tv Bloomberg Daybreak Asia Bloomberg July 5, 2017 7:00pm-9:00pm EDT
♪ betty: asia-pacific markets set for a mixed open after wall street rose on the return from the july 4 break. the dollar also rallied. yvonne: said minutes reveal an increasingly hawkish tone. a reduction at top of debate. sides account for a quarter of the world's economic output. yvonne: has it changed? can't mckenzie is ready to shake things up.
we have world coverage here on "daybreak asia," we will be live in seoul for an update on the north korea missile test fallout. betty: and we go to detroit for is announcement that volvo going electric in 2019. this is "daybreak asia," live york andmberg's new asia headquarters. i am in new york, it is after 7:00 p.m. yvonne: and it is just after 7:00 a.m. here in hong kong. lots to talk about. much from president xi and chancellor merkel. but we are focusing on the fmoc minutes. a divided fmoc when it comes to the balance sheet timing. betty: absolutely, the timing is key. a lot was propelled by confusion or what is confounding fed officials, and economists everywhere, which is, where is inflation in the u.s., despite
seeing lower unemployment rate numbers? we are almost nearer full unemployment in the u.s., yet no inflation. that is complicating the fed's direct timing. coming back from a long weekend, we saw the markets at first it dipped then they rallied with tech shares. we will go into detail without any minute. a slightly mixed session in asia. yvonne: it looks to be. 50.ty flat on the anz the kiwi not doing much, .7289 right now. oil bouncing back in the early asia session after that 4% drop overnight. we are sitting at 4555. we are seeing a bit of a bounceback of 1%. the aussie at .7608.
we are bouncing back after the weakness we saw from the rba decision. rba futures not going anywhere. a bounce of possibly 20 points in tokyo on the nikkei 225. we did see it bounces 0.25% yesterday. dollar-yen, still seeing risk off tones. largely, the market shrugging off kim jong-un's comments. we have to discuss the e.u. and japan deal. street,ack on wall returning after the july for holiday, tackle eating the markets higher. we saw the tech selloff right before the close of trade. ramy inocencio walks us through the day. >> a lot are saying it is a dead cap balance. we will see whether it is ready to buy based on the death of the last few days. getting to the main markets, the
fmoc, it is sooner or later, but it will happen. that is what we are seeing in terms of market sentiment. the s&p 500 pushing up about 0.1%. that green means the s&p is on a 3-d -- three day winning streak. that is the longest in a few weeks. and we had mixed sentiment from the markets and currencies. for the most part, they were unchanged. this one up by only 0.2%. you can see where it fell in terms of u.s. treasuries. let me walk you through the s&p 500 over the course of the day. out of the gate, we fell partially, but were able to rally back up above the zero mark for much of the rest of the day. around 2:15 p.m. to the right of your screen, you can see a bit
of a letdown. that is when the fmoc meeting minutes came out. the markets took a letdown, but investors said, we are thinking this will be more hawkish than dovish, so we will push it back up. with that said, there was a bit of a wait. that happened with energy stocks. for the wtitoday crude. over the past 24 hours, down 3% in terms of the today. maybe another bounce. we will see how that turns out. exxon, chevron, the biggest weight on the s&p. hop into the bloomberg terminal. i will show you where we are going with oil into the future. the blue line is the 33 day moving average for wti crude. it is more to the downside, 10% is the green line here. ever since february and march. we can see this is falling lower
than a dma. a 33 dma.han we are looking to july 24 when they meet in st. petersburg. yvonne: just touch upon tech. can we keep going on with this momentum? ramy: that is a good question, i wish i had a crystal ball to answer that. let's see what happened in terms of fang stocks, up across the board. they are at their highest since last thursday or friday. chipmakers also rising. nvidia getting a boost. this is green -- you ask me how long it can last? take a look at the bloomberg. possibly, it might not last very much longer. this is another. is the interesting one in red. this is a push and pull between
the bulls and bears sector. diamond that this is a formation shows the nasdaq could fall as much as 7% in the foreseeable future. we are taking it across the 50 day moving average. if it falls 7%, it will take us to 5900. right now it is at 6150. not good news if you are in technology shares. china reporting the past few hours it was down by nearly 10%, paring losses down by nearly 5%. people in china are not eating as much pizza as they were expecting to. sales are flat at pizza hut. they were expecting growth of 1.5%. mightina saying they leave more with taco bell. we will see where that goes. yvonne: still love the pizza.
inocencio, thank you so much. let's get the first word news with courtney collins. first up, the u.s. ambassador to the united nations says north korea has shown it does not want to be part of a peaceful world. after this week's test of an intercontinental ballistic missile. nikki haley held an emergency meeting that trade could be used to punish kim jong-un's regime. but force remains an option. china and russia called for restraint from all parties in said they would not support military action. >> the u.s. is prepared to use our full range of capabilities to defend ourselves and our allies. one of our capabilities lies militaryconsiderable forces. we will use them if we need, but prefer not to go in that direction. >> saudi arabia and its allies response to its
demands as negative and does not recognize the gravity of the situation. doa --alks in cairo, they say doha needs to deal with the problem. qatar denies problems it is destabilizing the middle east by supporting terrorism and holding up iran. >> we cannot have a country like qatar that is in ally in the gcc, and that has an airbase from which planes take off to fight isis and al qaeda. and at the same time, it turns a blind eye to those who operate openly in qatar. >> we must lay out any and all the just igo concerns -- logistical concerns. and some engaging in a constructive dialogue. qatar is ready for negotiations.
we will set a precedent that guarantees our sovereignty is not infringed by others. >> the chinese central bank says it plans to remain on the path of prudence and neutral monetary policy throughout 2017. pboc's report,e they will try to prevent risk. aey also plan to keep liquidity basically stable, as well as maintaining the exchange rate at equilibrium levels. 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. agree the federal reserve in their june meeting to hike the key rate. but there is a critical question, of when to start shrinking them passive -- the massive balance sheet? kathleen hays is here with more.
