Were watching japans real tailors as earnings season kicks off. Both beating expectations. We knew it would last forever. Not a losst gains, yet for the s p until this most recent session. Down for the first time in 2018. Not helped by a report out of china suggesting u. S. Treasuries are losing their appeal for chinese investment. All of this creating a little pullback when it comes to the u. S. Session. Having said that, we see some defending of the lows. Correction a steep we are talking about when it comes to these recognized. Record highs. Take a look at the chart. Hong kongs benchmark index 12 straight sessions now. The longest run of gains since it was birthed in 1969. Tencent has been the biggest heavyweight driving that rally. From december 20. We are verythat, much in overbought territory. Is assigned the market is starting to overheat. Shanghai securities in particular say it would be a healthier rally if we had corrections along the way. Hard to continue pushing these gains we are seeing. Perhaps that is a good call for days like this when we are expecting weakness. Lets have a look at what is going on. Even a blowout retail Sales Numbers not really lifting when it comes to equities. That is certainly the case. We have aussie shares a sliding with most other benchmarks in the region. Singapore and malaysia coming on , taiwan also not looking very exciting at the open. Overnight we inherited the weaker dollar so that is playing out in the currency market. Yen near a six week high of volatility. That is putting pressure on japanese stocks. The tropics falling for the first day in five. Third day of losses. Three in yuan snapping a four day drop. Perhaps reinforcing deutsche banks view the korean yuan remains the best play. Aussie bond bears have what they need to keep the party going on the back of the retail figure. Although equity figures are in hiding. Lets look at some movers in sydney. Bestghfive among the performers. Car sales. Com is the worst performer. Hifi feeling good about christmas sales. Lets check in on taiwanese tech stocks. Revenue rose on strong cell phone business, adding almost 1 this morning. Rose 3. 1 fors 2017. Later this afternoon we are looking at fourthquarter earnings. A look at japanese retailers which are in focus. Climbing after a turnaround in overseas profit for the third quarter. Reports this afternoon. Ast look at cookout it is a shareholder of a crypto currency exchange. Bi. Com. E a 25 stake in south korea is looking to push a bill to shut down cryptocurrency. Haidi getting more on that as aboutked to the ceo later these regulatory headwinds in the crypt. Lets get the first word news with paul allen. Paul President Trump as top promised not to attack north korea while negotiations are underway in the south. He gave these assurances during a phone conversation. Isalso repeated the u. S. Open to talks with kim jonguns regime under the right circumstances. North and south korea have agreed to military talks but north korea says its military program is offlimits. Canadas dollar and mexican peso fell after there is an increasing likelihood President Trump will give six months notice to with draw from nafta. A white house official says there has been no change. Canada this week filed a wto complaint. A move described by a trade representative as ill advised. The u. S. Says it is deeply disappointed that myanmar is formally charged two journalists for violating the official secrets act. Y are accused of Rights Groups have criticized myanmars new citizen government for using colonialera laws to imprison journalists. Germany is maintaining a hardline stance on brexit, demanding the u. K. Pay for the privilege of Financial Firms having access to eu markets after it leaves the bloc. German Officials Say the u. K. Cannot hope for a trade unlessnt which has britain make substantial contributions to the eu budget and adheres the european law. Managerse it to money says the emerging markets stocks will produce annual average returns of 6 over the next decade. Research affiliates say they will supply every other asset class even after an 82 jump in the past two years. They predicted back in 2016 that they would be betrayed of the decade. They also see emergingmarket local bonds outperforming. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im paul allen. This is bloomberg. Haidi with chinas veiled the threat to slow purchases of u. S. Government bonds may prove to be a false alarm if Officials Say there are a few alternatives of it may not stop the sale the newest bonds if auto prices keep rising. Global economics and policy editor for bloomberg is here with more. So many factors in this. I believe the china report was always more of a political jab than anything else. Kathleen lets say of course if you are a bond trader or investor you have to listen to whatever china says about purchases. Nonetheless it seems there are a lot of factors. Its interesting to see how some of them have gotten less focus in the last couple of days. But chinese officials did tell Bloomberg News in a story broken by our team that they are thinking or slowing of slowing or halting their purchases. They dontr hand, have a lot of alternatives for their 3 trillion exchange reserves. They have to exchange a lot of their dollars back into treasuries. Lets take a look at the price action on a daily basis looking at the yield of the 10 year note for the past few trading sessions. You can see this selloff is pretty steep, the far righthand side. Look at the day before. That was also a pretty steep selloff, pushing up the yield. You can see on yen on wednesday trading almost a 2. 