Transcripts For BLOOMBERG Bloomberg Daybreak Asia 20170829

Justice department. The ride hail are make the r may have violated laws on bribery. Betty it is like deja vu, only we do not have a missile tests, but more headlines from north intermediate there range missile was a prelude to more action in the pacific. In particular, in containing guam. Stern words, saying they are watching the u. S. And their demeanor. I want to bring up this chart that shows how things seem to be changing quickly in north korea. Look at the number of missile tests that have been fired within the last 12 months. In this report since President Trump was elected, we are at near what seems like record highs. At least when you go all the way back to the early 2000s. Look at how quiet it was during period. Geopolitical tensions at top of mind for investors. Yvonne you see north korea continuing to flex their muscle when it comes to rhetoric as well as the Missile Launch, which some say is quite a provocative move, launching it over japan. The u. S. Security council happening, underway on your side of the u. S. We did hear from President Trump as well and premier shinzo abe did speak on the phone. There is talk from japan and local media they could be talking about an International Embargo on exports. Betty absolutely. The real key here is china. What is chinas action going to be, and how will the u. S. And china figure this out, at a time when there relations are fragile . Meantime, north Korea Tensions have eased a bit earlier today, allowing investors to go back into the market. Points,finishing up 57 the nasdaq higher by 3 10 of 1 . The s p trading flat. Thisll be a heavy data week in the u. S. , ending with the jobs report. Yvonne that will be here for for thehat will be key fx and bond traders. Equity futures back in the green. But we are losing a little steam. New zealand, Risk Appetite is holding for the nzx 50. We are up 1 10 of 1 . Australia we see crude up, gasoline crude down, gasoline coast braces for a comeback from harvey. 7955 for the aussie, equity futures higher by 30 points. Japan, we are in for a rebound. Despite escalations intentions, see how we ended on the nikkei 225. We were still down 1 2 of 1 . Dollaryen we are back above 109, but seeing strength in the new comments from pyongyang today. Retail sales this hour. Could get more interesting as we saw household numbers yesterday plunging. Euro. , the betty expect to see a lot of red today. Lets get the first word news. President trump has described the flooding in texas as epic, and out of the governments response will set the model for future disaster recovery. Set to strengthen and across the shore again. At least 15 people have died in texas. Initial estimates of the damage range from 24 billion to 100 billion. The heaviest storm since 2005 has paralyzed mumbai. Forcing the closure of the trade network which carries 8 Million People each day. Weather forecasters addict more of the same today, trading it has been affected. It fell 1. 2 and the rupee weakened slightly against the dollar. Reports from japan say the toshiba board will meet thursday to discuss exclusive negotiating rights to a group involving western additional, kkr, and a japan network. There will be talks of potential buyers of the flash memory chip unit. They did finalize the sale at the end of the month and is aiming for the end of september. Warren Buffetts Berkshire hathaway has locked in 11. 5 billion. Buffett invested 5 million in bank of america in 2011 in exchange for preferred stock in the right to buy shares. He is converting them to common stock with 15. 5 billion, becoming the banks biggest shareholder. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. President trump saying all options remain open after north koreas latest Missile Launch. It signaled contempt for its neighbors, the u. N. And International Community. North korea said it had no impact and it will continue testing missiles to contain guam. Stephen engle is in tokyo. How is this thing interpreted north korea remaining defiant and saying it is a step to containing qualm guam . Here inhere is a calm tokyo. Thatorth koreans fired missile around 5 06 a. M. Local time. There were alerts but people did not know what they were for was it an earthquake coming . Act with unprecedented a missile flying over a major island of japan. I believe other tests have flown over in the past, but this struck a nerve because it flew over the Northern Island of hokkaido, breaking into the pacific ocean. Those lines coming from north korea, their news agency saying, it was prelude for further tests. Really aiming to the south and guam. Apan is rattled, but there is quiet calm in what the next steps will be. Prime minister shinzo abe did convene two emergency sessions of his counsel to discuss options. Hase minister of a abe been a proponent of increased defense spending, he has done that every year since taking office in 2012. He wants to change japans pacifist constitution. This could be playing into his hands. Betty it could be. Is japan planning to act on this . One of the proposals we saw in the newspapers i want to go through the morning newspapers. This is the benchmark financial newspaper in japan. Toshiba and Western Digital come other top story this morning. Over here on the front page is a story that to an and the United States could be going to this emergency session of a Un Security Council to propose and push for a global oil embargo against north korea. China has said it sanctions of this type has not worked, dialogue is the way to do it. As we know, party talks have not convened for many years and have not brought the North Koreans to heel. Jhers talking about the alert, giving an outline of the trajectory and the alert reaching 12 prefectures in japan. Of course in hoke ido. Shinzo abe meeting with his military brass yesterday. Finally talking about the missiles, intermediate range Ballistic Missile, the hwasong 12. They are saying the missile that was fire tested yesterday could have reached guam. Yvonne given these threats, you continue to hear voices saying kim jongun is not kim jongil. When do you start looking at him as not a rational politician . There are Different Levels of crazy, arent there . Then, there is the insane, as well. I do not know the man. You have to guess what is and game is here. People have been quoted as saying, crazy people do not walk around saying, am i nuts . He has an objective, to get the United States and south korea to stop what they call their hostile practices against north korea. Stop their wargames and the rhetoric. It china also saying that yesterday, while they oppose the north koreas missile and nuclear programs, they won all relevant parties to stop provoking each other with a and sanctions, according to beijing. They say it is not the answer. , we willtephen engle come back to you for an update. Despite widespread anger at the missile, President Trump has toned down his usual fiery rhetoric. Lets get the next from a Senior Editor live in washington, d. C. The president dealing with multiple crises, not as internationally, but must agree, with what is happening in texas with Tropical Storm harvey. Could we see a measured response from the white house . Yes. This was brought about after a meeting last night at the white house, with rex tillerson. Launcher does undercut that suggestion coming out of washington last week, that tough talk had been bringing some results. You remember trump said that startingorth korea was to respect the u. S. And the secretary of state said, some of this negotiation was bearing fruit. It does not look like north korea