it is interesting -- we do not think that by this time we would be talking so much about the balance sheet reduction. kathleen: we didn't, a year ago. march -- but no, we are ready to go. it is clear they were debating if they should reduce the balance sheet this year. the only question is, when? let's look at key phrases from the fmoc minutes. we decipher them to see what the fed was debating, what the takeaway is. several, if we are to start within a couple months. does that mean that in the july meeting they made an announcement and start winding in september? that is what it gets people thinking about. readyaid, better to get later in the year two address inflation. say, are we sure we need to
start reducing the balance sheet? that the suggested danger of moving to quickly with this balance sheet reduction, especially in the face of inflation, would be that it are showing you are not on a gradual the, and that could roil markets. with so much division, can the fed start reducing the balance sheet and do another rate hike by the end of the year? one said that it would be tough. >> the consensus is still for september tapering. the more divided the committee appears to be, the more dovish the minutes will be interpreted as. builde if you cannot consensus internally, it will be much harder to deliver the combination of a taper and rate hike by the end of the year. pretty confident they get one or the other. kathleen: the census among economists i would say broadly the rewind -- or
balance sheet unwind will start in september. and you get another rate hike in december. have had him on the show more than once, he thinks the hikes will happen in september and the balance sheet reduction starts in the fourth quarter. that is a broad consensus. all over the map. what about the timing of another hike or the likelihood of another this year? kathleen: it seems to hinge more and more on what happens with inflation. before we got these minutes, we have seen more fed officials like in dallas in minneapolis saying in june, inflation is slowing down, why are we hiking rates? back to the minutes for key phrases. most fed officials saw the profits in inflation due to idiosyncratic factors. we talked about these as big
changes in the mobile phone contracts lowering prices for people, lower drug contracts. the fed says it is a one-time thing. it does not reflect the economy, it is a special case. some are worried it might be slower and moving away from the target, and softness might persist. there were a couple who saw there was an upside inflation risk in a severe undershoot of 3% or 4%. if it falls further, could a boost inflation? let's jump into a bloomberg chart i would like to take a look at. is come of a yellow line, the 2% target. the turquoise line, the headline deflator down to 1.4%. heading solidly lower. maybe the mobile phone prices. the core also moving down. that is a concern for people maybe not ready to move right away.
world interest rate productions, wirp, take a look. 22%. that is not very high. december, 55%. one in two, not a resounding vote the fed can get another rate hike this year. happening,e crazy the fed wants to normalize. they are starting to really slow. let's get it started, it does not need to affect the economy or market. let's see how the economy does and see if we can get that third rate hike. betty: what about overheating markets? kathleen: there is a definite sprinkling of them "increased risk tolerance could be risking -- lifting asset prices. they are not assessing risk properly, that could destabilize markets.
subdued market volatility could lead to financial instability. last week, janet yellen said asset valuation by some measures look high. not uncertainty, but that is how they are looking. said, risk appetite is propelling values -- valuations to excessive levels. john williams in san francisco said the stock market is running on fumes. if you are in the camp that wants to hike and inflation is falling, people are saying maybe you can say, what we're risking question, medium-term if we leave now it could pick up. but we could cause financial instability if we let these markets get too frothy. it is interesting to see how this is evolving. betty: kathleen, thank you so much. a lot of complications for the fed. we will get more insight on the fed's latest minutes later this hour.
yvonne: this is "daybreak asia," i am yvonne man in hong kong. betty: i am betty liu, in new york. an emergency council meeting. while trade could be used to punish north korea, military forces still on the table. china, russia flatly ruled that out, not supporting any military action. peter pae joining us. the u.n. seems divided, it is like we are at a standstill on what to do about north korea. what is next? peter: that is the big question that the g20 meeting will face.
all the leaders will be getting together. the u.s. is seeking increased sanctions, specifically targeting countries that have skirted the u.n. ban and continue to do business with north korea. on the other hand, china, which is one of the countries that continue to do business with north korea and russia, they want more moderation, bring north korea back to the table. i am not sure if any agreement will come out of this other particularlyuntry, the u.s., trying to levy their own sanctions, and take unilateral actions. a combination of the g20. yvonne: we know the u.s. is dreaded the day north korea would be able to develop a missile capable of hitting the
u.s. with a nuclear warhead. we are still debating what the red line is for president trump, whether he will be taking further action and whether we have trusted. the flip side, we have moon jae-in, the south korean president, urging diplomatic talks with north korea. moon'sis weaken position? peter: it is a larger challenge for south korea's president moon. he has taken a two track approach to north korea. one is to continue to seek an open dialogue with north korea, while at the same time, increasing sanctions whenever these kinds of provocations occur. unfortunately, it appears now, that because of the missile launch, moon is appearing wishy-washy. conservatives here are saying they take a harder line. what do you want to do? they are very much similar to
what trump is facing in the u.s. the red line is a difficult thing to define. mainly because if you do so, it decreases your options. what you do if they do cross that redline? it is a very complicated strategy. i think the trump and moon administration both are grappling with this. everpect they will not declare exactly what that redline is because that does put them against the wall to take action. our seoulter pae, bureau chief, thank you for joining us. there were negotiations in berlin, as well as brussels. china and germany are pushing relations forward. and japanin the e.u. area, with a record free trade agreement. let's get to david ingles mi here to look at the preview and the pre-g20 headlines.
