tv Bloomberg Daybreak Asia Bloomberg January 28, 2019 6:00pm-8:00pm EST
haidi: good morning. australian markets have just opened for trade. shery: good evening from new york. sophie: i'm in hong kong. welcome to daybreak asia. ♪ the top stories this tuesday -- the u.s. charges dropped, further strained tensions ahead of trade talks in washington. asia-pacific markets under pressure as leading bellwethers deliver disappointment. caterpillar and ended blaming
weak demand out of china. president trump turns of the hate on venezuela, slapping sanctions on the state oil company and the central bank. shery: let's get you a quick check of the markets on the close of the u.s. sessions. broad downside pressure with the dow following 8/10 of 1%. 24 out of the 10 members -- 30 members in the red. economic slowdown in china. we mentioned caterpillar. not to forget an nvidia. we saw the semiconductors index falling for the first time in three days. the s&p 500 falling the most in about a week. we had concerns over china-u.s. trade tensions. after the market closed, the u.s. bringing fresh criminal charges against huawei. also hitting investor sentiment. the s&p futures down 1/10 of 1%. let's see how we are setting up for the market open in asia.
sophie: we are starting tuesday with a host of headwinds. several red flags on the effect of the slowing in china. u.s.-china trades are deep-seated. in sydney, we are seeing little changed. we do have some boosts coming through from bhp which is adding about five points at the start of the session. we are seeing a drag from oil players, under pressure given the recent decline in oil. we are also paying close attention to pbg telecom. it has been under pressure, falling 2% last friday. we are keeping an i on this stock in the wake of criminal charges against huawei, which was appointed the principal vendor for australia. tpg had already spent 100 million aussie dollars on top of in 1.2 6 billion apdpaid
2016. the future of the project is up in the air. haidi: let's get back to our top story. sophie mentioned the u.s. hitting huawei with a long list of criminal charges, accusing the chinese company and cfo of rfraud. it threatens to sour the mood ahead of trade talks. tom, we have been talking through the details of these 23 count indictment we are seeing in brooklyn and washington. the most surprising part is the timing. is this gamesmanship we are seeing a couple of days out from the chinese trade delegation arriving? tom: the trump administration is saying there is no connection, these are separate issues. what is going on with huawei and trade. certainly, those who are prosecuting who want to bring these charges against the cfo eid against while way -- huaw want to see this come to
permission. they don't want this to become a political football between the two countries. that being said, the timing is everything, right? this inevitably -- this will complicate those trade negotiations. it could be seen as giving the u.s. some leverage as it negotiates. it definitely shows china that the u.s. is very serious about when it believes a company has stolen trade secrets represents a threat to u.s. interests. and it certainly shows that the u.s. is taking this trade embargo against iran very seriously. anytime that chinese companies thebelieved to run a foul, u.s. wants to say you will get in trouble, no matter what, no matter where the strait negotiations go. as a backdrop, the timing is certainly very auspicious the u.s. take us through the
details of the allegations, the indictments. we knew details of some of them, but it was after a lengthy period of investigation. tom: it shows the u.s. is very serious, very detailed. they go into a couple of things. one on the trade sanction violations, bank fraud, wire fraud against meng, the cfo, as well as hauwei usa. all kinds of details about the way huawei hid and lied about its relationship to its subsidiary that was doing business with iran in violation of these trade sanctions. this is something u.s. official told us they take very seriously. they don't name the bank but there was a bank also involved. trade violations against iran are a very big deal. on the other hand, you have this intellectual property theft. this idea that huawei
executives were stealing trade secrets from t-mobile u.s. this is the big wireless carrier in the u.s.. including literally lifting parts of a robot, the fingertip of a robot that they were trying to use to copy u.s. innovation. shery: we know about huawei's huge phone business, the telecom equipment business. we are also hearing about chips potentially and surveillance cameras across the u.s. how pervasive are their products within the united states that people are worried about? tom: yeah, i mean, these chips are in something like 60% of the security cameras that are used all over the u.s. and other parts of the world. this is another way that the u.s. could see itself as being vulnerable or u.s. companies, u.s. infrastructure being pulled ruble -- vulernnerable to chinee
spying. my colleague put out a very good story about the prevalence of huawei chips. right now, there is a ban on government use. if threatened, we see a huawei ban on product from all different users, that brings different implications. that gets into not only the wireless infrastructure -- just as we start to gear up for 5g -- but it also means things you don't hear much about and that is these chips in security cameras all over the place. shery: tom giles in san francisco, thank you for the latest. the u.s. announced sanctions on venezuela state owned oil company and the central bank. it is the latest move by president trump intended to raise pressure on the regime of president nicolas maduro. let's go to our guest.
we are seeing bond investors take cues out of everything that is happening in the venezuelan economy. the chart on the bloomberg showing the bonds for venezuela, really writ rallying. is there an expectation right now we could in fact see a regime change as bond investors seem to be factory in? >> i don't think they are necessarily on a regime change. these are very low volumes. it is not take a lot to move the price. what is really going on, what has really changed for venezuela and the way the world perceives them since mid-december when it became an economic issue and geostrategic military issue for the u.s. -- what i mean by that, you have russian blackhawks landing in caracas because venezuela's overdue on its oil payments. u.s.'sis dancing in the backyard and the u.s. government
is not taken kindly to that. shery: we have seen the latest moves by the u.s. on these latest sanctions but we also know they have been moving away from dollars in the past couple of years. do we have any idea how big of an impact it could be on the company and the venezuelan economy? >> not at all. the data we have -- there is none. we know the reserves are huge. we know what the reserves look like or we can speculate but we don't know who owns what, where creditors are, how subordinate they are to russian and chinese lenders. while bond prices obviously have caught up to where we are today, it's still a very unlike volumes. it is tough to see if this will end very poorly and an armed conflict cannot be ruled out. it is a high probability. shery: the opposition leader saying he is putting people, in terms of taking control of the
government, and putting people in charge of citgo and his other state owned oil subsidiaries. will this be successful given the oil sector has the support of the military? is that something investors should be looking at as a positive catalyst, should this next rally in venezuelan bonds continue? >> you make a great point. everyone wants to be glass is half-full when it comes to venezuela, but just in terms of the company, it is just in tatters. production does not get close to where it was, it will take 5, 7 years out. again, the claims on a lot of losses,sets, it will be battles. it will take a long time for the uaidoto settle even if g is getting successful to get the military back on his side. a lot of what if's.
