tv Bloomberg Daybreak Asia Bloomberg May 31, 2018 7:00pm-9:00pm EDT
yvonne: it is 7:00 a.m. here in hong kong. i am yvonne man and welcome to "daybreak asia." asian-pacific markets set for declines amid rising trade tensions. the s&p fell for the fourth time in five days. tariffs are to blame. trump has metal penalties against america's closest allies. they say they will fight back. ramy: i am ramy inocencio in new york. the u.s. and north korea move ever closer to that summit after high-level talks right here in new york. mike pompeo says they are making progress.
ramy: all right, breaking eco-data crossing the terminal, south korean gdp as well as the cpi. gdp, quarter on quarter, kind of a miss. 1% is the actual against the consensus survey of 1.1%. in the year on year, it came 2.8%. i guess we would say this is just about meeting expectations for both of these, but we also have the cpi, which also dropped as well. yvonne: those numbers missing
estimates, year on year rising 1.5% from a. analysts were expecting 1.7%. 1.3%, year on year. investment has slowed. you have trade tensions, that could limit investment decisions. also given inflation pressures, the bok is likely to stay on hold. speaking of imports, we will get those numbers, year on year in the next hour or so. with a gdp it seems that is fine, but the cpi, a miss. meantime, let's get a closer look at how the new trade tensions have roiled u.s. equity is increasing demand for safe havens. there were some bright spots.
tech shares edged higher and a higher investment from softbank send general motors on a record rally. su keenan is here. let's start with trade concerns. >> the concern there will be retaliation, which we have also -- already heard from allies will happen. let's go into the market snapshot. we saw bonds climbed, oil slipping, gold dropping, although it has picked up a bit of a bid in extended hours. a lot of gold bulls are saying this will be bullish. which had been0, on a record run, you can see come off of that record. we are looking at multinational stocks. these took a big hit. many consumer products companies like kimberly-clark makes half of their income abroad. took a very big hit, as you can see right there. you mentioned general motors.
it had its biggest one-day rally since the bailout. up almost 13%. snap was up almost 7%. a big shortselling analyst said the shorts were overdone and the company might get acquired. that turned things around. also the fears. on an, on -- micron, bullish run, some are saying is pulling away. snapping back is what this chart is called. gtv is where you can find bloomberg's library of charts. this hit a high in february. it has come back to where it was two days ago. we had a rebound yesterday in the last session. in the thursday session we are down again. friday it will be interesting to see how we end the week. yvonne: it was not a rush to
safety so to speak, it is not like they were rushing to sell indiscriminately. sanctions have been the roughest u.s. action yet. america's closest allies claim tit-for-tat tariffs on goods. on threats tod impose steel and aluminum duties. is his biggest action yet. , greg sullivan. thank you for joining us. we heard the responses from mexico and canada. how severe is the backlash? we have seen all the recipients of the tariffs plan to impose retaliation tariffs which raises the specter of a trade war. there has also been pushed back in the united states among business groups and manufacturing associations.
commerce,hamber of which has long argued against imposing these tariffs, says u.s. consumers will bear the brunt of rising costs from the retaliatory measures. manufacturing groups also argue increased costs for inputs will raise prices, that consumers will bear the brunt of as well. the backlash was not just limited to business group. including many republicans, took issue with the tariffs. house speaker paul ryan said it was the wrong decision. definitely pushback there. also, whether this move was linked to ongoing nafta negotiations. commerce secretary wilbur ross, when announcing tariffs, said he was eager for negotiations, though expressed disappointment in a lack of concessions from the e.u. and a lack of a final
agreement of the nafta negotiations, which are ongoing in the background. the question is whether this could be used as a prod to get further along in these negotiations. yvonne: or if it is more political posturing. greg sullivan, thank you. we're starting off the new trading month on the back foot, given what we saw in the wall street session. take a look at the new zealand stocks, nzx 50 down 0.4%. could see things heading south. nikkei futures flat at the moment. x onave seen the topi course. they are sitting by idly at of the jobs number. we are seeing the yen getting back gains overnight, but we are holding on to april highs at 108.74. cad, thesellar
retreating on reports they perhaps will be facing those tariffs on steel and aluminum. certainly will be watching them fx space and bond markets. treasuries seem safe, but we are unchanged for the u.s. 10 year at 2.86. the 10-year german bund as well as italy -- that is one to watch. it seems these tariffs are overshadowing reports from italy, forming a government that is perhaps more e.u. friendly. it seems they have avoided a snap election for now. we see yield lower for the italian 10 year at 2.79 this morning. parties up, populist sweep to power in italy later on friday with a spending program that is a direct challenge to european union rules.