panda diplomacy, cute. pandas are pretty cute. when nixon made that historic trip to the -- they established diplomatic relations a few years later. fast-forward to today, as trump takes the u.s. out of the global leadership role, as some perceive it. now, xi jinping goes to the tolin zoo, giving two pandas angela merkel and the german people. it is a symbolic move. a new beginning in german-china relations. ties are being repositioned. a number of deals they want to talk trade. kim jong-un has a different agenda, setting the agenda for
the g20. trade is important to the germans and chinese. they seek neutral ground on globalization and a common vision on climate change and other issues. yvonne: they were seeking new breakthroughs, this relationship has started new beginnings, in the words of president xi? puzzle --, and air airbus had a deal. in turn, germany agreeing to participate in the one road initiative. yvonne: a potential deal coming in later on. plenty more to come. this is bloomberg. ♪
china's overseas spending spree saw deal after deal. must pay off at least $11 billion in bonds alone by the end of next year. that is just a fraction of the total debt of $160 billion they have reported. bloomberg data show they have around $60 billion in cash. immediate debt should could -- should be covered. worth airbus has planes $22 billion on paper. a380augment the deal with superjumbo's. a320's.ved 100 planes at a new plant in beijing. orders will be split between that site and europe. this will sell at $73
morning in hong kong. sunlight bursting through after the rain early in the morning. minutes away from asia's first major market open. isty: looks like it clearing, 7:30 wednesday here in new york. market did close a little bit higher. we saw that rally back, and some lows, led by tech shares. i am betty liu in new york. yvonne: i am yvonne man in hong kong. you are watching "daybreak asia ." let's get the first word news with courtney collins. >> germany and china are calling for more two-way trade is berlin and beijing step into a
leadership gap left by america's with a draw. germany isel says ready to participate in president xi's landmark one road projects. the european union and japan say they have overcome differences on farm and auto exports, paving the way for a trade agreement between partners that account for more than a quarter of the world's economic output. the deal has been in the works since 2013. prime minister shinzo abe, jean called juncker, and another, are expected to endorse it on thursday. israel and india have launched a new tech fund and signed accords in areas ranging from space to water and agriculture. the israel-india innovation fund, known as the i4f, comes as narendra modi looks to boost his
economy. modi's trip is something of a u-turn as india has typically back to the palestinian cause. young china shares fell in late trading after disappointing second-quarter sales. pizza hut sales were flat, short of estimates up 1.5% growth. revenue was just below forecast. the ceo of young china is making profits in loyalty programs, restaurant upgrades, and digital deliveries. 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. betty: thank you so much. we counting down to major market opens in asia. let's bring in adam haigh in sydney. north korea dominating the
geopolitical realm this week. seem stillets resilient to all of this. why is that? indeed, very, resilient. and a showing a track record we where equityory, investors shrug off these political concerns and focus more on the fundamentals. let's take a look at it on a chart. the extent of the outperformance we are seeing in south korean stocks. it is asia's best market this year. it is handing double what you are seeing on the s&p 500. that is because investors focus on earnings rebounding, the buybacks we are seeing and corporate reforms that slowly but surely are coming through. investors hope we will see more cablethe big chaebol's -- -- chaebols get reformed.
earnings growth story continuing to power stocks on. yvonne: here in hong kong, we have been seeing a drop in activist activity recently, compared to a month ago. are we in the clear? is it getting harder to short stocks in hong kong? is certainly shows us there is some trepidation around -- investors are prepared to go with a theme and stick with it, on the bearish side. we had a couple recently cases recently. one has been a good one, where the short campaigns have come in pretty high. you see big declines in the stock price. of after a period suspension, you see a decent rally and coverage.
when a company targeted a stock in june, you saw a fall down and a good recovery. what we are seeing in hong kong, demand to borrow shares in hong kong is declining. on the hang seng index, it is 1.5% of free flow on average that is lent out for the purposes of shorting. it is very low, indeed. as we saw in japan last year, when we saw an uptick in public campaigns from activist back-sellers, a got pared a little this year. investors found it a difficult place to stay short. it looks like there are some examples in hong kong, where it has also been a tough place to be short and stay short. yvonne: adam, thank you, joining
us from sydney. minutes ande fmoc the fed consensus about shrinking the balance sheet. a period of low inflation is starting to flag. let's discuss this with john silvia and kathleen hague. john, let's start with you. it seems like we are seeing a divided fmoc when it comes to the timing of the unwind of the balance sheet. one camp says, let's get it over with. another camp says, let's not move the market with -- market right now. how will janet yellen guide this federal reserve? divided, you it is are quite right. the focus will be slow and cautious policy. i suspect the fed will announce something in september. we will proceed in the fourth quarter with some type of a gradual shrinkage in the balance
sheet. it will be pretty cautious. also, i do not expect they will shrink the balance sheet and raise federal funds rate at the same time. they will be shrieking the balance sheet, beginning in october. december is more likely the period when they raise the federal funds rate again. yvonne: it seems the majority of these fmoc members are agreeing with chair yellen when it comes to inflation being transitory. these soft numbers are just a one-off. they seem more focused on these lofty valuations and asset prices. do you think financial conditions will continue with the fed? john: the fed has to be focused on a model that generates higher inflation expectations, based upon a low unemployment rate. of would believe that some the inflation numbers right now would be transitory in that
case. but when we look at it, we do not think it is transitory at all. you have a pretty wide swath of prices, including new and used car prices being much weaker than otherwise. you see medical service prices coming down, import prices being weaker. it is more than transitory, and enough to keep the federal funds rate pretty tight. the fed will be cautious raising the federal fund rate in an environment of continued low inflation. betty: it seems some elements are structural. i want to point out a chart that i think it is a great line chart that illustrates in the yellow line, how much the fed balance sheet has risen, to this record level. the s&pingly enough, tracks along with the rise in this balance sheet.
they are just a meeting at this point. i am not a technical analyst, so i will not deduce too much from that. all i am saying is, we have seen the markets rise with the balance sheet. i wonder how much the fed is worried about how they do this balance sheet reduction, whether it is inevitable. the markets will take it pretty hard. is our concern. they will focus on doing it gradually over time. youow it is nice to argue will start at a certain point and increase at a steady pace. i do not think that is doable. i think they will start, but the pace of increases over the next year or two will be uneven overtime. yvonne: what are you betting on, in terms of a third rate hike this year? that is why this split is growing public discussion about the concerns.
