tv Bloomberg Markets Asia Bloomberg June 19, 2018 9:00pm-11:00pm EDT
theaad: this man in spotlight. china's stocks in the spotlight. saying thevernor bank stands ready if things get worse. shun it could squeeze u.s. companies, and that goes beyond tariffs. noble group reaching agreement with goldilocks. in hong kong, i am rishaad salamat haidi: also --i am rishaad salamat. a big day for central banks, thailand and the philippines. this is "bloomberg markets: asia." ♪
rishaad: the question is could we see it bounce today? yesterday, an awful session, over 1000 stocks limit down by 10%. having its biggest fall for 20 months. in hong kong, the last time we had a bigger fall than this. lumpur, theuala nikkei off a fraction, almost waiting for something, aren't we? signal.aiting for in a we have this combination of maybe thisric, but is just the start of negotiating
tactics between washington and beijing, but markets in asia more optimistic than the u.s. session. after theming trading report saying they have paved the way for a deal with goldilocks. a 20% stake in the restructured version of noble. the house will move to the final aages of a revamped, so maybe light at the end of the tunnel. let's each more details on how we are trading. expectationsmes to of how shanghai shares may start, futures higher, but easing off that advance. slumping to as two-year low, the second worst plunge for that benchmark. tech stocks bore the brunt, sinking the most in two years.
this brings the shanghai composite closer to bear market territory. yesterday's slump brings declines to 18%. in the currency space, today's fix will be keenly watched as low, plungingto a at the fastest pace as the 2015 devaluation. rishaad: the pboc bidding to calm markets down. easingould see more of the deleveraging range. the pboc said on monday it will handle the pace and intensity of the deleveraging campaign. that leaves leeway for policy tweaks. we have seen that fine-tuning from the lowering of the triple r to the injection of funds this month. that could stave off bond defaults, so we could see a rally in the chinese bonds. the 10 year yield fell two basis
points, now at an eight week low. haidi: thank you for that. we will talk more about china. the central bank calling for investors to remain calm and pledging to use monetary tools as we see this trade standoff sending the shanghai composite plunging. as sophie pointed out, we are seeing lyft being briefed back we aree pollock -- rathed life being br back into markets. >> looking at chinese debt, and compare that with thailand. china is the second biggest global economy and growing fast. the dynamics and china are different to other emerging markets.
we should move on from categorizing china and chinese authorities in the emerging-market basket. haidi: the concept that has been popular is a strategy that have ad markets particular set of covenants and the expectation they will step in to support the market, is that reasonable? >> i agree. they have the means, and they will. i was surprised yesterday when we had the tariff announcement, to see the chinese market down, hong kong and korea, for example, taiwan or malaysia, where exportskets of the biggest share of gdp and of not more vulnerable in the chinese markets. i think that reaction opens an opportunity to buy chinese
shares and sell down smaller asian countries. there is always room for chinese authorities to step in and support. they just announce cutting consumption tax to support domestic markets. saidad: with what you just , that it could be time to get into chinese stocks, it is also time to be an active investor, not a passive one. you own a dynamic fund. are you putting your money where your mouth is? >> that is true. in this market it is hard to make a long-term forecast, so you go with the dynamics. that's right. given yesterday's selloff, we actually are buying china to puts and looking
short positions on some of the smaller asian equities like korea, for example, as a hedge against trade war. chinae been buying a-shares, and if the trade look forscalates, we hedging deposition by putting short position somewhere smaller in asian equities. rishaad: what surprised me, we see gold and yen as a haven, not that much movement for the yen and gold is down, now $1275 an ounce, so what is going on in your view there? >> it is a conundrum. you are right. or looking at gold and you see trade tensions flare up you would think gold was up 50 points, and it was down. if you look at the fundamental drivers, one is u.s. dollar on the mostp, but
important driver for gold has been real yields. so far we have had a situation when we had better growth out of yields haved bond gone ahead of inflation, so real yields have gone up. questionl growth is in and trade tensions are coming to the fore, we are seeing it rollover. if that continues, we are sure to see gold behave as a safe haven, but it is still early in the process and still a great hedge in the portfolio against those tensions. haidi: i'm looking at your latest notes. politics don't into cycles, central banks and over optimism do. what if they feed into short-term inflationary impact and a move in central banks? >> that is the biggest risk. that comes with a lag. ,f you look at the dynamics now there is a lot of uncertainty come up but one thing for certain is if they introduce and
implement it, it will raise the cost of goods in the u.s., for now steel another products. if they go ahead with another $200 billion, sneakers, clothing, everything will be on the rise on the back of that tear and feed into the inflation. anhave the fed in uncomfortable situation to fight slowing growth at the same time as inflation. that is the central bank that will be forced to act against inflationary pressures and that will be the end of the cycle will happen with a lag. the biggest impact is confidence . for that, we are watching u.s. dollar closely. often u.s. dollar is the key right now. rish. rishaad: just looking at fixed income markets. we are seeing this nervousness ,eading to an almost inversion
and we do have an inverted yield curve in some asset classes. we could get one for the major u.s. treasuries. does this presage a recession? think when you look at the yield curve, first of all, you look at the supply. earlier this year, we had massive supply in the short end, which pushed the short rates up. that is one. two, we have this global convergence. draghithe ecb, mario offered forgot in storage 2019 for rate hikes, so bond yields levels, sore at low that creates demand for u.s. bond yields at high levels. abnormality in the yield curve to an mx we did not have in the past. the global yield curve is
becoming inverted now, but the composition of some of those indices when the u.s. represents the biggest share of the short end and the smaller share of the long end also contributed to that. the u.s. you occur still not inverted, but i take the signal from the yield curve with a grain of salt. rishaad: stick around. we have loads more to talk about. just to tell you about the moment leader, he at the was not supreme at the chinese capital for a while, but apparently he likes the air out there. let's get to first word news. >> chinese state television says kim jong-un has promised to upgrade ties beijing to a new level. the north korean leader met with president xi jinping tuesday on his third
visit to china in three months. pledge to jinping support north korea. his presence in beijing is a sign of continued chinese leverage in the nuclear and trade disputes. a potentialected compromise deal for opec, saying it wants support even a small increase in oil production. it is a sign that the gathering could end in disarray for the first time since 2011. the iranian oil minister says he does not believe agreement can be reached and also says the u.s. calls for lower crude prices are unfair. createddent trump has difficulty for the oil market by thesing sanctions against two important members of opec, opec and, and now asks expects opec to change something
for the better price in the market. it is not fair. angelaan chancellor merkel and french president emmanuel macron have agreed on a plan to strengthen the euro area. the two biggest economies agreed to set up a joint regional logit and beef up european stability mechanisms, seeking to fortify europe against financial crises and strengthen its global influence. however, they still need to get other governments on board. noble group has reached a deal with dissident shareholder goldilocks investment over its plan $3.5 billion debt restructuring. it will give existing shareholders 20% of the revised company come up from 15%. goldilocks one nominate a director to the board and the two parties will drop all legal claims against one another. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg.