6 . A big move up the day before. Arguing over there is that the commodity rally is the chief culprit for this big selloff in u. S. Treasury we have seen the last couple days. Chart,ook at a bloomberg btv 5106. We are looking at the rise of fiveyear inflation expectations. The fiveyear breakevens. You can see again, recently how those two things have tracked together. A lot ofnk because bond traders are wondering if 2018 is the year it more broadly picks up, a synchronous Global Economy is what some people are saying. Will that finally tip the balance . Theyre obviously is a lot more nervousness here. President of the st. Louis fed speaking today in answer to questions asked about expectations, he said he chalks this up to rise in oil prices. He says the recent steep yield curve gives the fed room to move. Inflation is expected to rise, selling lots more bonds, 60 billion this week from the u. S. , u. K. , japan and germany. We are seeing very good demand at the 10 year treasury note sale today. Big institutional investors. If we are in a bear market and yields keep rising, that may be the case. For now a lot of people are still waiting to see what happens next and watching a 2. 6 level closely. Haidi kathleen, going back to this china report, i imagine it is ruffled a few feathers in washington. Have we had eight response from the trump team, particularly treasury secretary Steven Mnuchin . Kathleen broadly speaking yes, he and his team at treasuries have to deal with any shots we see in the bond market. Also because it raises this broader question, not just is china really going to stop buying bonds . We know they cant. Even so, the broader question of how this team will do with china is an important issue. This comes at a time when there is a staffing gap. Treasury has not been able to fill its key positions. One of them is the head of domestic finance. That is the person who deals with credit markets. It does raise the question about experience. Having the right people in in place. Steven mnuchin has not met with people in china yet. At this time the previous treasury secretary had. Was awell, when he secretary under george h. W. Bush, that is the job he held. He started making his mark in washington and among policymakers. Broadly, after he spoke today he said yes, these watching what is going on. He sees crosscurrents, hard to predict where it goes. He still sees three rate hikes in 2018 and says the Balance Sheet will continue to be manageable. Clearly when you take the china threat seriously or not, it is something that is beings being closely watched. It is just one factor in a lot of things that potentially but not to the long bond bull market. An end to the long bond bull market. Haidi thank you. Still ahead, where next for opec Bloomberg Markets asia where next for opec . Bloomberg they are preparing for a correction. This is bloomberg. This is Bloomberg Markets asia. A quick check of the latest business flash headlines. Phone maker says sales are up 50 thanks to a strong expansion in the smartphone business. Revenue for the month was 22. 8 billion u. S. , more than half of their revenue comes from making iphones and ipads for apple. The inquiry least last year they acquired sharp which makes displaced. Na Business News reports listed in hong kong with the smartphone maker that was once the worlds most valuable startup will pick a sponsor and underwriter for the listing in the near term. Last month bloomberg reported they were seeking an ipo valuation of at least 50 billion. Ceooptics on the intel stock sale last year are indefensible. A price tag of 34. He says the unloading of almost half of his direct holding along with controversy over massive security vulnerabilities do not bode well for the business. Lets get a look at the major moves in the markets. Global strategist. Some of these moves have been strengthening. That is weighing on japanese equities. We are also seeing a general loss of momentum today, tracking the pullback in the u. S. Great to have you. I want to start with this quick chart that quickly painted where we are at. 4429 on the bloomberg. We have global equities. World index still sitting at record highs. Everywhere is in overbought territory except perhaps european equities. At the moment in an environment like this, weird you go . We do you find opportunity and value this year . Guest good morning and happy new year. Thank you for having me. , and theight shortterm many markets look over balked. Overbought. What we did when we look that are a location, we