure, that is fine. that said, the risks are balanced. they are knowledge and something that is so important. another big part of the discussion o after this meeting -- the fed said "do not worry, over the median term, it will go higher." tight labor market. it will drive up inflation it if we wait too long, we fall behind the curve. let us look at a bloomberg chart just to illustrate
something. g #btv 7564. look how high that line was during the peak of unemployment during the great recession. over 10%. now down to a 10 year low of 4.4%. wages have come off their low, risen, plateaued again, and started to weaken. janet yellen said it will turn around. the fomc keeps saying that this is a temporary phenomenon. if you wait long, you will have rates so rapidly, it might turn into a recession. how ironic that on a day when he said says we are not going to worry about it, we are going to move ahead, we get a weak cpi for the month of may. the 1.7 percent year-over-year. fourth decline in a row. that is counting on a consumer to boost the second quarter gdp after a week first quarter.
-- a weak first quarter. the president of minneapolis evidenceants concrete that inflation is rising towards 2%, but the fed's bottom line is that as long as the economy evolves as we expect, we are going to keep normalizing policy. as wes when they say, expect, they are stretching it not to this month, not to next month, but several months, if not the next couple of years. shery: if inflation does not pick up more, an issue for the doves. we have more details on the balance sheet. they did not say exactly when they will start, but we did get a rough -- some more detail, didn't we? kathleen: it is interesting. the fed is not ready to say when it will start. they did give us details. let us go right to what janet yellen said at her press conference.
she said it could hurt pretty thin. janet yellen: we have made a definite decision on the timing of the plan, but the timing of initiating the plan -- if the economy evolves in line with our expectations, which, you know, we will be watching, always are, we could put this into effect relatively soon. of the keye are some details we got from the fed as a fleshed out what they had first revealed in the minutes of their last meeting. are goinge, the caps to set off on the rolling off of treasury securities, capped at 6 billion treasuries per month. kathleen: 4 billion per month because they want to be careful not to upset the mortgage market, a rapid rise in mortgage rates if you sell too many at a time or do not buy back as many. it could be a problem. could go up to 30 billion a month for treasuries and 20 billion for mortgage-backed securities. a janet yellen will be very sensitive to how the market reacted she said the plan was
designed not to upset the markets. she quoted patrick harker from the philly fed saying this will be boring, like watching paint dry. she said if the fed for any other reason sees the economy slowing down a lot, they could pull back on this balance sheet reduction plan. they are going to keep their focus on the key rate moving that higher. that is the main message the fed wanted to give us. i think a lot of people are actually -- maybe some flights to quality, but probably glad to see more detail along with what the fed is actually planning to do. we are busy day and still not done. we have the boj, boe, and the central bank. kathleen hays from new york. still ahead, while china's central bank follow the fed and boost borrowing costs? why analysts are divided on the pboc's next move. betty: plus, why the imf says beijing needs to speed oup its
betty: this is daybreak asia. i am betty liu in new york. shery: i am shery ahn in hong kong. click check of the latest business flash headlines. ibm says it has created a digital ledger that digital charters are using in their insurance businesses. it allows data to be shared amongst third parties such as brokers and auditors. aig says blockchain can increase trust an in the insurance indus. it is being used in the u.s., kenya, and singapore. betty: the waldorf astoria transformed into luxury apartments is proceeding as planned. anbang says its business is operating as normal after announcing that an employee is no longer able to perform his
duties. santander is said to be lining up a string of lenders. $7.8 billion capital increase. say theyrces and include credit suisse, deutsche bank, barclays, and hsbc. santander is raising funds to shore up poplars balance sheet opular's up banco p balance sheet. raising itsmf is growth estimate on china for the second time this year, although it also says more reforms are needed. the fund now says the economy will expand by 6.7% this year, up from 6.6% forecast in april. david lipson spoke to bloomberg in beijing and says the pace of reform must pick up. >> we see the chinese government providing some support both through fiscal policy and the
