tv Bloomberg Markets Asia Bloomberg May 31, 2018 9:00pm-11:00pm EDT
player. and i am live in shanghai with hundreds of shares joining the emerging markets index. this is bloomberg markets: asia. ♪ rishaad: a bit of caution, that is the watchword. stocks in europe and the united states in a bit of a tailspin. a real hammering for american european industrial issues. it's a little bit strange, the kind of caution, and yet not a great deal of selling going off in europe. it looks like they are getting a populist government deal and the
leadership being rolled over in spain with spain facing that no-confidence vote. looking at if it can be strong enough. those hourly wages strong enough for the fed to move. let's get it over to the open in hong kong and china. indeed, we wait to see if the figures will tighten up with china's official figures. report, thatmi helps to boost shanghai stocks on thursday. today, futures are pointing lower and we could see headwinds as the tariff war is heating up. ,s the dollar has strengthened that has seen the yuan post its biggest monthly drop is boonber which would be a
to trading. we will closely watch for signs that china is using the currency to protest against american tariffs ahead of wilbur ross's trip. every other cliche you can think of, it is all about this big day in china. making their long-awaited debut on and cs eyes emerging markets. our tom mackenzie in shanghai for this historic moment. >> historic moment, yes. we have a decision in june last year and there has been anticipation domestically and beyond as well, during the likes
of many welcoming this move. but 20034a-shares that will be included in the emerging markets index. lots of groups included now. there are etf's and pension funds and will now have coverage of these a-shares. you are looking at a waiting of under 0.4%, so minimal at this stage, but really it is about symbolism as well as additional inflows we are likely to see. further steps being made to open up china's markets. have this inclusion, and we have already seen reports about a billion dollars worth of additional inflows just yesterday as a result of this inclusion. there are expectations you will
see annual inflows tick up depending on who you talk to. symbolism in the short-term, and the long-term impact on china's markets? certainly, there is a hope that as there is more research focused on some of these bitares, you will get a more price discovery, more focus on the fundamental. it is largely a retail driven market, but that is starting to change. every time we sit down with a fund manager in mainland china, we talk about the fact that there is a greater awareness amongst investors. so you are starting to see that a just as well. of course, the msci said they will look to include big caps at some point. and the restrictions are still in place around the pricing limit.
-- before we see any additional changes. haidi: tom stay with us, we will be hearing from bangkok now. substance, reform or change at this stage. a-shares,gard to the as tom was just saying, the visual impact right here is modest. just to rehash and repeat the numbers, we are seeing just under 230 a couple of shares are spent. happening, the first what is happening today. the second one at the end of august. collectively, there will be 5% weighting altogether, as far as the inclusion factor goes.
that will leave at the end of august two awaiting the emerging market index. the associated flows will be something in the order of 22 billion dollars. in the early days, when you compare that inflow with the daily trading volume, it's not huge. but the symbolism in our view is very important. over the longer run, as the inclusion factor rises, there is a very good precedent for this. as you said earlier, this is the second largest market locally. the inclusion factor will undoubtedly rise and we have some estimates would suggest if you get to 50% inclusion factor or 100, you could be looking at a waiting of something like 17%. so china will go from a small sliver to a significant chunk
and perhaps even larger. a-shares, you the can see china being more than 50% of the emerging market in the on a 5-8 year view and that is very consequential. it means global investors will have to take this seriously. rishaad: and some would have to. what does it mean for the share dichotomy? question, and we think both look really good for --. we really like china. both sleeves of it. of course, they share the common denominator of the macro fundamental and you can look at them and their index composition, the sector allocations, evaluations, so forth.
both are trading at attractive multiples. the industry distribution is significantly changing and becoming more balanced. previously, one of the knocks against a-shares and this index was that it was to bank or old industry heavy. of course, with last year's inclusion of the adrs which are very tech heavy, as well as this reconfiguration, you have a much more balanced set of sector distributions and one veering towards the so-called new china. bottom line, we like both areas. we think a-shares are more attractive. your gets an additional underresearched sleeve of stocks which we think offers some alpha opportunities for overseas institutional investors.
tim, what strategies can investors employ to get the upside to protect it from potential deterioration in u.s. china trade tensions? it's a great question, and it speaks to the heart of the issue, one of the key things we have been writing about from our strategy perspective. you've got this dichotomy between asia on his own looking pretty good. is hard to make a credible bayer case against china on a purely china specific perspective. of course, when you leave in the global issues, whether it's trade, other geopolitical than that is where the crosscurrents and difficulties come in. our sense here is that you want to be looking at china from the alpha stop taking perspective.
whichen the extent to your concerns about the global backdrop, plus higher u.s. interest rates and volatility. you might want to have some brought index level hedges, could be china specific. i think that's how you want to play it. focus on the specific china stories that look attractive on their own merit, and to the extent you believe it is important to hedge global risk, do so at the index level. rishaad: tim, please stay with us. we're going to take a break and take a look at breaking news, more from him on trade. but at your full we got treasury secretary steven mnuchin in a ski resort outside vancouver. ministerce acknowledging trade. we've also got another finance ministers, the german finance , speaking about
important metals saying there should be rules-based free trade system. finance minister is saying the eu will react strongly and intelligently to these u.s. tariffs, speaking at the g7 meeting. we are also getting some lines from the bank of japan, fromng the five to 10 year ¥430 billion. seeing some of these lines coming through about ¥50 billion when it comes to jgb. seen japanese a bond prices slipping as we've seen these risk aversion fading somewhat, looks like getting some government deals in italy
after a few days of turbulence. let's get the first word news. banks. america's closest allies want to impose its forecast tariffs. commerce secretary wilbur ross announced duties on steel and aluminum. on grounds of national security. the eu said they would retaliate immediately and mexico promise to slap tariffs and canada said washington's decision is baffling. the white house expects a north korean delegation on friday to deliver a letter. such talks would follow north korea's veterans by massar and mike pompeo. meetings ended earlier than scheduled, but pompeo insists things went well and both sides are still planning for the historic summit. >> this is a difficult challenge. make no mistake, there remains a
great deal of work to do. here, as wellss as in the same time made progress in the other venues conversations were taking late. we had all of the time we needed to make progress that was achievable. populist parties in italy present a spending program that is a direct challenge to eu rules. the prime minister will be sworn in after the five start movement and the league agreed with the president. italy has been without a government since the election in march. spain, where the prime minister is headed for a defeat in a vote of no-confidence. on friday will vote and opposition parties are joining forces against it. the backing of two antiestablishment groups and one catalonia and party.