basically increased our cash quarter. We continue to like equities over all other Asset ClassesGoing Forward because there are still fewer alternatives. We do think it is better to take some ships off the table. Markets do look a little frothy here and there. We have late cyclical behavior valuations, chase chasing things simply that rise whether they make sense or not, with cryptocurrencies being one example of money, of many, were companies that change their name. We do think it is good to have cash on the side as we go into the new year because eventually there will be a selloff or a correction that will offer better opportunities then for some of the good names. Right, japanou are and europe still offer a good value relative to what they offer terms of growth Going Forward. One of your contrary and calls which i quite like is you think the bank of japan will actually ease of further this year as opposed to speculation it is on its way to a tightening or shrinking the amount that they do. Are they just going to keep doing this until they can finally reach 2 . Well, duets answer the second leg of your question, of course taken ease as much as as they want forward ever target they have. My point for the bank of japan i believe it was napoleon or i am not sure if you say you are going to take paris, you better take paris. It is a matter of credibility. They have not reached their 2 target. It doesnt make sense to me to talk about tightening policy before you reach the target. He came out himself at the end of december shortly before christmas and made it explicit. He said we are not going to raise rates, we are not going to tighten policy before we are there, so thats that. I think the market was not prepared for that. When you look at inflation expectations. You can also look at zero coupon swaps or whatever it is basically trading future inflation. You will see a very pronounced jump. I think the market is not yet going toat the boj is ease if inflation stays below target and is not move towards direction. Right now it is moving very slowly towards the direction but one year is a long time in a cycle and right now we have a very strong global backdrop. We will see how that evolves over the course of 2018. If inflationary momentum slows down i do believe the bank of japan will be inclined to ease again. Haidi but does it make sense then what if paris is actually london . Wouldve the goal post has changed in the sense that inflation is not they are structural,ll these however you want to explain it because japan is not the only one facing these issues with inflation. Every other indicator shows i know this is your stance that it has been working. Do they keep chasing that inflation gauge . Mikio yes it is working in the sense it is going in the right direction. Abenomicsry part of has been issue because they are not missing the target. You mentioned is an ideological position. s school of thought says inflation can never be 2 in a country like japan. I am not in that school. I do believe inflation is always everywhere a monetary phenomenon. As long as you have one institution that it controls money, and inflation is nothing else if the price of things expressed in money. You could always change the supply. The quality of money in an economy. Thats all you need to do if you need to reach a specific level on inflation. The only reason you are missing your inflation target is because your policy is not appropriate enough in order to meet that inflation target. They can do it if they want to. They need to make clear the market makes they are clear about the 2 thing. Right now the market is saying look at the 30 year history. They have been at 0 forever. That they sort of moved to practically 1 . They say 2 , we do not believe them. Thats why you have all this talk about tapering and tightening right now. If they are serious about the 2 they need to come out and show they need they mean 2 when they see 2 . Haidi always a pleasure. Going to have to leave it there. Great to have you. Plenty more ahead. This is bloomberg. Burden mights debt be getting set for a major restructuring at its flagship unit. Shares were suspended from trading ahead of a possible announcement. Dave is joining us from tokyo and more. Did they overspend on acquisition and now need to offload assets to repay that debt . Dave thats the main driver. They dropped 40 billion in a huge buying spree, buying high and low alike from deutsche takingilton hotels, massive stakes in these global names. Now they are trying to pay it back quickly. They are doing that at a time when it is almost a perfect storm. They have government scrutiny of their financing putting pressure on them. Debtg yields on their making it very costly for them to borrow and rollover debt. They are in a tight spot and definitely need to increase liquidity. They had been doing everything they can to try to calm investors and get them behind the fact that they do have a massive spread of assets on six continents. A lot of the companies they have bought are doing fine. So they do have a lot of strengths and are trying to project that to investors. They are also trying to raise money, no doubt about that. Haidi very quickly, too big to fail . All the signs are that they are too big to fail. This is a company that is very well plugged in. Not only in the industry that they are in but also with all the lenders. Very well plugged in. Haidi thanks so much for that. More to come. Haidi were counting down to the china open. Also watching keenly as we they say growth in china for 2017 was much better than expected. Gdp is expected to increase by 6. 9 , which was their target of around 6. 5 . Bloomberg consensus of 6. 8 . That throws up a lot of consensus as to how the structural changes, cutting overcapacity, the shift to toward to quality over quantity is going as quickly as expected given that headline gdp is expected to be that robust. Also waiting on chinese trade numbers as well as u. S. Inflation to try to paint out the picture as to whether the global synchronized growth story is continuing unabated. The after that selloff on bond markets another wild ride overnight for the u. S. Treasury market before settling down. Lets go to sophie for a look at how shanghai and hong kong is adding time adding color to a bit of a loss of momentum for asian stocks today. Sophie we are seeing that loss of momentum for mainland markets. ,hares ins shanghai sliding snapping an nineday rally. 2 10 of 1 extending its best run in its history. A share index also on the up. The yuan is finding support among the dollar weakness. Slightly stronger. Afterent has been calmed wednesdays gained for the onshore rates. Lets check in on the hans saying to see what is moving. Sunny optical leading gainers. Country garden also on the up extending its record run in terms of its share price is gaining almost 3 this morning. Developers still maintaining their fairly decent run. We do have a property washed in cash given bank rates are not likely to the cup anytime soon. The laggards you have carmakers under pressure. Tencent is looting losing ground. Casino stocks are also losing ground. In shanghai we do have losses led by Consumer Staples nit. Banking stocks will be a focus. They are the least of the worst here, marginally lower at the open. Regulators have introduce several new rules this year to curb systemic risks. A lot of focus on the sector. Targetssed their price and upgraded boko haram to neutral given that they prefer big banks inon improving loan yields and abundant liquidity. The caution on chinese merchant banks. Haidi thank you so much for that. Movers in the early part of the shanghai and hong kong session. Lets get to the first word news with paul allen. Has saidmier league that chinese economy expanded by 6. 9 in 2017. Confirmed by official figures on january 18, it would be chinas first full year acceleration since 2010. Atreportedly told delegates a conference in cambodia that the economy performed better than expected. Catalonias two main asked thece parties president to serve a second term in office. He remains while in belgium but could be sworn in remotely as he tries to mount a new challenge to the spanish prime minister. Returns torest if he spain for illegally attempting last year to declare catalan independence. Following independence eds will allow citizens to Access Services with a virtual id to avoid sharing their unique identity numbers. This follows a news report that personal details of up to one billion citizens enrolled in the program could be illegally accessed for eight dollars. Indian Authorities Say there has been no breach. Youtube is moving to distance itself from logan paul, the 22yearold star widely criticized for a clip show when the body of a japanese suicide victim. s channels will no longer we be part of a preferred Advertising Program and he will be cut from the Upcoming Season of an original series. Paul took down the video and posted an apology seen more than 39 million times. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im paul allen. This is bloomberg. Haidi thanks for that. Notid see a pretty particularly noteworthy when it comes to the hang seng open. 12 Straight Days of gains as of wednesday. This is the longest run in terms of a rally since the inception in 1969. Tencent the heavyweight, the biggest driver of that rally, gaining 11 since december 20. Lets go to our reporter for the details. Other than the tencent story what else is behind these gains . Everythingeels like people love about hong kong stocks is still true. Things people are worried about our little less true these days. The chinese economy is still unsteady footing. Coming in from china still. Earlier the elevated interbank rates have come down a little bit in the new year. Looks like there is really nothing stopping hong kong stocks from rising further. When of course, the highest but of course there are some signs of overheating. Come hong kong has really enjoy these loose monetary conditions. But with the u. S. Set to tighten further than expected this year, are we going to see a washout in terms of the sea of cash in hong kong. I spoke to an advisor at