they said raise inflation is not rising, inflation is not rising. so shouldn't the fed sit back? if the fed to starts raising rates when inflation is falling, they will make people think they do not want to get to their 2% inflation target. there is risk of creating inflation expectations like you have in japan. i want to show you a chart real quick. you can see unemployment 4.3% on then to turquoise line. below 2%, year on year. willie not raise rates a third time this year? john: i think they will do it in december. but in 2018i do not see how the combination of balance sheet reduction and implied interest-rate increases in the fed's dot plot is going to work. i can understand balance sheet
normalization and maybe one or two rate increases in 2018. but, the path they put forward in terms of reducing the balance sheet and three or more rate increases in 2018, is just too much. do you see in the minutes, there is a camp about wage inflation falling. now, another camp worried about financial instability and the reach for yield. we thought in the minutes and the speech from janet yellen last week. is that the tool that each side will use to make their case? which camp are you when? john: it is fascinating the financial stability issue has emerged as much as it has. looking atpart -- the stock market, valuations seem excessive in some areas.
for us, the inflation story is the number one story for the fed. i do not see a lotfor of inflatn ident -- and i do not think of the federal be as aggressive as they are in the dot plot. earlier anad interview on bloomberg with a cfo from pimco. he said investors all around, buticularly in the u.s., those around the world looking into the u.s., have to make do with lower returns. i want to play for you what he was talking about. >> we think that over the next three to five years, the returns on financial assets will be much lower. we are concerned about monetary policy eventually reversing. fiscal --number two, expectations are too high in the u.s. and number three, we are worried about geopolitical risks. in general, we have been
reducing risk across the board. betty: particularly in energy, mark was referring to. we have been seeing what is going on with energy. you agree with that more pessimistic view? you have tok because costs at this stage of the business cycle. we do not know when the that next recession is. but we have a lot of years behind us in terms of economic growth and the stock market appreciation. i do see changes in terms of credit availability. withre familiar probably auto delete quincy numbers that have picked up in the united states. delinquency numbers that have picked up in the united states. it is a low return environment. a lot of talk about this
question of getting the balance sheet reduction going, getting rates as high as you can before february, where janet yellen may not get another term is a fed chair. are you in the camp that that is the reason the fed is willing to look past weakness in inflation and push on, because they want to get the process underway, fearing a new group of said officials might not be so willing to walk down this path? cleari think it is pretty that chair yellen and the current fed membership really want to get this process going. in part, because of the possibility she may not be renominated. getting back to your earlier question, if they really are concerned markets are ahead of themselves, the fed might want to pull back a little liquidity they supply to the market, and perhaps introduce an element of caution in terms of where we are going on the fed's balance sheet. yvonne: before we let you go, i have to get your take on the
latest comments from yellen. as well as from her colleagues. they talked about a coordinated approach to reflation. do you think that is far-fetched at the moment? point ofm the ecb's view, the bank of japan's point of view, i expect a lot of rhetoric about going neutral, perhaps tightening policy a little bit. at this point in time, i think they will stay easier than average and let inflation numbers rising little over time. they have got to be concerned that it is not coming through, as their models would dictate. yvonne: john silvia, wells fargo's chief economist, thank you. and thank you to kathleen hays. digging deep. chairman will shake things up. this is bloomberg. ♪
yvonne: this is "daybreak asia," i am yvonne man in hong kong. betty: i am betty lou here in new york. let's check the business flash lines. resolve thes to u.s. investigation into the sale of toxic mortgage bonds before the financial crisis. the bank and justice department remade for a part. a potential resolution is weeks or months away. an agreement could give early indication to have the trump administration will levy financial penalties. yvonne: deutsche bank preparing to move large parts of its trading and investment assets from london to frankfurt, ahead of brexit. the strategy is still being finalized, but will be implement it over the next 18 months. subject to review, if the brexit situation changes. its base. closer to betty: virgin atlantic, will
have test flights more than two and a half years after its experimental rocket plane. richard branson told bloomberg he intends to make the first trip into space himself by the middle of next year. he was an early leader in the private space race before the crash of station two, which killed its copilot. bhp's incomingng chairman to create a big shakeup. paul allen has more on this story. shares jump onhp this news. what are they saying? paul: this is a note from the analyst. he is talking about the incoming chairman, ken mackenzie, who expects to undertake a full review of assets and tragic -- and strategies when he takes over.
he does not have a mining background, he is from the packaging industry. he is the track -- detached from the mining pressures. he can take a fresh look at the portfolio and is unencumbered by the need to defend the legacy investment decisions. he favors us- seeing a split of the oil mining division. the suggestion that bhp unload its oil asset business, that sounds familiar. also recommended that move. paul: exactly, that is not escape his notice, either. gait said elliott and mackenzie share similar views. ot was a scathing, accused to
bhp of burning $40 billion in shareholder value. mistakes were made when bhp went into shale. we take a look at shares. up 1.9%., they popped that is the highest level since april. aggressiveut an price tag on bhp, saying the mining industry is valued. up next, powershift. the future is electric. this is bloomberg. ♪
yvonne: and i am yvonne man in hong kong. although it says they will offer hybrid or fully electric cars in 2019. traditional power units will be available on upgraded current models. the new cars will no longer have that option. let's get to our automotive reporter from detroit. a critical statement coming from a volvo. majore the first manufacturer to say something like this and make this pledge. what does this mean? becominghe -- is volvo the next tesla? >> all of those hybrids will still have internal combustion engines in them. but it is a big step, a big commitment toward electrification. it will add cost to their vehicles. either they can pass on to their customers, which may be more of a tesla-type solution, or he
could eat into their margin. from thes incongruent united states perspective. at fuel economy rules, the trump administration re-examining obama rolls. but in europe and china, they are pushing full board toward electric. volvo is a global brand. it not a global one. betty: are those the regions they will be targeting? >> in large part, yes. the u.s. and in north america is a hugely important market for them. maybe that is part of why there are these model hybrids involved, and not just your plug-in hybrids. china is a huge growth opportunity for them. betty: thank you so much. plenty more still to come with asia's first major market open, now just moments away. yvonne: sophie kamaruddin is watching the opens in japan,