the basket nationalists are also expected to vote against roy -- rajoy. day innews, 24 hours a more than 120 countries. this is bloomberg. haidi: thanks for that. in,l ahead, as figures come we speak about the quality of china's economic data. next, we have mexico saying donald trump has shot himself in the foot they will discuss he stays up late in this ongoing trade saga. -- the state of trade in this ongoing saga.
the united states most steadfast ally. >> whatever they do in terms of bede actions, they will countered by similar actions from mexico. if we were to liberalize services to the same degree we had, these imbalances would be cut in half for the united states. for the u.k., it has to be the case as well. leaders responding to the trump administration's tariffs. chart, it's in our library. says that u.s. imports from the countries were on the way up ahead of the announcement. when you look at the other chart , you can see the amount of imports are pretty small. let's get back with goldman
sachs chief asia-pacific strategist tim. tim, is there an and gain insight and has donald trump extended himself too much? does to keep the focus on china beingly, with the largest bilateral trade deficit with the u.s., the objective here is to narrow that. there is a clear negotiation that's going on and various pressure tactics which are being implement it. i think the obvious objective is to narrow that. impractical or impossible to get to. be consideredould a win, if they throw a number out. this is going to provoke a reaction, then another reaction. that's time you get a trade war.
it?ease up, doesn't tim: absolutely. andink this is the risk what markets are fretting about, you can get this tit-for-tat heard i was in beijing on tuesday. headspe was that cooler will prevail, but if there is continued provocation or escalation of trade issues, then i think both sides, there is that risk they both escalate. that is what markets are concerned about and they're pricing in the short-term. haidi: in terms of making this and investable thing, have you feel about this contrarian call that chinese stocks are almost a haven play in these bouts of stilllity, because you do have the invisible hand of the state presumably ready to step in. obviously, i am sympathetic
to that. i think the fundamental support that and there are some technical issues which could amplify those points. the other point i would may quickly is that if you look at the msci china index, less than 1% of the revenues are directly exposed to the united states. in terms of a direct effect of trade, is very small. it's very hard with the numbers we have to affect the fundamental growth or china stocks. so really, we are talking about a sentiment shift as the market is more or less concerned. when we got settles, and that will still be some time away, we think that the underlying positive fundamentals will win out. said, there is some kind of visual support for a-shares, that would perhaps lessen the
investors are saying this might be a bit of a relief rally because it was a two day selloff, 21% down in the stock, which had in the past few years, double with enthusiasm for the acquisition spree that they had presided for samsonite. the stock had risen but plummeted. saying, perhaps the mechanisms did not get ahead of this controversy that arose on the 24th of may. concerns,number of allegations of those cross that were perhaps unsavory. number two, a revolving door of auditors at their south asia unit. never a good sign when you are
replacing your auditors repeatedly. also, they concealed slowing growth with debt fueled and had a, including that purchase of and of tim wallace fraudulent academic credentials. haidi: is this change in leadership enough to get samsonite through this scandal? >> that is the hope. he cited personal reasons for the resignation, but they are also stemming from these allegations, which samsonite has denied again. they are reiterating that the allegations are one-sided and misleading conclusions. that is where we stand right now, the stock about to trade on the open market, up 7.8%.
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let's have a look to west kowloon. you are looking at the last trading day of this week. a lot of things making headlines, chief among them, trade. the trade tariff saga is deepening. the german finance minister is saying the eu will respond forcefully to the latest tariffs of being slapped on european, mexican, and canadian goods. we do have u.s. allies hitting back on that. also got them saying
perhaps it goes against wto rules and these tariffs could be a legal. bank of japan, using a left hook on some of those bond traders reducingrnor kuroda some of these bonds. we have samsonite reducing , reaction to that much better than expected. it's all going on. >> it's all going on. we are seeing shanghai stocks , and still down over 6% for the year. ahead of the msci inclusion, investors jumped on the share purchases hitting a record eight and a half $1 billion. -- 8.5 billion.
we will also see if foreign funds continue their buying streak with these msci editions. on the rightune foot, rising for a second day and we have the yuan trading in the number six spot. on the tariffs, we want to highlight that china has published their official list of consumer goods that would see tariff cuts. checking in on the sector breakdown for the shanghai,, we do have tech and health care leading the drive so far. it looks like bleeding across segments. thes take a look at breakdown when it comes to specific movers, i want to highlight what is going on with the big stocks, the heavyweights. switching it out to check in on some of the leaders for the we have composite, xenhua energy.