the line -- a veteran eurosceptic as finance minister. italy has been without a government since the election in march. the indian recovery strengthened last quarter, it is uncertain if they can maintain that. gdp rose 7.7% in the fourth quarter of the fiscal year through march, driven by manufacturing and agriculture. that makes india one of the fastest expanding major economies, but it is threatened by a slump in the rupee and faster inflation. and, legal action in australia dollar -- billion prosecutors accuse the bank of in a legendncerned cartel conduct by the joint lead managers for the placement of approximately 80 minute -- 80
million shares. anz has pledged to fight the case. u.s. prosecutors say a goldman sachs vice president gambled his career on a series of trades using inside information about bank clients. he was arrested in san francisco thursday, accused of using private information about deals involving a dozen customers. he allegedly made $140,000 in illegal profits, although one trade on an energy merger netted only $362. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am courtney collins, this is bloomberg. now, to an exclusive interview simulcast on bloomberg television and radio. we are talking about rising
trade frictions as u.s. allies had back -- hit back on the u.s. tariffs on steel and aluminum. we have james bullard and kathleen hays with us. mr. bullard, thank you for joining us. certainly a very timely discussion, with what we are seeing in italy, these tit-for-tat tariffs. tell us what discussions you might be seeing in the next fed meeting with your colleagues. how disruptive can this be for the economy? talk ishe trade increasing uncertainty in the economy. when i talk to people in my district back in the midwest or people over here in the far east, everyone is talking about how the trade talks might change world trade arrangements. however, i think the proof is in the pudding. it comes down to what is actually agreed upon as far as
trade arrangements and i am not sure in the end all that much will change. what about the political crisis in italy, which has such an outside impact on markets this week? i will be pulling up a bloomberg chart from our library to show how italy's 10 year bond over germany's benchmark has just exploded. how does it affect you are of the proper course of the fed policy? does it make a difference? i think uncertainty about the future of the euro has been a big issue in the last decade and the rise of eurosceptic parties in italy is a serious matter. so we will certainly take that on board and discuss it. we have been through this before with the debt crisis that raged
in 2011 and 2012 in europe. but ia major factor, would also say when we have been projecting out what the fed would do, i always felt it was priced for perfection, as if nothing could happen or go wrong. i think the italian situation shows you uncertainty can rear its head at any moment. kathleen: is at the market volatility that bothers you? is that the point for the fed to be aware of? you raised the point, maybe just sit back and do nothing. well, there is an aspect that benefits the united states and tends to drive longer-term yields in the u.s. lower. we have seen that with the u.s. 10-year trading at 2.86 in tokyo. you can benefit in the u.s. from
the fact our european brothers and sisters are having their own troubles, but i'm not sure that is the way you want to run an economy. you want everything to be smoother than that. ramy: hopefully. looking at what is happening in italy and all the trade tensions, not just with u.s. allies, but china as well, to what degree do think this is more ammunition for yourself, being the strongest dove, on a slower rate hike, slower expectations? of theas you know, one things i have been concerned about is that we go ahead too aggressively and too much on a timetable and not sensitive enough to incoming data. this is the type of thing that could give a person pause. i am not saying that it will, but renewed crisis in the e.u. would certainly be a major
factor from the u.s. point of view, and how we want to proceed. i do not think we are at that point yet. it seems the italians are forming a government. we will have to see how this forms over the summer. ramy: we have some breaking news from samsonite. we are learning the ceo has resigned. this is on the back of news from whichkes of short-sellers alleged the accounting lapses surrounding the company as well as poor corporate governance. they had raised a lot of questions about his resume, and some offered bullish opinions. we are learning now that the ceo, ramesh tainwala, has resigned. kyle francisinting gendreau. back to our
conversation. when it comes to inflation i know you have a big concern, given how low inflation expectations have been. what we have learned from the fomc minutes, there are doubts of whether 2% inflation can be sustained. if the economy is doing so well, why do you think there seems to be a lack of consensus or certainty around that? the feedback from relatively rapid gdp growth and relatively strong labor markets into inflation is a factor that used to be important and used to be of empirical relevance, but lookou look at it over -- at it today. it does not work that way anymore. i am not sure faster gdp growth by itself will indicate inflation is going to move up any faster than it has in the past. i am not sure we are there yet.
if you look at inflation year-over-year it is about 1.8%. core cpe by 1.8%. we have done a lot of normalization, even before inflation got back to target, much less above target, and got into a situation where we had the tampa down on inflation. i think we are in a good position right now, where we are with the policy rate and the normalization policy. we could play it by year and see where the data come in from here. kathleen: i know you said no rate hikes, but it is clear your colleagues on the fomc are signaling that june hike. it looks like a slamdunk. meanwhile, the markets have priced out a third rate hike. is it possible at this coming meeting for the federal reserve to communicate we are hiking the
rate now because growth and inflation is a target, and also indicate uncertainty over italy, trade, etc., means a third rate hike is definitely not on the table and has probably been reconsidered? cite the former chairman alan greenspan as saying, we are on the record as being vague about that. that is where we are on a committee right now. if you look at what different members have said publicly, they have hedged their bets about how the commission could behave in the future. that is certainly totally appropriate. i think we should be dependent moree data, taking on developments in the u.s. economy and the global economy, and then discussing that at the various meetings in deciding what to do. i would not want to prejudge how we will play this at the june meeting or the rest of the year. brainard, your
colleague, give a speech today in new york. she said the fed would do gradual rate hikes from accommodative policy do something modestly above neutral. is there a risk in that? if that is what the fed is going to do, and it is -- is it the correct path? james: i have been arguing we are already a neutral today and if we start going up from here, we are going to turn restrictive, possibly in a situation where inflation has not made it all the way back to target yet. space,look at the pip anected inflation, and make adjustment to get it translated into pce inflation, the markets are saying they do not see enough inflationary pressure to get pce inflation back to 2%. even after five years or five years after that.
i think inflation expectations are still a little weak for us to be moving into a restricted mode. we should stay where we are and let them resent her on our 2% inflation target. that will set us up better for prolonging the expansion to where it is today. peers: jim, you and your have your own version of a neutral rate. what makes yours the right neutral rate? analysis is just one out of many, i understand that, but i really think the global, if youal interest rate, look at the data and what has been said about it, it is still negative today. you get a 2% to that, long-term neutral federal rate below 2%. that is about where we are today. that is one argument for saying
we are at neutral or close to neutral right now, and we do not have to do very much going forward. people come in with phillips curve argument saying, unemployment is low, that means inflation will go up in the future, but the phillips curve correlation is broken down and it does not look like that will be a factor, much of a factor, over the next two years. i think we are in great shape today, but we could stay where we are, and let the data tell us what to do next. say we could stay where we are, but if you could wherea picture to outline you go ahead and hike. gdp, wage growth, employment -- james: i think inflation would have to surprise to the upside. it certainly can do that and maybe that would happen. in that cat -- in that case i
would relent. not think that is the situation where the fed is behind the curve. the fed is ahead of the curve. we have already normalized a bit. we have a balance sheet decline in a world where the ecb and boj are still expanding their balance sheets. we have moved off of zero bound. you have negative policy rates around the world. we have done a lot already in a situation where inflation was still below target, not above target. i think we have been preemptive already. that is what is containing inflation pressures in the u.s. for now. i think we could play on that, stay where we are, re-center inflation expectations on 2%, and set us up for the future in a better way. i know you raised
concerns about the yield curve flattening as well. why do you think that is such a meaningful indicator of a recession for you? it sparked a lively debate within the fmoc -- fomc. when you have heavy issuance on the front end, and the kiwi on the back end, doesn't that create distortion? james: it is probably not a perfect indicator. if you look at the postwar record of the yield curve inversions predicting records in the u.s., it is 100%. there is only one false signal and that whole time period. it was in the mid-1960's. even then there was a significant rebound when the yield curve reverted. we have to take it seriously as an indicator of what the market thinks, versus what the fed thinks. theway to think about it, fed is influential at the short end of the yield curve, but less
influential at the long end. when the yield curve is inverted, it indicates the fed is too optimistic based on market expectations. that is what leads to the recession. pushnk we do not need to so hard we get into a situation where the yield curve is inverted. we just do not have to do that in this situation. inflation is only running at 1.8% right now. we have not even gotten to target now. if inflation was 3%, i might be singing a different tune. stay wherecan just we are. if we keep ratcheting up on a calendar basis, the short end of the yield curve, we may get an inverted yield curve a later in 2018 or early 2019. we have seen this week how volatile you -- volatile long end can be.