south korea, australia. >> the handoff from wall street looking for a mixed session. it nikkei futures looking flat, given the rebound in the dollar-yen. given the fed meeting minutes. that is something for traders in asia to consider. aussie looking to trade to the upside. with the geopolitics on the asian peninsula, assets are in the spotlight. kospi futures looking to extend wednesday's game. the cost of insuring korean private debt got more expensive. taking a look at stocks in focus, we will be looking for 7 show holdings today. we were talking about this story between out coming -- outgoing ceo. he admitted a $20 billion
mistake. they reckon that could spin off the patrol -- petroleum unit. following the overnight drop we saw in oil, keep an eye on reaction in energy shares in sydney and across the region. losses, adding about 1%. that is briefly what we are looking at. betty: sophie kamaruddin with a quick look at the markets. one story we have not had a chance to look at because we have been so focused on the north korean crisis is india, implementing the new tax reform on july 1. in the next hour, we will look at one business person who has done a lot of business, a real estate developer in india. what kind of impact will that have for others in the emerging market? yvonne: what does it mean, there
♪ >> the asia-pacific markets set for a mixed open after the return from the july for the break, the dollar is also higher. >> calling for a closer global relationship ahead of the g-20, angela merkel expecting the summit to suffer discord. >> japan and the eu near a free-trade deal, the two sides accounted for more than a quarter of the world's economic output. >> north korea vows it will never negotiate. the u.s. says military force
remains an option. >> this is the second hour of this is "daybreak: asia." we are coming to you from the u.s. and asian headquarters. yvonne: i'm yvonne man in hong kong. betty: i am betty liu in new york. geopolitical tensions out of north korea, that has been dominating the markets. earlier in the u.s., we were injected with the fed minutes, showing the central bank is on the hawkish tilt that other central banks are around the world and it pumped the markets here a little bit. we closed for the s&p almost near the high of the session and it led to a rally in tech shares. give me a bid for some of the markets in asia. hawkish,ey were more and a division among the members when a came to the timing of the balance sheets. it was not a matter of if, but when, and they seem divided. yvonne: something janet yellen
needs to guide them through as we get closer to the timing of the rate hikes. maybe happening in december as well. key questions for investors of course. now we will go to sophie kamaruddin. sophie: a couple of things, geopolitics, the rebound in tech shares, that could play out. and the latest fed minutes. treasuries did rally, especially the 10 year yields, 3.32% and 11325n rebounding above after it was indicated that they were divided about the timing of the balance sheet unwinding. oil very much in focus after the wti fell 4.1% overnight, putting an end to the longest rally in 2017. now we have a recovery, up over 1%.
crude up over 1%, but still below the $50 a barrel mark. with that, taking a look at equity markets we are looking at this 20,000 level. we have shares in sydney adding a 10th of a percent after falling on wednesday. and the cosby adding a 10th of a percent, adding to the gains on wednesday. and the korean won is down. aside from geopolitical risks, other things at play when it comes to emerging currencies. we are looking at the dollar and the fed policy. with video factors percolating, you want to focus on the upward climb we have seen of late. it was cut short as russia has to the supplyion deal. and withes are down, resilient shell output from the
u.s., bernstein cutting their outlook down to about $50 a barrel. the original forecast was $60 for 2017. by 2020, bernstein only sees about $55 on average for that year. and sticking with commodities, most industrial metals are falling, copper for example, iron or included. futures falling in singapore. we do have optimists, since it is about $60. and iron ore reaching $70 a ton, that is the yellow line on the chart. restocking expectations. but we do have top forecasters, they are reckoning that the prices will need to break $50 a barrel, the line in blue, in the second half in order to really draw down the excess supply. they would do not see it going as well as $40. so diverging news when it comes to the commodities. the last thing i want to show you, asian stocks rising about
40 -- rising the first half of this year. the trading pattern innocent have could be at risk. the chart demonstrating that the regional index falling closer to a trend line it has held since december. kgi securities saying a break of the support could see them fallen by about 5%-10% in asian markets. you can see it on the chart. yvonne: thank you so much. that is an early look at the markets. now we go to paul allen in sydney. ambassador to the u.n. says that north korea has shown it does not want to be part of a peaceful world. intercostalst of an -- intercontinental ballistic missile. nikki haley told the meeting that trade could be used to punish the regime, but force remains an option. china and russia calling for restraint from all parties and it they would not support military action. >> the united states is prepared
to use a full range of our capabilities to defend ourselves and our allies. one of our capabilities lies with our considerable military forces. we will use them if we must, but we prefer not to have to go in that direction. alliesaudi arabia and say that qatar's response to their demands is negative and does not organized the gravity of the situation. after talks in cairo, the reply showed complacency and a lack of seriousness to deal with the problem, but decided not to impose new measures. qatar denies charges that it is destabilizing the middle east by supporting terrorism and cozying up with iran. >> we cannot have a country like entirelyt is an ally, in the league and hosts in airbase from which airplanes take off to fight isis and al
qaeda, and at the same time turning a blind eye to terrorism, and will allow them to operate in qatar. >> we must lay out late in may concerned and discuss allegations while presenting evidence and engaging in a constructive dialogue. qatar stands ready to engage in negotiations, with a clear framework that will guarantee that our sovereignty is not infringed upon. bank saysese central it plans to remain on the path of mutual monetary policies throughout 2017. they're usually reports -- in the reports, the governor said they will attach more importance to financial risk. he also said they plan to keep liquidity stable as well as maintaining the exchange rate at equilibrium level. global news, 24 hours a day
powered by more than 2600 journalists and analysts in more than 120 countries. allen, this is bloomberg. ♪ betty: trade is very much the word of the day, big negotiations in berlin and brussels. china and germany pushing forward, thanks to some candid diplomacy in the eu and japan, closer to a green on a record trade agreement. what is happening? stephen has a look at the headlines. as you say, we have had ping-pong diplomacy. now we have panda diplomacy. >> it is not like pandas? jinping meets as with angela merkel at the berlin zoo, as they pull back the red curtain on the two new pandas to germany. there is panda fever in germany right now, with those pandas being delivered. you could say trade is kind of their agreement, their agreement