property,ng an eye in cicc seeing long-term buying opportunities that may come together given short-term risk, particularly for large players. topics include china's oversee plan amongst others. samsonite, onth the move jumping nearly 8%, now up 12%, after the ceo resigned as the short seller blue workout targeted the stock. haidi: might be a bit of a turnaround. let's get you the first world news with allen in sydney. >> their recovery strengthened last quarter but doubts remain whether it can sustain that amidst rising oil prices. 7.4%, driven by
manufacturing. fastestes it one of the expanding major economies, but is threatened by a slump in the rupee and plaster inflation. facebook under fire again, from their own shareholders. and essar mediators saw criticism of the handling of user data. another warned the scandal could hit facebook in the wallets and fake -- facebook ceo mark zuckerberg has been criticized on both sides of the atlantic. disney is offering to raise the starting pay for california theme park workers to $15 an hour. entry level staff with ck pay rise from 11 to 1325 immediately, and $15 by 2020. they employ about 30,000 people in anaheim, and the offer is a
36% raise over three years. u.s. prosecutors say goldman sachs vice president gambled on korea using inside information. wash korean national arrested in san francisco on thursday, accused of using private information about deals involving a dozen customers. he allegedly made $140,000 in , although ones trade just made $362. day,l news, 24 hours a this is bloomberg. haidi: thank you. china taking a major step forward today with mainland shares joining the msci club. there is no question in our mind that they are really intent on opening the country. >> i think it is very positive.
another validation the markets are becoming global. whate important fact is the a share markets coming into the availability, the opportunities are incredible. the number of companies is quite incredible. >> it will be a plus. it is a nice thing that gets the world more educated about china. >> china seems to me to be a perfect fund management. let's discuss this with our guest. what is your take, how important is it or the opening up of china? is it pure symbolism or does it run deeper? hao: at the moment, it is a baby step forward. less than half a percent inclusion initially, and a few
months, .8%. step, symbolic in nature. over time, it will be more important. rishaad: how much interest are you getting from your clients with regard to the -- this? hao: not much. [laughter] the pensioners have to go in by default. they are probably by because of the index construction. importantly, we can look at the active managers. those guys are the ones putting the price on margins. i deal with mostly fund managers and hedge funds. there has been some increase, but not nearly as much as the questions we got since the program was launched three years ago. are these international
funds going to get a rude shock? -- they ready to get a involved with a market that is still retail dominated? the market is 70% driven by retail. i think the remaining fund managers, institutional managers in china, operate with retail as well. ,heir performance is very short so it dries the behavior of these institutional investors. they behave more or less the same as retail as well. haidi: that's a really interesting take. to goldman sachs earlier about the strategy or view that has been popularized as we had these bouts of global volatility in some weird way, these domestic shares are almost like a haven play because you can rely on beijing if things get too rough to step in. hao: yes and no.
historically, they chinese market has less correlation with the international market. at times of crisis, it's correlation with global markets has actually shot up as well. since the recent corrections in february, you can see the market is continuing to make new lows, while the international market seems to be stabilizing. this is telling you something else is going on. if you really want to rely on the national plunge team to , the problemrket with that is that the national team is actually acting out of some of the decisions. they are trying to intervene less and less with the market and how it is going. at the moment, in part because of that, the chinese domestic market index -- we have seen the dollar
yuan wake up after what seems to be a. of slumber. slumber. of volatility kind of that could create another bout of roller coaster ride for the chinese stock market? at this point in the chinese economic cycle, the central bank tends to cut people out. or in a way, loosen their monetary policy. are cut is tongs replace the outstanding. it should be shrinking, not expanding. on the margin, that is putting pressure on market volatility and also weakening the chinese share as well.
seller concerns. orca seller blue questioned actions by samsonite and deals made by the former ceo. china is trying to convince the trump administration to lift a e.ven-year dan on zt imposed in april over sanction breaking sales to iran. the prime minister in india has attracted zero investment from investors. as they said, no party has been on air india. we are getting some mixed
signals when it comes to china's economic data. in manufacturing gauge came after an eight-month high and industrial production rose the previous month. chart,look at this looking at gauges of demand across sectors including property investment and consumption. all of this, indicating that greater weakness is in store. accelerating to the weakest pace since 1999. of course, that had been the major driver of chinese growth over the past 10 or 20 years. i think the consensus is steady as she goes. it has been a delicate balancing act which has largely been successfully manage by beijing. you are saying there is some critical an interesting type of data that is no longer being reported. hao: yeah.
the chart you just showed is showing where the problem is, construction investments. those actual numbers are no longer disclosed. year, the actual number has been readjusted to make the number better going forward. i've got to interrupted , china manufacturing coming in there. gauge, you gotte to trust this. we had yesterday's estate pmi number, not that different, stronger than anticipated but you trust this one, what is your reaction first? hao: i think this is slightly better than the official pmi, but keep in mind that is a
survey-based index. text to be influenced by propaganda as well. at the indices within the pmi, you are seeing the expectations component of the pmi is actually boosting overall levels. rishaad: one thing that was interesting is the exports, tell me about that. is it despite or because of the trade wars. hao: because, i would say. people trying to get out in front. afterwards, it will be more expensive. that is why they are producing ahead of the tariff in positions. what about the property markets? it has been years since we have been trying to selectively call these markets. do you think the pressure is
going to come in through the next stage of the deleveraging campaign. for the chinese regulator, chinese property has been the winning trade of the decade. gone up by multiples hundreds of times. that sector in china is still a boiling. property price continues to make new highs and inventory is running very low. stockingdevelopers are up on land, big-time. this test be a leading indicator of how a strong sentiment between the property developers can happen. i would say, even though the authority is trying to clamp down on speculation in the property sector, they have not been successful. haidi: a bit of cynicism there as always, making for joining us. bo, international's chief strategist and head of research. >> i am just looking at a few
equity movers because i want to the stocks.me of china's high-speed railway share sliding 7%, earlier shining nearly 9%. as tighter financing requirements are being placed on the railway and urban subway space. i want to highlight some movers elsewhere in hong kong, samsonite revisiting that and jumping the most in five years. this is after the ceo resigned and lifestyle international, slumping as much as 21%. the hong kong exchange says thursday straight stand, and the company's inclusion in the index, that may be behind the surge in price. check again, slipping back below 750 a share, and goldman, bullish on the stock.