haidi: we are back. rishaad: the fed and ecb exit stimulus mode. developeders warning nations are not equipped for another recession. areells us interest rates likely to return to historically normal levels before the next slump. that means central banks will not be able to address another recession. >> we are living with a brutal
economy. downturns happen. the odds of moving into a downturn are 20% each year, and when they happened, the playbook is to cut interest rates by 500 basis points. there will not be that room going forward. financendonesia's minister told us global monetary tightening is the new normal that emerging markets need to adapt to. hawkishnessral-bank and trade tensions arereating uncertainty and some developing economies are failing to adjust to that. >> we are very much concerned that many emerging and developing countries cannot adapt well enough or fasting enough with this environment they are facing. that can create an environment for the global economy to have a downside to it. rishaad: let's get more with our guests.
-- guest. you mentioned something about inflation resulting from these trade terrorists. the fede, they may, but cap respond to those. then you will have base effects, and as a result not the right type of inflation, so they would not have to react to it surely? >> absolutely not in the short-term. it takes time for those inflationary pressures to show up, and by then, right now you receiving u.s. economy, and the like comes through, the task of the fed will be harder, because you have cost push and demand for inflation, and potentially slowing growth. ofwill make the fence task tougher next year, but not in the near term. task offer next
year, but not in the near term. your viewell us about of developing countries, particularly in asia. dependsynamics, a lot on what happens. if you have rate hikes in the u.s. and that corresponds with synchronized global growth, which pushes the u.s. dollar higher, but not too high, so we have u.s. dollar stable, why? there is no growth diversions. growth is improving across the board. u.s.sentially prevent the dollar from going too high, and that is ok because we have growth and monetary tightening, so growth will offset the tightening. if the divergence gets bigger, what we had in 2015 when we had emerging markets and europe slowing and the u.s. accelerating, that pushes the u.s. dollar so high that led to inflationary pressures in emerging markets and they had to
hike rates in the face of slowing growth. if that happens, that is a clear risk. so far the underlying trend in global growth is strong enough, different from 2014-2015. europe, for example, consumption demand is strong. europeanthe damage to gdp has been through exports because of the euro. the underlying trend for global growth is strong, even if momentum has slowed down. if that changes and we have an exhilaration end of urgency that is a risk. i am watching the trend in the u.s. dollar. the u.s. dollar it levels that should peak soon. if it doesn't and starts breaking higher, accelerates offer, then all bets are and i think emerging markets will be a risky place to be. haidi: i want to throw up this chart that shows that exited scum the collapsing momentum across asia and emerging markets. is there a sense that china
caught a falling knife? >> number one, they are reacting. they are having a situation where the currency is under pressure and they are hiking rates to prevent further determination in the currencies. you have turkey within emerging markets and argentina, they need to raise interest rates. the rest of the emerging markets, and asia in particular, i think they have been reactive to hike rates so quickly. we have the philippines and thailand central banks, thailand is penciled in for a rate hike. premature to hike to aggressively. haidi: always appreciate those thoughts. always here with it interesting investment strategies and themes.
looking at the yuan fixing, much stronger than expected. we are seeing offshore yuan erasing declines. possibly this is a signal from the pboc the recent weakness may be overdone. bloomberg users can interact with the charts we brought up to catch up on key analysis and save charts for your future reference. this is bloomberg. ♪ this is bloomberg. ♪
-- end to that auction. energy, telecoms up alongside oil, communications, and services. what else is in the green? so also the might come to the aid of the hang seng. the shanghai composite, second-biggest drop this year. you can look that up if you have our gtv function in mind. let's bring in our bloomberg china reporter. what are investors looking out for today? it is all about timing. we had reassuring words from the central bank, a very rare appearance. so let's see if this is china's "whatever it takes" moment. all the investors i have been speaking with, no one wants to
call the bottom. we had more than $1.5 trillion wiped off the shanghai composite , or the chinese equity market not like ito it is was a sudden move yesterday. people are worried about how china's economy will deal with all this. it's not just trade wars, it is we consumption. chinese newspapers telling everyone to calm down, so let's see if we get a rebound today. it might not last. it doesn't last, what are we expecting from the national team? >> we haven't seen any signs of the national team. state that often steps in to buy large caps in the equity market. they have not defended the 3000 , so let'she composite see if there are any signs of that. rally, that maybe
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9:29 in hong kong and shanghai. the start of the trading day. a terrible tuesday, stocks on the way down by huge amounts. over 1000 stocks in shanghai limit down over 10%. the pboc and chinese authorities are appealing for calm in newspapers. it is a mixed bag. some suggesting we could see a bounce. the pboc with a stronger fixing, weakening that reference rate by .5%.