on trade is black and white, dare i say. they are reaching consensus on a number of issues of globalization as it is perceived that donald trump has taken the united states out of the global leadership role. she wants to push for trade and angela merkel want to talk trade and they want consensus, have reached consensus on climate change in a number of other deals. and you know, angela merkel is pledging to really move the dialogue forward within the eu for investment with china, that could possibly be a precursor to a free-trade agreement between the eu and china. again that is a long ways off, there are many contentious issues on the tray from between two of the world's biggest manufacturers, that being germany and china. again, as they push the issue of trade north korea and kim jong-un, what happened the last couple days really pushing up the agenda and trade down, at
least with the agenda coming up with the g-20 and donald trump arriving on the confidence in. betty: we will be tuning into that in hamburg. thank you for that. we will talk more about this with stephen wong, a global political economist at the university of hong kong. yvonne: good to have you. we have been following the optics since yesterday when it can do president she -- the president and angela merkel, a new breakthrough that the german and china relationship has seen and a new position you are repositioning here. how far do you think these relations, how far can they go? >> i think they share a a lot of synergies, as germany is trying to reach industrialization 4.0 and china looking at 2025. so i think there are a lot of synergies, in terms of the production and manufacturing sector. but also obviously they are
aligned in terms of their attitude toward globalization, toward the u.s., so i think certainly the relationship between germany and china will be one of the closer ones compared to other countries in europe with china. yvonne: right. they agree when fighting climate change and entree, but there are limits to the relationship as well. i want to put up a chart that talks about the relationship between them in terms of trade. this is the chart, the yellow bar showing how much germany imports from china, around $77 billion last year and of the red sold 85ing that they billion and exports to china and i think angela merkel want that number to be higher. to what degree will he talk about barriers and regulations, security laws that they have to deal with in china, is germany still wary that they can walk
the free-trade talks? >> i think the relationship will balance in the sense that china has become one of the largest export destinations with germany. but that is still friction. in terms of the trading amount. so i think china will be one of the largest germany trading counterparts, but in a sense that germany will not be china's biggest trade partner. so i think this relationship obviously germany would like to more ofit more, a bit china buying from germany, in terms of trade. but i think the relationship will be reciprocal. yvonne: we will get more after the break. stephen wong at the university of hong kong. you can get a round up of the
♪ yvonne: this is "daybreak: asia." i'm yvonne man in hong kong. betty: i am betty liu in new york. japan and the eu reaching a trade deal to account for more than a quarter of the world's and economic -- economic output and shinzo abe and officials are excited to endorse the accord on thursday. isabel reynolds is following this from tokyo. isabel, tell us more about this. isabel: right. a lot of people have been asking
how come japan and the eu, who have been talking about the trade deal for four years, more than not, and to set deadlines and missed them have on this occasion been able to reach an agreement. the short answer is donald trump. the fact he has rejected the trade deals, especially the tpp, the one that involved japan and the uss maine members, has really forced -- the u.s. as the main members, has really forced them to step up and take the lead on international trade and that is what they are trying to do. betty: just to keep everybody in mind, this is a political agreement so far. they still need to go through the fine print, which is probably the most challenging task between two countries, so is a sure to come into force? isabel: we cannot say for sure. i do not know if you can see the footage we saw earlier of the
ceremony that went on between the eu and japan, with the leaders filling in the i, painting a black i, that shows that the which has been fulfilled -- eye, that shows that it has been filled. -- fulf illed. they are hoping to reach a final detailed agreement by the end of the year. then of course it must be approved by all the members of the eu, and we have seen in the past in a deal with canada that it does not always go smoothly, so we cannot say 100% it will come into force. yvonne: we know how hard it is to get these, these trade talks going and to get them to success. isabel, thank you. stephen wong is back with us, a lecturer of global economy at the university of hong kong. we talked about it earlier, but coming houston advocate it is to
say something like this happen, particularly at this time when we see the u.s. pulling back on trade. betty: and you see the deglobalization happening. stephen: the eu has been negotiating trade agreements with a lot of countries, japan is one of them, but if i'm not mistaken they are still working on about eight or nine, negotiating with other countries. the previous one with canada. i think it is in the interest of the eu to continue to sign on these free trade agreements in the spirit of globalization. betty: how do you think donald trump, how do you think the white house and donald trump will respond to these moves? stephen: i think that donald onmp obviously is focused the short-term, so i think unfortunately he seems not to be thinking strategically in terms
of the long-term ramifications, which the u.s. will continue to be left out of in the world trade system. that they are pretty much part of. they will miss out. betty: absolutely. i think people are saying the reality is coming to the forefront now for president trump. the reality, particularly on north korea, is really coming to the forefront. i am curious, give me a sense of how much you think north korea is going to be this sort of overhang, the prominent issue that will be discussed at the g 20. and what are the big, i guess, expectations out of that? stephen: to me that is one of thatore immediate issues will probably good everybody's focus and really sit down and try to figure it out, given the recent missile launch.
and that certainly involves some sort of stick and carrot approach, but i think it will be a fine balance between what kind of carrots and how big the stick is that the international community can offer to stabilize the situation without angering the leader there. betty: we did see the president tweet about it overnight with a trade relations between china and north korea, "trade between north korea and china grew more than 40% in the first quarter, so much for china working with us but we had to give it a try." yvonne: everybody knows about the relationship between china and north korea, but good issue really prompt america to tighten on china? stephen: i think there is a real security threat to the u.s. right now. potentially in the future. so i think the u.s. cannot
afford to sour the relationship with one of the key partners, china, which is a key to this whole thing. i think they need china not to just sanction north korea, but potentially stabilize the relationship by offering something to the regime. yvonne: we keep having the debate about who will step in as the next global leader win the u.s. turns inward. canada has a lot of foreign policy baggage as well. do you think the image of them being the protector north korea, that will impact how people think or get the international consensus on what china wants? one, thetwo things, presidency has been saying the right things and choosing the right words. for example, setting a global stage for the leaders. expect him the you to say things like that.