♪ rishaad: lamborghini is the latest carmaker to enter the suv market. it is using the new car to wrap up its presence in singapore. it sounds like a pretty mouthwatering prospect. prospects are looking pretty good, the company expects to double sales just from having it there. let's speak to their commercial
officer. beenuch interest has there , what kind of targets are you looking at? as you were rightly told, we want to double our volumes. the moment there is incredible , we have an order covering one year. the good thing is that 70% of the order is coming from people that were never buying a lamborghini before. it means this car is generating interest not only in the lamborghini community, but also the target we had at the beginning. but you are facing some competition from the likes of bentley and porsche. china is coming out with a copy version of the orris -- urus.
>> that is something we just heard this morning. normally if you copy paste, there are legal implications. concerning the other brand are notion, we competing directly with anybody, but we are creating a new segment it is the fastest suv in the world. the segment did not exist before. car, a sport all around and the performance of a sport car with the dimensions of a suv. it is not a direct competitor, it is a new segment. >> i want to touch on the china markets, which recently cut the import tariffs from 25% to 15%. what kind of impact bcr on lamborghini -- do you see on
lamborghini? >> this is an important factor. everybody will act as we are going to act, most probably, so for the customers, this means probably an increase in volume and new boosts. can you quantify the boost you expect to see? 10%? i can't, but maybe 10 or 20%. this new car will boost it even it is the first time we are coming in china that is below the 4.3 liter capacity. that means we can benefit from the taxation of this kind of engine. what is not beneficial is what trump just did recently.
imposing tariffs on steel and aluminum, which will have a negative impact on automakers. how do you see this? >> for sure, not a good mover. -- our firstis a market and will remain. we will will be affected in the same way because most of the brands coming outside of the united dates are for sure that something we can quantify now. we have tosee, as how much and which kind of measure is going to apply in the future. you have to talk about applying directly, not only on cars, but on steel and aluminum. there is always something that is difficult to foresee what is happening in the u.s. in this moment. >> industry analysts said it
could even impact the workforce and the adoption of technology. do you see that happening? >> not now, and not a lamborghini. is point is that it difficult to tell long-term what will happen with this measure. this measure will affect other fields and there will be countermeasures from the other countries. i think it will be very difficult to play in the market. >> any plans for lamborghini to ipo? we are 100% owned by audi and we do not think this is the moment for lamborghini. executive -- chief commercial officer from lamborghini, speaking with us this morning. haidi: thank you so much. coming up over the next hour, trade tensions are rising.
haidi: chinese market headed south on the day that asia has joined the msci. rishaad: stocks missed as investors assess trade tensions. some ofs against america's closest allies. they say they will fight back. samsonite jumping as it returns to the fray. the ceo has resigned after a short seller's warnings. --hong kong, i'm shots along haidi: i am haidi lun. the race divides opinion with calls for hikes and a pause. we hear from james bullard. this is "bloomberg markets: asia
." haidi: first trading day of the month and also payroll day. at ahead of that, closer to home, we finally have the multiplecipated across months. more than 200 chinese joining the asia index. not seeing much of a bump when it comes to markets, though. rishaad: a bloomberg opinion great,saying if it is so stocks beennese headed in a southerly direction edifice? people have been -- ahead of this? that is not something that is done in china, you would have thought they would be bit up. like a subdued friday
and we are not seeing much optimism when it comes to the mainland markets. we have expectation of not much shares for the msci. the shanghai composite off one third of a percent. taking a look at elsewhere, the nikkei about one third of 1%. support from a weaker yen. the yen, slipping after the boj and announced it is cutting its bond purchases. markets, not seeing too much reaction to the move since they have gotten used to changes in buying operation. i want to highlight what is going on in korea. up 687%. -- six eighths of a percent.