bond prices are very low -- i don't know if they will last for very long. i have heard from more than a few creditors they are taking losses when they can. haidi: thank you so much on the latest on venezuela and a credit market. of course, we have the first word news with jessica summers. jessica: treasury secretary mnuchin says president trump will meet china's top trade negotiator this week, a sign of importance on the talks. meetings on wednesday and thursday will cover intellectual property and technology issues. mnuchin says enforcement measures will be key. the administration needs to see that china can live up to its promises. >> my expectation is that we will make significant progress at these meetings, but i will just emphasize these are complicated issues. we have a timeline of how we mapped out the 90 days. jessica: president trump's
confidence in tariffs is being challenged by the congressional budget office. a new report says trade barriers will hurt rather than help the economy with the gdp being cut by 1/10 of 1% annually to 2029. the cbo says rising uncertainty may further lower u.s. output. the president says tariffs will help the u.s. by bringing billions of dollars into the economy. from europe. slid will may come to a boil this week with two rival factions in parliament fighting for control. lawmakers will vote on a series of amendments which may see brexit paused or abandon. she says to be ready to scrap the backstop, replacing it with alternative arrangements. onbal news 24 hours a day air and on twitter, powered by more than 2700 journalists and
analysts in more than 120 countries. this is bloomberg. thank you. one major stock move in the early sydney trading session. this news we have known about in butralia related to huawei, in announcement coming today so interesting timing. shery: interesting timing indeed. tpg telecom announcing it will be stopping the construction of australia's fourth mobile network. that was the cost to billion australian dollars. sophie: rising as much as 3.7%. the first gain in five days. even though the future of the project remains in question, given that not using huawei's equipment may raise price and cost more headwinds. for now, we are seeing positive reaction to perhaps the removal of some political uncertainty, some risks when it comes to
huawei's participation in a project such as what tpg was looking to roll out. shery: thank you so much. we take a look at the legality and missteps around trade, counterterrorism and the arrest of hauwei's representative. haidi: up next, opening new talks with china. we ask if the markets are getting ahead of themselves over the potential of a trade deal. the former u.s. secretary of china joins us for a reality check. this is bloomberg. ♪
these numbers, as we kick off a very big week for earnings. thatumber of companies have pointed the finger at china is growing. >> to kick off the week with that disappointing earnings and results, it sets the tone. let's take a look at how the market performed. we closed off one point. the dow was down more than 400 points. the semiconductor index, which is known as the sox, taking a huge hit and that has a lot to do with nvidia slashing its output. let's take a look at the damage that occurred. nvidia down almost 14% by the end of the day. caterpillar having its biggest dip in at least a decade. they drop down below the 50 day moving average. nvidia is blaming china. the gaming and data center revenue really weakening. deteriorating macro conditions. and message from companies that
the market does not really want to hear. downdraft.eld in the although not as exposed. guess taking a hit as we see somebody in the c-suite depart. let's take a look at what is going on after hours. pg&e, the big utility in california, has been in focus. at first it was down 4%, then up and now down again. very dynamic situation in which the utility had been planning bankruptcy. you have investment group coming in with a $2 billion rescue that it is trying to put in place with some kind of detbt deal. pg&e saying they may still go ahead with the bankruptcy. investors trying to play both sides and figure out what is going on with this. a very dynamic situation for pg&e that will likely carry over into the tuesday trade. oili: what happened with because we saw bullish signals coming from venezuela, but we
did not the oil react? su: the big driver was china and the weakness and what you saw with the stocks, these companies signaling there was weakness and taking hits. it affects the demand situation. if you look at the trajectory of the trade, we have been up three days -- it came right back down. look at the bigger picture. colombia could be a catalyst. either way, it is not clear at this point. there is a broader risk off move in the oil sector. shery: su keenan with the latest on the market. let's go to los angeles and speak with david, managing director. great to have you with us. today seems to be all about china, whether it is concerns of an economic slowdown or after the markets closed for you we have the u.s. filing criminal charges against huawei. when we have the u.s. with these new allegations against huawei,
is there a silver lining at all in this narrative when it is such an important week for trade talks with beijing as well? first, thanks for having me. i have to say it is hard to see the silver lining. i think what we learned in the last day is whatever happens with the tariffs war, the tech war between the u.s. and china is going to intensify over the course of this year. it is not just legal action against chinese firms and chinese executives. we are going to see much broader restrictions on exports of technology to china and much broader restrictions on chinese investment in the u.s. tech sector. haidi: what does this mean for the chinese economy as we see trade tensions mounting? we have already seen the latest figures of industrial output coming out and they are not looking good. the corporate environment really seems to be slowing. david: you are absolutely right.
it was not just nvidia or caterpillar. china reported over the weekend that corporate profits are down across industrialized firms. i think even putting trade aside, there are rising headwinds to chinese growth. we have seen tighter financial regulation, and there is a global turned down in global demand. that is hitting chinese exports. curious, in your former capacity as being someone part of the stocks, strategic negotiations before, does seem to you to be legitimate concerns over security as we are seeing with these indictments, or is it more overwhelmingly in a strategic competition, that is higher for washington to curtail's beijing's tech ambitions in the longer term.
david: it seems like it is a bit of both. without a doubt, the u.s. -- it is not just the u.s. -- has serious concerns about china's technology policy and their protection of intellectual property. i think the challenge is coming up with a strategy for dealing with it. you have to be coordinated across the u.s. government. my concern is watching the action today, how is that going to impact trade negotiations later this week? it will be interesting to see if beijing response. some people say are they going to call these talks off? i'm wondering for the rest of the region, you see the impact on indicators like exports from singapore, from taiwan, some south korea data has been bearish. how damaging is it and how irreversible is it damaged on the asian supply chains if you look at the detriment when it
comes to spirit, consumers in this part of the world? david: i think the biggest damage in the near term is what it is going to do to business sentiment and investment. i think there is a lot of businesses out there that before they make large capital investments, they've got to see greater clarity on how the trade war is going to pan out. they've got to figure out what access to market a are going to have and what the tariffs are going to be on their imported components. i think there are some countries in asia that will benefit as investment goes from china to these other countries. that has already been happening in a lot of low 80's sectors and i think that is going to accelerate. i think before you have the gains, first we will have the pain. shery: looking at consensus within washington, d.c., that
these unfair trade practices from china need to be dealt with, how difficult will it be for the trump administration to declare victory like they have done? this from a lot of investors. this is all part of a strategy and the u.s. administration is going to do the same thing with china that it did with canada or korea and just declare victory at some point. i think the fundamental difference is china occupies a very different political space in the u.s. fundamentally, there were no constituencies that wanted a trade war with korea or canada. many, many companies, and our military and intelligence communities have very broad concerns with chinese practices. you can't just declare victory with china. shery: thank you so much for that.