way that credit policy was being managed, so we think this is the right forecast. we do expect the economy to slow a little during the course of the year, but we think the 6.7% forecast is the right one. >> you talked about the urgency of reforms and there is a consensus that we have this slower growth in the second half. and that is providing something of a window. if that is the case, how big is the window? what is the timeframe policymakers have to enact these performances we have been talking about for some time now? >> first, reforms are underway. we would like to see those reforms intensify, accelerated, and sustained, and that means the rebalancing of the economy to new technology sectors to support the household sector, household services, services that households will want, and tame theegin to problems of credit growth that
have created vulnerabilities in the corporate sectors. bartering has been very substantial. we think all of that should proceed in a steady way in order to reduce those vulnerabilities and find new drivers for the economy over time. >> and you touched on the dbet question which comes -- the debt question that comes to many people's minds when they think of the chinese economy. you think there will be serious problems. are you seeing that plan put into action? what more needs to be done? >> we see two issues to one is that the financial sector has been growing in a number of institutions, a number of nonbank institutions. growing in complexity with new products and lots of interconnections. on that problem, your authorities have really begun to intensify their scrutiny, tightening financial supervision
of financial institutions. wethink that is welcome and will contain risks in the financial sector. there are questions you raised about the lending from the financial sector to the corporations. it is very important that there be deleveraging. so far, credit growth has slowed, but it is still growing, and the ratio of credit to the sides of the economy is still -- size of the economy is still growing. the destination of credit has to change so you do not have a situation where the companies are getting the credit and not using the money for productive purposes so in the end, they are destined to have problems servicing their debts. theor: our interview with imf's david lipton. more on china's prospects. bloomberg markets: asia at 10:10 hong kong time. a ceo joins us to
betty: this is daybreak asia. i am betty liu in new york. shery: i am shery ahn in hong kong. one company listed here in the city, clothing supplier global brands, has reported full-year net income of $90 million, calling it a solid achievement in a tough business environment. joining us now is the ceo, bruce roccowitz. you have been named the best ceo in asia by corporate governance asia. talk about your business because i am having a hard time understanding your numbers since you changed your reporting system a little bit. break it down for us. >> when you compare it to the same time period as the year
before, we have very solid topline growth. we are up 12% on topline growth, our business is about $3.9 billion business today at wholesale. our net profit was up close to 90% and our operating profit was up 30%. shery: what about your operating costs? 13% if i am not mistaken? what was that? >> we are a growth company. to be honest, it is in line with what our expectations are because our topline grew at 12%, but when you look at our margins, much higher. we added almost 200 basis points to our margin, so it is really in my with our business, so a lot of the overhead we added on his for the next three year plan, which we announced yesterday at our analyst briefing. nexto, it is a very solid three years ahead of us. shery: we tried to mapout your growth -- map out your
growth in segmented number 65. some of thathat growth has slowed a little bit. constant, butirly we have seen a little bit of a decline in the past. that is the line in white. tell us a little bit about how you would break down your performance across the world, and also, when you factor in the fact that retail has not really been doing great in the u.s.. bruce: first thing, our u.s. sales were quite strong, so we are up quite a lot over this last period of time, and if you ask me what region is this strongest? it is the u.s. when you talk about the u.s., everyone will say it is doom and gloom because of store closures. you have to remember we are a wholesaler, and we are selling -- the beauty of global brands -- we are selling to every dissertation level. not only to department stores,
but to clubs, we are selling to discounters, and amazon, and online retailers. so when you look at it, we have been focused because of multitier this to be, we are going where the growth is. quite a big portfolio of brands that are very strong, and they were able to fill in the mosaic of what is going on of growth in the u.s., so overall, you look at the sales since 1992 to now, retail sales, and it has been pretty constant, growing about 4%. it is just a question of where it is growing. shery: so where is it then, bruce? where is a growing? bruce: if you talk about the off-price, the clubs, people max, amazon,tj it is growing. shery: this is why we do not see
any inflation. they are all getting discounted products. bruce: yeah, that is sort of the future right now. it will level off. when you look at sort of what is going on in the market today, value continues to be important. a lot of it is driven by the online ability to shop and find out what is the best prices, but the truth is, the online have a really unfair advantage because they are generally selling below their cost to you take into account shipping, returns. it is generally not a profitable business, but they are getting this huge market share. i think the positive thing of what is going on in the market is being transformed. there are too many stores. future wherea online and off-line, both will be important. and when you look at sort of the future of retailing, it will be very much driven by people able to buy in the store or try on in