the last word on oil, set for a second weekly loss as u.s. output surged to a record and the opec situation remains in flux. oil has lost about 5% last week. andbti sticking below $68 barrel. is in sydneyllen with your first word news. paul: the white house expects a north korean delegation to visit washington friday to deliver a letter from kim jong-un. such a trip would follow talks between the spymaster and secretary of state pompeo -- mike pompeo in new york. pompeo insists things went well and both sides are still planning for the historic summit in singapore on june 12. challenge a difficult , make no mistake about it. there remains a great deal of work to do and we made progress here, as well as progress in the
other venues where conversations were taking place. we had all the time to make progress achievable in new york city. paul: populist parties will take power in italy later on friday. a spending program is a direct challenge to eu rules. -- will be sworn in as prime minister after the five-star movement and league agreed. the euro skeptic has been dropped as finance minister. where rajoy isin heading for defeating a vote of no-confidence. at parliament will vote on friday and the opposition parties are joining forces against him. socialist have the backing of two antiestablishment groups. another catalan group is also expected to vote against rajoy. the prime minister says he won't resign. u.s. prosecutors say the goldman
sachs vice president gambled his career on a series of trade using inside information about bank clients. the south korean national was arrested in san francisco on thursday and is accused of using private information about deals involving a dozen customers. profits,llegal although one trade on an energy merger measure just $362. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm paul allen. this is bloomberg. america's close to -- closest allies are furious at the decision to impose tariffs on steel and aluminum import. dutiespromises to slap on a range of american goods and canada says washington's move is baffling. u.s. companies and business groups are complaining, saying it will hit american
manufacturers will -- with higher costs that will have to be passed on to consumers. our next guest was a white house trade advisor to george w. bush. joining us now from arlington, virginia is the managing director of our international economic policies rock creek global advisors. this a negotiating tactic? is it posturing? is it something to give the u.s. leverage going into potentially finalizing nafta negotiations and ahead of another round of talks? negotiations the are now over because the tariffs are taking effect. when the president announced this global tariff in march, there was a great deal of concern but it was mitigated by the fact that half of imports were going to be exempt. those coming from our closest
allies. that exemption is terminated and the tariffs will come with full effect because canada, mexico, they refused to make the concessions that the u.s. was seeking in the nafta negotiations. similarly for europe, the u.s. had a list of demands. it wanted lower tariffs on ands, more purchases of lng u.s. duties. none of these parties were interested in negotiating with a gun to their head. they didn't come to an agreement and that is why we face tariffs on a global basis. hadi: the reaction we have from some of the united states' most close allies have been swift. tariffs on u.s. goods, but also criticizing the rationale of using national security as being the worst-case scenario. the mexican economy minister said president trump is shooting himself in the foot. territory,gerous
were you see retaliatory action coming from these close allies? the allies arek justified in doing exactly the right thing by imposing reciprocal restrictions on u.s. exports. clearly, accommodation will get you nowhere with this administration. i think they have to show they are ready to endure and inflict some political pain, hoping that leads to a correction in u.s. policy. i think they are doing the right thing here. what about the very credibility or role of the international crisis -- price system? we are seeing multiple attacks on institutions like the wto by the united states. this with flash reaction, one day the trade war is on, the next day, we are having very good talks with the chinese or with the european union. how does this end in your view? to know,it is hard
because frankly, there is no discernible long-term strategy by the administration. before that the purpose, the reason these tariffs were invoked was on the basis of national security. slipperyn incredibly slope here because there is no discernible national security justification and once you say that you are going to invoke an exception to the rules, that opens the door not only for the united states to do this, but countries around the world and if that exception grows so large, essentially the rules that facilitate commerce on a global basis have no meaning and that is the dangerous and result from all of this. you think the endgame has been thought out properly here, michael? michael: i really don't. you asked about china earlier. secretary ross is heading to china this weekend for
negotiations, and it is very unclear what the u.s. objectives are. -- hasone hand, it is conducted an investigation that uncovered unfair trade practices on the part of china related to forced technology transfer, theft of intellectual property, really important issues. on the other hand, the u.s. seems obsessed with the idea of simply getting china to buy more u.s. goods on a temporary basis without doing systemic reform in china. i am concerned that is the mission that secretary ross will be on when he visits china beginning this weekend. that would be a huge missed opportunity if we don't take this to negotiate a systemic will improve opportunities for business in the united states and around the world. rishaad: there are so many gray areas with regards to trade. for instance, how much is software worth?
how much does that figure into the negotiations and into the balance sheet? perhaps, further investigation of what these trade deficits and surpluses mean and constitute needs to be done, surely? michael: it is a very good point. it is dangerous business to set your trade policy according to bilateral trading in balances. -- imbalances. these trade balances are not on a value added bases. -- basis. when an iphone is imported from china, it is as if the entire value of the iphone was imported from china when the vast majority of it was developed in the and other countries in asia. is a bad barometer to measure trade policy and trade relationships for a number of reasons. rishaad: give me a sense of what the atmosphere is like in
washington, d.c. right now. people perhaps are bracing themselves for trade war. it is more bewildered than ever carried it is as though the wheels are really coming off. there has been can turn for months, sure, but the fact that applying these steel and aluminum tariffs on a global basis, including to our closest allies, the fact that we are now investigating under the same law the section 232, the national security law, imports of automobiles as though they are a threat to national security, i think there is growing concern in washington that the wheels come off and we are headed for potentially a series of escalating tit-for-tat tariffs that could have serious harmful effects on the economy. interesting in the dynamic of threats and
actual tariff action from the u.s. is the response from beijing. by and large, i think it is fair to characterize them as being the adults in the room. do you think that higher ground is going to continue? will china at some point come back with its own swift response? if the united states actually acts to impose these restrictions. either the tariffs on imports on goods from china or restrictions on investment from china. earlier this week, the white house issued a statement that seemed to reignite the trade war, to un-suspend the suspension secretary mnuchin talked about 10 days ago. if you read that carefully, it sets a date for when the list of goods and investment restrictions will be finalized, not when they will enter into force. i think china will continue to be the cool customer in this relationship and will respond, at least rhetorically, but will
wait until the u.s. actually takes action before it reciprocates on its own. on the issue of investment restrictions, which plays into the whole displeasuer when it -- this pleasure when it comes to violations. a lot of people say it has been happening so long as the economy has been developing, but is it possible for washington and beijing to i and common ground on that, given that the heart of todeems to be some intent push down china's greater technological ambitions? states: look, the united has a program for screening inbound investment for national security purposes. just china, but all countries. that is a regime we will maintain. we have a regime for monitoring exports of technology him and not just to china but all countries.