haidi: visit daybreak asia. shery: let's get a quick check of the latest business flash headlines. wynn resorts is selling in an investigation in nevada over how it handled allegations of sexual misconduct over former ceo steve wynn. the casino operator will pay in unspecified fine to group your viewed by the gaming commission and regulators say they won't limit licenses. authorities from massachusetts are looking into claims against wynn that first arose last year. haidi: pg&e still plans to declare bankruptcy despite trying to avoid such a move. elliott management has a proposal backed with $4 billion in bonds that could convert into
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leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. jessica: i am jessica summers with the first word news. the trump administration has left tensions on venezuela's state oil company at the central bank. treasury secretary steven mnuchin says the u.s. is holding accountable people and enemies that have overseen the country's decline into chaos. he says the team could still operate. >> cisco assets in the united states will be able to continue to operate, provided that any funds that will otherwise go to pdvsa will instead go into a blocked account in the united states. jessica: the world's top iron
ore producer plunged the most in brazil. erased $18 billion in market value after another fatal dam breeach. at least 65 people are known to be killed, and almost 300 are still missing. is an echo of a collapse in 2015 and brazilian prosecutors say executives may be held responsible. hong kong's exports fell more than expected in december, that is as the trade war caused shipments to fall for consectutive months. imports fell 7% to $50 billion. the weakness compounds hong kong's slide down the list. it is now seven, overtaken last year. ministeralian prime scott morrison will put
management of the economy at the center of his campaign for reelection. he will lay out plans to create more than one million new jobs in the next five years in his first major of the year. polls have the labour party national coalition leading by 52% to 47%, indicating a change of government for the first time since 2013. global news 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. shery: asian stocks under pressure this morning. let's get a check on how the markets are doing. sophie? sophie: australian markets back online after the long weekend. bonds are ahead of sentiment data. the aussie dollar under pressure as we get more red flags around china. aussie shares halting it today rise -- a two-day rise.
issues especially the slowing chinese economy and falling local house prices. we have minor bright spots. we will check in on some of the players. iron ore companies with the metals jump in the wake of the dam disaster. upgraded to buy. resolute is climbing with other gold miners. it produced and maintain its full-year guidance. we are seeing other stock movers. about to check in on credit corp. that is rising after reporting first-half growth. guidance due in part to increase u.s. investment.guidance due in part to increase u.s. investment , dropping as much as 14% after its result, extended losses for a third day. losing 20% in two days alone, while incitec is falling. lastly, a look at tpg. rising as much as 3.7% this morning. by about one up
third of 1%. it does not expect to have any impact on fiscal 2019 guidance from the stopping of the construction of the mobile network lands for australia which have cost $2 billion. it has already spent $100 million on top of the $1.2 billion in 2017 to buy the spectrum. investors now digesting this news from tbg today. haidi: thank you so much. let's get back to the top story. the u.s. charging huawei with a string of offenses including fraud and intellectual property theft. that gold is joining us, an assistant trade executive under president obama. matt, from the prism of your experience in trade negotiations, it is interesting that one have says the announcement of 23 indictments against huawei against the companies and staff is not
related to the trade negotiations which happens to kick off in a couple of days. will it be difficult to separate the two issues? is there a bit of gamesmanship against the talks? matt: i think president trump made a big mistake by allowing the chinese to draw the conclusion that they are related. it does not serve the purposes of the united states on either side. it makes it more difficult for us to negotiate trade when the chinese feel we are enforcing our export laws to gain leverage for trade negotiations. it also makes it much more difficult for the united states to enforce our counterterrorism export laws when we are being accused of doing it in this case in order to gain leverage under trade negotiation. the truth is they are completely separate. china's obligations to us to fulfill trade agreements are in exchange of our obligations under the the same agreements to china. at the same time, huawei's obligations not to export technology to iran is an
exchange is we let huawei's get our sensitive technology and agreed not to send it to iran. they are not in exchange for each other. by allowing china to conclude that these are trade-offs with each other, trump put himself in the position where the united states either will not be able foret china's compliance the obligations because we are enforcing our exports and terrorism laws, or not be able to enforce counterterrorism laws in order to get china compliant. he is putting us in a win-lose scenario when we should be in a win-win scenario. haidi: we have also seen this strategicconflate economic and diplomatic issues by the trump administration. a tactic he has used before around north korea. that being the case, as we get into these talks with the
chinese delegation expected to arrive, are you optimistic? if we frame this as a long-term, great strategic competition between the u.s. and china that will go on for many years, what is the best case scenario that we get out of talks that go on before the tariffs deadline runs out? matt: i think right now, the best case scenario is that the chinese agree to go back to the kinds of talks with the united states we had under the obama administration without all the pain of the trade war. the kind of engagement on a very broad series of issues that china was engaged with us on on a very slow motion, which was too slow. we obtained that without the pain of a trade war. in the long run with the u.s. should be doing, we should stop our retaliatory tariffs against china which we imposed outside the wto's process. we should instead follow the process for the same retaliation that would prevent china's
retaliation. we should also go back to the transpacific partnership because the obama administration's eight years of painstaking negotiations accomplished many things -- they put china in a corner and gave us great leverage against china which president trump thruway. shery: it is not only the tariffs on chinese goods, but we sometimes forget this deal and aluminum tariffs are in place. we saw president trump this morning tweeting that has totally revived the u.s. steel industry. we have the potential auto tar iffs being announced after next month. how effective are these threats of tariffs, whether it is steel tariffs in or auto bringing trading partners to the table? we have seen some progress with the eu now negotiating with the u.s. not to mention we have a new
usmca. steel and aluminum tariffs were not retaliatory, they were supposedly national security but the u.s. does not qualify to put that as national security which means they are flat out violations of a trade agreement, the general agreement article ii. the long-term damage for violating that agreement in that way is potentially staggering. the international law of international trade is about 90% international law in the world and it sits on the foundation of the agreement on trade. the central pillar is article ii. it is almost as if you have this rule which is no new ordinary customs duties and you have literally this massive body of international law that is about not circumventing article ii. trump violated the article with the steel and aluminum tariffs.