the 10 year yield may have fallen 15 basis points on tuesday, if i am not mistaken. we do not have that much of a cushion to prevent yield curve inversion. i am concerned about this and want to have that debate now, not when we are already inverted. i will say one other thing about this. 2000, 2001,ember in 2007, we had2006, inverted yield curves. don'tlk among the fed, worry, this time it is different, it does not indicate a recession is ahead. both times we got burned. i have come to respect to this signal from the market. i think we are in a situation where we do not have to touch this a third time. kathleen: obviously you and lael brainard will have to discuss
this, because she does not think it is a sign of recession. on ramy's point -- unemployment 3.3%. the beige book talking about having to raise wages because they cannot find enough workers. job growth is staying at a healthy pace, doesn't that suggest an economy strong enough to do the path of gradual rate hikes, at least two more this year, to avoid overheating or research in inflation -- resurgence in inflation? james: we have a well functioning labor market, so why mess that up? let it function and let these people find jobs. we have african-american unemployment and hispanic unemployment coming down to low levels. that is good news. we have people coming in off the sidelines. we would like to get them settled in to good job
situations they consisting going forward. i just do not think we have got any call here for disrupting the labor market from where it is today, in order to do something about inflation. inflation is still below target, even now. i do not think we need to go in that direction. i think we have a lot of credibility we will take action if we need to, to keep inflation after control. we have been on the low side of our inflation target for six years now. sure, things are going well in the u.s., that is good news. willnot think it means we miss our inflation target by any appreciable margin. yvonne: jim, we have to leave it there. james bullard, st. louis fed president and ceo. and, our economics and policy editor, kathleen hays. coming up, masayoshi son hits on the gas as gm's driverless cars
a.m. friday. happy friday in hong kong. we are 30 minutes away from asia's first major market open. msci inclusion day. samsonite reviewing trading from 9:00 a.m. in hong kong, when we learned the ceo ramesh tainwala resigned after facing pressure from seller blue orca. ramy: beautiful morning there, but not a beautiful evening here. rain in the forecast, 7:30 p.m. thursday in new york. the empirelooking at state building like we normally do, a beautiful shot of traffic outside bloomberg headquarters,
as people make their way home. i will say happy thursday to you here. i am remy innocence you in new york. yvonne: i am yvonne man in new york -- in hong kong. closest up, america's allies will impose tit-for-tat penalties after the u.s. confirmed tariffs against them. commerce secretary wilbur ross issued duties on steel and aluminum to the european union, canada and mexico, on grounds of national security. the e.u. says it will retaliate immediately. mexico said it will impose tariffs on a number of goods, and canada says washington's decision is baffling. >> there were other scenarios. it is unfortunately the worst case scenario, imposing tariffs on your allies.
mexico had already consider this scenario. we announced today we would take action. canada could be considered a national security threat to that -- the united states is inconceivable. house says it expects a north korean delegation to visit washington on friday to deliver a letter from kim jong-un. talks trip would follow spymaster,'s veteran kim young chol, and mike pompeo in new york. both sides are preparing for a historic summit in singapore june 12. >> this is a difficult challenge, no doubt about it. there remains a great amount of work to do. we have made progress here as well as in the other venues.
we had all the time we needed today to make the progress that was achievable in new york city. >> facebook is under fire again, this time from its own shareholder. criticism of the handling of user data, with one shareholder comparing it to a violation of human rights. another warned the scandal could hit facebook in the wallet. zuckerberg has been grilled on both sides of the atlantic, but to be questioned by critical lawmakers in london. wealthiestworld's people said president trump is slipping down the list. $100 million fell over the last year as revenue shrank from his namesake fifth avenue tower and many golf courses. it is the lowest since they began tracking trump's wealth back in 2016.
global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am courtney collins. this is bloomberg. yvonne: we are counting down to major market opens in the asian pacific. for more, let's bring in sophie kamaruddin. it has been an eventful may, starting off in june event for, as well. this morning we had the latest inflation and a final read on first quarter gdp. economic growth looking steady for south korea, but it has not still inflationary pressure, which is kept the bok on hold. they are below the 2% target. growth driven by exports. we will see how exports come the top of the hour. export growth is keeping the economy on track. we are looking at a subdued
start to futures. stocks in tokyo lower ahead of data due this morning. they say there is more pain ahead for japanese equities. the nikkei, off i 2.5%. in australia we do have the asx 200 starting june in the red. anz is facing criminal cartel charges. yvonne: currency markets, it seems this tariffs talk is overshadowing possible relief in italy. it seems they have formed a government. sophie: it seems to be the case. pulling up the board to check on currencies that have been moving. the mexican peso, the loonie under pressure. the loonie hovering just above the 130 handle above the dollar. giving range bound after up gains on italy relief ahead of key u.s. data.