those will continue to function and they will be part of this relationship. but if we take the next step, and simply impose china-specific restrictions and say in these sectors, investment from china is off-limits in all cases, it is hard to see if the u.s. takes that position that the two parties can get together and negotiate a sustainable settlement to the current tensions. particularly when we come at united states, are asking china to open its economy to more investment from the united states and other foreign sources. between theding lines, i think you probably agree with donald trump in some ways that america has serious legitimate gripes with china and the way they conduct trade. the thing is, where you fall out with him is the way he is going about it. how should he go about it? michael: he should go about it by sending his negotiators to china to negotiate systemic
reforms to the chinese economy, to make it more open. it is one of the most restrictive investment climates of any g20 country. caps,ds to raise equity for example, in chief sectors, including cloud computing. it needs to provide better attraction for intellectual property. it needs to repeal measures that require foreign companies as a condition for entering the market to transfer their technology to chinese partners. ofse should be the subjects negotiation, not how long is the chinese shopping list of u.s. goods, which serves only a temporary bounce in the trade balance and acts only to diver trade from our allies, the eu, japan, and others, who we need to tackle the problems with china. rishaad: thank you so much for joining us. us fromsmart joining arlington, virginia outside of washington, d.c. he was a ford or tray -- former
haidi: this is "bloomberg markets: asia," i am haidi lun. later, numbers are due giving an idea about the economy and pace of rate hikes. kathleen hays is here. what are we expecting? kathleen: we are expecting a global bond market with italy on the back burner. that doesn't mean the crisis is over, but for the bond market, that is off center stage.
center stage is the jobs report and whether or not it will signal more re-hikes than have been expected just a couple of days ago. it is expectations for three rate hikes total in 2018. the question is, it had gotten up to pointing toward consensus -- three more times, four, look what happened with the italy crisis. down to two and a half. doubting there would be a rate hike after september. this is where the jobs will play. payrolls rebounding 190,000, a solid gain. unemployment, steady in a light -- tight labor market. average hourly earnings is a disappointment.
wages, steady at 2.6% year-over-year. a stronger than forecast jobs report would mean the line going back up to a single of about -- signal of four rate hikes. it will be interesting to see what flattening does to the yield curve. jobs number could raise concern that the u.s. economy is slowing at the same time italy is in crisis and the eu is falling. that is all what we will be watching in the jobs report. louisd: talking to st. fed president james bullard, he seems to think there is no reason to do anything else. he says the fed is keepdy a neutral and they going, they risked becoming too restrictive and that could flatten the curve and reserve -- reverted. feedback from relatively rapid gdp growth and relatively strong labor markets a factor that is
used to be important and used to be of empirical relevance, but now, you look at it today and over the last decade or more, it doesn't really work that way anymore. i am not sure that faster gdp growth by itself is going to indicate that inflation is going to move up. any faster than it has in the past, so i am not sure we are really there yet. fedou look at dallas inflation year-over-year, it is 1.8%, sounds like core pce 1.8%. we have been doing a lot of even beforen inflation even got back to target, much less above target and got into a situation where we had to clamp down on inflation. i think we are in a good position right now where we are weh a policy rate and where are with normalization policy, and we can play up by year and
see where the data coming from here. a collie give a speech in new york and she says the fed is going to do gradual rate hikes from accommodative policy to neutral policy to something modestly above neutral. is there a risk in the? -- that? is that the correct path if that is what happens? james: we are are are yet today and if we keep going up from here, we are going to turn restrictive, possibly in a situation where inflation has it made it back to target yet. expectation and adjustment to get it translated into pce inflation. the markets are saying that they don't see enough inflationary pressure to get pce above 2%.
i think inflation expectations are still a little weak here for us to be moving into a restrictive mode and what we should do is stay where we are and let inflation expectations resent her on our 2% inflation target. better foret us up prolonging the expansion from where it is today. dovishjim bullard's consensus view isn't going to change the minds of officials who want to hike rates. i don't think the jobs report tomorrow will change it. the big question now is what happens in december at the end of the year, but september? if the global economy looks upset in september, that is the rate hike people might start doubting. thanks, kathleen of bloomberg on global economics. bloomberg users can't interact with charts using g tv . and at the recent charts
rishaad: looking at the business flash headlines. legal action over a $1.9 billion u.s. dollar share placement in august 2015. prosecutors accusing managers of being knowingly concerning cartel conduct, approximately 80 million shares. deutsche bank was a lead manager expected to face charges over that placement. deutsche's hit a record low after reports u.s. deposit insurance regulator added it to a group of troubled lenders it marked -- monitors. it was on a list of problem banks and said it is overhauling the operation with the issue
>> 10:29 in hong kong, i am paul allen with first word headlines. america's closest allies have been a put -- imposed tit-for-tat penalties. ross announced duties on steel and aluminum from the european union, canada, and mexico on grounds of national security. the eu will retaliate immediately, mexico promised to slap tariffs on a range of u.s. goods and canada says washington's decision is baffling. today is unfortunately the worst-case scenario presented, imposing tariffs on the allies. had already considered
the scenario and we announced today that we will take action. >> canada could be considered a national security threat to the united states is inconceivable. paul: facebook is under fire from shareholders. latest investor meetings all criticism at the handling of user data with one shareholder comparing it to a violation of human rights. mike -- markd -- zuckerberg has declined to be questioned by critical lawmakers in london. disney is offering to raise the starting pay for california theme park workers to $15 an hour over the next couple of years. entry level staff at disney would see pay rise from $11 to $13.25 immediately and $15 by 2020. disney and its sister park
california adventure employee about 30,000 people in anaheim and city offer is a 36% raise over three years. the bloomberg track of the world's wealthiest people says president trump is slipping down the list of alien there's index. his net worth fell to $2.8 billion over the last year and revenue shrank from his namesake s. the newest estimate is the lowest since we began tracking his 12 -- wealth in 2015. global news 24 hours a day, powered by more than 2700 journalists and analysts in more .han 120 countries this is bloomberg. with all this in mind, the trade spat playing out, we have equities under pressure across the region. we had the close in tokyo. haidi: some pressure coming through given trade tensions. asian stocks mixed, but japanese
have recovered as auto and pharmaceutical stocks lead. down of one third of a percent. exporters finding support from the yen, slipping at the boj bought its bond buying. jgb's getting hit ahead of the move. the final read up japan's gdp, investment is up for a sixth straight quarter but shows a slowdown in business spending, which could mean a larger vision of the first quarter gdp is unlikely. made, that could provide optimism, serving as a bellwether for global growth. exports returned to double-digit drop., up 13.5% after a that is in tandem with robust manufacturing gauges in china. the pmi a lining with official data, but mainland stocks are heading over to even as the inclusions kick in.