on the other hand, do i really think north korea is baggage for that, i do not think so because people understand that nobody can afford to really let the regime fall just by dropping the ball. the ramifications is huge, not just for china but for everybody else. yvonne: bring it back to the eu and japan trade deal that could be in the works. i have a chart showing the trade relationship between europe and the u.s. and japan. you do see that japan still has a trade deficit with the eu, but a strong surplus with the u.s. in the white bars. if the deal goes through, how much could this cut the u.s. off in the import industries, especially like automobiles? the timing seems directed at donald trump and his protectionist policies. stephen: i think it is a coincidence, obviously it is in the interest of the eu to speed
up the agreements and negotiations, but these things take time, sometimes it takes years. so a coincidence to really clinch the deal right now, but i think the u.s. trade relationship with everybody else, with china, japan or europe, it will not be substituted immediately. in the short run it may not seem important, but in the medium to long-term the u.s. will probably see the effect of all of these future agreements outside of the u.s. yvonne: great to have you. lecturer at the chinese university in hong kong. still ahead, the cofounder of the arrow brand joining us to talk about the effects of the new sales tax in india on his hotels and commercial property development in the nation. and later, we speak with henderson on how geopolitical events are weighing on the
♪ betty: this is "daybreak: asia." i am betty liu in new york. yvonne: i'm yvonne man in hong kong. in overseas spending spree saw a after the deal and now the bill is due. off $11makers must pay billion in bonds and loans by the end of next year and that is just a fraction of the total debt of $160 billion the company has reported. data shows they have around $60 billion in cash, so immediate debt should be covered. betty: airbus winning orders for 160 single aisle and wide-body planes with $22 billion on paper and they augment the deal with superjumbo's. the news came during the
president's visit to berlin and involves three 50's. and theduce planes order will be split between the chinese site and europe. yvonne: bernstein thinks the new chairman is going to shake things up at the world's largest mining company. mckenzie will probably launch a full-scale review of assets and strategies and -- in the petroleum business. hb has said that previous decisions from the ceo destroyed about $40 billion in value. betty: much more ahead. the fragmented fed, policymakers divided on went to shrink the balance sheet. we will look at the minutes and reaction, next. this is bloomberg. ♪
yvonne: a: 30 in singapore. -- 8:30 in singapore. betty: quite gloomy and dark been created you are watching "daybreak: asia." let's get to the news with paul allen. paul: germany and china are calling for to a trade -- two-way trade. chancellor merkel said germany is ready to participate. the two sides signed a string of deals. talks came ahead of the g-20 at
hamburg, which the chancellor said would suffer discord. differences on auto exports. paving the way for free trade agreement accounts for more than a quarter of the world economic output. the deal has been in the works since 2013. prime minister shinzo abe and eu president are expected to endorse the accord on thursday. israel and india have launched a new -- from water to agriculture. as prime minister modi looks to boost his economy. his trip is something of a u-turn as india has traditionally backed the palestinian cause. disappointingfter quarter sales.
the stock sales were flat, falling short of estimates. $1.6 billion was just below forecasts. the ceo says that they were making progress in loyalty programs, restaurant upgrades, and digital delivery. spacex rocket blasted off from canadian center after two previous ones were aborted. there was a violation of criteria. intel nine is carrying an communications satellite to geo station, 35,000 kilometers above the earth. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. time to see how the asian markets are shaping up so far. let's get the latest with
sophie. like that isoks not changing so much. asian equities trading mostly flat. energy shares are dragging the most on benchmarks across the region. -- whicheighing on the is falling for a second day down about 2/10 of a percent. rebounding from the biggest slump in about four weeks. they seem to be providing some relief. oil remains in the bear market. management seems to losing -- be losing face. prices may be stock. -- may be stuck near 50 or below. let's take a look at yen and gold. little change after a tuesday rise. they seem to be preparing for a
rise. options traders are positioning for a rebound. that options you for gold prices are cheaper compared to contracts in eight months. but is the most since president trump won the election in november. seeing some room there. thank you so much. the federal reserve agreeing at the june meeting to hike its rate. the question is when to start shrieking that massive balance sheet. not much more to go until the end of the year. policy editor kathleen hays here with more.
the minutes told us quite a bit this time. >> i think so as well. got some very pertinent and interesting information because one of the biggest questions is when did the feds start rolling off and unwinding that balance sheet. they took oneare more rate hike this year? a lot of people are saying if the conditions are right. let's start with the balance sheet. it is clear from the minutes that they are no longer debating if they were going to unwind. they're talking about win. does that mean that -- about when. it does move that date up. some say it is better to wait until later in the year. they see more cautious, in the line of we think inflation is going to start rising. what if it does not? aree are just some who definitely part of the majority. there are some who say that the
risk of moving to quick, people getting more aggressive. risk.as the bottom line is all this division start reducing the balance sheet and do one more rate hike by the end of 2017. john silvia toyotas earlier -- spoke with us earlier. >> i do not think people should the balance sheet and raise the rate at the same time. he will be striking the balance sheets starting in october. i think december is more likely for when they will raise the rate again. >> do the final rate hike in december. that is the consensus. they are not 100% on board. betty: the timing of the hike, the likelihood we will get it at
the end of the year question -- end and of the year of the year? this is the yellow line that is a 2% target. there is the headline. it is down to 1.4. is the quarter. it is moving in the wrong direction. let's break this one down. most officials saw the softening -- inflation did it inflation. suggests --weakness does not suggest a weakness in the economy. is moving away from the 2% target instead of getting closer. you were a couple, i think to think there is a risk of underemployment fund so low that
it will bring an upside to inflation risk. september meeting, 22% odds is not high at all. as we get closer, you can see right now the market seems to be saying that you get the balance sheet around october. you start there and watch the economy. by the end of the year, once you make sure the markets will not be upset, you go ahead and make that rate hike. that would not be the cautious style. talking about active evaluations , there seems to be some concern . >> this seems to be a scene that is heating up. some did not want to move too
fast if inflation is getting weaker. the minutes talked about increased risk tolerance and that could be lifting prices. subdued market volatility could lead to financial instability. janet yellen last week said some measures look high. uptick in saying the risk appetite is propelling evaluations to elevated levels. the stock market is running very much on fumes. there happened to be three who are in this camp who want to move ahead. raise the rate one more time this year. i think people -- that is a counter argument to those who are saying slow down, we can wait to see what inflation does. if we way, we might cement the idea in the public mind that we are opposed.