royaleossibly a battle to take place there. the fed looking at trade tensions closely. they could result in higher inflation in the short-term least. the open is upon us. here is sophie. today for red mainline markets. the shanghai composite off by .6%. x under pressure. this for the brunt of losses from the mainland market along with the shanghai composite. in hong kong, gaining .3% with technologiesac seeing gains. optical seeing losses. today's fix stronger-than-expected, perhaps
an attempt to stop depreciation. we saw the offshore yuan reversed earlier moves, now around that handle. keep an eye on the yuan throughout the session. moves, set for the first gain in five sessions in hong kong. check out the day-shares falling by the daily limit on the mainland. rishaad: thanks a lot. trade tensions and how they are playing out at the moment. a bit of a rest bite today, a as the war of words has quieted down, at least for the time being. the head of equity strategy at j.p. morgan with us now. we have been looking at this. we shouldn't really get worked up. juste end of the day,
three percent of china's gdp and exports to the united states. so, come down, everybody. lm down, everybody. >> yes. is relatively gdp isll, but the bigger issue that tariff part come investment restrictions, the hidden barriers. that could have bigger impact on both countries. bans component exports to zte, it causes a disaster for this company. facing the same problem. globals part of the supply chain. if you have disruption because
of the non-tariff issue and tariff war then the impact for china, the u.s., and the collateral damage on other countries will be a lot bigger. rishaad: it does seem the endgame is to challenge, to make sure the u.s. maintains its hegemony in the world. is there a better way rather than snapping tariffs on old economy products? two aspects ofre the negotiations. one is to do with the trade imbalance. the proposal is china should buy more imports from the u.s., transparenteasy and component. you can put down the number that china will buy from the u.s. the second is more complicated, china's technology policy and fair treatment in china. to new lostmmit
like a patent law and to protect intellectual property in a better way, but the lack of ,rust between the two countries particular as china continues to lag behind expectation, the distrust from the u.s. side, the u.s. wants to make sure action is taking place. could a compromise look like? everything president trump is thelaining about, chines economy, this is a longer term structural issue that needs to be addressed over years and decades. if he wants a short-term win, what does that look like? >> i think all this confrontation is a manifestation of the long-term strategic relationship adjustment. a grandalking about deal were everything will be off the table soon.
we are at the start of the changing relationship between the two countries. on the economic side, we are talking about trade and investment technology, which is probably more complicated because of the lack of trust between the two countries at this stage. we still think the negotiation is a win-win situation and the trade war is a lose lose situation. to the it would lead benign negotiation outcome, which is win-win are both sides. the of the problem is person who wins less things they lose, so that is the misperception, misjudgment, in this negotiation process. haidi: a lot of the master posturing as well. i want to put up this chart of the shanghai composite. onlys been performing going into yesterday session, but the second-biggest drop of
2018, we are on the cusp of a bear market when it comes to mainland equities. were you surprised we didn't see it response? the onshore market is performing disappointing. the conflict on the trade site is one trigger. china has been subject to multiple shocks in the past few days. last may, the economic data was disappointing on the weak side, infrastructure investment week, and the total social financing critical's was below expectations. there is some transitional stress from the implementation of new regulation come up but i think the worry is on the macro side whether china is losing momentum. on the policy side, we expect the policy adjustment will be made, both fiscal policy and
monetary policy will be adjusted to maintain stable domestic demand. that stock market was shocked by the external factor and the trade tensions. rishaad: we have this graph from which shows on a physical basis have china cannot match the u.s. in terms of trade onlyfs, because they import $154 billion worth of goods from the united states, where as exports to china are $500 billion. u.s. has a surplus in services with china. the other thing is u.s. consumers end up having to pay more. that's not play well to the gallery. >> the headline number is $375 billion trade deficit. china is somewhat misleading because keep in mind if you're using value added terms, china's
trade surplus is one third lower because many of them are made somewhere else and go to the u.s.. another is that foreign companies play an important role in china's economic activity. of china's total exports in 22% of china's none of industry, so them are affecting the official trade data. the u.s. is also running a service surplus against china. from that perspective, the bargaining power between the china and the u.s. is not a symmetric as it would seem comparing $500 billion with wondered $54 billion. rishaad: thank you very much. let's tell you about what we have coming up on the program. we have a look at first word news now and join paul allen. the philippine central bank governors laid out the case for
a second rate increase as they faced broadening price pressures, tighter u.s. policy, and a currency slump. thiseso hit a 12 year low week while bond yields are at seven-year highs. meetingy's policies will assess ways of reining in inflation, which it 4.6% in may. >> we are seeing a deceleration in may. it ishat perspective living up to the original anticipation that there would be an increase in inflation, but we toect it to go down back target range for next year. >> indonesia's finance minister says global monetary tightening is the new normal for emerging markets as the fed raises interest rates and the ecb scales back bond buying. he told bloomberg that
hawkishness and trade tensions are creating uncertainty and some developing economies are failing to adjust quickly enough. >> we are very much concerned that many countries, especially emerging and developing wellries, cannot adapt enough or fast enough with this kind of environment they are create and that can environment for the global economy to have a downside risk. administration has withdrawn from the united nations human rights council, a body it has accused of hypocrisy and anti-israel bias. the council had joined the growing criticism of the policy of separating immigrant families of the border. republican and democrat lawmakers and business people have voiced opposition to removing children from their parents. >> what i am asking is congress to give us a third option, which we have been requesting since last year, the legal authority
to detain and remove families together as a unit. we have to be able to do this. this is the only solution to the border crisis. u.k. says rupert murdoch's 21st century fox has made the remaining commitments needed to win clearance to buy , andv operator sky fox disney agreed to fund sky news for 15 years and preserved the channels editorial independence. comcast made an offer that is 16% higher than disney. sky shares have been trading above both bids. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. up, china'sg imports may not match the u.s., but president xi jinping could squeeze american companies in many other ways. we will take a look at his
rishaad: we are back. china imports only $130 billion of goods from the u.s., meaning it cannot match president trump's terrace dollar for dollar, but has the ability to squeeze american companies in a variety of different ways. what else can they do? >> they have an array of options. people .2 the korea and japanese model. havee past with tensions heightened, china has responded through bureaucratic means, targeting foreign companies operating in china, heightening bureaucratic inspections, slowing down the approval process for investment decisions. even explicitly targeting
products with tariffs, a whole range of bureaucratic channels that could respond to by making life awkward for american businesses in china. rishaad: it is a pretty blunt instrument using tariffs. there are more cunning ways of responding to this. how do the various administrations plan? >> the fundamental question is tackle the u.s. concerns over china's made in 2025 strategy, the plan to create this leading, technology-driven economy competitive with the u.s.. won't necessarily force a change in china's core industry or strategy. that is why there is a feeling we are in a protracted trade spat here and the current measures will not lead to the
result. haidi: what is the impact inspected in terms of damage to the global economy? >> it is a tricky one. if you want to call it $50 billion, even though we are not at the market yet. people are expected to have a modest a nominal gdp. the biggest concern is confidence and sentiment. if we go down the path of u.s. targeting $200 billion of chinese imports with tariffs, then you start talking about some sizable sums, bearable estimates for growth. of 0.2%een estimates and 0.5 percentage points of gdp coming off china's growth profile if we end up in that circumstance. the thing to remember is apart from the fact of the forecast, china has so many lovers to pull and could respond with so much
monetary and fiscal firepower, that even if there is a hit to their economy, china would respond and make sure they are doing enough to ensure that they are hitting their magic growth target every year, so even if we go down up attracted trade war and there is a hit to china's economy, china can respond. if they pull all those levers and go all out, how does that impact the deleveraging campaign and the broader opening up a financial reform efforts? theyu would have to assume will have to rollback on some promises. they have been pushing towards what they consider to be a sustainable and durable growth path rather than relying on the credit and the like. if the economy is taking a material hit, because exports are suffering because of it trade war, they will have little option but to do something with public spending on
generatingure and activity to keep that site of the economy ticking over. you would have to assume that perhaps the deleveraging campaign or d risking campaign take something of a backseat if growth becomes the immediate focus. that is one of the biggest worries facing chinese policymakers out of all of this. haidi: thank you so much for that. our chief asia economics correspondent there. let's look at some of the movers in this market. broadly asian markets holding up better than overnight. checking in on singapore stocks. , jumping assurging much as 57% after goldilocks agreed to stop all claims and legal proceedings against the company. let's move over to sydney, telstra losing ground, although
easing losses, falling 7.4%, the drop sparked by plans to cut 8000 jobs over three years. the crypto space, bitcoin falling after a korean exchange was hacked. worth of crypto coins were stolen. zte set for the first gain in five sessions. a-shares continued to slide. rishaad: thanks. with thelways catch up ourrviews we made with interactive function. you can watch us live as well. you canly cool thing is jump in and look at the security some bloomberg functions mentioned.
rishaad: you are back. this is "bloomberg markets: asia." having a look at the business flash headlines. hasbank ceo masayoshi son shaken up its inner circle. approved has nominations for executive vice president. it is the biggest overhaul in sincenk's top management 2014. openingropping from its highs on the second day of trading in tokyo. the 77% ipo surge put it on top of the small-cap index.
settles, investors will be keen to see if the founder can execute an ambitious overseas plan. >> our mission is to reach global customers. we are starting with development nation's where social infrastructure is mature. our ambition is to spread our services and other markets. i know it might take decades, but that is my eventual goal. electric hasral been kicked out of the dow jones industrial average. has been part of for more than a century. ge stock has fallen 27% and is the worst performer in the dow, a distinction that held last year as well. it will be replaced by walgreens boots alliance and will take effect prior to the open of trading next tuesday.
taking a look at markets trading at the moment, we are looking at, a shanghai market a decline of .5%. we are on the cusp of a bear market when it comes to the shanghai market. certainly this reaction largely in part to trade tensions really starting to accelerate that decline. hong kong keeping its head above water. we are seeing a more balanced view of things in asia than those declines in the u.s. overnight. rishaad: it does look as if sensing a pause in all this. that is what we have at the moment. in turkey, slight movement there to the upside last time i checked. we are not. we are off a fraction. indonesian markets have come back online in a few minutes
from now after a seven-daybreak. give trading in the u.s. listed indication, traders are in for print screens. jakartat over to markets. walk us through what is weighing on the markets. is it indonesia specific? we have been on holiday for the past seven trading days. the etf of msci indonesia has been down in six of those seven days, so some analysts are saying we should expect some correction this morning. looking at what the central bank did before the holiday, stabilizing the currency. rupiah, looking at the what are people saying about that?
what is it likely to be doing in the future? >> standard chartered recently the currency should not be immune to the fallout in nation markets. local analysts and some investors have been saying the recent steps by the central bank to be more aggressive in defending the currency and reassuring investors have been taken positively by investors and traders in the past few weeks. monetaryat are the policy worries that are still lingering right now? >> well, the new central bank governor has reportedly been saying the central bank will be proactive. hing that preempt anyt might happen in markets. to some extent, that has
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rishaad: equity markets very a drop ine fore, tuesday's trade induced selloff, at a strongern level than expected. now, with kim jong-un act in beijing, a look at his role in the disputes with the united states, plus there is a noble group,for who reached an agreement with dissident investor goldilocks. i am a shot salamat in hong kong. -- i am rishaad salamat. in hong kong. haidi: i am haidi lun.