the aussie looking better after retreating from the .7593 mark it hit overnight. i want to show you this chart in the terminal, illustrating the greenback has been on a roll during the month of may, trading around 2018 highs, clocking the best month since november 2016. recall morgan stanley told us yesterday, they do expect more strength from the dollar ahead. ramy: sophie kamaruddin, checking the markets before the friday open. more on rising trade tensions. some of america's closest allies hit back after tariffs on steel and aluminum. this comes just ahead of the g7 meeting in canada. it will definitely be top of the agenda. michael mckee is in whistler right now. where do we stand? michael: the president imposed tariffs on all steel importers into the united states back in march, including taiwan and
japan. he exempted the european union, canada and mexico at the time. today he is lifting those hasptions, saying the e.u. not done enough to import quotas and canada and mexico had not done enough progress on nafta. the decision by the administration has caused swift condemnation from all the allies and retaliation. they published a list, including harley davidson motorcycles and bourbon whiskey from kentucky. canadians will impose tariffs on american-made steel and aluminum, things like maple syrup and beer cans. hurtmists say it will not the economy now, but could if we see escalation. nobody knows where we are going from here. ramy: it seems, looking at these leaders, there is reticence in
this. justin trudeau said it is inconceivable there could be any kind of security issue between the united states and canada. they do not want to be doing this, do they? it seems they have to take a stand. michael: politically, they have to. it would not play well in their home countries if they were seen as kowtowing to donald trump. it is difficult for the g7 finance ministers who want a coordinated effort to keep global growth growing, but this is throwing a wrench into that. it is hard for them to argue with the in ministration's argument that this is a national security issue. it trump administration said is about a strong economy, not a threat from any country. these countries feel insulted and do not feel allies should be putting sanctions on each other. yvonne: markets are finding it hard to price any of this in. it is like shooting at a moving target.
what happens next? waitel: we are going to and see as the retaliatory sanctions get imposed, they are going to get behind because of the bureaucracies in each country. canada will not impose its sanctions until july 1. we will see if this causes the trump administration to raise the ante with more sanctions. remember, we have the chinese sanctions the administration promised earlier this week. it is possible we go from a trade skirmish to a rate -- to a trade war. no one knows exactly where this is heading. isnne: at a time when china actually lowering tariffs on consumer goods, it will be interesting with wilbur ross heading to china as well. michael mckee, thank you. the world's biggest technology fund and the world -- biggest automaker in the u.s. joining forces on self driving cars.
general motors says softbank will invest more than $2 billion in its cruise unit in a deal. we know softbank has plenty of money, they have a vision fund, possibly a second one. why gm, why cruise? >> masayoshi son has a 300 year plan with a huge ambition how the world will change, and self driving cars have been key. world altering, potential in tatts. getting direct exposure to self driving car programs is important. cruise, even though it is owned by gm, is seen as one of the key players. softbank already has exposure to directut this gives it exposure to the future of self driving cars. ramy: this can only be good news
for gm. $2 billion, this is amazing money. it is great, it is outside validation of the company's self driving car program in a period where it is hard for shareholders to get an idea what that program is worth. definitely a good look for gm. wasuding earn outs, cruise worth $1 billion. this is definitely a good sign they made a smart early investment in autonomous vehicles. yvonne: potentially good for son. it seems he is in a rivalry with larry page on whether to develop cutting-edge technology. what does this mean for softbank investments like uber and didi? moneyi think if you take from softbank you get used to them potentially investing in competitors. it is more of the same.
there will always be questions about whether someday down the road masa has a plan to pull everything together. i think most of the time he has a strong thesis in overlapping areas. sometimes it means investing in ceuta competitors. how that plays out down the road is to be determined. ramy: amazing stuff, eric newcomer. shares climbing as much as 12% on the news. and investment ceo says when it comes to trade, china is playing chess, while the u.s. is still playing checkers. teresa joins us live from washington. this is bloomberg. ♪
tariffs are totally unacceptable. years, canada has been united states' most steadfast ally. >> whatever they do in terms of actions will be encountered by the similarly wade -- weighed action from mexico. we will try to reach a solution in the best interests of mexico and our trading partners. >> if we were to liberalize in the g7 services to the same degree we had liberalized goods, these imbalances would be cut in half for the united states. for the u.k. it happens to be the case as well. >> in no longer appears to be america first, it appears to be america alone. whether it is the iran situation, the paris accord coming out is trade.
i do not know where it is going to end up, but it is not healthy for the western world, in my opinion. ofwe are entering month six a threat of a tariffs war. it is not clear where the in administration is going for this. there is as the case remarkable shift from everything being about central banks and quantitative easing and when will that end, to geopolitical risk and the actions of politicians in the fiscal and trade space. yvonne: that is some of the reaction to u.s. sanctions. this is "daybreak asia." ramy: stocks fell and bonds rose. the trump administration confirmed tariffs on some of america's key allies. china is watching all of this as commerce secretary wilbur ross heads back to beijing for more
trade talks. let's discuss the issue with the ceo, investment advisor focused on emerging markets. theresa, i am curious your take on everything happening here, because looking at it through the lens of pushing ahead to china, i was talking with a colleague. he said this leveraging, this posturing with u.s. allies, could be trying to set up something even better for china. what is your take on that? by most important point of view is that in the long run, if there is a trade war with china, china will win. that is for one simple reason. ramy: short and simple. the chinese government you say is holding all the cards. i feel that is a bit much.
teresa: i do not think they're holding all the cards, but i think the reason they will win arehe long run is that they disciplined, focused and dedicated to doing what is best for their economy in the long run. the -- that is what the adversary on the other side is focused on. both sides have so much to lose. you think you can say one side is going to try to blink before the other? teresa: china has already given in a lot. i think the reason for that is, what the u.s. wants from china is in line with what china wants for itself on many of these issues. they have liberalized their services sector -- i.t., shipping, legal, financial.
they allowed in april u.s. car companies to come in quite freely. this week they said foreign investors can come in to any industry, as long as it is not on a negative list. they have also lowered tariffs. china has been moving in the direction the u.s. wants. shove, if push comes to when it comes to intellectual property, that is where we are going to see at least overtime, if not right now, china moving. my own view is that the return to theft of international -- intellectual property is going to zero in china. and protecting intellectual property is rising to above zero in china. they now have intellectual property worth protecting. we have seen this in analogous cases in other countries.