violating the most fundamental role of international trade with the most fundamental commodity there is to a very large magnitude. it is like pulling the central pillar of foundation of all international law on international trade. that is collapsing a huge part of the world order because 90% of all international law that exist. the long-term danger of doing that is potentially catastrophic. that is what trump is not looking at. that is why no american did that before. it isooking at the gains, peanuts compared to the risk of making a move like that. shery: if blanket tariffs are not the way to go as many seem to agree, are these moves against huawei on the separate issue, criminal charges against company members, against individual actions, is that the way to go in order to pressure china to come to the table on structural reforms in the economy? matt: it is not the way to pressure china, but it is something the united states has a right to do and very important
reason to do. our export laws, counterterrorism export laws violated are serious and we should be enforcing them. huawei took in an obligation not to send it to women to iran in exchange for the u.s. allowing our technology to go inside their equipment. we should be enforcing that to the fullest extent of the law. again, it is unfortunate that president trump has allowed the chinese to feel that has anything to do with the trade negotiations with respect to china's violations of the wto obligations. haidi: you look at the allegations themselves and the deterioration environment surrounding huawei, and it is pretty clear there is a complete deficit of trust. you can maybe extend that lack of trust between the relationship between washington and beijing as well. how do you come back from that, both from a perspective of a company like huawei, but also on
how you build that trust when it comes to trade and strategic negotiations? matt: huawei is so flagrantly and so -- such predatory way, violated serious and important u.s. laws that it will be very hard for a long time for huawei to come back to its credibility. as far as the government to government relationship, the reality is we have a president who believes the best way to project power on the global stage is to be the single most obnoxious leader in the world. it is the opposite of the policy. it is the opposite of the theory in order to project power, the united states needs to build relationships and build a world order and be diplomatic. so long as we have a president who believes that obnoxious this is how you project power, we are going to continue to have a president that weakens us through his obnoxiousness. we are not going to have a better relationship with china
until we have a president that is more diplomatic. shery: one part of that diplomacy would be as you have mentioned using international avenues in order to pursue all of these changes in china, but --wto right now facing matt: there is no question that the united states needs to rewrite the wto's, understanding. we were the principal author of that agreement to begin with. it is very impressive for what it is but it needs to be improved. we should be leading the way to improve that and fix that process to make it more impartial and to do other things to fix that process. again through the opposite of diplomacy, president trump has got the united states kicked out of the process, out of the discussions going on right now
haidi: this is daybreak asia. shery: the congressional budget office has a new report on the u.s. economy and budget that contradicts two widely held positions. president trump feels the trade war is not bad for the u.s., while tax cuts deal growth and won't hike taxes. kathleen hays is here. let's start with what the damage is from tariffs. kathleen: let's remind everybody who the congressional budget office is and why you might trust interview.
they are a nonpartisan branch of the federal government that advises the government on what the economy is doing and how that feeds into how the u.s. budget is doing. the budget deficit after tax cuts is a very big question. what the cbo is saying in the issue today is that the cut-fueled-- tax growth is trimming gdp and boosting inflation. the tariffs will shave .1% off of gdp per year on average through 2029. boost inflation by a little bit, .1% by 2022. it does not seem like a lot but that is the direction it is heading. the trade war will cut spending by about .1% through 2029. the tax cut impact is going to be fading more and more and more. it is going to be -- gdp down to
2.3% in 2019, 1.6% in 2021. when the gdp does not grow as much, you get a wider budget deficit. nearly $900 billion is where it is heading in the next two years. a bit of a view that is not exactly with what president trump has been arguing. in fact, you had larry kudlow on the show with us right now, is cheap economic advisor -- no, we will have permanent momentum because this will boost spending, investment and make people more confident. i think the nonpartisan view of the cbo. haidi: the cbo has predicted more rate hikes this year. kathleen: they did. this is a time when markets are predicting, no, stocks are falling. trade war uncertainty. there is no way that jerome powell could lead the fed towards more rate hikes, but the cbo see rate hikes through the end of this year because the output gap will widen, inflation
pressures will start rising. we know there are still two hikes this year -- one in 2020, none in 2021. let's jump into the world interest rate projection in our bloomberg library. if you go down the far left #-- left-hand side, there was virtually no probability of a hike this year according to what the markets see right now. when jerome powell gets up to testify -- i should not say testified, although it sure feels like he is testifying -- the press conference after the meeting on wednesday, closely watched. no one expects the fed to move now. too much uncertainty, but the fed has expressed a pretty confident view in the economy having underlined strong fundamentals. that is where all the focus will go. one more thing, bond traders are interested. they are expecting that the fed will say something about changing balance sheet reduction. bloomberg economics say that will not be in the mix.
something else to be ready for on wednesday. haidi: our global economics and policy editor kathleen hays. major earnings, caterpillar missed. the industrial bellwether reporting its biggest profit miss in a decade. shares tumbling the most in more than seven years. ramy takes a look at the damage. this is just adding to the increasingly long list of companies that are saying china is the reason why things are looking so dire. ramy: this is the story -- -- china goes, so go your profits. your sale and bottom-line numbers. in this case with regard to china, we know china's economic growth is slowing down. we know it is having an effect and having an impact on even more corporate warnings. caterpillar, case in point. i want to show you the fall we have seen for the fourth quarter. 9.3% is the fault we have seen. this is the biggest fall really
in the past decade. because of what we are seeing in terms of all of these gears that are shifting a little more down. you can see over the past few quarters, we can see this is negativity, piled on negativity. first quarter of 2018 down to 6% in terms of the initial market move after caterpillar came out. 7.6% across the board. this is the worst negative move over the past six quarters. flip of the board one more time because i want to show you how this breaks out in terms of the division and in terms of the geography for caterpillar. you can see at the top of the board, it is pretty good but then when you get to the bottom part, asia-pacific, that is the worst. north america is still the guiding light, up 17% for construction. for energy and transports, up 7%. 50% of caterpillar's revenue.