the global trade tensions stealing the limelight ostensibly. anxiety over defaults ways heavily -- weigh heavily. in hong kong, the hang seng is being led higher by property stocks, which are also rising in shanghai. risks from tighter financing for developers looks like a long-term buying opportunity. haidi: thank you so much for that. haves of samsonite rebounded by as much as 15% after the company's embattled ceo stepped down. the stock resumed trading after a weeklong suspension on criticism may be short pet -- short seller, triggering a 21% drop. stephen engle has the latest. what do we know so far? >> we know tim waller has resigned effective yesterday. to be replacing him and the market is rejoicing
as the stock is resuming trade this morning after a weeklong , up asion of the stock much as 15%. it is up 7% and has fallen over the previous two sessions more than a week ago on a thursday and friday. selling of 21%, the biggest two-day drop on record for samsonite, which had nearly doubled over the previous couple of years. on the ceo's fairly aggressive expansion plan and on profitability, but blue orchid capital came out on may 24 that came out with a damning report. they questioned a number of things. related party transactions between samsonite and indian entities controlled by the ceo and family members. as well as a revolving door of auditors of the south asian unit, as well as allegedly concealing slowing growth with debt funded m&a like the
purchase in 2016 for 1.8 billion u.s. dollars and also damning to the ceo's character was fraudulent qualifications, said blue orca of his doctorate in business. all of these things were quite damning and that is why the stock moved down 21% and has been under pressure. rishaad: anything for samsonite? >> they put out another statement, saying the wereations from blue orca misleading and one-sided and the financial results, diyala geisha and's financial results are a correct. rishaad: -- incorrect. rishaad: we have the director of asian equities at morningstar and she has a reading on samsonite. >> i think the rebuttal that the
company made based on the key things to us, which were the accounting issues were fairly reasonable and also when we calculated bet some of the margin concerns that would have been brought up from the blue orca report still reflected in our view a fair value of about $34. we have a fair value at the moment of $40. in essence, i am not changing my valuation. i think it is reasonable. haidi: what about the change in leadership? we actually see that as positive and the main reason for that is because even though samsonite had previously disclosed the potential itflicts in their reports, is always going to be back in the people of mind -- people's
mind, even though the amounts are relatively small. that with the clean slate, it is positive for the company. we don't think it changes the strategy of the company very much, either. inis still going to be keeping with market share and we are still expecting to see margins improve for the group as a whole from logistic. because a clean slate, in your most recent report, you talked about the stock could be under pressure for go flat for a while under the cloud of suspicion. it might take sometime. is it the fact that run mesh has has beenved, -- ramesh removed, does that remove the cloud of suspicion? lorraine: it does help, but once you are tainted, it takes a while for investors to get comfortable again and that is
the best way to put it. theill take a wild for share price to come back up, but that shouldn't distract from the fact that it is positive free cash flow sustained for the 10 years we are looking at the cash flows to go on for. talk about the strength of the business. in 2016, they purchased $1.8 billion, a little cloud of suspicion about the accounting there, but how does that sit -- fit into their global footprint when tumi is a u.s. popular brand? lorraine: that's right. to buy ate strategy was twofold. one is it gives them an entrance into the business segment, which they are weaker on with samsonite and american. of the way that also helps them out is, they are able to bring
it to market locally outside of the u.s. because of u.s. distribution relationships, they have pretty strong global through samsonite. actuallyhat muscle is good for them to have to me. -- tumi. rishaad: it should, according to them, be one of the chief growth leaders for the company. is in a sense. it is a good one off, we saw a bounce. it has a higher margin than samsonite of the brands, so that is an immediate improvement in gross margin for them. weigh in this silly is there opening more stores under tumi.
to consumerdirect presence than other samsonite brands do. they will be spending more money opening stores, so what you will see is what we have been seeing is an improvement in gross margins and that has got to do with supply relationships with logistics relationships. that gets taken off a little in terms of the higher costs because of the new store opening on the operating income level, but over time -- over the next few years, you will see a net improvement in margins for the group. they have fairly aggressive targets, so we are anticipating a portion of that improvement of about 200 to 300 basis points. it is a pretty fragmented market when you talk about luggage. what is the riskiest outlook on samsonite? have ae: we actually
meaning weamsonite, believe it has competitive advantages and a lot of that has do with the intangibles through the course of its own brand and relationships it has with a lot of key retailers globally. the other nice story about it, rey laded, butmi it is the turnaround in american. we are seeing a turnaround in rebranding of that product in the last year. these are things that we think will allow samsonite keep up that competitive advantage over other players. the other thing to note is samsonite -- is much bigger than the other players. the amount of money they can spend on development of new products and things like that would dwarf what the revenues midrangee other
luggage providers. they don't compete on the low-end, which is the fragmentation you are talking about is mainly on. lorraine: we don't -- stephen: we don't know what direction the new ceo will take samsonite, but we know he is quite aggressive on m&a. we have been talking about ebags, would you expect m&a to be slow or stay the same? we had already expected it to slow, even if the ceo had remained in place. we have to actually digest the acquisitions they have made with tumi and ebags. if you look at the debt, they would not have been able to afford another major acquisition in the short term in my mind, anyway. i think that would have slowed down a bit. they probably would have cleaned up what they had.