has changed its tactics at all. Does not appear that kim he seems to be unfazed by threats from the u. S. Is this any type of game changer . Mentioned the possibility of peaceful dialogue, suggesting kim had backed down. Be falling back into the pattern they have pursued before, when these exercises take place annually with south korea and the u. S. , north korea does something to be provocative. It is clear from the graphic you show that they have made a lot of progress with their missile program, and that will probably accelerate how close they are to being able to mount and Intercontinental Ballistic Missile that can be affect the, is still unclear. There is still some room to negotiate and room for more threats from both sides. Betty with all options on the table, does that change anything . Joe not really. That has been the stands of the u. S. Going back to the Clinton Administration when north korea was beginning to process to tony onium. Teut the options are the same to accept north korea is becoming a nuclear state, keep up pressure with sanctions and hope for a negotiation that can reverse the program, or military conflict. Targets foris, the sanctions are increasingly few with north korea, which is already isolated and has been existing and advancing their Weapons Program under a full menu of sanctions from the u. N. , u. S. And other parties in the region. Betty thank you so much for joining us, giving us context on these headlines in the daytoday. Lets get greater detail on how the u. S. Market reacted. Stocks began the day lower, investors assuming a risk off stance. The end of the day in reverse. Stocks finished higher. Joining us now is su keenan with more on trade today. Su there was of you initially that this was a serious issue. As the day wore on, investors noting it in the box of, likely to lead to prolonged confrontation. Perhaps it was a oneoff response and rhetoric will prevail the next few days. The latest headlines could change that. A lot of green on the screen. The s p 500 was 20 below its typical volume. That is also a factor as we get into peak vacation period, Labor Day Weekend ahead. There were some swings and pacific stocks. Best buy, a retailer woe story. Traffice a decline in along the Mexican Border for their electronics. Up a second day in the double digits. Juno may beiew that next. Reductionting a fair that may hurt the bottom line. If we go into the bloomberg to ,he korea reaction, g btv 7802 shows gold has surged on this and many of the other haven plate issues. Blue is the bloomberg dollar, white is the gold features. You can see it reached a second day at the 1300 mark on the issue. Yvonne we saw the impact of harvey on Energy Futures on the economy. As thentinues to play cost of this storm is up in the air from the tens to hundreds billions estimated. We getl this play out as ready for the second round of harvey . Su it is unprecedented the storm would go out into the gulf. Lets go to the video on the devastation and come back and hit the same state again. It hit a key part of texas refineries, many thought to goeser, even as the area out thought to be 40 billion in damages. It could easily double. It is said to aim at one of the largest refineries along the texaslouisiana border and hit landfall a second time. That is what investors are bracing for. To futures, you will see gasoline continued to surge and because of the lack of requirement for a lot of oil right now. The shortages will probably be off by the huge u. S. Surplus right now. Yvonne thank you, su keenan joining us in new york. A warning day for chinese banks. Were counting down to the earnings from the four. Betty counting the cost of north korea and how the Foreign Exchange markets are taking this. This is bloomberg. Betty lets talk more about currencies. The dollar erasing its losses, as Risk Appetites rebounded after north koreas latest Missile Launch. Thats all the yen weakened, becoming tuesdays weakest loser. We want to bring in the head of Asia Research that joins us now from singapore. Do you expect from these affects from the north korean headlines . What i continue to drive investors into the safe havens, and how that might reverse what we have seen for a while so far, which are the dollars losses . Guest we have seen the typical reaction you would expect yesterday with safe haven assets like the yen gaining and the korean won weakening and equity Market Selling off. The reaction has been fairly muted and largely reversed. What isase now happening with north korea is not necessarily new but slightly more alarming compared to last time. Unless things get out of hand and there is a major escalation, markets will take these things in their stride. Betty it seems that way. I want to bring up a chart g btv 86. It compares a different vixatility index than the here in the blue. It shows the spikes and geopolitical tensions. But not so much when you look at the white line in them fx volatility index and jpmorgan index. Why is a more muted in the Foreign Exchange market . Fx market, the outside the euro, which is broken outside its typical ranges, a lot of the currencies are fairly well contained within its recent ranges. Unless we get major escalation of the north korean situation, risk off triggered by something else, i am thinking that affects the fx will continue to be attractive. There will be currencies here in. In asia. Yvonne what is a clean safe haven trade . There was debate about the yen and the gold, we have seen the levels breaking 1300. Why has bullion become the favored safe haven trade versus the currency . Khoon it has always been a safe haven. Yes, we saw yen strength in yesterday on the back of the geopolitical events. My feeling is that for the north korean situation in particular, i do not think the yen should be the ultimate safe haven. Given that japan will be caught up in this situation. To me, if there was a genuine escalation in the korean peninsula, gold would be the ultimate safe haven. The other currencies that could benefit on the back of safe haven flows would be the swiss franc and the euro, given they are very far away, geographically, from the events here in asia. Yvonne we have to talk about the dollar here. I have a chart, g btv 1045. Levels, belowl that 200 moving day average 200 week moving day average, the First Time Since 2014. The short dollar paying trade, has its run its course, or do we have further to go . Khoon i think the market is extremely bearish with the u. S. Dollar positioning, fuel is very extreme. Gains are causing it to see the u. S. Economics turnaround, particularly on the inflation front. And the u. S. Federal reserve will signaled their continuing to normalize policy for sentiment a turnaround. We need the u. S. Political situation to improve. My sense is that we are getting close to the bottom of the u. S. Dollar. Catalystting for the to engineer a turnaround. At this stage we have to see what it could be. I think position he positioning is very short for the dollar. It will likely be limited. Yvonne appreciate your insight there, joining us live from singapore. Plenty more to come. This is bloomberg. Yvonne a quick check of your business flash headlines. The Hong Kong Bank regulator says five thinks should be barred as directors. They told the court they want one bandit for 12 years. Gy has been suspended since their stock lost 47 in a day. Dhl andhey aim to rival fedex. The Company Began in 2013 to help users call freelance drivers to move goods. Local media speculated could become a tech unicorn. This is bloomberg. Yvonne a sunny wednesday morning outside hong kong. 30 minutes away from asias first major market open. Betty it is 7 30 p. M. In new york. Markets did close higher, there was nervousness at the start, but managed to finish the day ahead. I am betty liu here in new york. Yvonne i am yvonne man here in hong kong. You are watching daybreak asia. North korea says its latest missile test was a meaningful prelude to containing the u. S. Territory, guam, and more launches will follow. The statement came after President Trump said all options stay open after the missile passed over japan. He said pyongyang had signaled contempt for the you when an International Community, posing a direct threat to the region. To have littled progress and the brexit talks. They want to move on to potential trade links after the divorce. The u. K. Will have to pay to quit that you to quit tehe e. U. Lot s main bank a lobby said they should curb. They said the e. U. Should drop new rules on trading. And said that it ought to be reconsidered. There were questions about washington support for Global Banking standards. China eastern bowing to improve profitability after years of expanding capacity and dragged on earnings. Deltas partner says it will step up direct ticket sales and manage prices better. Risearrier reported a 34 in income. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Yvonne thank you. Lets get more on what we should be watching out for as we watch asia. Our markets getting Risk Appetites overnight . Commodities were largely unfazed, especially copper. Copper closer to the threeyear high. In london it was closer to 7,000. I will show you how we are getting to this rally. Check it out on g btv 1439. At the end of 2016, copper and gold regained ground. We do have the rally picking up in august. We have copper breaking out of a reverse head and shoulders pattern. It broke through the line we had through may 2015 and february 2017. The yellow line it shows you copper has been out of the trench it had been in since 2011. According to this analysis we could see a rally of more than 20 in the works for copper from current levels, pushing copper into the high 370 area. Betty a good 2017 so far for copper. But some skeptics wonder if the rally is overhyped . They are saying come i do not look at what is going on with speculators. 2017 has been the best year for copper since 2009. They are pushing up the red flags in recent months. Market spreads have been indicating tightness. You can see g btv 1448. Just last tuesday on the far end of the chart, copper for immediate delivery was trading at the whitest discount with a threemonth contract. That could indicate weaker demand. On friday we saw the premium demand. A top copper producer warning about the chairman warning that while they are supportive, speculators are exacerbating gains. We do see copper being used as a refuge against risk. Commodity traders are looking to the weaker dollar, as well as looking to push the rally forward. Yvonne we have been talking about that shanghai composite breaking above 3300. They barely dented among the selloff on tuesday. Could we see that today . Sophie when you look at the seven not treat analysis for the shanghai composite, there could be a breakout. You can track that on g btv 1481. You can see the index has broken above the upper boundary between and 61. 8 level in early 2016. The next area of resistance level. E the 76. 4 with the stronger yuan and stable pboc policy, that could spur better gains. Betty thank you so much, sophie kamaruddin, with the big movers in the markets. The Federal Reserve trying the story. They will hike rates again this year. That may be good news for the pboc. They are trying to keep policy where it is. Kathleen hays has more. Lets start with the idea we may get a rate hike. Made it the fed has clear they will start Balance Sheet normalization, letting the proceeds were loss. The rate hikes, a lot of people are holding out hope the economy picks up enough to push inflation up or stop it from falling. It is interesting because we have seen a rally in the Government Bond market, the 10 year bench mark benchmark is down. All a lot of people saying, it is mainly about the fed. That is an interesting point. Let me pull up an interestrate projection. As you may recall, faithful viewers of bloomberg television, the odds of a december hike are down to 29 . Then 60 . Two numbers that are falling short of targets, inflation, when you look at pce inflation and the core. This week we are getting inflation and jobs. Thursday we get them pce. The headline number is supposed to come down 1 10 of 1 . 0. 1 to 1. 4 . It is not on this chart. We are talking about a number released on thursday. Be the bigt used to number of the month, payroll is supposed to rise in august, not as much as july. It is a thursday number, but people will certainly watch as closely as they watch jobs. Hikee if the fed does not this year, what does it mean for the pboc . Kathleen they are doing what they can to hit a balance. They are not expected to make any move this year. In a recent Bloomberg News survey, 60 expect to see the peoples bank of china on hold until the end of the year. They have two conflicting goals. They have to weed out speculation, they do not want to put too much money into shaky corporations or housing market. Justwant to keep credit available enough because the economy is slowing down and going toward consumption. They have to make sure there is enough credit to back that up and be careful how the Peoples Party congress this fall they want to make sure that balance is maintained. They are doing this mainly with these repos. Securities to put liquidity in and then sell them when you want to take them out. That is reverse repo. 9469, theok at g btv sum total of these different repos. We are looking at late 2015 going into 2017. That is when you have net input of liquidity. They have been balancing it because they won a policy that losose. Oo tight or too se. Too loo they want to curb lending, have corporations reduce debt. They are starting to let those rates come down. There is a longerterm repo. One of the main things to remember when we think about the fed moving ahead to normalize or hiking rates this year is that, in 2016, china put on stronger capital controls so they can protect their currency in the event of some kind of move that causes capital outflows like the fed raising rates. There certainly in a better position than they were. Watching the peoples bank of china in the 2000s, and the Federal Reserve in the 1980s, the fed relied on these tools to signal on policy. As china integrates itself more and more into international systems, they use a playbook that in some ways, has been used before. About we will be talking China Bank Earnings in the next couple hours, how the pboc fits into that equation. Uber facing additional security from the u. S. Justice department. It is targeted for possible violations of foreign bribery laws. Lets get to eric newcomer, live in San Francisco. Issue as the ceo of uber. What is this investigation about . Eric it does not seem to and. Actforeign corrupt purposes , the department of justice is looking into uber, the company confirmed. We do not know more than that. Presumably, it would be briberyrelated, given the topic. But we do not know what country or any of the details. It could be significant for them and is one of many legal challenges including another department of justice inquiry around gray bolling, to obscure drivers from government officials. Now we have a second boj inquiry confirmed by uber. But a lot of the details are uncertain. Talk about the legal pitfalls, regulatory hurdles. Is the new ceo prepared to handle these issues . Eric we will have to see over time. Expedia has done some work with the government. The new incoming ceo, has an endorsement from his friend, former ftc chairman. He has connections in government and throughout silicon valley. Hope he is a the friendlier figure, less brash, more willing to work behind the scenes, and he will be able to help repair the companys reputation and ties to governments. Some of these cases are already on the rails. We will have to see if they are able in any way to intervene here. Betty what about the other challenges for Dara Khosrowshahi . What are the other challenges he faces here . Eric a somewhat vacant leadership team. Need a marketing counsel, Senior Vice President of engineering i could keep going. They lost 645 million in the Second Quarter of 2016. For any other company that would be eyepopping. But theys are falling, need to be able to come down even further while continuing to grow. It, they have a civil suit brought by their largest shareholder against their former ceo. There was a big lawsuit from alphabet subsidiary waymo over their trade secrets case, and whether they stole trade secrets from waymo as part of the auto acquisition. , it haso shortage gotten 20 times bigger. Eric newcomer in San Francisco on more troubles that uber. Project alt and road priority for president xi. How is affecting the countrys biggest banks. This is bloomberg. Betty good morning, this is daybreak asia. Iambic you in new york. Yvonne and i am yvonne man in hong kong. We will have First Quarter results. The can we expect from Construction Bank and bank of china . Take a look at this chart in the sentiment, g btv 9471. Investors are hopeful. Six months ago they would not Touch Chinese banks, but now there are chinese composites and white. Lets talk more about this with andrew collier, joining us on set. Are these moves justified . Has beijings deleveraging drive made progress . Andrew it has been on the margin but expected to get more severe. There is a flight to safety attitude. They go to the big banks, there are captured deposits from everyone across china. A lot of shadow banking on their Balance Sheets. People figure it is a safer bet. Yvonne you mentioned the interest margins picking up. It has been steady, if not declining. You mentioned a diversion. Will that be more pronounced after the party of congress . Andrew it will be more pronounced in the perceptions of investors. Once you cut back on the Smaller Banks, they have been relying heavily on that on the asset side. They will not be able to do as much because the pboc is cracking down on that. And they will squeeze net income margins. The attitude is, the bigger banks are safe. Everyone is looking at shortterm profit margin issues and they are accepting at face value the fact that the official data for npls is 1. 7 . They are not looking at the fact of the big banks are stuck with publicprivated turner ships and junk they are getting stuck with. Everyone is looking for shortterm trades. Yvonne i am sure you have undergroundthese financing in Smaller Banks in the regional banks. And how of tangshan g bank. Ank baoshan it can become located to skirt around these restrictions. Do think theyre are compromising the objective beijing wants to achieve . Andrew theyre out to make money, banks are profit driven and want this money flowing through their coffers. Pboc would like to clamp down, but once you do that, you threaten the economy. What happens . Gdp growth slows, governments lose an important source of capital, so they are tweaking. They are tweaking the interbank rates and threatening banks with problems down the road. It will be a mild reduction. Yvonne it is not working. Ubs says its npl could be twice what it is now. Andrew three times, they are being conservative. Fact that you have propped up the Property Market with excess liquidity. Betty just on the shadow banking i want to pull up a the offbalancesheet financing reviving and falling as represented in the white. I am curious, as that shadow banking drops, as china clamps down on outflows, what about these conglomerates like hna . Where are they getting the financing and are they seeing more to get financing . Andrew i am sure they are paying much more, partly because the pboc have told official banks they cannot lend to them. Into the shadow banking market and doing all sorts of games. Vehiclesusing listed as distantly connected to raise money. Theyre using p2p online stuff to raise money. I think it will impact them at some point. Betty impact of them enough i do not want to say blow up will it be to the point where it is unaffordable for them . Are only looking at a small slice of chinas economy. But they are Large Companies and visible. Leadership will not put them out of business. Is telling, you have to you spend too much money overseas. There may be some political battles going on behind the scenes. Yvonne andrew collier, great to have you, as always. Re and Capital Research managing director. Breaking news from japan, retail sales beating expectations for the month of july. Month on month numbers rising 1. 1 . The estimate was for 3 10 of 1 increase. Year on year looking better. Not as well as june, but rising 1. 9 . The estimate was for 1 . Does not seem to do to Department Store or supermarket sales. That did fall back into negative territory, down 2 10 of 1 . Interesting, we saw Household Spending go the other way with those numbers. Betty what is also interesting, a further rise in the dollaryen, a slight weakening on the back of these numbers. This has already been happening because we saw that reversal in the dollar, given the tensions with north korea. Just a quick note, we are dropping off for the dollaryen, trading around 109. 79. You can get a roundup of the stories you need to know to get your day going in todays edition of daybreak. Subscribers go to dayb on your terminals. Also available on the app. You can customize settings to get the news you care about. This is bloomberg. Betty that is a live picture of what is going on in the United Nations Security Council briefing room, following the closeddoor meeting on north korea, after north korea fired that missile over japan aerospace. Lots of talk ahead at that meeting, imposing further sanctions against north korea, including an oil embargo that would further cripple the country. We saw headlines in the last hour from north korea responding defiantly, saying the latest missile test was a prelude to containing guam, which is a threat north korea has put out in the last couple of months. Yvonne that is right. We got a measured response from the white house, saying what those options on the table are going to be. Lets do a quick check of the business flash headlines. Bank of china plans to sell shares on the mainland less than a year after its initial Public Offering in hong kong. Than 5k to issue more billion of shares on the shanghai exchange. The biggest since alibaba. They reported a 14 jump to 4 billion. Betty the Russian Central Bank taking control over a depositor that lost a quarter of its deposits. First of a systematically important wonder. It will have a maximum of 20 . The bank of russia says it is preparing emergency measures for other lenders. Yvonne a billionaire suing credit suisse. They allege the bank must have known a former employee forced trade to cover losses from other customers accounts. They want to force the bank to hand over documents that make unspecified claims. Betty much more ahead in the next hour of daybreak asia. We continue to watch the markets after north koreas kim jongil and is saying missile fired jongun saying the missile firing is just a prelude. 8 40 a. M. Hong kong time. This is bloomberg. Anchor 8 00 a. M. In hong kong, live from bloombergs asian headquarters. Yvonne man. All options are on the table. President says north korea has s for itsent neighbors and the international committee. Pyongyang vows to continue firing and says the firings are a prelude to containing guam. Betty i am betty liu in new york. The president visits texas and says the flooding is epic. Recordbreaking harvey brought the heaviest downpour in u. S. History. The fed will hike again this year. This could have major implications for other Central Banks. The Un Security Council underway in new york as we beginning to see north korea flex their muscle in the last two hours or so. Market wise, we shrugged off as riskoff moves we saw in the last hour or so. Moves in dollaryen and gold. We were talking to a guest earlier. You see the vix has spiked the last couple weeks or so, but you see bonds pretty much sitting in that summer move, right . Hasou see, north korea ramped up geopolitical tensions to another level now. The currency for fixed income traders, they are more focused on the fed. Day by day, you see another rate hike by the end of this year. That continues to evaporate. You see the jobs and inflation data. Betty i thought it was theresting that despite rhetoric coming out from both sides in a particular statement from shinzo abe yesterday, saying this is unprecedented, still seems to say not much has changed yet. , the tensions continue to be hot, but we have not seen a further escalation that would prompt any investors to say hey, let us change our outlook in the markets. At least for foreignexchange traders. I dont think anybody wants to see a real, significant change here. In the meantime, let us get more on all of this with haslinda amin. Haslinda betty, President Trump has described the flooding in texas at epic. He vows the response will serve as a model. Tropical storm marty has drifted back towards the gulf of mexico and is set to strengthen again. Damage estimates of the range from 34 billion to 100 billion. Harvey brought the heaviest reported downpour in u. S. History. Meanwhile, the heaviest storms since 2005 have paralyzed mumbai. Rain fell in just nine hours, forcing the closure of the train network, which carries 8 Million People each day. Weather forecasters predict more of the same today. Trading under stock and bond markets, the index fell 1. 2 while the rupee weakened slightly against the dollar. Uber says it is cooperating with u. S. Investigators, looking into whether employees violated before in corrupt practices act. The legislation bans the use of bribes by foreign officials. The right hip company is right ailing company is a program known as grade. Reports from japans toshibas portal meet to discuss negotiating rights to a group involving Western Digital, kkr, and the network corp. That would prevent talked with any other potential buyers. They wanted to finalize the sale by the end of this month, but it is aiming at the end of september. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than one hundred 20 countries. I am haslinda amin. This is bloomberg. Anchor thank you. Taking a look at markets, the market open in tokyo, seoul, as well as sydney. This turnaround we saw, wall street overnight helping here. And perhaps more measured news. The nikkei 225 snapping a two day drop. The latest missile test was just and to keep guam, investors busy, we had retail sales pushing a ninth straight monthly gain. We are going to be getting building approvals as well as the Department Store sales. 1 ave the kospi higher by and the asx 200 on the front foot. It has wiped out all of the gains as of yesterday. We will see whether or not it is able to Gain Momentum this one. After yesterdays moves in the currency market, i wanted to point out what is going on. The dollar looking fairly steady. We had Goldman Sachs fund manager saying to close your eyes when it comes to Political Risk as well as geopolitical tremors. We have the yen above the 109 handle, trading above. 77 here, above a prize. The next round of boj bond buying, given the benchmark jgb yield hit zero for the first time in four months. That is little changed after retreating from 120. April to that level. It broke through that level. Taylor is penciling in 126 for the euro in october. Gain. Fshore rate could we could see things around the 660 mark. Foot, itis on the back could clock 10 straight gains higher. Thebiggest ing says rally has further to go. The asian sovereign debt market is looking mixed. Treasuries continuing to fall , dropping below 2. 1 overnight. Checking on commodities, we have weakness coming through in the base metals market. Steel, aluminum, on the back foot. Oil also on the retreat, near crude, still below that 47 per barrel. It has sustained its momentum above the 1300 mark, and i want to put this on your radar, pulling up the focus on what is going on with bitcoin. Overnight, it broke. 4600 dollars. That is the first time ever, by the way. Observers see some resistance for bitcoin between 4500 and 4800 range, but forecast continuing to climb as this rally intensifies. Some forecasters eyeing 6000 by yearend. They could get a boost when the Underlying Technology gets an upgrade. They are weighing in. Couldnticipate bitcoin raise the value. Sophie, thank you so much. Sophie kamaruddin was an early look at the markets. North korea says its latest missile test was a meaningful prelude to containing the u. S. Territory. Andu. S. Territory of guam more launches would follow. President trump said all options remain open in response to the missile firing over japan. Is in tokyo for us. Steve, it seems like north korea has the upper hand. They seem to have had the upper hand for a while in their estimation. Bannon,ourse, steve after he left the white house, he said, look, they have us. You have those millions of People Living in seoul in the artillery range. They have capabilities, supposedly, that could reach not only guam, but to the west coast of the United States. We have a test firing of a boasted missile yesterday morning that flew over one of the main islands of japan, hokkaido, to the north. There is a sense of calm here. Keep in mind, kim jongun has conducted 80 plus missile and nuclear test since taking over from his father. That is more than twice as many as his father and grandfather conducted combined. There is a bit of a malaise. What is next, what is the ultimate endgame for him . Sophie ran through the markets. I am on my bloomberg mobile here. Nikkei, kospi, is up. Has increased spending. He would like to see much to the chagrin of those pessimists the pacifisto constitution in japan. This might be playing into his hand. Given all these headlines with north korea, i mean, they almost forgot to mention that the Prime Minister of the u. K. , theresa may, is flying into japan to talk trade with the country. It seems like they have all these lofty goals, but is pyongyang going to overshadow the plans here . Stephen yeah, i mean, speaking of theresa may, you probably cannot see it, but over my shoulders, they are flying the union jack. Theresa may, i believe she arrives in osaka down in the south today. She will be coming up to tokyo later. It is interesting because she talked about it before leaving the u. K. , calling north koreas missile test yesterday a reckless provocation. There is no doubt the world is condemning this. North korea continues on this path. A week in the crosshairs after President Trump said kim jongun is starting to respect us. What kim jongun and the news agency is saying is they are going to be ramping up. This is a prelude to a series of tests targeting the pacific. As the u. S. Military likes to colloquially call guam, that is a big military presence. A number of other of course aircraft and naval ships. Anchor stephen engle, great stuff. Our chief north asia correspondent. It is using political and economic means to protest appointment of a defense system. Talking more about this. Eat out of at the trade sanctions and you can cut them both ways, coming from china. Who gets hit the most . Guest the reason china has sanctions in south korea is to protests south koreas agreement to host the antimissile battery. They put a ban on groups going through south korea earlier this year. 2. 3 million less tourists going into south korea. When you consider the hit to korean goods such as koreanmade impact ontotal net the south korean economy is 30 basis points. Drilquip, real quick , nikki haley is speaking right now. Let us listen in. For her statement. And now gives the floor to the representative of japan. Thank you, mr. President. Japan welcomes the swift adoption of the president ial statement strongly condemning the most recent Ballistic Missile launch by north korea, which flew over japan. And also demanding north korea seize allly such action. This sends a strong and clear message to north korea that the International Community will not accept its behavior. We urge north korea to respond to this call by the International Community. Japan will continue to work very closely with Council Members and all other Member States to reach a comprehensive solution to the problems related to north korea. Thank you, mr. President. Ofi think the representative representative of japan, and i now give the floor to the representative of china. Condemning north koreas Missile Launch and looking for further action, and warning about repercussions at the u. N. , if there are further action taken by north korea. We have got much more ahead. We are going to talk more about this, but in the meantime, we are also going to be talking about airlines in china. Taking a little bit of different tack, going back on business during wide chinas eastern profits are surging, while its southern rival is facing turbulent times. Next, how a measured response from President Trump on north korea may ease concerns for asian investors. This is bloomberg. Yvonne this is daybreak asia. I am yvonne man in hong kong. Betty i am betty liu. North korean Missile Launchers. The Council Meeting as we speak. Joining us now is the managing director and head of Global Markets australia. Ociete generale we have been looking at foreignexchange markets and their reaction. Overwhelmingly, it seems like, at least for the market concerns, this is a temporary situation, and we are going to go back to the way trading was before yesterday. You . Oes it feel to does it feel like this is a new chapter for the markets . Guest we saw some pretty good moves on the market yesterday. We saw yen in the opening of the u. S. Market. U. S. Dollar has recovered somewhat against the end. Atrall, i think if you look those measures of the defensive assets, gold, yen, treasuries, they all had a bit of a move yesterday in reaction to north korea, but they have come back. Marketests to me escalation is not imminent. Look at it closely. It will continue to be an area to be watching from a geopolitical perspective. Anchor do you expect geopolitical tensions to be at the forefront for markets versus Monetary Policy . That that might have less and less of an offense as we see more headlines like this, toby . See theok, i professional market looking at the real economy and the fundamentals over the medium term. The geoPolitical Risk is relevant, but it is as much noise as anything. If you look beyond that, in the real economy, things are looking pretty good. U. S. Economy is ok. The european economy going pretty well. Japan as well. Your big economies are performing well. China is stable. That is what really matters to professional markets. Can see by the reaction, the short chart reaction short, ultimately, the flood inflation, Monetary Policy, and economics, prevail. Yvonne how do you square the tension we see between riskoff and risky assets at the moment . The gains ing all gold, but we had quite a support level above 1300 right now. You still see in stocks, this mentality is impact to a certain extent. U. S. Treasury, the 10 year yield in the u. S. , 2. 12 . What does that tell you about the position in the market at the moment . I guess on the bonds, it has always been a defensive played treasury to reebonz go down to 208 overnight and thats to 212,213 and back 213. If are looking more at yen and gold. Gold probably, i think, has been as much a dollar weakness an outright by on gold. There is a turn to it on the defensive side. I think yen and european assets, i guess, as well, watching the way the euro has been going, that is where the investors are putting their defensive plays in their bets on outperformance from an economic perspective. Yvonne we continue to see u. S. Stocks as well as yen. I have another chart, g btv 2050. This shows how outperformance has widened. Do you think that continue continue . A lot of play in the u. S. It is a little bit hard to get a read on. You have got obviously the immediate turnaround, hurricane marty, and the impact of that on the real economy, reflected in gasoline prices. The debt ceiling is the main deadline. That will beng resolved. Your tax reform, which is what everyone has put their bets on. Also have big Infrastructure Spending in the u. S. Administration. Those things are very important for the markets to see because they price that into a large extent. Betty i want to look at volatility. And just remind our viewers of where volatility is right now. Let us pull up g btv 86. It shows, toby, how when you look at the fix index the vix index, the volatility biking to record levels spiking to record levels. Not as much when you look at other asset classes. Why is volatility so pronounced when you look at the equity market . It is a bit hard to say. Overall volatility has been trending lower over the medium term and a lot of people spent a lot of time trying to be the low and volatility across the markets, and torn up a fair bit about that because the markets have not been that volatile overall this year, being quite stable. You get these spikes on the back geopolitical shocks that come into the market. Not, relatively speaking, given these geopolitical tensions. Overall then, what sort of positioning where do you see the markets trading as we get more headlines or as the risk continues in north korea . Where do you see deals headed, particularly treasury yields . Where do you see the dollar headed . Do you see a reversal in us dollar trend we are seeing . Toby if you take out geoPolitical Risk as a factor, you might see dollaryen back towards 112, 113. You might see treasury yields start to move up. On that edge, if you put into the geoPolitical Risk, we are pricing that in a little bit. Could potentially go to 2 in the u. S. And yen could break in agh, but we are price little bit about geoPolitical Risk. If that eases off, and we get results in terms of sanctions for some type of negotiated settlement with north korea, which is a toss of the coin, then you might actually see dollaryen rally and treasury yields go back up. Go, i before we let you have to ask you where you are. We have seen this benchmark not on chinasch betterthanexpected growth prospects. How can the market break out of the three month range . Toby yeah, i think we are starting to see data coming out for Second Quarter for the economy in australia, which should be pretty good. It will be better than the First Quarter. Them out today. The economy is going pretty well Second Quarter. When we see those results, we might see a little bit more of an appetite to invest into stocks in australia, but overall, performance has been fairly benign. Growing above trend and is growing at sub trend at the moment, not a big issue for australia. Yvonne toby, great to have you. Managing director and head of Global Markets australia at societe generale. Moreto calm on daybreak to come on daybreak asia. This is bloomberg. Yvonne a quick check on the latest business flash headlines. A hong kong start up says it aims to rival dsl and fedex. Company began in 2013 as an apt. O help users move goods they expanded into mainland china, taiwan, south korea, singapore, and india. Become a tech unicorn with the valuation of one billion u. S. Dollars. Free for mac ran fell muran fell. C ownership to 51 and commit to spending up to 20 billion by 2031. Is the newester challenger as the richest person in the world. The 81yearold is the founder of the company that is the parent of a fashion chain. This is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. Yvonne it is a 30 in singapore. Markets shrugging off from the geoPolitical Risk we see coming from north korea. Betty youre watching bloomberg daybreak asia. It feels like fall these days in new york. Lets get to the first word news. The Un Security Council has condemned north koreas latest Missile Launch as outrageous. The council met after pyongyang said launches would continue. President trump said all options remain open in dealing with north korea. Had signalyang contempt for the u. S. And the International Community. Told london wants to move on to potential trade links after the divorce. Tuesdays negotiations focused on the bill the u. K. Will have to pay to quit the e. U. The brexit sessions arent weeklong blocks. A press conference is scheduled for thursday at lunchtime. Sayses Main Bank Lobby they should hold the implementation of up local card to cut market risk because u. S. Commitment is weakening. And funding roles ought to be reconsidered. U. S. Treasury has bird questions about washington support for local banking. , redefiningime transport on a global basis. Resigned june 20 and says it is the chance of a lifetime. The Company Faces global challenges. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Im haslinda amin. This is bloomberg. Lets see how the asian markets are shaping up so far on this wednesday morning. Little to shake up the Risk Appetite in asia so far today. In sydney up gains. 2 . Up as investors away from that flight. Lets see whats going on with the topics, the benchmark higher by about. 5 . All sectors in the green, health care in the pole position. A sixday advance as the cancer drug treatment was given the ok by the u. S. Fda. A drug deal valued at 400 billion is helping give a boost to Health Care Stocks on the topics today. Topix is set for his worst monthly drop since march, down about. 8 this august. Something to keep in mind, with the earnings momentum looking not too shabby for japanese companies, that could cause investors to buy on the dip. Lets take a look at a mover, pulling up the board to show you hyundai motors, that stock falling the most since june after four of its five chinese factories suspended production on account of a part supplier stopping deliveries after not getting paid. They have been struggling in china, its biggest market, and this poses its most serious crisis. That is dragging auto stocks lower, almost 1 . The kospi looking to snap a two day drop despite weakness in the consumer segment. An early look at the markets. The markets are always eyeing Central Banks including the Federal Reserve. They are eyeing the stimulus exit door but theres growing doubt it will hike rates again this year. That maybe good over in asia for the Central Banks, the peoples is using ana, which complex set of tools to keep policy where it is exactly. This lowering of expectations for a rate hike. Weve talked recently or for some time now about divergence among Central Banks. You look at the fed, the European Central bank, the bank of japan, another big central bank that is watching this closely as well, and thats the peoples bank of china. As to the Federal Reserve, we have seen a rally and bond yields that is push the yield on the benchmark tenure down to its lowest level of the year. North korea and missile strikes, did axed income team story today talking to people saying actually it is still the Federal Reserve that is behind this. There is more and more doubt they will be up to make one more rate increase this year. Follow your bouncing cursor and look at this number. No chance at all of september or november, but even december the odds were over 60 . Just a couple of months ago, its down to 30 , around 29 or so and thats because inflation is lagging. Fallen away from target and we will get another reading on inflation this week, on thursday, jobs on friday. Im talking about the pce in the pce core. Looking for the pce core to fall , it wasaugust, 1. 4 supposed to be going back toward 2 , and it is not. Up 180,000, in july it was up 2009000. Bottom line, if you have inflation pulling further away from target for the reserve, how do you even think about hiking rates right now or by the end of the year . Fairly what is driving the bond bulls down. Hike this doesnt year, does it mean the pboc can sit comfortably . The people think peoples bank of china is doing everything it can to keep policy in balance. 60 of economists in a recent Bloomberg Service no change at all in 2017 in either direction. Pboc has two goals in the kind of seem to conflict. They want to keep liquidity tight and at the same time in an economy with longterm slowing, the have to make sure theres enough credit available to keep feeding it, and this balance is so important ahead of the 19 Party Congress this autumn. Theyre doing it by managing 7, 14, and 28 day repos. Standard centralbank procedure around the world. Icies that are easier either loose neither loose nor tight. You can see the past few months, maybe a little more on the outflow side. There hase it seems been a little bit of an increase in the shortterm lending rate. They areomething expecting to kind of pull away from that. Theyve been using somewhat higher rates than the shorter term repos. Just a tight adjustment there is expected. Even if they were to suddenly hike rates and inflation start shooting up, remember what happened in 2016. There was a lot of volatility for china after the fed started hiking rates at the end of 2015. They had not done that since 2006. Capital controls have been put on and the have other tools to manage that. Fedsure in the event the doesnt do anything and cannot do anything, the peoples bank of china will see that as welcome news. It helps them not have an additional pressure to deal with at a time when the have a very delicate balancing act. Thank you for joining us live from new york there. Eastern posting a surge in firsthalf profit while earnings airline. T another lets look at the numbers. A very different picture for both these stateowned airlines, as you say. China eastern profits up already 4 in the first cap compared to China Southern that saw an 11 drop in their profits. And incredibly competitive strong rivals. Chinese and saying in terms of pushing up their allimportant passenger yield, they will try to boost the number corporate clients a have as well as doing more direct ticket sales. They outline their strategy for capacity increases and they are focused on the domestic side of the market where passenger yields tend to be higher. Southern, the flipside, is focusing more internationally. They will expand capacity to north america, to europe, and Southeast Asia as well. We have a chart that illustrates what is going on in terms of passenger yields and passenger traffic. You see the passenger yield for domestic and international being squeezed over the past 12 months. Domestic yields are marginally stronger. Then you have passengers going abroad beyond china. Those are the two lines below. Internationally coming off ,lightly and domestic going up suggesting the china eastern strategy is the one it will prove more profitable Going Forward perhaps. Air china results later this afternoon will round out the picture for state airlines earnings. Yvonne we will dive deeper into the airlines in just a little bit. I want to pull up a chart myself fear myself here. It shows the outperformance of the big four state owned banks against the shanghai composite. The have all outperformed, and this is ahead of their reporting the results a little bit later. What can we expect . Does this rally have more room to run for these banks . Seemed to think they could well do. We are talking about the big four, all reporting later this afternoon. We got something of an indication as to what we maybe , earnings beating estimates. Analysts expected the banks earnings would be up between 1 and 4 . Yvonne mentioned andrew who spoke on the show earlier. He said we have seen an uptick in the share prices, as you mentioned as well, in these big four banks. And that was really a flight to safety from the smaller lenders that are being squeezed by the heart rate environment. Take a listen to what andrew had to say. Theres a flight to safety attitude here. Go to the big banks that capture deposits from everybody across china. People figure that is the sabr bet. Safer bet. Analystse of the areas will be looking for will be the interest margin and the nonperforming loans. I have a chart that illustrates what is going on there. Out. Are starting to level also look for fee income from Wealth Management products that have been squeezed and the exposure that some of the have all comethat under the spotlight of regulators here over there barring an expansion overseas. How much exposure the big banks have to those conglomerates will also be in focus as well. There,thanks so much tom. We will have more on the airlines and the flight path ahead for chinas airlines. This is bloomberg. This is bloomberg daybreak asia. After years at best these capacity expansion wait on earnings china eastern said profit rose 34 . On the flipside, China Southern reported an 11 drop in net earnings. Equity us is the researcher at boc international. Hes joining us and our hong kong studio. Great to see you, ivan. Focusing a little more on domestic, its all about yield management. Thats correct. The forecast model on the domestic market, they have more dominant positions. Demand is quite strong today. We can see from the first half earnings [indiscernible] for China Eastern Airlines it is slightly up. For China Southern airlines, is higher for the history. Yvonne we were just showing a chart from our correspondent tom, is it going to be a concern if youre seeing Outbound Travel is not as explosive anymore . Yield is being pressure and squeeze when it comes to the domestic side as well. , but for theht is ic market, china there is still huge potential. For gdp per capita and , there is someme the demand has been so strong it can satisfy most of that. Betty the focus on domestic growth, certainly could be beneficial for these airlines. Most of the time when you got other airlines like qantas, for instance, which last week was talking about longer haul flights from sydney to new york, is this really the best time for china to look inward, when others are further expanding their International Routes . Now is the best time to expand, because the oil price chinese low, and peoples disposable income is at a level where they tend to go abroad for travel. We can see the International Capacity for Chinese Airlines is very high. On the other hand, for the Chinese Airlines, compared with Singapore Airlines are cathay there were losses in the past few quarters. Theres a very strong domestic market. As well as the low oil price and and with important cities like beijing and shanghai. Air china has the beijing to new , and they continue newun this line and with competitors, its very difficult to enter the market. So clearly theres a case for international expansion. What about the Airlines Getting ,it by the geopolitical tension particularly flying into south korea with what is going on right now with the north korean headlines . There is an impact, but that is very small. Thethe capacity side, biggest player is China Eastern Airlines. This year in march and april, they had 15 of the market share but its only 3 of the total capacity. Very easy for them to deploy those planes in the cutstic market and easy to some of the lines from china to south korea. So it is not a problem for them. Half results are still pretty good. Ivan, thank you so much, transportation sector equity researcher at the oc international. Get your day going with todays edition of daybreak. Mobile and youon can customize your settings so you only get the news on the industries and assets that you care about. Yvonne this is daybreak asia. Betty a quick check of your business flash headlines. Less than a year after an ipo in hong kong, looking to issue 5 billion ashares with a listing on the shanghai stock exchange. Since alibaba. On tuesday reported a 14 jump in half your profits of 4 billion. Yvonne the russians and correct has taken control of a stricken lender that lost a quarter of deposits recently after surprise ratings downgrade. Of systematically important lenders. It could potentially be wiped out. They could russia says it is also preparing emergency measures for other lenders. The bank of russia. Betty singapore, new zealand, and bermuda, alleging the bank must have known that a former to coverforged trades losses from other customer accounts. The former georgian Prime Minister wants the court to force the bank to hand over unspecifiedd make claims for losses lawyers say they are still calculating. Usnne thats almost it for on bloomberg daybreak asia. To hear from defiant north korea with the Un Security Council underway in north the thing is, what can they do . Its a fundamental question. Our guest has written several books on north korea. ,ou can put in more sanctions but time is running out, i suppose. Theres not much left to put on embargo. Is the Bank Earnings season picking up with a big for coming out with earnings later on. It, many of these banks do look very attractive. Good Tier One Capital ratios as well. The thing is, with whats been , maybeng the last month they are coming back in focus. Nd then brexit i guess will join us from singapore having a look at where we are with trade agreements and much more. Thats all to come in the next couple of hours on Bloomberg Markets. Betty thats it from daybreak asia. Continuess coverage next. Standby for Bloomberg Markets. This is bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. It is just gone 9 00 in hong kong and singapore. 9 00 tuesday evening in new york city. I am rishaad salamat. Haidi i am haidi lun in sydney. This is Bloomberg Markets asia. Rishaad the United Nations Security Council condemns north koreas missile tests here it president says all options are on the table. Haidi pyongyang vows to continue firing and says that