asia-pacific, specifically china, 5% to 10% of revenues. you could say it is not that much, but 10% is something you would expect, want to grow especially in a country that is developing that is china. that is where we stand here. looking ahead, the outlook that the ceo told us about earlier is not as good as what folks were expecting. $12.75e saying $11.75 to a share, on the lower end of expectations. reallythey had two strong years in the asia-pacific region. what did they say about the forecast for the chinese economy or their business? ramy: the fact that they had two years of great growth, ideally they would have another one. with all the things happening, that is not the case.when it comes to china , the ceo did talk about this. >> within china, the industry is very dynamic and they offer a
variety of forecast. we will continue to monitor the situation, but as of now, we are forecasting the overall china market to be roughly flat in 2019. ramy: roughly flat in 2019. who wants to hear that? not really anyone. follow me to the other side of the screen and let's hop into the bloomberg terminal. as china goes, so go your profits. here is the reading for china's ppi over the course of the past 10 years. it has been falling, growth still, but falling ever since the spring of 2017. the bottom line, this is not a copy and paste. this is actually sales of caterpillar in asia. we can see they are trending very similarly. sales at 3%. we can see the growth had been at the start of 2018 something more towards 50% so this is quite disconcerting. the last time we saw some kind of negative growth was in 2016,
2015. we know what was happening with the global economic picture at that time. let me flip up the board and the may go to the second bloomberg terminal chart. it is not just what is happening with china and with caterpillar. it is also what is happening with caterpillar and the greater e.m. space. caterpillar in white. the emerging markets etf in blue. they have this correlation that we continue to see, that begs the question what will be happening later today and the foreseeable future if this is the case. how is that going to react in terms of em stocks bonds, as well as currencies? shery: thank you so much for that. coming up, we will look at another machine maker that could be seeing big selling pressures at the open in tokyo. this is bloomberg. ♪
shery: we have japan and south korea coming back online at the top of the hour. here is sophie with a check of what to expect. sophie: the china focus is likely to feed into the tuesday session. we will be watching asian machinery stocks closely after caterpillar sends a gloomy signal. other players on the radar. the total sales in china in 2019 will be flat year on year. triple rated stocks faced a down to as nvidia cut its outlook $2.2 billion. we saw shares plunge as much as 18% so not a good setup for tech shares this tuesday. we have the huawei news lines that will ads pressure. we also have an attempt of that tradition for the cfo in canada
haidi: good morning. asia's major markets have just opened. shery: and good evening in new york. sophie: welcome to daybreak asia. haidi: the u.s. charges huawei and the ceo with fraud, threatening further tensions ahead of trade talks in washington. leading bellwethers delivered disappointment, caterpillar
blaming china. lawmakers fight for control of the brexit process. there is plenty to discuss. joined by we will be jean raby. and also have the latest on the brexit strategy. haidi: tokyo markets have come online. sophie, it was a triple whammy as we had headlines out of huawei and disappointment from companies like caterpillar feeding through into the session in asia, particularly with industrial l weathers that trade in this part of the world -- bellwethers that trade in this part of the world. sophie: we have the kospi and
nikki under pressure. have ao, the nikkei 225 percent this morning, extending declines for a second day while the kospi is up one third of 1% after falling on monday. aussie shares are halting a today rise. we are keeping a close eye on certain players in the wake of caterpillars result. keep an eye on that stock. it looks like some downward pressure to start the day. let's get you caught up with jessica summers on the first word news. jessica: the split from europe might come to a boil this week with two factions in parliament fighting for control. a series of amendments could see brexit caused or abandoned or theresa may sent back to
brussels to attempt a new deal. she said get ready to scrap the controversial -- for alternative arrangements. beve mnuchin says trump will -- will meet china's top trade negotiator this week. cover intellectual property and technology issues. he says the measures will be key but the administration is threatening china can live up to its promises. >> my expectation is we will make significant progress at these meetings, but i would emphasize that these are complicated issues. we have a timeline of how we have mapped out the 90 days. jessica: hong kong's exports fell as the trade were caused shipments to contract for the first time since 2016. they tumbled almost 6% from one year ago. imports fell 7% to $50 billion.
this compounded hong kong slide. it is seventh, overtaken last year. and the world's top iron ore producers plunged the most on record in brazil and raised $18 billion in market value as suspended dividends after a dam breach. 65 people are known to have been killed and almost 300 are missing. the disaster is an echo of the dam collapse in 2015 and brazilian prosecutors say company execs might be held responsible. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. shery: the u.s. is hitting
china's largest tech companies with a string of charges. indictments against huawei, head of crucial trade talks in washington. tom mackenzie has the story in beijing. of all of these charges, they seem wide-ranging. tom: absolutely right. we are talking about a 13 count indictment in new york with allegations of bank and wire to affiliatedi companies and the company's cfo, who was on bail in canada. bank and wire fraud, conspiracy in connection with a business in iran. and we have charges emanating from washington that while way stole intellectual -- huawei stole intellectual property and gave bonuses to employees to take the deal and copy technology from u.s. companies. the fbi director who was part of
this press conference described what he called a brazen action to exploit u.s. firms by huawei. he said that the doj would be seeking extradition of the huawei cfo from canada. this is the latest from the u.s. in terms of actions against china's largest tech company. they continue on the national security front to push the allies from the u.s. to block while way technology -- while huaweihnology -- technology. ordi: this is either awkward strategic timing, a couple days away from the chinese delegation arriving in washington. for trade talks, how will this play out? the wilbur ross came out at
press conference and made a point of saying these charges were separate from the ongoing trade negotiations. but for many in the u.s., while is symptomatic of chinese nefarious attempts to lead in technology. they describe it as a company that gets an official state toking and is trying dominate in next-generation technology. it is hard to see how the case does not lead into these talks. trump muddied the waters by telling reuters he would consider waiting into the case if he thought it would help get a trade deal between china and the u.s. did something of a u-turn on z pe, as well, and soft inductions around the company. side, it could be
to move these top forwards and that they could bite their tongues on this case. the anger in china is clear. haidi: no doubt. tom mackenzie beijing with the latest. we have some breaking stock moves early in the tokyo session. nintendo falling 2.7%. correlated reaction when it comes to industrial bellwethers. issaw decline of 5% and it hovering a fall of 4.8%. that is komatsu. we are also watching out for zoomlion. looking for south korea to see some downsides.
and the weakness in terms of what caterpillar says further -- sees for their 2019. another company putting the figure at the slowdown in chinese demand. we are watching those stocks, komatsu down by 4.6% in the first few minutes of trading. china isown in weighing on market sentiment. ceo jean raby. great to have you with us. givens your reaction these 23 indictments coming through from the doj against huawei? does this escalate things or derail the potential for trade negotiations that could result in a short-term trade deal? me.hank you for having
first, as a former attorney i know that commenting on the substance of legal charges is difficult. it is law driven so i will not comment on the substance of charges. but i can tell you while way was huawei was a formidable competitor. i can certainly see why the charges against them are drawing attention. is i would hope that this separate and that both parties can rise to the occasion and hopefully put an end to the trade war we have seen over the past few months.
starting to visibly displace the supply chain and i would hope the two parties can put it aside. interesting in that it is coming ahead of these trade talks, and i do not want to see political motivation. i think this is just the justice system. like huawei company that has been mired in negative headlines and security dolications that have to with the breach of iran sanctions, can you see a company coming back from this kind of damage? at the end of the day, you are innocent until proven guilty.
huawei is a formidable competitor. and have the pro technology when i was at lucent, i have been away from that industry, but it went from zero market shares in early 2002 one third of the market shares around the world. so it brings physical value to their clients. what we are seeing in the trade debate between china and the largestbetween the two economies. this is not new. when you think about the next ai, it isution, 5g, normal and to be expected that the two sides would collide or compete heavily in certain areas. 5g is clearly an important area. shery: does a concern you that
we continue to see trade tensions rise as they extend partnership deals within china? >> we take a long-term view. we think about our own business. china is likely to become the second biggest in the world by 2025. so i want to make sure we participate in that, because we believe in the expertise and value can bring to chinese investors. in the short-term gyrations, to us they are noise. we are active as managers and try to think long-term in terms of what we do for our clients and for our sales in terms of strategy. reason not see that as a for us to not continue to take a hard look at what we want to do in the region and in the chinese to mystic market. shery: how does it impact your
business when you have a new head for the securities regulator? we are now seeing the chairman of the icbc going to leave the company. we see more trade tensions with the u.s.. chinese regulations have already evolved and they allow in certain cases majority ownership. in our case, we do not necessarily need full ownership in china. our business model is based on partnership with a local investment teams. is quite open to us in terms of ability to play in the chinese domestic market. that doesn't mean we have the right set up. we continue to have discussions. but in terms of regulations themselves, what may be most important for us is not what is happening in the chinese domestic market, today, but what
could happen in terms of external investments and abroad. we want to be relevant. we have a fairly sizable presence in that part and i hope that would continue and that the chinese and asset management gross and we can play domestically and internationally. is the pace of institutional reform going fast enough in china for your liking, or does it still warrant a cautious approach when it comes to expanding the market? the environment today can help us gain a foothold in the market and bring the measure. we are not holding off in terms of our effort based on a potential further implementation of the market. we believe we have a sufficiently structured
environment to be able to plan for a long-term in the chinese market. shery: we are headed to the fed decision this week. the expectation seems to be that the federal reserve will announce a pausing timing, giving all of these -- given all of these headlines, what are your expectations? disappointeds be if we do not see any changes to the balance sheet reduction? i do not necessarily want to protect the future, we are just dying to read the present. and that is the markets are expecting the fed to slow down and hit pause in terms of monetary policy. the same could be said of europe for 2019 is a whole. so the monetary policy environment is likely to stay range bound, if not stable, for
the foreseeable future. that is why slowly getting into the market. so if there were to be a drastic change, it could surprise, but i do not expect that to happen. shery: thank you so much for sticking around. ahead, we will look at plans to adapt to the rising demands of electric vehicles. from: and we will get more nitixis ceo. -- this is bloomberg. ♪
with lawmakers voting on a series of amendments tuesday. we are expected to see recession in italy and a manufacturing slump in june -- germany. ra's discuss this with jean by. european pmi are falling drastically, including in germany and france. caving inis finally downgrading his assessment for the economic outlook for the downside. we have moved from one year ago from a synchronized global growth to what could be today centralized deceleration of growth. from our perspective, we do not necessarily imply that we will
see a recession in short order. we do not see that. that being said my it is clear we are engaged in a slower growth period in the u.s. and europe. shery: and the u.k. does not help with this brexit drama. is there a greater likelihood that brexit could be postponed or not happen and we could get a second referendum that the markets are not placing in at placing in the month -- pricing in at the moment? >> i always believed in a greater probability of no brexit than the market so far. i continue to hope that the dynamic in the u.k. may lead to a reassessment of the decision to leave the eu. whetheralso hope about or not come until europe
could've done a bit more in terms of engaging to find a solution, leading to a political space opening in the u.k. or and reassessment -- a reassessment of brexit. i think a reassessment of the decision has increased. there is a fair amount of uncertainty and it is unsettling the market and businesses. from our perspective, even though i continue to believe per -- believe personally there is a greater likelihood than not that brexit will not happen, that does not mean we do not plan accordingly. so we take measures to take into account the potential impact of brexit on our business. see whereis hard to the parliamentary support for a second referendum would calm. a lot of people -- would calm --
come. people are saying it is kicking the can down the road as they try to find a longer-term solution. how damaging is that in terms of investment decisions, given we are seeing mobile companies headquarters in europe moving away -- global companies headquarters in europe moving away from the u.k.? a significantto pause and plans for people to invest in the u.k. i have heard the expression recently, kicking down the can. but certain decisions will have been implemented, they cannot sit still. if you look at the long-term as we try to do the u.k. will
remain a from edible financial center, what ever -- formidable financial center, whatever happens. we want to make sure does not significantly impact our business or our clients. we are taking steps and i continue to believe that for our industry and investors, the u.k. will remain an important financial market, whatever happens. there is an upside riskier. right now we have lots of noise
from the u.s. china trade war and the political environment in europe, from brexit, and in other areas. today, europe is in need of new leadership for the european union. we have political concerns around the world and other parts of the world. so that is more noise. i would like to believe that from -- that the noise might tone down of the next few months. if there is a trade truce between the u.s. and china, we are looking at major economies competing and that will continue for the foreseeable future. that is a lesson in history. everyone is trying to predict the next financial crisis and have always found that to be looking at the future in the rearview mirror. the next financial crisis is not the right thing to think about.
our economies are cyclical and if there were to be a shock, it is likely to come from sources other than the previous ones. i could see upside risk to the business, but whether or not there could be an external event that could have an impact on the financial market. now, i have to look at what is happening in the environment, the adverse weather as potentially a risk that might impact us in the future. i hope we are not too late addressing those concerns, but clearly this is something i have in mind and we think about how to help the energy transition and address climate change and and broadusion diversity to the approach we are trying to advances in asset
management. -- haidi: backr loss ofber, there was a $300 million, the senior executive that headed it up has exited the company. can you shed some light about lessons learned and how it impacted further expansion into asian markets in south korea? >> this is an event that happened in the corporate and investment bank. i run the asset management is next. this was an isolated event and we have taken measures to address it. as far as i'm concerned, it does not impact of interest and desire for long-term investment in the region. clearly not in singapore. i'm spending the entire week across the region and that is one of many testimonies to it. haidi: thank you for staying on
jessica: the u.s. has announced criminal charges against huawei. fraud,lege bank and wire sanction violations, and the theft of american intellectual property. washington is seeking the extradition of the ceo from canada following her arrest last month. the administration says huawei hashe trump administration slaps sanctions on venezuela is oil company and central bank, putting more pressure on the president and his allies. steve mnuchin says the u.s. is holding accountable the people
and entities that have overseen the countries decline into chaos in poverty. >> cisco assets in the u.s. will be able to continue to operate, provided that money funds that would otherwise go to the president would go into a blocked account in the united states. two: the white house says they might suspend a 1987 nuclear weapons treaty with russia. officials say unless moscow destroys all ground-based trees missiles and associated equipment by 70, the u.s. will suspend their obligations under the treaty -- by saturday, the u.s. will suspend their obligations under the treaty. and trump's is being challenged by the trade office.
gdp is cut by 1/10 and 1% annually through 2029. they say rising insurgency might further lower u.s. output. will bringtariffs billions of dollars into the u.s. economy. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. haidi: let's take a look at the asian markets and how they are faring. lots of headwinds. sophie is in a hong kong. sophie: isn't stocks have been falling for a second straight session is considered spilled over the impact of china on corporate profits. health care and tech are the biggest laggards in the region. it is not helping to boost the benchmark in city. -- in sydney.
it is time to cut risks and aussie stocks. the aussie dollar is on the back , extending losses for a second day up one third of 8%. the kospi is losing ground this morning but is on track for the best month since may of 2017. when you look at movers today, let's look at tpg. stock has fluctuated between gains and losses after rising at 3.7%. scrapping the construction of what would have been a shell is fourth football network using equipment from huawei. -- intended falling 2.7% nintendo falling 2.7%.
there are weaker forecasted sales of the gaming and -- gaming platform. and komatsu is expected to post a moderating growth in the fourth quarter. is darkeningod over construction stocks in asia. cannot sue construction were some of them. komatsu construction were some of them. let's go to dave mccombs in tokyo. it is not just these companies. others.e so many what do the results in caterpillar do or say about heavy equipment maker's and the
rest of asia? dave: it paints a clear picture that demand is slumping in this projects into the future, not just the current demand situation but what companies are planning to do one year out. when you order equipment like this, it takes a long time to get it on stage and to get manufactured. so it is a clear indicator of what is coming down and it does not look good, especially in the asia-pacific region and china. this was counted on as a pillar of growth, even with other markets weakening. and now we see the outlook is not good. all of these companies. you mentioned komatsu and hitachi construction. they lost on most 40% of their market value last year in part because of for seeing weakness in china. and are down again today growth outlook is not a strong
some expected to be in china. we talk about caterpillar being the industrial bellwether for the u.s. to what extent are these companies also considered bellwethers in japan? dave: they are not just bellwethers for construction demand, but you look at the commodities, a lot of the equipment they provide are from mining companies. that is close to the basic fronting of the economy and basic economic activity. when you have a slow down you have lower commodity prices that hit the excavator companies where it hurts and they start to decline. investors project that. companies,japanese they are reporting this weekend
investors are looking at them closely for signs of a similar attitude to had a pillar and project slowing growth -- similar attitude to caterpillar and project slowing growth. haidi: the growth of electric cards is leading to metal needed rechargeableoil -- factories. how is rio planning? >> we have been waiting to see what the response would be from large mining companies as we see the rise of electric vehicles. it looks like rio is narrowing in on opportunities but they have a big lithium project in serbia that seems to be advancing quickly. it could be in construction as
early as next year, potentially delivering a global lithium demand by 2023. but we are talking about bringing nickel back into commodities. they are looking at a project in likesota and in places uganda and canada. it looks like they have identified these materials as a withhey can apply the boom materials they do not -- they -- they canash ply ply the boom with materials they do not yet have. there has been a pioneer in the mining industry. trucks, drills, one billion
programs to have driverless trains in west australia. todayis a document out that they are collaborating with the space industry, talking to companies engaged in thinking about industry in space to try to share expertise. the kind of drills they use right now and iron ore mines are the technology you would need to carry out similar tasks on the moon or mars. this is given some credence because one of rio's directors is the head of the australia space agency and she says they are doing work with leading figures in the space industry. shery: david, thank you. wednesday is fed day in washington and jay powell will be in the hot seat.