the store, and maybe order it online and if they want to return it, bring it back to the store. yes? anchor: really quickly, just to ack, how do you feel about -- are you confident, do you feel good, are you looking for other companies to acquire? do you feel it things are too uncertain? you have to stay close? bruce: we are kind of a paradox because i think a lot of ceo's right now are nervous. you have all kinds of issues with the transformation of the retail market as well as, you know, what new policies will come from the trump government. have seen as we are sort of in a very strong position because of our scale or because of our model. last three years since we
went public in hong kong, that is what we focused on, and whether we were smart or lucky. i don't know we are at a good time right now, so the one thing announcedis that we last week that we may be taking g, and we have a lot of opportunities like that where a brand is great but it has perhaps too big of an overhead and too many stores. because of our scale, we are able to be distributed to a multilevel of retail stores as well as lower the overhead dramatically to make a good brand into a great business, so when you asked me how i feel, this is probably the most positive i have felt in a long time, and it is because of our business. betty: thank you so much, good to see you. bruce rockowitz in hong kong. much more ahead. why china's central bank may not be ceiling obliged to match what
init is 8:30 singapore. the open may not look too pretty. risk off sentiment across the markets. >> it looks picturesque. you are watching "daybreak asi " ." first word news now with paul allen. >> the fed intends to push ahead with its rate hike program, but warned inflation may pose a problem. riseymakers agreed a third and indicated one more this year
while setting details on shrinking the fed balance sheet. janet yellen said unwinding could begin soon if the economy continues to expand is expected. cpihis morning's reading on shows weakness in a number of categories and something we will in theely monitoring months ahead. we are focused on making our policy decisions on the medium-term outlook and we will be looking carefully at incoming revising as always plans is appropriate. zealand economy grew less than expected in the first quarter as a rebound in derry was all set by a fall in construction. , the forecast was for a gain of .7%.
the economy expanded 2.5% year on year. the kiwi fell moderately. business is expecting kiwi to to $.65. tar buying warplanes even as it is is isolated. congress approved the sale of 72 at $21 a deal valued billion. that was before doha was accused of supporting terrorist groups. qatar also hosts the headquarters of u.s. central command with 11,000 personnel. angela merkel expects the u.k. to stick to its brexit timetable even as the finance minister and french president said the door would remain open. she declined to comment on the possibility of a british u-turn, saying she would not speculate on any subject, especially
whether brexit happens or not. japan has found itself eclipsed by china in startup activity, so it is boosting efforts to link capital with homegrown entrepreneurs. a san francisco-based venture firm specializing in early-stage investment aims to boost startups. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i and paul allen. how the asian markets are shaping up. sophie kamaruddin has more. delivered,er the fed markets having more time to digest yellen and company, so treasuries easing gains, but asian bonds maintaining that rally after the u.s. 10 year yield dropped the most in a month overnight.
u.s. futures signaling a softer open, and asian equity markets looking like a mixed picture. aussie shares are deepening losses, miners and energy companies dragging the most in sydney, sending the asx down .9% as crude falls below $45 a barrel adding to that 3.7% drop in the new york session. we'll has lost nearly 8% this month. resources stocks are also laggards, but korean shares are keeping the kospi afloat when it comes to the tech industry. , a gaining to the kospi of .1% this morning, shrugging off that tech tumble on wall street. the korean won leading asian currencies higher as the dollar could test a new low. the offshore yuan looking
steady. the medium stability is in the offing. we are waiting to see what the pboc may given that the fed has raised rates. some movers this morning starting with toshiba and tokyo, falling on reports the tse will demote it to the second section, gainers in leading sydney, while bhp leading decliners. telstra rising even after it reported cutting 1500 jobs. >> thank you. attention is shifting to china now that the fed is done and dusted you'd the pboc boosted borrowing costs hours after the fed raised to rates, but this time analysts are skeptical it would do the same thing. let's bring in malcolm scott and kathleen hays in new york.