when you get through that curve, they then have something to protect. i think that is where we are with china. yvonne: how about when it comes to the ip process? it seems the u.s. is focused on deficits, not so much structural issues like protection of intellectual property. are we likely to see two markets developing on their own, bifurcated markets? i think it depends what problem you are trying to solve. between had an issue 2001 and 2010. a lot of companies left the u.s. and factory jobs moved to china. that is something the u.s. administration is quite focused on, but that horse has left the barn. they need to round up new animals. what they have a focused on,
myopic lee, is the trade deficit. there are a lot of problems with being just focused on the trade deficit. yvonne: i want to focus on the middleman in light of these negotiations. laido you think he has himself while he has been going to d.c. and meeting with the trump administration? doing need someone else to be dealing with these discussions as well? teresa: i think it will be interesting on saturday. he isl look to see if liu the front person, or if they will bring in the big guns. it is possible the vice president and right-hand man of president xi, whether he gets involved. then we won't know it has been escalated to higher levels in china. ramy: i want to ask you about msci. inclusion is happening today,
june 1. we know what will happen, 0.4%. what is in away, but your take on this in terms of future trajectory? teresa: in some ways it makes a lot of sense. this has been five years in the making. they have refused china three times in a row before accepting the world is going to have to come to terms. areurselves at cartica concerned about one of the main issues most foreign investors are concerned about, which is corporate governance and the lack of enforcement of security laws in china. 4%, but the last day of august, there will be another round, zero point percent. -- 0.8%. plusis in addition to 30%
in china shares. china could represent over 40% of the msci em. you could say the u.s. represents 60% of the developed market index, why shouldn't china represent 40% of the em index? is, the u.s. is the deepest capital market in the world and one of the best regulated, whereas in china, they are a very shallow market. there is very little analysis. and come the really huge issue for us is corporate governance. some of the private sector l businessstea opportunities as well as assets. that really has to stop and disclosure has to get a lot better.
yvonne: we are going to leave it there, teresa barger of cartica management ceo. watch us live, catch up with past interviews, and dive into securities and functions we talk about. us conversation by sending messages during the shows. this is for bloomberg subscribers only. this is bloomberg. ♪ this is bloomberg. ♪
has stepped down over concerns over accounting practices and corporate governance, shown plunging 20%. he will be replaced by cfo kyle francis gendreau. last week short seller blue orca questioned trading by samsonite. this is the strongest signal yet the plant will be built. royal dutch shell will hold 40% while subsidiaries will have 15% each. petranos abandoned its own project last july. yvonne: coming up, and in-depth of the chinaebut shares on the msci emerging markets index. our guest from ubs will talk
>> 8 a.m. in hong kong. we are live from the asia headquarters. on the font, welcome to "bloomberg daybreak: asia." the top story, asia-pacific markets, ever decline amid rising tensions that the s&p 500 fell for the fourth time and investors had for safety. tariffs are to blame. america's closest allies say they will buy back of it -- back. >> and from bloomberg's other quarters, i'm ramy inocencio. day fors a very big
investors in china. more than 200 large stocks emerging market index. >> some heavy day-to-day in korea. breaking numbers coming through soul -- sol. .3.5% this is coming off of a negative number that we saw the previous month. it is leading expectations and a 10.5% from economists. 12 point 6%.ll, economists thought it was a 10% one, lower than what we have seen, but this is half of gdp exports, this is really going to feed into growth here. we had those city numbers for the first quarter.
we were waiting for the export numbers and in the last hour, gdp coming just on par with estimates. as you mentioned, they are trailing a little. the interesting to see how impact is moving ahead. the survey was 10.5% growth. here and getong the first word news with paul allen. paul? >> thanks, rainy. areica's closest allies imposing penalties against the tarrifs against them. the eu says it will retaliate immediately. mexico promised to slap tariffs on a range of u.s. goods, and canada says washington's decision was baffling. today, we have the worst-case
scenario, imposing tariffs on allies. alreadyco had considered this scenario. we announced today we will take action. >> if canada could be considered a national security threat to the united states, is inconceivable. >> the white house says it expect a north korean delegation to visit washington on friday to ver a letter from kim jong-un. between miketalks pompeo and a representative from north korea. well inist things would both sides are planning for the historic summit in singapore on june 12. >> this is a difficult challenge. make no mistake about it. there remains a great deal of
work to do. asmade progress here as well , at the same time, made progress with other conversations taking place. we had all the time we needed today to make the progress that was achievable during our time in new york city. >> populist parties will take power in italy later on friday with a spending program as a direct challenge to european union rules. the prime minister will be sworn in, and the league agreed government, the president, and a veteran eurosceptic is financing the minister since the election. spain, she is heading for a defeat. opposition parties are joining forces against them. socialists have the backing of two antiestablishment groups. another group and nationalists
are expected to vote against rajoy. the prime minister says he will not resign. global news, 24 hours a day here and on tictoc and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm paul allen. this is bloomberg. paul, thank you. the regional bank park is down the 10th of 1% -- regional benchmark is them 10th of 1% per. the data seems to be pretty strong given what we saw in south korea despite these trade tensions. >> despite the tensions, you have exports for south korea looking resilient. economic growth is steady, but the lack of inflationary pressure is putting the spotlight on the bank of korea, that is likely to remain on hold given inflation is below the 2% target according to what we got this morning. we did see a revision on a quarterly basis with south korea to 1%. look at habits playing
.1%, inhe market, tokyo, the nikkei is off .2%. we do have data on the japan front as well, capital investment up for a sixth straight quarter. that could ease concerns over the economy's recent weakness as businesses spend. that could conclude to possible revisions on the gdp for japan. plus, company profits grew during the first quarter. with a few teams and play. inclusion,ese asia that is not really feeding into the session so far, but check out what we are seeing for the futures, up about .1%. take a look at the gauges here. we have the yen has a second weekly gain against the dollar. thanks to the trade
tensions over italian politics. juan neared 10 54 back in april. the mexican peso, it has it consistent decline -- a consistent decline. . checking on sydney, the bank faces charges over stock. they're up 1.6%. ramy? ramy: sophie, clearly seeing what is happening there. getting pressure on what happened in the united states and out of the white house with the trade tensions swirling around the world. in the meantime, let's go to china. it is a big day for the country with more than 200 mail-in stocks. they make their debut on the emerging markets. this move will open up the
second-biggest equity market to global investors. and a further buying china to the rest of the global economy. our correspondent, tom mackenzie, is on the ground in shanghai for this historic moment. tom, based on this moment, what is the feeling like there? ramy, certainly in places like shanghai where hopes are high, there is enthusiasm from investors that we have been talking about this. john china, we have heard from the likes of jamie dimon saying he thinks, despite the move being relatively small inclusions, it will help educate people on chinese stocks. we spoke to morgan stanley and they said it is positive, it would closely integrate the chinese market with the global markets. he saw that as something to take in terms of a positive. there is that enthusiasm. we are talking about two of the 34 nations being included in the msci index.