is it going to be easier to do business in india? someone who has done business for many decades in india is the managing partner and cofounder to invest in real estate all around the world. gary, good to see you again. you and i talked for many years about india's growth potential. how excited or optimistic are aboutr are you not come this tax reform in india? >> we continue to be quite optimistic. india has long been plagued by bureaucracy and corruption. those are two items for foreign investors. these last moves over the last six months, last time we were together we talked about demonetization. demonetization hammered
corruption in the black market by effectively removing about 90% of the hard currency. that was done very quickly. betty: it was messy. >> it was not a debate. the bankruptcy law. the bankruptcy law effectively strengthened lender's rights. that is also important because case law in india has long been painfully slow. it is not uncommon to have cases drag for a decade or more. thirdly is gst. for 75 plus years, india has had this byzantine structure. betty: so confusing, right? you have experienced it firsthand. in and out of the real estate business, people look at this as directionally very important for india. the problems get
solved at once instead of incrementally. we view it the opposite. reviewing directionally very positive for india. betty: i want to know a real world example. for your business on a you look at india constantly for new opportunities. does it encourage you to invest in india? will it make tax-preparation easier for you and india? >> you're dealing with our fourth platform in emerging markets globally. we are keen to do the same in india. ans gst, there is now illumination of the border separation by state. the expectation is the infrastructure, the movement of transportation, as well as logistic real estate and the ability to move goods without this arduous process of moving things across state borders.
it will have a very positive effect on logistic property, which will be a big sector for india. betty: that will be a big opportunity. you would expect that you will see a lot more competition in the indian market. >> india is tough. we love it for that reason. betty: not a lot of people can figure it out. >> it is a challenge. someone give me the council, my first trip to india, gary you are on your way. people either hate it or love it. i loved it, for some strange reason. it is an explosion of senses. it is challenging. establishedve all presence in india. it is an important sign. that is a stabilizing force. that institutionalization of india, not just property but
also private equity. over the last six months, it has exceeded $10 billion. that is a six-month high for india. that is just the beginning. betty: 40 think is the most opportunity for you, particularly -- where do you think is the most opportunity for you? >> it is a handful of cities, you know all of them. the organization movement has already occurred in india. the core of the cities largely decaying. it is an urban idea. betty: i want to move onto another market or area that you are looking at and working in for some time. it is the middle east. i am curious. he made plenty of trips -- you made plenty of trips.
does it pick you what is going on right now between qatar and saudi arabia? >> that issue has been long brewing. not over the last month. that particular country has been independent and does not have the same issues as a saudi arabia and egypt. poverty and absence of job creation. population. million supplyhe third-largest of natural gas in the world. it is a jewel in many respects. betty: what does that mean? >> rules are different there. finley relations with iran is another aspect.
-- friendly relations with iran is another aspect. other countries do not want the disruption to spread to their countries. there is a practical basis for this. it is multilevel. , that is a powerful body. this is about collaborating. it is not about setting ultimatums. betty: how does this all end? you heard about saudi arabia .aying this is a negative the response they got from qatar is negative. where do we go from here? several of them get met, not all of them. that brings the two together. there is some mediation. we're not close enough to get all the insight. the fact that there is an answer somewhere in the middle. betty: does it make you rethink doing any business?
betty: this is "daybreak: asia." yvonne: the european central bank has reiterated its bid for a euro clearing role in a post-brexit world. oversight is crucial to maintain the stability of the common currency. we spoke with chairman john mcfarlane, chairman of the -- group. >> i think the issue is a conflict between politics and the economics here. to my knowledge, nobody has asked for clearing to move from a business standpoint. it is faring -- working very efficiently. the transaction cost is across a business point something because the scale is so enormous.
true, the aspect of that has to move into the eu. you lose the benefit. efficient. less up au then say, let's open multicurrency and the eu, but you keep the currency system in the u.k., which is much bigger, that would be more efficient but less efficient than it is today. you would be moving would be very difficult to be economic. i do not think it would work, aside from anything else. this is really political. >> does that explain what they are saying? a big percentage of the euro clearing business right on their doorsteps. >> you can over -- understand that.
if they have oversight over it, that should be accommodated. >> do think there is a role for oversight? > >> i think so. mcfarlane, was john the chairman of the lobby group. let's get a quick check of the latest is this flash headlines at this hour. talks to resolve a u.s. investigation into the sale of toxic mortgage bonds. apart and afar solution is weeks or months away. an agreement could give an indication on how the trump administration will love the penalties. yvonne: central big preparing to move its trade and banking assets in london to frankfurt ahead of brexit. the strategy is still being finalized but will be implanted over the next 18 months.
subject to review as the brexit scenario changes. poised to resume test flights after the deadly breakup of its experimental rocket plane. the owner has told bloomberg he aims to make its first trip by next year. he was an early leader in the space race before the 2014 crash which killed its copilot. that is it from us here on "daybreak: asia." the eu and japan nearing the free trade agreement. you also have the trade numbers coming up. rishaad: it is all about trade. australia with a number of free trade agreements. not least of course, somewhat the united states. ongoing ones with china.
with what is talks left of tpp. that those numbers coming out and about 35 minutes. we will look at those numbers and get an instant analysis report. that is one thing happening. i think that was a few years ago. politics moving over what we have been seeing here when it comes to this trade deal and a lot of things happening. rishaad: let's not forget the big one, which is that icbm being launched. looking what that means. it is strange how they have really taken this in stride. yvonne: very different from the last 11. rishaad: this one is perhaps a game changer.
the u.s. also thinks it is. group joining us. it was more interesting than the usual ones. rishaad: we got a rate rise in that particular meeting. seriousthey were pretty but this is going to be inevitable and happening. the question of when is what we saw. betty: looking forward to that. "bloombergead with markets." ♪
♪ david: what would you say this the skills that you brought was, great intellect, great drive, great leadership? phil: all of that. david: let's talk about golf. phil: tiger woods, you could see coming from way back. david: in basketball, you have someone named michael jordan. if i wore those shoes -- phil: you might. david: when you give a $400 million gift, you write a check? is it hard to do that? phil: yes. david: