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tv   Bloomberg Daybreak Asia  Bloomberg  July 18, 2017 7:00pm-9:00pm EDT

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♪ betty: asia-pacific markets set for a mixed start. investors are weighing the growth, the dollar at an 11 month low, gold at a new high. sachs and bank of america showing weakness in their bread-and-butter operations. betty: health care hits the brakes on capitol hill. the repeal plan sunk just 24 hours after being launched. yvonne: the bank of japan starts a two-day policy meeting. southerly week inflation will
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create a reality check. betty: this is "daybreak asia," live from bloomberg's u.s. and asian headquarters. i am betty liu in new york, it is just after 7:00 p.m. yvonne: it is just after 7:00 a.m. here in hong kong. i am yvonne man. the repeal of obamacare effectively dead in congress. what does this mean for president trump's agenda is the big question. an unsettling move where the dollar is going. betty: it prompted the president to come out and talk about how many bills have been passed so to offset tenure these growing doubts. get bigether he can measures passed through congress. that is causing uncertainty in the markets. we did close at a record, but it hardly feels that way after the initial losses this morning.
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yvonne: if you can't get health care, how much harder will it be to get tax reform and infrastructure? a lot of this week will be about central banks, and the boj starting that today meeting. the ecb with that decision, the 800 pound gorilla, on thursday. hitting -- the dollar hitting an 11 month low. new zealand flat on the nzx 50. the kiwi recovering a little overnight, given the dollar weakness. 345, when the kiwi joined the u.s. and the u.k. on price pressures. it eased recently. the kiwi seeing a little pressure despite the fact we are hovering around the november highs. australia, a lot of bullishness and aussie dollar, jumping to the two-year high. a shift from the b -- rba minutes. they are taking it has more
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hawkish. 13 for the aussie right now. equity futures modest but heading lower. japan, boj's today meeting started today. it may be enough to see the real ignition of yen the plight of safety moves after the president's health care failed. 112.05, still a bit of strength here in dollar-yen. equity futures up higher, slightly by 10 points right now. -- you didmention mention the s&p hit a record. it sounds like the bond markets are saying rates are going to stay lower for longer. we will talk about that keystone in a moment. in the meantime, the dollar lower, sliding to that 11th month low, stocks clawing back. they did reach new highs. su keenan here with key market moves to watch.
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you mentioned the trump disappointment or defeat in the health care, a big hang over the market. we talked about how it was a record close. notice the nasdaq and you might not notice what is underneath stocks,the fang facebook, netflix, amazon. netflix really tore it up this time yesterday in after the bell. it was up in a very big way in the regular session. harley davidson reported earnings, big disappointment, letting the market know that the new generation is not buying motorcycles. that has taken a hit on the stock. goldman and bank of america in the spotlight as they disappointed with some of the performance in their core units. we will get more and that in a moment. it follows up from the performance we saw from chase, citigroup, wells fargo.
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mixed messages in these banking reports. oil slightly lower, ahead of the inventory data wednesday morning. gold moving higher, unchanged in extended trading, but at a two-week high in the dollar weakness. chart, we go into the bloomberg to talk about dollar weakness. it is the most oversold in nearly five years. there we go. you look far to the right, you see a sharp drop. a lot of this has to do with investors fleeing the dollar. economicent trump's revitalization agenda is faltering in recent weeks, yet another blow. trump saying, it is the way i planned it. if it is not the where one it, i planned it to fail. they see a pattern and it could have an impact going forward. betty: thanks so much, su keenan
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on the trade today. let's get to first word news with nina melendez. >> the white house has confirmed president trump met his russian counterpart a second time at the g20 in hamburg, something that was not disclosed at the time. they first said trump and putin spoke july 7 after a two-hour formal meeting earlier in the day. no details about who was at them theye meeting, nor what discussed, or how long the chat lasted. china raises holdings of treasuries for a fourth straight month in may. building currency reserves as the you when it stabilizes. based on that $1.1 trillion, up $10 billion from april, china is the second biggest holder of treasuries behind japan. they account for more than 1/3 of foreign ownership of treasuries read the u.s. imposing new sanctions on iran, despite accepting tehran was it thed of -- accepted
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nuclear deal. tehran said it will respond to north american interests, the scribing the new sanctions as "contemptible and worthless." drawing upmakers plans for stimulus for consideration after summer break. are preparing alternatives for decision expected in december or later. that does not mean changes are imminent. no timelines have been devised. officials have yet to form discussions on the annual qe. brexit negotiators are technology frustration on both sides that talks in brussels -- the past two days showed the u.k.'s divorce bill one of the biggest sticking point, with the two sides trying to find common ground. and returned to london, will brief the other 27 countries. more talks are planned for late
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august. >> the british people are becoming aware brexit will be costly. the negotiation is not about coming up with a cost free, wonderful relationship. that is not an option. it is about limiting the damage. >> global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am nina melendez. this is bloomberg. yvonne: two more republican plans to repeal health care dead in the water. a replacement for obamacare failed to gain enough support for gop senators, as mitch repealll's suggestion to first and replace later. joe, good to see you. they are bending the obama replacement and going straight to repeal now. how much of a setback is is for republicans and the administration? joe: it is a major setback.
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they are going to the repeal, but mitch mcconnell does not have the votes to get a repeal-only bill through the senate. senators have said they will not back it. that effectively killed the. have --also going to deal a blow to the rest of their agenda. they still have tax reform, infrastructure. thethey do not have all details on those measures and time is running out. does notbe that trump have any major legislative accomplishments. betty: what about obamacare? will it just a as it is, then? joe: most of the regulations in law or in the law, so they would require action by congress to repeal them. they can administratively start choking off some of the money
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for the subsidies and state area but that will be politically difficult because it means people will not be getting insurance. the system is still there. insurers will raise a ruckus it will cause a problem, whether obamacare is there are not, it throws the marketplace into disarray. betty: the markets are interpreting this. meaning, if health care cannot pass, budget reform also cannot pass. is that right? joe: it is not a bad assessment. they are not planning to bring up the full tax reform plan that the white house wants until september. the last time they did a major tax reform, which was in the mid-1980's, it took them a year to get that through. they still may be able to do something eventually, but not by the end of this year. this health care defeat has squandered what little political
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capital they had. yvonne: -- betty: joe, thank you so much. joe sobczyk in washington for us on the latest on health care. ofhas been a busy week earnings with netflix, bank of america, goldman sachs already in. morgan stanley and t-mobile in on thursday. and more on friday. joining us now is our chief strategist. they came out with a note saying, earnings could propel the s&p up 10%. others are saying it is too bullish. what is your assessment on earnings? >> the second quarter is probably a low market earnings. time, the s&p 500 bases expectations a you can assume we get 10% earnings growth in the second quarter, which is not had bad, considering where we were a year
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or two ago. it is well beyond the average growth rate of learning -- earnings the cycle. they are propelling stocks higher. that is probably the primary reason they are moving higher. monetary and fiscal policy great a lot of noise and volatility intraday, but generally stocks are moving higher on earnings growth. betty: they are. but the picture could change, right? if you look at what is going on in the treasury market, bond investors are saying, lower for longer, the hawkish stances off to the side. i wonder what that means for equities? gina: it depends how volatile they are, that is the busiest -- that is the key. we run a valuation model and economic model. change in interest rates beyond incremental changes in the two-year and the curve. macro growth is pretty slow.
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we get a similar earnings growth potential at the consensus. macro is supporting growth between 12% and 13%, which is still strong. even though the bond market has been skittish with regard to monetary and fiscal policy, the equity market, should be able to hold it fairly low. yvonne: we have seen many rotations away from growth -- mini-rotations away from growth. it seems the banks have largely been negative when it comes to what the market is seeing it as. whereas tech has outperformed. are these rotation sustainable if we are not getting that robust approach? gina: we wrote a piece a few weeks ago and said, what could propel this value retracement into a real recovery?
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there are three things that matter for the value trade. long-term interest rates almost have to rise for value to work. in june, financials went on a tear, as a result of the fact that 10 year treasury points -- treasuries moved up 20 basis points. it is the single largest segment of the index. treasury rates matter a lot. the second thing that has to happen, is that auto sales need to recover. auto stocks and retail stocks are the second largest segment of the value index. we have to have recovery in consumer stocks for that to work. prices.s oil oil prices are a huge part of the value index because as a group it makes up 11% of the index. prices to see oil recover for the value trade to become more sustainable and not just a retracement of extreme losses we have seen over the
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past six months. yvonne: always great to have you, our bloomberg chief equity strategist from new york. plenty more ahead on "daybreak asia." we look ahead to the boj's monetary policy decision. joining us to cio talk about what is going on in the treasury market. this is bloomberg. ♪
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,"onne: this is "daybreak asia i am yvonne man in hong kong. betty: i am betty lou in new york. it traders and futures are growing more convinced u.s. -- will be lower. no matter what the fed the says, the health care failure is raising doubts whether president
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trump's promises for stimulus will materialize. i want to bring in mark kiesel, cio of pimco credit. do you believe what the treasury markets have been saying over the past few days? mark: betty, we do. pimco has been buying treasuries. we have seen the market as attractive. importantlly what is to understand is that real growth in the u.s. economy is only over 2%. this fiscal stimulus the market was romancing, those expectations are coming down. we are seeing that with trump and obamacare repeal, which is proving difficult. it was pimco's view that would be challenging. secondly, low inflation around the world. inflation is relatively benign. the u.s. treasury market and corporate bonds look good on a
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yield basis, particularly to foreign buyers. you saw that in the tech data. foreign buyers are picking up. with u.s. rates higher than japan and germany and low inflation, investors around the world find those bonds attractive. betty: they still do. let's pull up this chart. basis it supports what you are saying. you have the 10 year yield just today, breaching passed to this red line, the 200 day moving average, which means we are going low for longer. where do you think the yield is headed? case is,hink the base the 10 year yield will be roughly where it is now. when the yields backed up, pimco was spying on the view that the fiscal stimulus would not come to the degree the market was priced in.
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yellen's testimony last week was insightful. she brought up the point that the neutral real rate could be much lower. we are not seeing inflation. in fact some of the big point is the removal of accommodative policy from central banks is going to happen very gradually. particularly in the context of low inflation around the world. lower for longer and also less fiscal stimulus, that equals relatively stable growth and means the demand for income around the world will remain robust. that is what is supporting the bond market. market whatbond we're hearing out of europe from mario draghi seems like the elephant in the room, whether he will announce anything or temper the taper tantrum we have seen in europe that is dragging treasury yields higher. mark: europe is fundamentally behind the u.s. by two or three years.
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we are seeing the announcement of eventual taper by the ecb. that will likely not happen until next year. any rate rise in europe is probably two years away. we are seeing this consistently around the globe. that because the global growth is decent, the private sector -- because financial conditions are supportive of markets, this allow central banks to eventually reduce accommodation. they are doing it primarily from reducing the balance sheet. what they are not doing is aggressively raising rates. that is because central banks around the world are embracing the slower neutral rate pimco has been talking about for years. low inflation is meaning these short rates can stay lower longer. that is why bonds around the world are being supported. yvonne: you mentioned foreign appetite's on treasuries. but it seems it has been waning
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when it comes to the leicester we have seen the past couple years. and boj taking their foot off the pedal when it comes to qe. yields in japan and europe are rising. does this put pressure when it comes to corporate yields in the u.s.? mark: we have not seen it. we have seen buying interest in corporate bonds, particularly at the long end of the curve. it happened at the first and of this year, when yields got up to around 4.5% to 5% for the credit index. you will see them come in aggressively. i think what this highlights is that demographics and the demand from savings around the world, whether it be central banks or pension funds is huge. there is that much demand for income-producing assets around the world. any rate back up is likely to be bought, as long as it is bought in the context of inflation
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remaining range-bound. that is the big theme. with inflation but nine, central banks can remain dovish for longer. betty: speaking of inflation, where is it in japan? it seems the inflation target is the never ending goal for the boj. what do you think we are going to hear from them after the meeting? mark: the same thing we hear from them almost every meeting, no change. they will continue for the target of 0%. what is fascinating, the u.s. is closest when you look at u.s., europe, japan, in terms of meeting the inflation target. we are below 2%. japan will be roughly 1%. they are still trying. that means the balance sheet will stay highly supportive, they will continue to support rates. japanese investors will look to the u.s. bond market to get that
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incremental income. when 10 year yields are zero in japan, you buy investment grade credit in the u.s. our pimco bonds are yielding 4% to 5% for corporate bond funds. that is very attractive to a japanese investor right now. we are seeing that demand come in. betty: thank you so much, mark kiesel, pimco cio of global credit. much more ahead on "daybreak asia." this is bloomberg. ♪
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yvonne: let's do a quick check of the latest business headlines. what cap has been blocked in china as a censorship drive by the government. applicationsher and reported outages in beijing. authorities of crackdown. china has been ramp -- ramping up control of social media ahead
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of the meeting this year. betty: toshiba surged the most in five months after that -- david i darden reported a position they took on expectations the company will close at $20 billion deal for its flash memory chip unit. shares have slumped since the middle of june when uncertainty grew over toshiba. yvonne: a revised bid for arrival indian etailer. is $100 million more than before. it is to have a stronger competitive -- domestic competitor to amazon. china's crackdown on risk. how beijing's latest push is rippling through the economy and possibly the world. this is bloomberg. ♪
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morning hong kong. looking clear out there, hope we do not get rain. betty: indeed. no rain today in new york. it was bright and sunny. 7:30 p.m. tuesday evening here in new york. markets closed mixed. a lot of bad news from washington, including investors in the risk off sentiment. i am betty lou here in new york. yvonne: i am yvonne man here in hong kong. let's get to first word news with a nina melendez. >> australia's biggest banks
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will have to hold more capital under fresh guidelines from the regulator. one will have to hold tier capital ratios by at least 10.5% of january 2030. the changes aimed at ensuring institutions are unquestionably strong. the new republican proposal to repeal obamacare now and replace it later has sunk less than 24 hours after being floated. three gop senators said they will oppose it, even with a two-year delay to come up with a replacement. president trump said he would prefer to let obamacare collapse, saying democrats will be forced to agree on a replacement. had aent trump: we have lot of victories, but we have not had one on health care. evendisappointed because as a civilian for seven years, i have been hearing about health care, and repeal and replace. >> ecuador has dealt opec a blow
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, saying it needs the money. in a statement after discussions with the saudis, they said both countries remain committed to collectively reducing inventories to a normal level. it accounts for less than 25 seconds of daily global oil consumption. face an security firms inspection into how they deal with insider trading. and, the handling of nonpublic information. it was prompted by a bloomberg report that showed a branch the information when they were considering a stock split. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am nina melendez. this is bloomberg. betty: thank you. let's get more on what we should be watching as trading gets
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underway in asia. adam haigh joining us. the aussie dollar on quite a charge, maybe owing somewhat to the u.s. dollar's weakness. it is holding up well to the rba minutes. where is the australian dollar heading next? adam: it was really a combination of those two factors yesterday, extended dollar weakness. then you had the huge run-up after the minutes. a fundamental reassessment of the growth profile and how the rba is assessing that. it is unusual to see this big a reaction to minutes. to that 97 sent u.s. cent u.s. level. 79 cents. they think we could get to 80
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cents in the next year. a better chance of high rates by may of next year. we started the week with that being a 40% of ability. -- probability. they are reassessing australia. ande has been a lot of doom gloom around how the australian economy is progressing over the past few months. this has swung the dial in the other direction and spurred gains. some managers have been positioning this for some time. they looked through this more bearish take over the past few weeks and have been positioning for the aussie since may. short-term speculators last week lifted their bets ahead of this status. whether or not we see any further push, we are holding up now. the bulls are very much in charge. yvonne: we saw that dramatic
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shift in tone when it comes to the minutes. we are talking about hong kong because buying a bit of refuge for investors in china's mainland equity market. the hang seng challenging the shanghai index by quite a bit, as well. adam: that is right. a great chart that sums this up, what we have year is an example of how investors are using the stock to bring money south from shanghai into hong kong. those green bars showing the uptick. we have a 3 billion come through than -- the first few weeks. the bottom part of the chart showing the hang seng index continuing to extend its rally. whereas in china, they continue to selloff. a lot of this is about concern on the mainland for fledgling companies.
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these small caps are particularly exposed. talks,d closed-door high-level meetings that raised a lot of questions about further regulatory pressures. the authorities cracking down even more. ofple wanting to sell a lot these stocks, move more money into hong kong. have all been grinding higher and hong kong is a great place of refuge for these investors. in the past it has been a great place to be. remember to the start of 2016 when you have the worries about depreciation in the yuan, and a lot of people running for the hills. hong kong holding up well and a good place to be for people their chinaial down exposure. yvonne: adam haigh, thank you. china looking to reduce financial risk and stimulate growth. lower the sold to
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rates they offer on wealth management products. let's get to our chief asia correspondent joining us. i thought that phrase from the people possibility column was interesting. hinos, like the new black swans. >> the wealth management products part of it is quite important because they are important in the shadow banking industry. on the one hand, they are important for higher yields. they have been averaging a higher percentage. retail is happy to do so. the banks like them because they are alternative sources. reason regulators are worried is because they are saying, if you're paying yields that high for those, there is a risk you might pass on the higher funding costs and heard the real economy.
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on the other hand is a risk they could fail outright. the regulators are trying to come in for a squeeze on the wealth management, telling banks to bring down the yields to make it more affordable with less pressure. it is generally part of this wider crackdown on containing risks. they are not sure when it comes to funding these large-scale products, but limiting risk when it comes to the economy? enda: that is right. they are taking baby steps where they can. they are targeting on balance sheets. it is a baby step. measures goinge to bolster the financial stability? enda: it is important to isember, it seems that dial
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slowly being ratcheted up. we had a big crackdown on the well-known conglomerates in recent weeks. some were going on a record shopping spree last year and the year before. there is a sunset that authorities and regulators are promising all the risk in the system. they are starting to take these harder tomaking it get financing and approval for megadeals that might undermine the yuan. whether or not it is effective, only time will tell. there are fairly tentative steps at the moment. it is not like the authorities are waging in outright war. they do not want to choke credit. the 90thy when we have meeting of congress coming up. it seems to be one step at a time. about the arguably
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more difficult risk -- what about the bad loans, enda? enda: this is where it is much more complicated. corporate debt has soared in china, to 160% from 100%. the state-owned company sector is where the vested interests lie. a feeling among investors is that there is a lot of bad debt and assets. government wants to clean up the banking system and bad debt, it has to go after that soe sector. but there is no appetite for that yet. we are not seeing the massive closures under the previous funds back in the 1990's and 2000's. it is all about stability in this year of the party congress. bad debt, bad loans are one of the biggest drags on the economy.
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no sign of any urgency in overhauling that sector yet. betty: thank you so much. much more ahead. we go from china to talk about japan. it is the same for the boj. changes to the central bank board having zero effect on policy. this is bloomberg. ♪
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betty: we are counting down to asia's first major market open. it japan is what we're focused on. futures unchanged. not a lot of direction from the u.s. a riska muddled market, off sentiment. especially when you look at the dollar and treasuries. this is "daybreak asia," i am betty liu in new york. yvonne: i am yvonne man in hong kong. the bank of japan begins its
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today meeting soon. they are watching what officials will say about the inflation forecast in particular. let's look at this with japan's former deputy vice minister of finance. we also want to bring in kathleen hays for this discussion. great to have you to the program. it is interesting, we are all about these inflation forecast for the quarter. when the japanese economy is on its longest growth streak in 11 years. but that trend it we see in inflation -- how will the boj communicate this? >> there is a great divide between the real side in the nominal side. the real side is doing well, growth is up and in -- unemployment is down. there is a labor shortage. inflation rate came down this year and is still struggling around zero.
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it is very disappointing for the bank of japan. ito, isi: professor part of the challenge right now for governor kuroda and the bank of japan, does it have to do with communication? dissenters leaving the board that said that 2% target would be hard to hit. i have been speaking to people in tokyo about the impossibility or possibility. what makes the most sense is that it is attainable but will take a long time. it will not been -- be hit in two years. will governor kuroda have to communicate a shift so the public can understand better, and the investors, to support this? takatoshi: they communicated last september when they produced the yield curve control. prices and other
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factors. is most disappointing part that despite labor shortage, wages are not raising quickly sough or widespread enough, consumption is not stimulated. that is why the prices are not rising. you have to break somewhere in this link. hopefully that range will go up. hopefully, consumption will go up. we do not know. bank of japan does not know exactly what is going on between the labor shortage. betty: i want to talk more about these it dissenters who are going to lead. they are very much on that hawkish side, ironically. they came in as pretty much doves. some say, them leaving does not
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leave challenges anymore for kuroda. there will be a lack of debate in the boj. what do you say to that? kathleen: there was a debate got -- kathleen: there is a -- takatoshi: there is a debate going on between the bank of japan. yes, but the internal challenge. takatoshi: i am sure they are debating rigorously. it is not showing up. betty: you see that continuing even with these departures? takatoshi: i do not think this inarture changes much decision-making and communication. it is not adding any value. as you said, kathleen said, 2%
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became impossibly far away. but it does not mean it is ok to lower those targets. the target has to be 2%, and concentrate on how to achieve it, rather than, maybe we can lower the target. your point is very well taken about the centers and how just because we do not see dissent in the vote does not mean there is not debate. the discussion of buying etf, the bloomberg team was talking saying officials are wondering how long this can continue, if the boj could distort the stock market? kuroda has ignored -- ackno that they are removing a
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principal tool for easing. how big of an issue is this becoming? no public change expected yet, but a top mentor to mr. abe has been critical this publicly lately. takatoshi: it depends on how you think this, the transmission -- if you the prices think buying it is just to give liquidity to the market, maybe you can buy something else. if you think it is to show off the stock prices, may be -- maybe it is not important to givenhat large number, that stock prices have risen to this level. the boj has to explain why they
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have been buying etf and where it is going. by the way, the criticism of buying those nikkei can be mitigated if they stop buying more of them topix, a wide range of stocks. shifting up there, allocation could be a short-term fix. question, if you have so many monetary policy are still not we seeing concrete results when it comes to inflation. it raises the issue of whether the boj should turn back to conventional measures like focusing on rates in particular. would you agree with that assessment? takatoshi: they tried in january last year. unpopular that at this
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point, i think it is not possible to go deeper. professor -- go ahead, kathleen. kathleen: i want to ask you about the controls and the vulnerability of the bank of japan to the fed signaling balance sheet reduction. policy,dropping its they are also meeting this week. is this a problem for governor kuroda, as well? takatoshi: there will be pressure. to a lesser extent, the ecb low rate should go up. the yield curve control says about 0%. they did not define what it is about. or -0.1 or 0.2 or
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beyond? that will be tested. well andonomy is doing inflation rate start to go up, i tolerant they will be for the long rate to go up, which will allow the tapering in japanese style. thank youfessor ito, for joining us. also the former deputy vice minister of finance of japan. and kathleen hays of bloomberg in tokyo who is covering the boj meeting for us. you can get around above that story and many more in today's edition of daybreak. subscribers go to dayb on your terminals. it is also available in the
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mobile app. you can customize your settings. this is bloomberg. ♪
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yvonne: this is "daybreak asia," i am yvonne man in hong kong. betty: and i am betty liu here in new york. trying to head off a growing emissions crisis by recalling mercedes-benz vehicles in europe, it involves software fixes. it will cost $250 million. the issue has been rumbling for months. cathay pacific says the environment challenging the first half, dashing hopes of
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recovery. they saw the first annual loss in eight years. they talked about hogg's appointment is disappointing. shares rallied more than 20% thay cutr as cafe -- ca many jobs. martin, a $5.5 million. down payment full-year earnings are15 cents higher. lockheed reported second-quarter profits that the analyst estimates. plenty more still to come. asia's first major market open moments away. yvonne: let's get the latest with sophie kamaruddin who is watching the latest opens. could drivethings the asian trading day, looking to be mixed-down day in europe.
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day onhave an inspiring wall street. helped -- traders may take note of signals that soft inflation contagion could be undermining central bankers, given the week's cpi out of that united kingdom. nomura and other brokerages face scrutiny over how to comply with rules. nomura said a branch manager mishandled information. bhp delivered a similar message this morning, its fourth-quarter output came in weaker than forecast, putting 2017 at the bottom end. australia's big four banks watching financials down under the capital ratio at 10.5% by regulators to meet the high benchmark, met by the first of
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january in 2020. that is a brief watch of what we are watching when treating is underway in australia, japan, korea. this is bloomberg. ♪
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♪ >> asia-pacific markets see a mixed start as investors weigh tepid growth. the dollar at an 11 month low angle that a two week high. >> the bank of japan and the yen holding steady after slumping to a three-week low on tuesday. kwak's biggest drug and tougher guidelines. the regulators demand they hold more capital to prove their strength. back on thes. is offensive on china saying it is time to rebalance trade and level the playing field.
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the second hour of daybreak asia coming to live from bloomberg's u.s. and asia headquarters. i'm yvonne were it is just after 8 a.m.. >> and i'm betty liu. a tired market in the u.s.. a lot of the focus turns to asia. we've seen china continues to accelerate. raining and financial risks. we are raining in the boj and we see the dollar fall. what does that mean for the asian currencies? a lot in the asian markets. we will talk about that in a little bit. let's get to the market open. the weaker dollar and the tech space can lead to some gains here. but we seelly, tiredness and perhaps a lack of direction. for clues around the economic growth story, company earnings
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will also be weighed when it comes to prospects there. to go look at the equity markets. we have the nikkei 225 sliding .2%. and in sydney, rising .2% after that deep selloff that we saw on tuesday. over 1% slide shares, a mixed start when it comes to stocks and bonds. the climbing tracking the rally. they hold ground above 1242. wireless lighting. arising u.s. supply. it may deepen the export cuts, steal and aluminum, potential u.s. tariffs. we do have the offshore yuan stronger for a seventh straight session. and it could be a 2017 high, given that it did drop to an 11 month low overnight. we do have the aussie trading at
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a two-year high. ahead of the boj meeting on thursday. the 200 day moving averages. between the 55 line and the baseline, it suggests the dollar could be well supported. we do have the tenure yields extending. 2.6%. the 200 day moving average.
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and hovering over the 50 day mark of 2.25%, that is the line in purple. u.s. yields will stay no matter what the fed is saying. it is trading at a may 2016 high. they will try to avoid something attractive, adding more fuel to the fire. this after output was weaker than expected. it drops about 1%. >> this week alone has been that kind of story.
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we have seen beijing ramp up efforts when it comes to raining and financial risks. we talk about hong kong being a refuge. but before we do that, i have a chart here that might change her mind a little bit about what going on in china. thatve the dividend play has been taking up recently since mid-june or so. it is now very much close if not approaching japan, which is the dividend yield we are seeing in june. we have the trend in the shanghai composite. if investors have enough stomach. alone tells the story there with the white line. stomach,ed to have the
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even if you're making money in the chinese market. we haveomic numbers seen, stronger than expected. you kind of forget that in the headlines we have seen over the last several days. the book coming out and saying we might see some financial shocks going forward. we keep an eye on the markets and we want to turn to the first word news with paul allen in sydney who has more for us. paul: thanks, betty. the u.s. is back on the offensive on china saying it is time to rebalance trade and level the playing field. wilbur ross is america investors must be allowed to compete on an equal footing. rising tensions the trump administration overcapacity for creating global collapse. trade surplus has created
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some money supply accesses in china. so this is not just a problem that one side wants to deal with . this is a problem that both would like to do. it is time to rebalance trade and investment relationships in warfare, equitable, and a reciprocal direction. america showing weakness in their bread and butter operations. america a decline and a fundamental part of the banks revenue. after president trump's inauguration. , and missing estimates
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executive said in april that they expected key contracts to come through. and the disappointing numbers extend the turnaround plan into a 50 year. no significant success. ecb policymakers are said to be drawn up plans for the future of stimulus after summer break. it doesn't mean changes in minute. -- eminent. officials have yet to hold formal discussions at the end of qe. lateran for two meetings wednesday. powered by more than 2700 journalists in us miss -- and estimates. the boj expected to keep the supercharged monetary policy can high gear.
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it will change policy centers. grexit remains to be seen. , thatt know for sure there are perennial centers against the radical stimulus. at such he be each look.i -- take a raging.nd still steps,gnal bolder policy maybe even buying foreign bonds.
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>> after prime minister abe was elected in 2013 and that's what he brought in. but they opposed etf buying, yield curve control, and very important in the arsenal. the terms are up, it's time to go. contended by some to be possibly the next head of the boj. the debate will continue. it don't have to have actual defense on the vote. that's what people are wondering now.
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>> tell us more about their replacements. towe see we are losing radical and hawkish dissenters. we are looking through the boj minutes and their statements one been the most focused market participants in general. is there concerned it will lose the debate and possibly make a big policy mistake in the future >> let's start by looking at the reflation rests. there is an economist here in tokyo. his articles of research have put him in the camp of the reflation nests all on board for radical stimulus. >> let's move on to the banker. he is on the honor board committee at bank of tokyo mitsubishi, many years in the
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banking system. where don't really know he stands on monetary policy or on the question of negative rates, but since he has in and the banking system, maybe he is one that if he comes up again, it should be too costly and a policy we have move away from. >> more from you out of tokyo pretty soon. and the implications for markets next. ed rogers has huge by signals for japanese stocks. banks maytralia's big need to step up their games. they should be live in sydney on that. this is bloomberg. ♪
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♪ betty: good morning, this is daybreak asia.
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i'm betty liu in new york. yvonne: i'm in hong kong where the boj begins its policy meeting which has week inflation , still a key focus. get to the global economics and policy editor in tokyo for the meeting this week. no change in policy expected that it will be about the inflation forecast and they are still twice as optimistic as some of the estimates out there right now. when will they see the targets be brought down? >> that is the $64 million question, yvonne. some people say they won't change it even though they're far from target. if they do, i don't think it would be a huge surprise. would it be significant and signal conviction? that will be the challenge. kuroda could make it clear even if they alter it slightly. it is an equally important question and will raise the gdp forecast.
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it signals growth in japan and 11 years. that is another thing that we closely watch. roger investment advisors and a must-read decades doing business in tokyo. it was late april or early may and you were saying that see signs in the business climate in japan here in tokyo. it is a more optimistic view of the economy picking up. >> i continue to hold that view. the successful numbers are real numbers. the pricing pressure on wages is real.
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eventually, the dam will break. i believe there is a form of stubbornness or they're going to persist in their policies. they will be successful. >> that is certainly the view and it probably won't take just two years. this is a 100 year policy we have to maintain. but they continue to look at march of 28 team. ort it helped the markets hurt the markets to get a sense of where it is going and that it will take longer. people get their conviction to 2%. >> this is as much about the politics as it is the economics.
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it was never going to be solved in two or three years time. this is a long-term policy. what is most important, we keep the structural reform is promised. i will caveat that. no, you couldn't do that. businessbecome a very friendly climate. -- antibusiness climate. with the recent election, we have more forces. it makes 2% or better a realistic number.
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>> i want to jump in with a quick follow on that. i'm glad you talk -- touched on the political point. for someone is been in tokyo in many years also in this industry talking about the, like you, someone who was an avid follower of all things political. he says, this is a local election. it is the metropolitan tokyo election that was mishandled. it really wasn't a defeat for abe. if abe is weakened, then what does that mean down the road? of thison this path aggressive stimulus? there are many critics, many who left the boj that's a they can't exit. they will own all the bonds. this is an issue they don't know how to solve. question. fascinating it that is the $64 billion question.
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if abe goes, who will be the one to push him out? approval rates are down. i do think that this win is more than just a local violation. election.y tokyo, it is larger than the size -- it might be a local election, but a pretty individual local election. we see the running on a reform .latform, pretty similar so we have a win-win situation. as local election is probably going to force prime minister abe to focus on the economy as the main problem to be solved. and you will focus on a because of the political pressure needed through this local election. yvonne: and it was kind of
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considered a wake-up call for abe and for the other policymakers. i just want to throw up a chart here. g #btv 4949 which really shows you the incredible amount of buying and acceleration with the spike in the green bars. that's a people have been talking about. they, is it too much distorting the markets? can they pull it back? >> more etf than jgb's is my first comment. the one thing that died in japan , we need inequities culture again.
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people need to believe in and buy anticapitalism. the most effective way of doing that, if you will, is to buy an etf. you have broadly supported topics. that seems totally appropriate given the goals of prime minister abe. how do you get to a reflationary trade. there are a number of ways we can go about trying to solve the problem. pushing up equities or buying equities does seem appropriate. you mentioned prime minister abe would need some kind of win now. how would that help ring growth in japan? >> there is a long list of structural reform items. and some are being pursued.
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.pp we were big supporters of tpp and disappointed when the united states dropped out of it. japan and prime minister abe have shown a great deal of this processking alive. making the agricultural sector more efficient. opening up the hospitality sector. all of these things of been happening under his watch. enough think he's gotten credit. yvonne: ed rogers, joining us there with kathleen hays out in tokyo. guidelines from the financial regulators or sing the good thanks to raise their game next. this is number. -- this is bloomberg. ♪
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betty: showing took new capital requirements in just the last two hours. paul, these bank shares are higher, that they have these new regulations. what is going on? announcing this morning that the banks will have to carry a 10.5% tier one capital ratio so that they can meet this inch market being unquestionably which was the review of the financial system three years ago. a 150 basis point increase. the average, holding 9.85%. the commonwealth bank probably holding about 9.9% around the
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time. still some work to do to get there. most of the banks confident they can do it, betty. a big part of the domestic bank lending comes from home loans. how much has the property market had on this decision? yvonne: you kind of overlook the impact of that. >> you kind of overlook the impact of that. the currency do not reflect the concentration of lending risk. so that is a big reason for these new rules. we had a few responses from the banks coming in this morning. isve had them saying that it -- that it is well-positioned to eat the benchmark and ahead of schedule. the aussie banks, we are talking a little bit more about china and the financial risks. we will look at how china's crackdown on risk may dampen the
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animal spirits. the whole animal farm is out there. this is bloomberg. ♪
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♪ yvonne: 8:30 a.m. in singapore, a beautiful wednesday morning out there. i'm yvonne in hong kong. betty: and i'm betty liu here in new york. welcome to daybreak asia. us get the first word news with paul allen in sydney. paul? paul:rade rep it -- representatives are trying to hammer out the economic partnership. a china is urging 10 members along with india, australia, new zealand, and south korea to recover 30% of global gdp and one quarter of exports. sticking points include india's
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demand for greater market access for professionals. treasuries for a fourth straight month in may, they are rebuilding foreign currency reserves as the yuan stabilizes. they stood at $1.1 trillion up from $10 billion in april. china is the second largest holder of treasuries, a fraction behind japan. the account for one third ownership of treasuries. repealing obamacare now and replacing it later appears to have sunk 24 hours after being floated. three senators will oppose the plan even with a two-year delay to come up with a replacement. president trump earlier said he would prefer to let obamacare collapse, hoping democrats would be forced to agree on a fix or replacement. had a lottrump: we've of victories but we haven't had a victory on health care. we are disappointed. i am very disappointed. for seven years i've been hearing about health care.
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and i've been hearing about repeal and replace. paul: the u.s. is imposing new sanctions on iran despite accepting tehran is adhering to the nuclear deal. targeting 18 entities and individuals said to be linked to iran's ballistic missile program. respondaid it will against american interests, describing the new sanctions as contemptible and worthless. global news 24 hours a day journalists and analysts in over 120 countries. i'm paul allen. this is bloomberg. asian markets, we have more. >> check out what is going on with tokyo markets. the nikkei 225 dropping for a second day. the yen, steady at
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i went to draw your attention to the one here rising for a six day. the optimism over global trade, given u.s. reform, the folks are there. western asset management, there is a good entry-level. is slightly folly now. of what shrug off some we are seeing in the i.t. space, the i.t. stocks in seoul as well as in sydney. we're not tracking the move higher. check out what is going on. it is rising about .7%. in full position, their rising 2.7%. the take a look at what is leading laggards. stocks falling almost 2% and miners are sliding despite the rise we're seeing in metal
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prices like steele and aluminum. mirroring softer copper prices we are seeing this morning. and bhp a sliding after iron ore output this morning. just pulling of the board for the viewers in the big for lenders down under this new capital rules by the regulator there. lender say that we will place it. >> will continue to watch this trillion banking stocks. take a look at the markets. , bankersmoves through are told to lower the rates that they offer on wealth management roddick -- products. another issue for chinese banks. here's our chief asia economics correspondent. in the editorial on monday referring to the gray rhinos,
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kind of a play on the black swan. what are they talking about? why are they so worried? these wealth management products are the center of china's shadow banking industry and regulators are can and that the whole sector is off the books and could be a source of substantial or significant financial risk. if investors were to suddenly start to try to get their money from these wealth management, or indeed, if they started to fail. 4.6% on average. they are a cheaper source of funding than they get in the money market. the regulators are getting concerned. and they worry that as they go intoes up, it will the economy and growth.
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they are stepping in for a little bit of timeout in terms of where the deals are going and cool off a little. in terms of off balance sheets, we don't really see a whole lot of scrutiny or little bit of putting the cap on that. is that going to be the biggest risk here? more so? will bolster financial stability? >> of think that is a great point. it demonstrates taking baby steps. steps toant to take rein in leverage. with ay can go so far measure that might hurt the overall economy. they want economic stability. they want market stability. tentative baby steps. and whether these steps in total
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will bolster financial stability remains to dean. it's not just those products, they are attacking the lending companies in china. what about the more difficult problems with risk like bad loans? about vestedking interest, a lot of corporate debt in china lies in the as police actor. total corporate debt has risen 100 80% from 100% over the last decade or so. 150% from 100% over the last decade or so. wants tonance minister go heard there, it will be ramifications for employment or for open industries. it will have ramifications for state banks. so you would unleash a whole ripple effect in terms of the cost and government refinancing bikes -- banks. under the bad loan side of things, to answer your question,
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it doesn't seem to be on your agenda. i will say some are starting to think that perhaps the movement is changing a little bit. and once we get over there, there might be more aggressive approach to reform in china's economy. right. thank you. of course, traders and the treasury futures market are growing more convinced that u.s. yields will be lower for longer. we will have a rebound there in bonds the last couple of days, no matter what the fed says. with the global credit cio said earlier on. couple weeks,st pimco has been buying treasuries. we seen the market is attractive . fundamentally, what support to understand is that growth is only 2%. this fiscal stimulus was romancing. we are seeing that with trump and the obamacare which is proving to be very difficult.
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where it is relatively benign. the corporate bonds look very good yield basis, particularly to foreign buyers. and treasuries is picking up. so with u.s. rates much higher than japan, much higher than germany, and low inflation, investors around the world find those bonds attractive. still do.y it lets pull it up here. g #btv 5273 which on a technical basis as well supports what you're saying. you got the 10 year yield. breaching path to the red line here. where is this going, mark?
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>> the tenure yield is going roughly where it is now. when yields backed up, pimco is buying. thinkpriced in, and i yellen's testimony last week was very insightful. she brought up the point that the neutral rail rate. it could be much lower. we are seeing the inflation. the removal of accommodative policy is going to happen very gradually. particularly in the context of low inflation around the world. it means lower for longer and less fiscal stimulus. that equals relatively stable growth and it will remain very robust. that is what is supporting the bond market right now. it also what we're hearing at of europe and what
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mario draghi is saying? that is the elephant in the room yvonne:53, whether he will that is thething -- elephant in the room, whether he will announce anything. and is that driving yields higher? >> europe is fundamentally behind the u.s. by two or three years. we see the announcement of eventual taper by the ecb. the taper will likely not happen until next year. importantly, any rate rise in europe is probably two years away. we are seamless the around the globe. the private sector is healing. financial conditions are supportive of markets. it allows from banks to eventually reduce accommodation. but they are doing it primarily through reducing the balance sheet. what they are not doing is aggressively raising rates. mark keyes all earlier with us of pimco, the cio of global credit. and up next, we stay on the
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china story. at inaugural meeting between the commerce chiefs kickoff in washington. on wednesday, we will discuss the agenda. the ramifications next, on bloomberg. ♪
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yvonne: this is daybreak asia. betty: and i'm in new york. is time toying it rebalance trade and investment, level the playing field. to discuss what this really means is matthews asia investment strategies. dayre coming up on this 100 action plan. his 100 days going to be enough time to put an action plan in place with china? >> 100 days was obviously not going to be enough time. next 100 or 200 or 300 days, we have a sensible plan.
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going into this meeting, i think the trump administration is focused on the wrong things dealing with china. yvonne: the wrong things meaning what? of session the trump administration has with the trade deficit when in fact the trade deficit is not a scorecard and doesn't necessarily have a bad impact on the economy. or the focus on steele. china accounts for 3% of our steele imports. it's an issue, but shouldn't we be focused on the bigger issues that could help u.s. companies and workers like in the digital economy, pharma, financial services, accounting, and legal. yvonne: it's a good point. i want to bring up the chart that you mentioned. steel. 7929, and it shows some supported data of what the u.s. says. that china is just cranking out that steele.
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the other 65 countries. we have those numbers to back it up. it does become the hardest issue. whatever you say about the opinion, whether amount should be tackling this issue, i'm not sure it will be addressed tomorrow. >> i can't see her chart, but i don't think that we necessarily have that big of a problem. it is also the world's biggest steal consumer. they only export about 10% of their production. hardly any of that comes to the united states. we import five times more steal from canada than we do from china. stipulate that steele is an issue but why make it the focus when there are so many other issues that could benefit u.s. consumers and u.s. companies? i thought it was
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interesting, could north korea be a thorny issue as well? we talk about how trade has been there as of late. we have seen tweets from president trump talking about how china hasn't done enough to rein in north korea. i have a chart that you might not be able to see but it shows that china's exports to north korea are off the peaks. they are still at elevated levels. there was a story this week about how they are ramping up imports to iron or. going through some of these loopholes. do you think this is a signal that china is softening its tone? how big of an issue will that for president trump? andy: it is a big issue for president trump, clearly. but i think it is a mistake to how big of anfocus on this. my view is that there is nothing the china can do to convince kim jong n to give up -- kim jong-un to give up his nuclear weapons. the only thing preventing the
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u.s. from taking him out and overthrowing his regime is the fact that he's got weapons of mass destruction. in placesat happened like libya and iraq. i think more pressure from china is only going to make him feel like he's backed into a corner and isn't going to solve our problem. it needs to be addressed or some other form of negotiation. betty: it is a big political year leading up to the party congress, is there a political will to deliver sweeteners here? andy: there is no question that she's in pain -- xi ping wants to have a better relationship. what does donald trump want out of this meeting? is he prepared to sit down with the chinese and work up a constructive plan for getting better market access in china for american companies in areas like i.t., pharma, and other services? and there, i think, ping is
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willing to do a deal with him. does donald trump want to do a deal? or does he want to blow up the relationship because he's feeling like paying no longer loves him as much as he did at mar-a-lago? before we go, as you point out, they are tackling issues that you don't -- you think they are tackling issues they shouldn't be and should be tackling others. not going toere's be a lot of consensus. it doesn't seem like a lot of progress either. although i'm sure that those in the white house differ. where do you see the relationship in the next extra 12 months then? -- six to 12 months then? will it be muddy? what will happen here? andy: the last six months taught me that i'm not going to predict what happened in the last six months -- next six months. china, hedisrupted
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has argued that it is one of his best foreign relations. , the 50-50 that this week u.s. comes out with sanctions which are going to be a problem. the question is, how big will the sanctions be? if they are only on steele, aluminum, and a couple of small banks which are doing business with north korea, the chinese will shrug that off. steele and aluminum exports are trivial part of the chinese economy. something likeee that where we are going to get negative signals and probably the immediate reaction to this will be very negative. the chinese reaction will be strained. yvonne: it's interesting. what about the tit-for-tat dealmaking we have seen leading up to this? i will take your usb for your chinese poultry? will that continue yak of -- will that continue?
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say we don'tuld want tpp. we could shut down the bilateral investment treaty. we have agreed to a bunch of things that include market access to china. haven't signed those treaties yet. let's make a bilateral deal on the side and makes in progress on that. if we're using the leverage in the event that it is important to us. keep in mind that china has responded to engagement. when china joined the wto about 15 years ago, u.s. exports to , they are of only 90%. working foras been u.s. companies and consumers. yvonne: andy, great to have you.
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asia investment strategist joining us live from san francisco. to get your roundup of the stories and get your day going, first bloomberg subscribers, go -- dayb . assets yous on the care about. be sure to check it out. this is bloomberg. ♪
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♪ yvonne: this is daybreak asia. betty: i'm betty liu in new york. it lets get a check of the business flash headlines at this hour. lockheed martin is raising its profit forecast after a $5.5 billion down payment on the f-35. full-year earnings are now seeing $.15 higher at $12.30 investors have been watching margins for the f-35 since president trump said the costs were out of control. a way of crowdfunding for tech companies, it has got some much attention that the cofounder of the in syria network says it is time for things to cool down. blinding about the fact that easy money -- it raises digital quantel this year
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according to economist research. newoin has reversed the software that may bridge and ideological gap between developers and miners. with how to solve the problem -- years, they have used getting the mines on tuesday. that's before it hits 80% and they move bitcoin closer to avoiding a split. and the operating environment was challenging in the first half, dashing hopes of a recovery for a carrier that saw the first annual lost in a -- loss in eight years. they describe the performance is disappointing and say they see in 2017.provement cathay cut 600 jobs in its first shakeup in two decades. is a new note in the sterling lineup and has a little bit of controversy.
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it is a new 10 pound bill featuring jane austen to mark the 200 years since her death. the controversial -- it is alleged to be airbrushed to make her appear more attractive. they said it was chosen because it was much finer than the traditional sketch drawn by austins sister cassandra. the note will enter circulation in september. anyone.t please betty: i was doing research and apparently vegetarians aren't happy with the fact that the notes contain animal fat. so they are up in arms over this is well. you can't please anyone these days, right? yvonne: they should celebrate that she is on the bill. that's the big thing. that's it from us here on daybreak. his wits coming up in the next few hours. rishaad: we will go through that
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as well against a backdrop of the regional corporation agreement or whatever it is at the moment. the 19th round of talks when it comes to that one. and the crackdown taking place against in china. yvonne: wealth management projects -- products. thanks having such a large amount of debt on their balance sheet. for geo securities, tell me about it. yvonne: china, apparently. betty, plus to come in the next couple of hours. betty: that is it for daybreak asia. rish and haidi join us next. this is bloomberg. ♪
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♪ rishaad: a look at our headlines. seven days of gains pushing the benchmark to the highest since the financial crisis. china and the united states, trade negotiations. china says it is time to change the game and level the playing field. up, aussie banks face tougher guidelines, regulators demanding they hold more capital to prove their strength. this is "bloomberg markets: asia."


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