this is "bloomberg markets: asia ." far off fromo perhaps entering a bear market when it comes to chinese stocks today. you get a sense that investors are waiting after the interview with the pboc governor, "show me the money," or provide some support or do something on liquidity. maybe the next arrow or olive branch. double-edgede a olive branch. are looking at this, as well, aren't they? perhaps, it is a wait and see
approach, and one of the same will be a curve inversion, maybe , and maybe not this time, and a look at what has happened in the last few years. let's have a look at indonesia, seven trading days. there was the holiday. what have we got for jakarta, sophie? 1.4% coming that from the break, and there was a potential for losses given the holiday slump, with the seven-daybreak, but looking ahead, they say the central bank decision to defend the rupiah, that could affect things. mayor puzzling in a move towards a present for benchmark -- they towardsiling in a move 8% for the benchmark.
japanese stocks easing some of the decline. the hang seng is gaining ground, country we are seeing garden and other shares under pressure. withvery much the laggard stocks that in shanghai. what we are seeing for the h sha res, they are extending their is rising forte the first time in five sessions, so we are seeing a bit of a mixed bag, haidi. to paul in sydney. paul: kim jong-un has promised to upgrade his ties with beijing to a new level. it was confirmed that the north korean leader met with xi jinping in china, another visit in three months, and xi also pledged to keep supporting north korea, a sign of kim jong-un's
leverage. the u.s. has withdrawn from the u.n. human rights council, a body they have long accused of having anti-israel bias. they have grown upset about policy oftrump's separating children and families at the border. .pposition president trump: what i asking congress to do is to give us a third option, which we have been requesting since last year, the legal authority to detain and properly remove families together as a unit. we have to be able to do this. this is the only solution to the border crisis. rejected ahas potential compromise deal for opec, say they will not accept even a small increase, a sign int the cartel could end
disarray for the first time since 2011. the minister says he does not believe an agreement can be reached and also says the u.s. calls for lower prices are not fair. >> it has created difficulty for againstet by sanctions opec,portant members of two important producers, and now opec to or expect is not fair.ing embattled commodity trader noble group has reached an agreement with goldilocks investment over its planned $3.5 billion debt restructuring. this gives existing shareholders 20% of the revised company. goldilocks will also get to twonate a director, and the
parties will drop all legal claims against one another. global news 24 hours a day on air, and @tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. rishaad: emerging markets have taken a hit, with stocks in developing nations sinking. the index falling below the 1100 mark. this is as a prospect of a growing trade war and a more tie with a strong dollar. who is most at risk? no better to ask man -- than stephen schwartz. that is the question, isn't it? en: the global monetary
tightening underway is putting pressure on currencies and causing interest rates to rise preemptively in many markets, pressuring -- rishaad: is that a mistake though? stephen: the pace of the weerest rates being heights, have seen a few, and the philippines and india, it -- being hiked, we have seen it in the philippines and india. rishaad: it is also an dotchin endogenous and not exogenous. stephen: stepping back, we still have a stable outlook when it comes to sovereign ratings reflecting agion fairly stable buffer built up around the region, and growth is still quite strong, thanks in
part to sustained momentum in china and support of fiscal and monetary policies across the region, so the region is well positioned for the tell -- time being to whether this, -- to w but the volatility, the aggressive fed rate hiking, ecbthe still fairly lax policies are beginning to put upward pressure on the dollar, in 2018 in contrast to 2017, putting downward pressure on currencies, creating higher debt servicing burdens and also putting upward pressure on inflation in a few of these economies. phen, you mentioned inflation, and looking at anywhere from $50 billion to $200 billion of tariffs in retaliation between washington and beijing, what is your gas in terms of how inflationary -- what is your guess in terms of
how inflationary that is? we have not been doing inflation model impact scenarios. what we have been doing is the effects of the trade tensions that have been building, and up until now, our baseline has been that these are negotiating ploys and that the worst of a full-blown trade war would be averted. the u.s.news out of administration in the last 24, 48 hours, with respect to the expand the list to cover to what a billion dollars worth of goods, that is quite concerning, because we are moving from a scenario of targeted product and sector-specific tariffs to a possible more generalized geographical-based, across the board scenario. that, in our view, could create even greater headwinds to grow
and spill over to emerging asia,s in europe and in so that is the risk we are focusing on, more so than the inflationary impact. haidi: when we take a look at the e.m. rout, there is a discussion about whether some of these are getting wrapped up with things that may have fragile fundamentals. compared to where we are with currencies, some of these countries and their books are looking better this time around? yes, in terms of domestic policy settings. if you recall, in the 2013 temper tantrum, india and indonesia were hit particularly hard, and to their credit, policy makers in both economies took steps to insulate and build resilience, so current account deficits have been reined in, and in indonesia, in particular, they have taken steps to avoid a inther buildup
exchange-denominated debt. that has been successful in leveling off corporate debt, but i would say they are better positioned, but the external environment is, perhaps, more challenging than it was in 2013 in that we are getting upward pressure on the dollar with aggressive monetary tightening now in trained, and that is in contrast to 2013. stephen, stay with us, with fitch ratings. more in just a moment. we'll be talking more about the upcoming rate decision out of the philippines and thailand. we are seeing just the beginning of the storm when it comes to emerging markets. rishaad: also still ahead, what kim jong-un's latest visit to beijing means for the latest trade standstill. this is bloomberg. ♪
haidi: this is "bloomberg markets: asia." lun in sydney. following up on the rate hike in .ay with another swift one in tokyo today, we spoke with the governor, and he says inflation is not really much of a concern. why are we still seeing these expectations for a move today? there is a difference. oil ors supply side, food prices, so a rate hike does not solve the problem, but what happens is the economy is growing quite rapidly. if you agree with that assessment whether it is supply driven or demand driven, there are also the effects. plus, when you look at where the currency is, there is also a case to be made there that he
may need to send a very strong signal to the market on both the inflation side and also on the currency side that they have this problem under control. that is the conversation i had with him yesterday. >> it is actually quite encouraging. year, we are this seeing a deceleration, so from is liningective, it up to original anticipation that there would be an increase in backwe expected to go down to target range by next year. is, thechallenge economy is growing slowly, has been growing sy, and the situation like that, there is more possibility of passing on