malcolm, a different situation right now. we are seeing june already a month of tight liquidity, a bit more stressed markets comes so the pboc may not move. >> that's right. was int time they did february, i delayed reaction to the december fed hike. time around, analysts lest sure there will be a knee-jerk follow-on move from the pboc because much of the work has already been done. rate,s a seven-day repo climbing already. last time they raised the asking 7.45, now higher than where we were in march, so this is part of the deleveraging campaign to stop the shadow banks from getting cheap funds in the repo market and making a quick fast, turnaround buck. is firmer, so less need
to protect it. >> 6.80 for the onshore yuan. is this interest-rate differential between the u.s. and china important? andt is all about the yuan capital outflows. 2015-2016, the yuan was no longer a one-way bet and people started moving out of the country, bad for liquidity and the economy, so authorities played with the way they set the yuan fixing rate, struggling to contain it, the capital walls came up, but it became important to offer that higher yield, so another chart will show that yield premium has widened come especially since march, so that would argue against the need to automatically follow any move from the fed. that said, the pboc is a black
box. see the differential between the china tenure and the treasury 10 year and these red steadily rising. kathleen, what are your thoughts on this? jimmy ha inith goldmanon dc, former sachs asset management asia, back in the u.s.. he was thinking the pboc would make the move. you want to make sure the concern hold steady, about capital flows potentially come all the points you make are excellent about how things have changed from one year ago. pbocp of that, if the doubts, maybe another reason to hold back. if they want to take on insurance, they might just move. >> economists are split.
the majority is in favor of no move today. sayingre smart people there might be a follow-on move today, and exactly for those reasons. they don't want the yuan to weakeningking -- again, so a 10 basis point move on the seven-day repo or mls rates could shore up against that. had credite we also data out of china, money supply, how are conditions there? >> those numbers were interesting, showing the credit crunch on the shadow banking part of the finance pitcher seems to be working. bonds,a pullback in trust loans, and some of those shadow bank areas, but the money is still going to the real economy. that is the important thing.
industrial production and retail were firm, so this deleveraging campaign is still focused on part of the financial system, not economy wide. even the federal reserve, everyone talks about the boj can hit their inflation target, but now the u.s. is having the same problem. your team have some great stories that this is affecting countries like china. i got what you said, the pboc is a black box, but what is their concern about this now? >> the inflation picture in china is twofold. cpi is low, 3%, now well below that, plenty of room to keep stimulating the economy. ,pi has been more interesting reflation towards the end of last year and early part of this year has started to come back, so the year on year of fact, but
also softening in commodity prices, so that should dial back and will continue to moderate as the year goes on, so again, no need to raise rates on the cpi or ppi picture in china. is one placeat where even a centrally controlled economy cannot force prices to go up. many aspects of the economy the chinese can control, credit, the currency, and well structured to do that, but this is one of those dynamics that i would assume are a little bit trickier, in particular a country that is not particularly consumption driven yet the way other developed countries are. i wonder how long it takes them to get this under control. how do you see the pboc evolving in this way? evolving come in using
this corridor system with the seven-day repo and the vending facilities of the top, and that is how they are manipulating policy these days. inflation is not so much on the table for the pboc. and theout the debt financial risks that have been swelling. the imf noted those again yesterday. the policy is about containing credit, just to keep the growth 6.5% togoing around the 7%, but not allowing too much short end, property, in risky areas. andhank you for joining us explaining this to us. malcolm scott, our asia managing editor. also, kathleen, thank you for joining the conversation. kathleen hays in new york. mitsubishi motors makes cars to
>> this "bloomberg markets: asia". >> mitsubishi motors turning a kay's towards a profit rebound after last years scandal, which led to the loss of $1.5 billion. , coong us is trevor man since november. thank you for joining us. the challengest here, particularly after that scandal. describe the biggest ones you are tackling right now and how you will turn this ship around? onthank you for having me
the show today and the question. as you said, i have been in the company since november. that was following the nissan capital share purchase of mitsubishi and mitsubishi announced that then a $270 billion loss for the year. ¥270 billion loss for the year. so the financial priority was getting back on track. i will come back to that. the challenges following the scandal is something we have been working diligently on. we were disappointed as a company, so the reformation of our engineering practices has been overseen by the executive committee and the board. we keep a close eye on that, and in discussions with authorities in japan, so we are covering that. in addition, we are looking at the governance of the company
come introducing a delegation of authority to make sure the understanding of what people can do, authorized to do, and to the extent they are authorized is controlled, and that is being monitored by our ceo. coo, i am responsible for turning around the financial aspect of the company. was a ¥30ear result billion lost. we put together a detailed plan for the second half and we recovered that, but beyond what we expected and made a ¥5 billion profit for the year, which is good for us and signifies our initial turnaround. >> certainly it is the turnaround mode and now you're looking into recovery. i want to talk about the business first. particularly in japan, the mini car sales.