hsbc asiapacific this week. His main takeaway was do not worry yet. Hong kong has such ample liquidity that is going to take a long time for that to leave. Of course hong kong has an monetary pact with the u. S. Dollar which means it has to follow the federal reserve. What that means is the hong kong rate eventually has to go up. To what he told us is that that is going to be about 10 billion. That could come from intervention, capital outflows. Regardless, it does not feel it that is going to happen very quickly. Haidi so what would higher rates mean when it comes to hong kongs Property Markets . Also this equity rally that we have seen . Justina we all know hong kong is one of the worlds most unaffordable housing market. The hs bs advisor also says not to worry, i guess if you are a homeowner. This is going to be the reality. Hong kong has a shortage. It is going to take rapid tightening for the fundamentals of the Property Market to change. It doesnt sound like we are going to get that from the u. S. In terms of the equity market, we saw a pretty rapidly rising rate late last year that did not derail the rally. I think peoples focus is still the chinese economy and chinese inflows rather than the Interest Rate picture, unless things change drastically. Haidi justina, thank you so much for that. For us in hong kong. Lets check in on oil. When of our other top stories, moving markets at the moment. Hovering near a threeyear high. Pushing 70 a barrel. , where it ist wti currently trading. A massive move up when it came to new york trading. About 1 10tle low by of 1 . Lets go to hong kong. Ben, in terms of that u. S. Drawdown story that is pushing up these prices i assume, this is completing the picture that opec wanted with it supply cuts. Ben absolutely. The fundamental picture for oil at the moment is one of a positive one. We have eight weeks of decline in u. S. Crude, which is longest run of declines in about a decade. Monetary rates are among the highest level since 2005. We also had declines in crude output. The most since october. Terms of the fundamental picture from the u. S. It is positive. Thats why were seeing prices rise to threeyear highs. There are technical aspects on the charts that are shown the perhaps oil might be overboug ht. But it is holding so it is good for investors. Haidi pretty good for investors. Is getting closer to what it wanted to achieve. If we do get brent above 70 that is not what opec wants. Are they going to have to do a policy tweet tweak . Ben absolutely. You have already seen the Iranian Oil Minister come out this week and say they do not want prices because of the u. S. Situation. There are differing views when it comes to u. S. Shale. The eia this week said we are at 10 Million Barrels a day by early next month which would be a record. There is also a rise in demand in the market whether it can absorb that supply. Of course you dont want to see more u. S. Supply and that is the worry around these prices. People are forgetting about the demand picture, which is good. At the moment it looks rather balanced. A good market. If prices hold around here, i dont think too many people will be upset. Haidi yeah. A nice start to the year no doubt. We often talk about the sense of fragility when it comes to the oil markets. Where the biggest risks in terms of potential disruption and volatility in prices this year . Well, we had citigroup come out this week talking about potential 80 oil. It is plausible when you look at the supply situation. The past couple years we had a global glut putting a cap on any price gains when it comes to middle east events, which would typically cause price ice. Trained, as that price there is potential for conflict in the middle east, is situation in north korea. As we have the tightening markets, we might see more volatility in prices, or price hikes as we go further into the year. That is something that has not happened over the past couple years. Haidi thank you so much for that. Are Energy Reporter in hong kong. Setting up this conversation on oil, which continues coming up. They see brent averaging closer to 59 a barrell. This is bloomberg. Haidi this is [applause] french president Emmanuel Macron has floated the prospect of a massive airbus order at the end of his threeday visit to china. Just hours after the plane maker has said no need deals. Deals l the deal would be worth 18 billion at these prices. Weaken fusion highlighting the complexity of doing deals in china. 1. 