they are taking about the 5% market cap. ofy're looking at the wait 0.4%. what this means, if you have a pension fund or pension plan, there is a strong likelihood you will get exposure to large cap banks,like insurance and stocks that have been favorites for investors looking to use the kenexa between hong kong and shanghai. symbolism as much as anything else at this stage. yvonne: as you mentioned, tom, we were speaking to theresa from cargo management, she was thinking the issue was corporate governance in china when it comes to good practices like trading and state intervention. to what extent do you think this
is a catalyst for some sort of reform in china? what are the long-term impacts? that is certainly the hope. those are important restrictions around the limit, price limit that is an posted -- imposed. unitedssues remained and expect the chinese -- those remain and do not expect the chinese government to pull out the red air was a hope from the head of research at aipac for morgan stanley yesterday. the focus now from some of these research teams will lead to greater price discovery, greater focus on fundamentals, but this is still a mark dominated by retail investors. 16% in the u.s.. so that trend is changing. going forward, the msci have said they would look to include chinese mid-caps some point in the future.
there is a hope that there will be a capitalistic affect to open them up. tom, thank you. tom mackenzie, our correspondent joining us from shanghai. is another tom. take a look at this chart. we have seen this pumping up of records when it comes to buying these a-shares. .54.4 billion that translates to about $8.5 billion. these are brutal days for shanghai. can we continue this buying streak now that these additions are finally here? >> i'm glad to be here. we have definitely seen our investors accumulating shares through connect over the past
two months. we had a very smooth day yesterday. because of cross-border inclusion. we do expect the active managers to look into investing in the .hina market yvonne: there's still unfamiliarity with chinese investors. how much do you think chinese investors have a corporate america? >> a lot of clients have already invested into china. years, i would say, the global investors are already looking to china and there are more to come. andoverall allocations picking the right right sector -- the right sector is positive to our economy. good yvonne brings up a
point. i like would one man said, the water is a to go swimming. to what degree is your opinion -- especially with it only representing about .4% of the portfolio? symbolic from the overall inclusion perspective but it is historical. index,uding into the now, the global investor pensions active and passive, they will have to look at the china, asia market and make a decision in terms of overweight or underway. that carries a significant underway.over way or that carries a significant impact. ramy: for foreign investors watching, they are saying now we can get in here. what are some of the interesting stocks that people might want to take a look at that might not --
weren't available for purchasing before? now, the first step across the stock, there are quite a few of them that are not available anywhere else. -- the ones stocks that will attract global in tester -- investor attention. the chinese stock trading in hong kong can be different from that chinese asian markets. better --al for yvonne: you think once china opens their account they can narrow it? >> for any other market, if there is no flexibility, the investor cannot i in one market and transfer to another market to convert. a gap can continue.
they can go either way. some stocks traded a premier in hong kong, and at a higher premium in china. yvonne: it goes to show you have to watch with a mainland money goes. north or south, it seems, thomas. we also mentioned how we kill driven this market has been with 80% mom-and-pop investors. how does that construct -- how does that affect constructing a poor boy low -- portfolio? do many like you can't things i can valuations. other things you have to look at unconventionally? >> for global investors, the approach to china will be consistent with the global models. they look at long-term, growth, and sector diversification. what we have seen in a positive way, domestic institutional investors are more and more appreciating the globals of long-term what valuation -- long-term evaluation. for the retail investor, they
trend a lot more on use. in the trade more often. yvonne: people have to go on social media, and they're looking for what you are looking for. . >> the global investor, and others are in the same common marketplace. turnovers andess a look at the fundamental trend going forward. yvonne: thomas, we will have more with you in our next segment. head of chinas equities. stay with us. this is bloomberg. ♪
deutsche bank says is going to be charged by the cddp and the accc. it is falling almost 2% in the past two days. i want to remind you this is compounding problems that happened in the u.s. because of deutsche bank falling to a record low already in use trading after reports u.s. regulators added it to a report of troubled lenders they are monitoring. from bad to worse, deutsche bank is expecting to be charged -- big charged -- being charged by the accc. that is going to be one to watch. the news flow has been certainly flowing this morning. checking the benchmark, we see a little bit of pressure even giving -- giving trade tensions rising. what does this mean for china as well?
still with us is thomas fang. after to bring up a chart this market correction with italy and a trade tensions. i guess the silver lining is the are looking at these to your lows. do you see this is a buying opportunity in light of the msci? >> there is a lot of geopolitical tensions and volatility in the equity market. china being more integrated reflects that. there is certain growth in terms sentiment,ffecting especially for domestic investors. earning growth has been consistent and we are expecting 10% to 12% growth. with the current evaluation
around 12 or 13 times, it is attractive. yvonne: it is a bargain i guess you could say given what we have seen. does it mean china can no longer be a safe haven in moments of volatility? we see these bouts of volatility with em and in trade. it used to be that was working a different way, but now it seems they are working in tandem as well. >> in this year, we have seen big gaps with china, and there is a much higher correlation in the global markets compared to the history. indexd-and small cap, and represent relatively low correlation to the global market. yvonne: take a look at what we see it comes to tech shares as well. shortselling has been a key theme we have seen throughout the year. tencent no longer seems to be a free win. how are you viewing the tech sector at the moment?
favorablestill quite and a lot of key market leaders. with their long-term growth opportunities, and earning powers. favor does, we leading tech names, consumer, and health care. of 2017,performance the current profit taking is just reasonable. yvonne: yvonne: you think there is still opportunity for exposure on these names? >> absolutely. investors global continue to favor those. ramy: shifting gears a little bit to the bond default happening here. anything impacting equity markets? >> thanks, ramy. this has been a focus to a lot of investors as well. overall deleveraging
and government step back from guaranteed pigments, -- payments, plus some of the regulations, the default is just expected and sensible to the market. it will have short-term volatility to credit markets and equity markets, but in the longer term, one market can determine the overall good companies versus questionable companies. that is a positive for the market. fang, ubs head of equity markets in china. thank you so much. you can get a roundup of the story of this edition of " daybreak." bloomberg subscribers can go to it on the terminals and this is available on mobile in the bloomberg app. you can customize your settings
ramy: welcome back. anz is facing legal action over a $1.9 billion share placement back in august of 2015. prosecutors accused of the bank desperate to the bank of knowing conduct by the lead managers of the placement of about 80 million shares. prosecutors intend to act against the chief treasurer and they have pledged to fight the case. another topreplaced executive which could mean placating u.s. demands. there convincing a seven-year ban on purchases of vital american technology to be lifted
from the u.s. government. weekdent trump said last they could do business if they paid a $1.3 billion fine and changed its management. offerthe prime minister's to sell air india has attracted zero interest from investors. he wants to dispose of the airline in a privatization plan. as of thursday's deadline, nobody bid on air india which was offered along with $5 billion of debt. the government will consider its next move in the coming days. yvonne: the bond has packed his bags with the gump -- the company's accounting practices come into question. the very latest next. this is bloomberg. ♪
yvonne: a: 30 in singapore this morning. happy friday. starting up with a new trading month on the back foot given stocks heading south given these tick for tatts tariffs from the u.s. and allies. the open of trading in singapore, i'm yvonne in hong kong. ramy: and iranian is an seo in inocencio- i'm remy in new york. but get the first word news with paul allen. >> does remain over whether strengths can be consigned -- strengths can be maintained.