costs to customers, and this is particularly what we are looking into, the so-called second round effects, so the exchange rate development, while closely monitored, in our view, from a medium-term perspective, we are quite comfortable that solid economic fundamentals support it. change isthe rate of something though that concerns you? penilla: that is something that they monitor carefully. is marketge rate driven. we generally allow supply and demand conditions to determine the exchange rate, but we are sensitive, exactly for the issues you just raised. in terms of managing the pace it for example -- in a way, could have destabilizing effects
tomorrow. it is another opportunity to take a look at the situation, whether in fact there is hope to strengthen our signal that the group is secure in returning to target and to see a more orderly rating in the exchange market. david, yes, so, in other words, do not be surprised if there are new rate hikes later on. after we met, he headed out on the redeye. now, the other thing i do what you mention as well is when you look at this bloomberg chart, real rates are actually the lowest in the philippines in the region, so that is another piece of evidence, if you will, if you're not concerned there is a reason to hike. in japan, they were trying to market samurai bonds, and when
you try to market fixed income securities in any situation where people are expecting a rate hike, those two things do together, so jive we will be interesting to see what they do it how they do it in the messaging that comes across later today. rish? rishaad: let's get back to schwartz from fitch ratings. stephen: it shows the flows holding up an important tax return measures that are lifting the revenue ratio to support the vision of infrastructure spending plans that the philippines has, but the focus now on the next central bank meeting highlights the risk that we have factored in, as well, into our rating, which is the risk of economic overheating, 7%, withth of almost
rising inflationary pressures, with the trade balance moving increasingly into deficit, albeit for reasons of infrastructure and capital imports, those are some of the classic signs one looks for, and the central bank did surprise us by bringing forward its rate hike cycle a little earlier than we anticipated, but we are not at also prized. the pressure is on the upside now for interest rates -- but we thatot at all surprised the pressure is on the upside now for interest rates. been: the economy has performing above that 10-year average. there are these long-awaited elections. yes, political uncertainty certainly ways a bit on the outlook for thailand. we are expecting election next year, a return to civilian rule, but conditions on the ground are stable.
a classics sort of middle income trap economy. it has been stuck in the 3%, 4% growth range for some time, but recent positive signs of growth momentum is elsewhere around the region picking up, thanks to the positive external environment and gradually strengthening the sluggish demand conditions in thailand, but we are looking for the central bank really to stay on hold, we think, for the rest of the year at its policy rate of 1.5 percent, because inflationary pressures, unlike in the philippines, really remain at bay, and the central bank probably does not want to do anything to choke off the incipient recovery and growth. stephen, always a pleasure, from fitch ratings in hong kong for us. coming up, apple could be hard-hit. that is if a company is granted
rishaad: we are back. let's have a look at some of the headlines, with one company dropping on the second day of trading in tokyo, and the flea on cap, valued at the investorsand came to see if the ceo can execute the ambitious expansion plan. a joke about a starbucks on every corner may be fading, at least for the time being. they plan to close about 150 u.s. stores next fiscal year after a forecast of comparable sales grew at 1%, the worst in about nine years.
business is booming overseas, and ceo kevin johnson says china remains a bright spot. >> we are actively exploring strategic opportunities in other markets. converting those markets to licensed, we also invest in capital to acquire 100% of our venture, and that is the recognition that we have a phenomenally significant growth opportunity ahead in china, and the best way to capture that is to unify mainland china as a company-operated model. dynamic semiconductors says it is proceeding with plans to take over a company with a heavy dependence on apple. the british company says it is conducting due diligence, and there was an early report from bloomberg news that said it would primarily be paid for by cash on the balance sheet and debt. extended trading tuesday. companies may take a
hit as the trade were between washington and beijing accelerates or escalates. "the new york times" reporting that president trump assured apple ceo tim cook the u.s. would not be placing tariffs on iphones. however,trump's -- however, advisor, hetrade said else. this is key. >> peter navarro has said he does not know, and this really tells us all we need to know about how the ministry is reproaching this -- approaching this. apple iphones or almost all made in china, a few in india and some in brazil, but most -- apple iphones are almost all made in china. they are u.s. brand name, so if you're going to put tariffs on them, that is really hurting those brand names. now, if the administration wants
to come out with an exempt and -- with ann hp or exemption for apple, then h.p. ask.l could come out and you do not have a lot of chinese products, aircraft, other things that the u.s. sells to china, that china does not really sell back to the united states, so really it is a pandora's box of you, maybe maybe you, maybe you. it is going to be very weird. only about 20% or 25% of apple is value added in china. that is how much they get from it, if that. qualcomm.e come from some are apple chips made in taiwan. some are coming from korea or
japan, so it is coming from all over the world and going into china. is china going to put tariffs on bee products coming in? rishaad: very messy. tim: very, very messy. rishaad: it is like trying to -- to findething something in a sack of needles. exemptions on tariffs. we are just getting to the part of putting tariffs on, and then maybe we will have exemptions here and there. it will be very difficult for people to understand it. always glad to have you, visiting us from taipei. we are heading to lunch break there, and this is what it looks like in tokyo, very flat. we are in wait and see mode. declining by half of 1%. taking a look at the nikkei, having a look at the mixed bag, seeing what we have in terms of
it is 10:29 in sydney. i am paul allen. skepticism that trade talks with china would work, but not backing down, beijing promising to retaliate if the u.s. follows through on its new threat to target $150 billion in chinese imports. and the pboc governor has called for people to remain calm, pledging to use monetary policy. there is a think suicide pact on this, so i do not think we will cause the economy to collapse. but to guess what
is going on, some people have commented that they have called it a negotiating pattern. that is what they want us to take. angelaerman chancellor merkel and french president manual macron have agreed in principle to set up a joint theonal budget and affect stability mechanism. they are seeking to fortify europe against financial crises and strengthen their global influence. however, they still need to get other governments on board. the philippines central bank governor has laid out the case for a second straight rate increase as he faces rotting pressures, tighter u.s. monetary policy, and a currency slot. a low, while bond yields are at highs. they told bloomberg that the policy meeting is to rein in inflation, which it 4.6% in may.