this is what we expect to continue to see from the group. or someeling out selling perhaps of smaller asnds that aren't adding much to the group and continue to integrate what they have with tumi and ebags. rishaad: last question. people will perhaps look at the blue orca report and say there is no smoke without fire. it is a question of how big the fire may be. was there anything in that report that you actually agreed with had thought, hang on a second, maybe i should look at this a bit more? reaction my immediate was to make sure that what the fair value of the company look like in terms of its margins. the initial allegations regarding the accounting
treatment of the payables and the inventory, particularly the inventory side and what impact that would have on free cash flow. itemsare point in time that had been pointed out and i think as a result, if we were to just look at these companies, tumi separately, samsonite separately and apply those margins without assuming any woulde -- synergies, you end up with a fair value of $34. would assume no margin enhancements at all and keeping the two businesses separate. rishaad: thank you so much for that, kathleen:. asia equity research at morningstar. a feature i wanted to draw your attention to carry if you want to watch that interview again, go to our interactive tv function. tv . you can catch up with that interview and become a part of
japanad: bank of unexpectedly cutting its bond buying, reducing purchases in five to 10 years zones for the first time in august. let's get to mark cranfield in singapore. there is a bit of a left hook according to some out there. why did the boj choose to do this now? partly because the 10 year yields are drifting back towards zero, which is the bottom of the range that the bank of japan has been trying to keep. the bank of japan has been trouble getting the 10 year bonds it wants. the market has sold much to the bank of japan. chunk of -- hold a big the market. it would make sense to reduce
purchases if they can. they are buying a lot of bonds, even though they reduced it. they are trying to keep the 10 year yield in the range. it would be more interesting if they focus on the yield curve. yield curve steepening they were trying to do, yield curve control as they described it. that was to steepen the curve carried they are in the process of doing that again, that will weaken the yen and maybe we will hear more about it at the next bank of japan meeting, that they will reemphasize they would still like a steeper curve and that would be interesting for the market. are we looking at potentially talking about the end to qe or tapering? this is going to be a drawnout process. of course, eventually the bank of japan will feel comfortable to and qe, but it is a long way off. keep reminding us that inflation is nowhere near the level it
needs to be for them to bring a hard stop to quantitive easing. all. not for this year at it is possible that if we see a pickup in inflation the second half of the year, the bank of japan would say they are ready to discuss a time to end qe, but it is not something for the near-term. possibly for the middle of next year, but way down the road. at least things are starting to head in the right direction. there are small signs wages are picking up in japan, which is a good thing. it is a long road and what happened today is definitely not a signal that the end of qe has begun. there inrk cranfield singapore. you can follow more on this story and the trading action on our market blog at mliv . you can get a market run down and commentary and analysis being brought by bloomberg's editor carried you can get what is affecting your investments right now.
let's get a check of the latest business flash headlines. a top executive has been replaced. china has tried to convince the trump administration to lift a ofen-year ban on purchases american technology, it enclosed -- imposed in april. rishaad: the prime minister offered to sell flag carrier. he wants to dispose of the money-losing airline in his most high-profile privatization plan yet. no party bid, it was offered with $5 billion of debt. the government will consider its next move in the coming days. -- set to take 25% of an lng project in canada. the strongest signal yet that the plant will be built. the local unit of royal dutch shell will hold 40%, plus
subsidiaries and mitsubishi will have -- percent each. it offered its own proposal in british columbia next year -- last july on opposition from environmental and indigenous groups. the breaking news wherever you are, bloomberg and twitter have ,aunched tictoc by bloomberg designed for social media, offering live video coverage verified by bloomberg to get on twitter and you can follow tictoc by bloomberg. "bloomberg markets: asia -- this is bloomberg. ♪
rishaad: battle of the charts, heidi and david going head-to-head. their want to access charts on the terminal, the function on the bottom of your screen. we kicked things off with david, who seems to be sniggering for some reason. smiling because this seems to be a smiley segment. the fed.lking about we had jim bullard earlier on who was talking about the fed's policy is now at neutral. hisconcept of neutral academic and theoretical. there is really not a consistent
agreed upon mutual rate, but the widely used model for where the neutral rate is is the one by thomas law back and john williams. we have adjusted it to the core rate and what you can tell from policy becomes restrictive in the u.s. when you have the fed funds rate above the neutral rate. the neutral rate is that interest rate where gdp is that trend and unit -- need a push or pull on inflation. when you look at this model am and point toyou mr. bullard's point where you are now at neutral. if core inflation doesn't pick up further and the fed raises interest rates, policy becomes more restrictive and that might push the u.s. economy and many for a hike called into recession. for any fed conversation, this
is the best chart have in your back pocket. rishaad: i'll be the judge of that. i have put out this chart. talking about the euro, it feels like we have entered a period calm, but signs -- of look at this chart. , applying to a weekly three-year chart for the euro. in low at that point january, 6272017 -- 2017. a retracement of the rally. you get to charts for the price of one. the second chart in my battle of the charts entry, this is a study focus on the yellow baseline. take a look at this. the higher and the lower, you guessed it, at 1448.
you have the same level using two sets of technical analysis, suggesting that is the level we should be watching when it comes to the euro. won, buthaidi, you there is only one thing. you have been disqualified for using to charts. i did think you're chart was better, but you can't have two. you didn't give him a heads up, so i will have to give it to david. thank you both of you. david is pleased with himself. gtv go. this is bloomberg. ♪
♪ emily: i'm emily chang in san francisco. this is "bloomberg technology." coming up in the next hour, the trump administration tariffs on steel and aluminum imports from the european union. a move condemned by america's closest allies. what it means for talks with china and global technology. arm is rolling out a new version of its most popular chip designs. will they shake up the semiconductor industry? we will hear from the ceo. amazon dominates e-commerce