manufacturing and agriculture is driving changes. this is one of the fastest diving economies but it is threatened by a slump of faster inflation. u.s. prosecutors say goldman sachs vice president gambled his career on a series of trades using inside information about the bank's clients. a south korean national was arrested in san francisco on thursday, accused of using private information about deals involving one dozen customers. he allegedly made thousands of dollars in illegal profits. facebook is under fire again. this time from shareholders. they saw criticism of the handling of user data, one shareholder comparing it to a violation of human rights. the scandal could hit facebook in their wallet. mark zuckerberg has been grilled on both sides of the atlantic, but has declined to be questioned by the lawmakers in london. the bloomberg track of the
world's wealthiest people said president trump is slipping down the list. million to fell $100 ..8 billion over the past year bloomberg estimate is the lowest since would be game -- we began tracking his wealth and 2015. global news, 24 hours a day air and on tictoc and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm paul allen. this is bloomberg. yvonne: paul, thank you. where updating with sophie. given the developments in italy, spain as well, no-confidence votes for the prime minister. we have trade tensions, for the most part, this is not panic selling. >> not as bad as it could be. this is fairly subdued. this is the debate that we have and mark says he is surprised
markets are not trading worth than a could be. we have another event risk on the horizon. seedata in the u.s., we whether that plays into market sentiment. this might indicate the weakestb bonds have to be cleaned out to make for a healthier position. we are seeing losses in tokyo and seoul. sydney., tokyo in we have tech shares under pressure. as well as tokyo perhaps after macron was downgraded by morgan stanley. dumped.s have we saw a surprise contraction in april. it rose 13.5%. it was a bright spot for the economy when policymakers are warning of a potential downturn. checking on the offshore yuan postingaround 640 after
the biggest monthly drop since november 2016 given the dollar's resurgent. that will be closely watched for signs china is using the currency to protest against terrorists --tariffs. oil is set for a second weekly loss to a record and opec situation, that remains in flux. they drop to 5% since last week. crude is back a little bit at 67 there. yvonne: sophie, thank you. resigned after accounting practices and corporate governance. they have suspended since last friday, when questions lead to a 20% drop in the hong kong listed . we have the very latest on this. steve, how much do we know? >> we know to mueller has resigned effective yesterday. he is citing personal reasons, but obviously, it is a response
to these allegations coming from barca -- blue orca. related party transactions between samsonite and things controlled by to mueller and his family members, tim wallah rose ceo in 2014.he he has those connections to various suppliers and companies and related parties throughout the supply chain. number two, allegation, revolving door of auditors at the south asian unit. the company concealed slowing growth with a number of debt acquisitions including the $1.8 million acquisition a couple of tunie.go of they had inflated accounting allegedly in regards to those personages -- personages --
purchases. here are accusations that falsified his academic associations and he fraudulently claimed he had a doctorate degree in business. all of this has led to a tumultuous week, and today's in the market. before being submitted -- before being suspended. the company is down 21% over those two days. ramy: they should resume today, but according to the bloomberg terminal, they are souls -- they are still suspended. what needs to happen? >> the second statement came out. when this first came out on thursday, one criticism, the stock sold off on thursday and sold off again on friday. perhaps the pure mechanism did not get out in front of it. it was only until late friday they did put out a statement and
they put out another statement reiterating the allegations are one-sided and misleading. conclusions drawn in the report about the company and its financial results are incorrect. the company also saying the board of directors stands by the track record and corporate governance and purchased accounting associated with the purchase he mentioned. -- i mentioned. i want to also add another point, a couple of days ago, we saw a report from hsbc and they wrote investors should broadly disregard the attacks on the character and qualifications of given his tainwala long qualifications of the company. we got a lotocess, of those details about tainwala 's related parties in asia. it was already known according
to hsbc. and, if itwas done does resume today, we will have to be watching this closely. $30 stock onbe a april. the stock had doubled over the last couple of years ago that mnansive -- or aggressive and becoming number one in the global luggage market. ramy: the future in question, stephen engle, thank you very much. let's switch to financials. to leading banks are in the news today. and the other expect to face charges in australia over a share placement from three years ago. we have the very latest in sydney. details.y out the >> it is a fast-moving story. details are still stand. what we do know is that nz bank
said these allegations on the proceedings that expects -- innospec's -- it inspects -- it in 2018.o face deutsche bank said they expect to face charges over displacement and we know the other two join managers on this sale where citigroup and jpmorgan. it is not clear what the allegations will be detailing. - the accc issee - not saying what the proceedings will be. bank shares add to this this morning. particularly among the big banks. yvonne: i know it is early to tell, angus, but how severe could these charges be? i would talking about criminal
charges? >> according to the statements from the bank and the competition commission, they will be cartel charges. it is not clear when they will be laid. question thento proceedings and the arrangements of this particular share sale. we don't know what the understanding or arrangement -- alleged understanding or arrangement was amongst these banks. we do know they ended up taking almost a third of all the shares on offer at the time, some 18 okllion shares, they to almost a third of that and the allegation was less than 1% of the shares of the time. said that it is under investigation about whether it should have stated how many shares the underwriters took in that placement. it's not clear whether that is tied to the cartel investigation
or not. we've spent to get more details today from the other banks involved. anz shares down 2% and with deutsche bank, when it rains it pours. angus, joining us from sydney this morning. a message from the fed, the careful of hiking too fast too soon, and hear from our conversation earlier. that is next to the this is bloomberg. ♪ -- that is next. this is bloomberg. ♪
through this all. let's start with jim. with everyone on the fmc, everyone is saying i can he say it's that she says not. kathleen: we had the good fortune -- he says not. kathleen: with the good fortune of talking him and, ramy, he made so many points clearly. italy and theut crisis on how it is affecting. i think it is interesting that the rise of europe -- eurocentric parties is an issue the fed will take on board. when asked about trade, he did not seem to be worried about trade yet. let's listen and hear why. >> everyone is talking about how the trade talks might trade world trade arrangements. however, the proof in the
pudding, it comes down to what is actually agreed upon as far as trade arrangements and i'm not sure that all of that -- all that much is going to change. kathleen: we will see what is in trump's trade putting. that seems to be -- pudding. that seems to be changing a lot. jim repeated his view that the fed has already reached the neutral rate. they should be cautious about getting any more restrictive. hesaid also, the economy -- appreciates the fact that the economy is stronger, but he does not stand up for inflation. y. -- let's hear why. >> i'm not sure faster gdp growth will indicate inflation will move up any faster than it has in the past. kathleen: that is a perfect cue. for a great chart for our library. looking at core pce and gdp growth. this is the gdp line.