what are your projections and targets for that recovery? we have already started to see some recovery. 2015 prior to the issue we had come 60% of sales were in the mini car segment. after the fuel of economy issue, overall sales dropped and we cars for a fewni months, and so took a hit on that in 2016. in 2017, we are starting to see recovery levels towards 2013 levels, so we still have some work to do, but we are getting back on track, both overall and the mini cars in japan. >> part of the recovery will be
making tough decisions such as discontinuing models. when we you make that decision? is that suv model expected to go? will make our decision in terms of our model plan on the announcement of our midterm plan in autumn this year. what we have to do is recognize that we are a relatively small company within the industry, about one million units, however we have ambition to grow to 1.2 5 million units by 2019, so we are looking at the market trends, the products we have, the markets where we are strong and also where we have opportunities, so we will explain all that as we get towards the all-time. a couple of things to bear in mind is that with the market trends at the moment are heavily skewed towards suvs, and this is where our strength is. we are renowned for toughness,
durability, and reliability, and also renowned as you mentioned for this type of product, so we will make sure you are pretty focused in terms of what our heritage is, but also way the market trends are going forward. >> and the market trends seems electric new mini vehicles are in folk right now. what are your plans? we are hearing you could get a mini electric car for 2020? cars will renew our mini here in japan. the technology that goes in them we are still working on that and will announce at a later time. >> i want to ask you about nissan's involvement. what kind of commitments are you hen asg from carlos go you are putting this turnaround plan together.
>> i think those people who know carlos know he does not do half measures. he is income and he is in mitsubishi and the rest of the alliance. he reviews our governance, recovery, and performance, but moreover, he is extremely focused on making sure the alliance works, so mitsubishi is part of the renault nissan alliance. areeed to make sure we leveraging the benefits that a line screens, but also contributing to the alliance. and obviously he is keeping tight supervision on the way that is going. we are expecting ¥25 billion contribution from the alliance this year, so there the short-term gains in terms of supply chain costs, purchasing
auto parts, etc., where we see the long-term is where we converge on platforms technologies, modules, etc., and that is where the change comes really. us.hank you for joining we are getting some breaking news out of toshiba chip unit and the ongoing saga over the sale of that ship unit. western digital is now seeking an injunction to block the sale of this chip unit. the background is that japan's energy ministry is considering having some of the bidders to join a u.s.-japan group that includes bain capital. that does not include western digital. they have been left out of this group. showing they now
are seeking an injunction to block this toshiba chip sale. isthat semiconductor unit very prize, isn't it? westernhearing about digital upping their bid, $18 .illion or more for that unit this is the world's second-largest producer of said, chips, and as you it continues between western digital. you can get a roundup of these stories you need to know in today's edition of daybreak. bloomberg subscribers go to dayb on their terminal. also customize your settings so you only get the news on industries and you care about. this is bloomberg. ♪
happen. we were certain we were going to get this rate hike. whatext wall of worry is happens to the balance sheet of the federal reserve and when is the next rate hike? one more this year, that is the idea at the moment. , janetave this problem yellen has this issue that as the labor market tightens, she hopes to see wage inflation, but it is not happening. the old economic rules have been thrown out the window. withll be discussing that societe generale. , five times more u.s. denominated assets being held outside the united states then used to be in 2001, so they have to look at the stresses and
strains on other countries and their balance sheets as well. pboc, where at the we have a march moment as we had then? we saw the pboc raising borrowing costs, but i hear that will not be happening this time around. we have some data to look forward to coming out and about 33 minutes. >> aussie jobs. rishaad: notoriously hard to predict. >> i know. rishaad: betty. >> looks like a great show. ,ur market coverage continues standby for bloomberg markets. this is bloomberg. ♪
♪ david: what a coach to want to join this company? brian: i always wanted to work for my dad. david: did he say you could start at number two bank? brian: that is what i wanted to happen. david: have you ever had problems with your cable? brian: sure. intimidating for the cable repairman to come to your house? >> would you fix your tie, please? david: well, people wouldn't recognize me if my tie was fixed, but ok. just leave it this way. alright. ♪ david: i don't consider myself a journalist. an