we saw this in may, so from this is lininge, up to the original anticipation ,hat there will be an increase and we expect it to go down, but it will be back in target range next year. paul: the u.k. says rupert 21st century fox has done what is needed to buy sky. disney agreed to fund sky news for at least 15 years and preserve the channel's editorial independence. a higher bid. sigh shares have been trading above both bids. global news 24 hours a day, on air, and @tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries.
i am paul allen. this is bloomberg. rishaad: seven trading days without trading, unlike years not in joint a boost. let's see what is going on. the index has fallen. banks leading that tumble in jakarta. now, let's turn our attention to manila, ahead of the rate decision. for the first day in five but not quite out of the danger zone yet with bear market territory not too far off. is down as investors are heading for the exit, spooked by rising inflation. forould be positive equities. plus, market hunters are on the aowl with the valuation at 2016 low. elsewhere, we do have the thai baht gaining ground ahead of the
rate decision but not off of the low. likewith strong financials thailand, they are not immune from selloffs elsewhere. and checking in at about the inflation data, cpi expected to have risen 1.8% on year in may for malaysia, and the yuan is slightly firmer. are efforts to cushion the pace of depreciation after a two-date slump that was the steepest since 2016 for the yuan. have beense shares swinging as the yen holds steady, the nikkei little kospi is littlee changed. shanghai shares are in danger of di.ering the bears zone, hai haidi: yes, the bears are out there.
president trump is not the only one complaining about china's trade practices. a new survey says a slim majority of european the bunnies in china believe foreign firms slimreated unfairly, -- majority of european companies in china believe foreign firms are treated unfairly. what are the top complaints? well, one of the key takeaways from this annual business sentiment survey from the european chambers of commerce was that the environment here, their members say, is going to worsen over the next five years. as you say, they are very concerned about market access, the ability to access the chinese market versus the chinese firms who get access european markets. they are concerned about that and about intellectual property. they say in that space, things are moving in the right direction. in terms of the regulatory
environment, that is proving very challenging for european firms, as well, according to this survey, and it is starting to hit the autumn line, so there are european companies who have missed out on opportunity as a result of what they see is a lack of transparency around the regulatory environment here, so hitting the bottom line, particularly, like aging, shenzhen, and shanghai. there are other areas that they are concerned about, as well, discrimination of european companies, as well. i started talking to the head of the commerce group and asked about the trade sentiment and how that is impacting businesses in china. take a listen. chinese company's have become very responsive, and that means that we western companies cannot rest on our laurels, but it also means another thing. it shows that the chinese companies are becoming more globaltive also on a
level, and for china not to encourage that development, the pampering and the protection that we are seeing, discrimination against foreign companies, it has to stop in order to expose these companies to full and fair competition so they can take the next step. despite these challenges and the regulatory environment and the competitiveness, european companies were doing well on average. 66% of them say their revenues are up in 2018. what are the standouts sectors? pharma, medical devices, and i should say that one reason they do stand out -- why european companies are becoming more successful is because they are very nimble. they are adapting to the new market situation. they are monitoring costs and parameters, and they need to do so much more due to the increasing competitiveness. war, terms of the trade
its potential scenario is that european companies could exact to a blow you comes to blow fight between beijing and washington. is that going to play out at all? totalwe are seeing evidence that a few companies have benefited, but this is not what we watch. we do not went to compete based on getting advantages from a trade war. we wanted open and fair trade regime that benefits all of us, where we compete at what we are good at. you think this trade war plays out from here, and are your members taking actions to protect themselves should things get worse from this stage? member countries are having meetings to discuss the risks. it is about rearranging supply chains and looking at our production systems.
it is also taking measures for the worst scenario, the cycle, perhaps coming to an end, and if this as glades, this could very well be the trigger to the end of this boom cycle -- and if this escalates, this could very well be the trigger to the end of the boom cycle. rishaad: is this? said there are already examples of european contractsthat won asinst their u.s. opponents a result. they are very concerned that they will start to impact global supply chains, as he said, and the rule-based order, so those remain. he, by the way, said that these kinds of pressure points can have a material impact in changing the tile, moving the dial, when it comes to china and the opening the chinese
policymakers keep talking about. he says that is what should be worked on, both at the european level and the u.s. level, to the playing field to a better level, not the type that the trump administration is pursuing, but u.s. companies, for example, a are very concerned they are going to get caught in a crossfire and that some of those deals will not go in their favor and that their european counterparts will win out. rishaad: tom, thanks for that. tom mackenzie, our correspondent talking with the commerce president, mats harborn. and looking for ways to up their influence, issues surrounding north korea. beijing again.in i think he leaves today, his third time in as many months. what is he doing there? well, kim jong-un is traveling to beijing, as you said, the third time since
march. it is his first place he left -- he went to after leaving his really,and he is there, to report back on the singapore summit last week between president trump, in which they reached a joint statement to workg a desire toward the complete denuclearization of the korean peninsula and also to improve relations between the two sides. china has a large stake in the outcome of that meeting as one of the participants in the and aal korean war signatory of the 1953 armistice that brought it to a halt. china has a desire to maintain and alsothe peninsula to make sure that its own interests are looked after in any resolution there. apart from trade, how does the typical relationship
between washington and beijing fit? kim's presence in beijing is really a symbol of the broad range of issues that both china and the u.s. depend on each other for. china's support for sanctions over the past year has been a critical part of trump's campaign to put maximum pressure on kim jong-un, a camp in that trump himself credits with bringing him zhongpin to the table -- for bringing kim jong-un to the table. also, the two world largest economies rely on each other, -- the wiest of which is the not the least of which is the shipping lanes, which have been in dispute in recent years, as well as the security of regional hotspots, such as taiwan.
head of fixed income at ubs asset management. are talking about this wall of maturity that is coming up, and we are also talking about the impact of a potential trade of forceind of sort beijing to loosen up, if you will. what are you expecting them to do to address these challenges? >> i think at the moment, everybody is focused on rrr cuts, and really, they are being maturities.ith mlf i think now we have higher and higher bond maturities that are coming off. you can already see, not in the media we see generally, the fall starting to happen across the to the really small ones. we do not think it is systemic yet, but china is on a knife's , in terms of the local government financing, local is getting access. at the start of this month, too, they have gone through to say over 90 npl's or the
days within the small banks now have to be reined in a classified ad npl's. all tightening credit conditions and making more difficult for people to now. perspective,r our that would mean that they are going to loosen up at some stage on the liquidity side. right, and the mass of toolbox a policy actions that they can go for, right? massive toolbox policy actions that they can go for, right? hayden: i think you are right. they have got a massive toolbox. there is nobody pushing them around. they can definitely respond to this. they really have a very, very high resolve to deleverage the economy, so at this point, they are letting it run its course. they are happy to see some defaults. canere looking at if this
get out of control, and our central thesis at the moment is it is not systemic, that it is starting to look worse, and then you throw the trade tensions in on top, and it gets you thinking about what they're going to have to do to the currency, as well. it has been extremely high on a trade weighted measure. we have been around the 97, 98 level basket. it needs to devalue, i think, at least 5%. devalue it by the level of tariffs would nullify the effects. you can do that, but it would be rather machiavellian, i suppose, but further easing, that has benefits. people say it is in the middle of deleveraging, people take on more debt, and maybe it wouldn't. it would make the process quicker. i liken this to what happened to the currency when we had a devaluation before and all
of the money started pouring out of the country. they had to spend several years tightening up all of those loose, li keqiang this is where money was coming out. i'm sure on the levered side, we are going through the same process. they are tightening in a. shadow banking, smaller banks, larger banks, and the list goes on and on. regulations in place and put the screws on the economy. i do not think they want to have a large cut to really stimulate the economy. they want to let the air out of the balloon and let it slow down slowly. rishaad: tell me about the impact it could have for the dollar bond market. any capital controls in place? absolutely. this has really been affecting the offshore dollar bond market. with the offshore chinese and u.s. dollars, the chinese banks. they are not allowed to do that anymore. a lot of the accounts we speak
to say they cannot buy the high yield bonds at the moment, so they have really backed off, and with tight liquidity conditions on shore, they back up even more. as excel up in the market come up to grilli in the high-yield. -- a change in the market, affecting the high-yield. one of the biggest sectors that have been issuing in the offshore market our financing vehicles. they have not got funding onshore because they are not allowed to fund on sure anymore. we're seeing that part of the yield curve. -- they are not allowed to fund on sure anymore -- onshore anymore. rishaad: let's check in with the business headlines, and shaking up the inner circle, softbank's masayoshi son. marcelo approved
claure, rajeev misra, and katsunori sago, the biggest chains since they brought in ni arora from google in 2014. trading fellincome 23%, while they were having sales increased for a second time in a row. jeffries had an underwriting business to reduce volatility. general electric has been kicked out of the dow jones industrial average. it has been part of the index for more than a century, ge stock dropping 27% this year so far also the worst performer, a distinction that it held last year, as well. the one time powerhouse is
rishaad: time now for the battle of the charts, david and haidi. and you can run the function featured at the bottom of your screen. david, you have got the honor. david: yes. so we have been talking about in version, and i think what has been lacking from the conversation -- i mean, we know this is going to invert, but the question is when the recession will take place after that, so i have created a chart that tracks the time between when you see the initial inversion between the two and the 10 with the blue and vertical lines, and on average, you go back five times. the first one i want to maybe for that is 100%, every time, you get an inversion, it actually leads to -- well, it precedes a recession. on average, we are talking about 15 months between the initial
inversion and the time the recession actually hits, so we are talking, if this inverts maybe in the next two months, we can be talking a recession early 2020. the other thing i want to mention is for you to get a recession, you need to go to quarters of a slowdown. in other words, the slogan of global growth could happen sooner than a lot of people realize -- the slowdown of global growth could happen to me that a lot of people realize, which could be 2019, which the historical timeline puts it at. rishaad: all right, that is good. haidi, come on, bring your best. haidi: i also want to point out that what is possibly missing from that thesis is the historic has not had a fed in this situation where it inflation is close to target and they are actually overhiked, and the question is whether this does suggest we are going to see a recession. i am also looking at the yield curve or the potential
inversion, and seeing an inversion already, these are micro inversions, if you will. i will bring it up, and that, from a partner news says we are waiting for this inversion of the curve which could happen as soon as next week. we usually look at seven's and it is said when this happens, that could be the proverbial canary in the cold mine, and that makes other markets more comfortable seeing inversion happen in the rest of the sector, and just a final word from the atlanta fed president that we should not be cavalier about what happens after we see inversion, that i suppose the contrary argument is we should not assume it rings on a recession either, rish. rishaad: all right, that is a , you are the haidi canary in the coal mine today,
and david is the soaring eagle. i am glad that neither of you are here, so i would get hurt afterwards if you were. remember that bloomberg users can interact with the charts to catch up ono> to the analysis and also shay -- save charts for future analysis. and we handed over to david and haslinda for the next hour of "bloomberg markets." the nikkei has turned positive, flate have the hang seng with other markets doing well. ♪
emily: i'm emily chang in san francisco and this is "bloomberg technology." coming up in the next the u.s. hour, senate voted overwhelmingly to reinstate penalties for zte, defying president trump and potentially upending the deal the president struck with the chinese company. we will hear from senator mike brown of south dakota. plus, ibm's watson has beaten humans with trivia on "jeopardy," but what about a complex public debate? an ibm r