i think i get his point. when you go back for seven years, you can see there was this long. gotong period with a barely 2%. look out strong gdp has gotten. even if gdp goes up more, are you really going to see that much boost in inflation? another thing that is interesting in this interview, he repeated his view that he thinks there's a flattening curve and is a very reliable indicator of a potential contraction or recession. 2007,d us back in 2006, talking to the board of governors, they were not worried about the curve. that was a listen to him. you have to put a lot of weight on this important indicator. we can't beaid unlucky i guess. something --rgest
serving member of the board, is an ally of the fed chair on policy. she is a dove converted to a hawk now. kathleen: that is so true. will janet was ruling the roost, they're cautious about rate hikes in the dovish camp, but with her speech today, she has shown she is a centrist, maybe hawkish, but also cemented dissents there's a generation hike coming -- this sense there's a generation hike coming. after some time, they modestly are beyond neutral. she disagreed with jim right there. she called neutral appropriate. jim says do not do it. she sees tax cuts and spending boosting gdp, but she downplays the curve as an indicator of fed
policy being overly tight. although, she does say it is important for the fed to recur inflation at the 2% target. i think there is differences, yvonne, and ramy, between them. but, jim is the lonesome dove on the f1c right now. ramy: and he is confident. he stands on his own until he doesn't. our kathleen hays, policy editor. they rallied as trump imposed steel and aluminum duties on key allies while the yen and it back gains. agreement totaly's form a government soothed investors. but dive into the markets with stephen and wanda. steve, looking at everything right now, let's start with the u.s. dollar. i knew you are long supporter of
that. in the past few days, the dollar, is down about a percent. morgan stanley came out with a note saying they think the dollar rally is over. talk to me about your position. steve: it is always shifting there. if i put my interest rate you on air right now, it looks to me like the u.s. federal reserve board is going to raise rates this year. i think this is decisive that the u.s. economy is moving forward. there are indications that the retail sector is picking up. and there are fleeting signs the economy could start to pass through inflation. we are always expecting that. i look over to europe and the rest of the globe, we are not sing those growth metrics we had expected at the beginning of the year. global central banks will remain on hold for the foreseeable
future, at least until the economic data index picks up. the u.s.probability, dollar will hold its bid through most of 2018. ramy: in terms of strength, how far do you think we will get there? and, you say to the end of 2018, budget the issue of the deficit is booming here in the u.s., talk to me about that as well. we look at short-term and long-term metrics, if we look at the long-term, the dollar looks like it could come off of the boil. deficits andn political risks we are facing now. if we start to see an uptick in global economies, especially europe, which we are seeing the data bottom out somewhat, we have surprises on the inflation metrics in germany and the eurozone. these have to be digested in the whole basket of narratives.
now, thesitions stand dollar has more room to grow. we saw a massive overshoot because of political risk. we're looking at the euro as a 15.50m level around the 1 level this year. some projections are out of whack, but i think that will probably be closer and closer to the reality of the bottom given the differentials than the expectations that we could see the euro economy pick up. we are looking at two different narratives. a short-term versus long-term. that's where the confusing landscapes come into play. there is for the confusion with politics in europe as well. you're talking about how we are forming a new government, a populist government and italy. do you think that gets positive for the euro?
i think them not having an election was a good thing because markets are doing that as a possible referendum on the euro. what's clear going down the road this wave of populism in europe is not going to abate anytime soon. as we move from election to election, this will create for sir -- further headwinds. this is the beginning, we will see a gradual escalation, and as we move through three or four years down the road, two other elections, we could have serious issues as far as the singly unit goes. --ple are still looking this looking at this in the long-term protection and are uncertain whether the euro will be in five or 10 years down the road. yvonne: taking a look at what we have been seeing a crusty end, there were italy
concerns and the dollar popped back a little bit. taking a look at the function on the bloomberg here, when it comes to em, there are only a few currencies against the dollar. take a look at the indian rupee, the peso in asia, those are competing to be the worst. how can we find the floor for these countries? do we need to see central-bank action? steve: i think you hit the nail on the head there. we saw the bank of indonesia step up to defend the currency. that could lead to regional central bankers jumping on it. the two weakest links are the peso and the rupee. the rupee is only receiving a slight reprieve this week as oil boil. come off of the
it is a stronger dollar right now that seems to be driving these outflows. a lot of these companies are servicing quite a bit of u.s. debt, and as the dollar gets stronger, it makes it more expensive to service the debt. this is why we are seeing these issues play out in some of the weaker links and the e.m. chain, especially in asia. yvonne: stephen, always good to have you. bloomberg users can interact with the charts using gdp go -- judy -- dtv go. go.tv this is bloomberg. ♪
trade wars, how does it all shake out. ising to make sense of it michael smart, coming on this program from washington dc. inclusionk to msci and these strategies, always good value. we'll be talking about some of the data and how he has been raising a few eyebrows. that's a list of what is coming off. ramy: thank you very much. stand by for bloomberg, and have a happy friday.