haidi: this is daybreak asia. may have someell explaining to do on wednesday after the fed meets for the first time this year. there has been a pivot in messaging from the central bank amid a cloudy global backdrop. patel.ring in marky -- marjorie patel. we have seen a cloudy outlook. should we be expecting more disappointment this quarter? >> i think we should. the sudden slow down is really countries andally
every industry. i would expect more disappointment throughout earnings season. shery: where should we focus on a comes to parts of the market that still have some potential? if we are looking at the general economic slowdown around the world, where the sectors that will get less hit? >> health care will continue to be in outperform or, especially ,he tools -- outperformer especially tools and devices. the utility sector is attractive because there growth is competitive the growth of many companies now working a slower path. and semi conductors are intriguing because the bad news slow down is well reflected in stocks and many are down 50%, many have attractive dividends and should be cash flow positive
so i think they are an intriguing idea. haidi: how much dominance in terms of market growth do you assign to what the fed does this week? it was interesting to me that not a great deal had changed substantially when it came to the december meeting until now and now the rhetoric from some of the most hawkish members of the fed has changed since then. is there a power play going on and you expect they will keep the tone throughout the year while maintaining it is still data dependent? >> yes. i think they will. they got a lesson in december, the markets reaction to the increasing rates and what looked like an inflexible attitude for continued interest rates. so i think there will be on a much slower path and the idea of raising rates this year is all they will do, if they do that.
i think they are also focusing on how to handle their messy balance sheet, what should be the pace of letting it run off. haidi: on autopilot. is there a sense that this is a fed that is golden to market conditions -- beholden to market conditions? >> they are recognizing they reflect the economic reality. i think in the minds of analysts and the fed it is not clear with the runoff of the balance sheet how much liquidity is drying up the fed is concerned about liquidity is drying up. so i think the fed is concerned about impacting the entire right. be slow and itll will take months before they give us a plan. shery: how does it compare to
corporate credit, high yield returns this year? >> i am thinking bid single digits is all we will get out of the markets -- made to single digits is all we will get out of mid single digits is all we will get out of the markets. in on the income side with the bonds,hold, junk high-yield bonds look attractive. 7% and the yield of average price of bonds is $.95 on the dollar. so they were's room to have some capital appreciation and a c --see high-yield looking attractive.
shery: is this a risk for 2019? >> i do not think it is a risk for high yield companies in the u.s.. there has been concern about the but most bond issuance of these companies were ratesing, locking up low before there was a risk of rates going up and most of these companies have the cash on balance sheet so although they have an increase in debt, they also have an increase in liquid assets balancing it. so i think it is good and able to stay on a 1% growth, something like that. haidi: i want to get your views on europe. mario says he has concerns about the pace of european and global growth but he does not feel the
need to add extraordinary monetary stimulus at this point. does that mean when it comes to yields in europe that they are treading water for now? >> i think it best treading water, may be in line with the u.s. we could see rates declined slightly. clearly the idea we are on a global upswing in rates looks dead for this year. haidi: we appreciate you joining us, margaret patel from world capital management. a lot more to come here on daybreak asia. this is bloomberg. ♪
shery: this is daybreak asia. urged chinaalia has and the u.s. to adopting a cold war mentality that could damage the world economy. they told bloomberg escalating tensions between the nations could overshadow the more important issues of the region. >> they tried discussion between china and the u.s. and it is not supportive of free trade. so we do not support our closing markets putting up barriers going back to the isolationism of the past, because it reduces
prosperity and well-being of our people. the rivalry between the u.s. and china can be a healthy one because competition is always healthy. when it spills over into a cold war mentality, which some people have said it is, if it did do that, it would be unhealthy across our region and we want to mitigate that. >> at what point do you think of could get to those levels? who do you think will blink first in a resolution? >> i think china and the u.s. both want to grow their economies. views about the chinese use of intellectual property, about how they have used their market power over the last few decades. these views need to be taken into account. but there is no necessity for a growth of tensions around trade when there are more important issues to deal with in our region. the military relationship between the u.s. and china south
china sea, east china sea, the korean peninsula, ensuring the world stays away from an unhealthy militarization along the can -- along the korean peninsula, the free navigation to the south china sea, these are important priorities and we must not let the trade relationship get in the way of those. we want the u.s. and china to resolve those issues because it is more important for us to growth our entire economy than to have trade barriers erected. >> what about australia's decision to ban some of the technology, or the call to ban technology relating to huawei and 5g? >> that was not raised with me when i was in china. the government of australia made an important decision, that those people will be engaged in our communications infrastructure in the future, 5g in this case, could not have a relationship with their own
government that could cause them to have a conflict of interest in the vernacular. particulart for any country or company but if huawei is unable to meet this, because of the polity decision, all companies need to abide by it. >> let's ask you about the australian that has been detained. this is linked to what we have seen with the canadians. what is the latest? >> i have seen no evidence it is related to our response about a decision about communications infrastructure. no one has linked the two canadians and i see no evidence. i asked the defense minister to ensure he was treated fairly and transparency and i was -- transparently and i was assured it would occur. asia, we are seeing
the fallout after shares took a tumble on the forecast cut in new york. nintendo opened lower in tokyo and vimeo cut its fourth-quarter revenue forecast due to weakening global economy, especially in china. let's bring in reese stephenson -- read stephenson in china. >> the backdrop of the past two years, we have seen data centers ineover from slowing growth the personal computer market and slowing growth in smartphones. this has made the center more vulnerable to a broader economic downturn. that is what we are seeing.
everyone from apple to intel a few weeks ago have warned of this and now we are seeing at the supplier level catch-up and slowdown,ct of a especially driven by the chinese economy. issue or this a china a more structural issue with an video at play? >> the trade tensions to a certain extent are coming into it. that is probably generating more caution in terms of where to put investments in capacity down the road because there is a lack of visibility, at least short-term. so trade tensions are a factor that is co-mingled with the economic outlook. reed stephenson.
we are watching stocks falling in sympathy to caterpillar and nvidia overnight. sophie: we are bracing for losses as hong kong and china open. this may way on chinese machinery -- weigh on chinese machinery. tech stocks remain in focus and taiwan. daesh in taiwan. -- in taiwan. suppliers have agreed to cut prices by 10%. haidi: before we hand over to bloomberg markets asia, let's look at markets are trading.
we are seeing weakness across japanese and korean markets. --atsu and korean heavy oil heavy industrials have been down. slumping condition since the 2008 financial crisis. we are seeing materials holding up some strength in australia. shery: keep an eye on the taiwanese stocks after the -- there is plenty more coming up. this is bloomberg. ♪
>> 9:00 a.m. here in hong kong and shanghai. this is "bloomberg markets: china open." stocks areific rising. the trade war is hitting profits. bellwethers are worried about profits. >> huawei weighing on minds as u.s. files for fraud and theft. apple reports earnings. a special preview out of los angeles.