6 billion dollar car factory awarded to alabama by toyota and mazda could be in be in begin could either bigger win than expected. The 2500 acre site is more than twice as big as the 1100 acres the partners of initially targeted. Alabama won the race for the factory would tax credits, payments and a training deal. Cocacola is launching its biggest maker of diet coke brand adding four new flavors. They include ginger lime and zesty blood orange. While diet coke remains the biggest thirdbiggest seller in the u. S. A volume fell more than 4 last year. The original diet coke formula will not be changed. Lets go back to the rise in oil price. The key question facing markets is the extent lets bring in the Vice President for energy at ihs markets. Great to have you with us. I want to throw up a screenshot. The latest drawdown. That was the largest for this time of year since 2014. Opec isof shows that getting close to its goal in terms of where it wants u. S. Inventories to be. Kind of hovering around above that fiveyear average for about three years so we are coming back close to the fiveyear average. What happens once this level is achieved . Do we see potentially u. S. Shale getting back in the game when prices are high . Victor right. Global inventories, if you look oilder beyond just u. S. , inventories have been coming down and they are still above the fiveyear average at this time. Thats one of the factors as to why we are seeing this tearing oil prices over the last few weeks. Prizes s that these s, thef we go to 1970 markets unleashing strong u. S. Share Oil Production growth. BeenOil Production has soaring. If we look at oil counts at the end of 2017, they were more than 220 above the level in two in 2016. It is coming onto the markets. When prices are this high, high 60s getting into the low 70s in the coming weeks and months, than the question facing russia and saudi arabia, the two key members on opec producers are they going to pump more oil to temper this prize run . I am sure they are concerned about high prices killing off demand. These are Big Questions for oil. Around the world and also four major producers around the world. Haidi a massive turnaround to start 2018. You have brent pushing 70 already. There is a case being made for 80 for brent this year. How quickly would opec between king policy but also how quickly would you see u. S. Production coming back . I think this the an alliance, in particular saudi arabia and russia, will likely maintain these output cuts until they see 70 per sustained foro be some time. Comply are likely to with their pact to cut output. To 70 and sustain it, it would not surprise me that russia would start to waive its support for cuts and others may, too. And we are going to see more oil in the market. About title growth in the u. S. , it is coming. The eia projects 10 Million Barrels a day. Thats a record high for the u. S. U. S. Production is going to be very responsive to high prices. As long as we have continued capital inflows into the sector, production will grow. They are going to be a big prize moderator this year. Haidi with the Global Growth stories so robust for all indicators we are seeing, do not see demand being able to soak up the excess supply if it comes to that . Victor well, im glad you bring up demand. Demand has been strong. And we expect that to continue. The Global Economic fundamentals are quite, really, robust. We have demand going up, and we have also u. S. Oil likely to continue to go up. Both those factors are strong. And so, you know, we are conservatively making a call of a branch to be averaging 59 per barrel. If prices stay strong. 70 and above, sustained. Viennagoing to see this alliance likely to waiver its support, or more oil may come from russia. And more oil may also come from opec producers. Haidi victor, appreciate your outlook for 2018. Market Vice President for energy joining us from singapore. Japans we will be assessing the strength of consumer purchasing power. This is bloomberg. Japans biggest retailers just kicked off their earnings season and it has been a mixed bag so far. Ion notching up its highest thirdquarter profit in four years. We are expecting results later on from others. Here to break it down is tom from bloomberg intelligence. I guess this is the big question when it comes to this, the Overall Health of the japanese concern ors and what has earnings so far told us about that. Tom thank you very much. What we are seeing is the japanese consumer is still a bit cautious. Although we are starting to see a bit of encouraging signs after over one year of continual tightening of budgets with japanese households. We are now starting to see a move from an increase and decrease from month to month in terms of consumption. While the lower end consumer continues to tighten their belt. What is notable is the middle income and more affluent consumer is starting to trade up and buy more luxury products, starting to spend more on premium food and beverage as well. Haidi ok. That unicorn has focused on offering value price merchandise, do you see the impact in terms of strong Consumer Spending in that space . Tom a couple of things. For the lower end consumer, the gu retailer should help thems. Same thing on unit global. Uniglow. They are going to try to emphasize more of their custom clothing where you can get made to measure clothing. They are going to need to leverage more of their limited Edition Clothing and also more of their collaborative work with designers. If they are able to do that, we will see some growth domestically and also it will be an important quarter for pushing overseas, becoming very aggressive in their expansion abroad. Looking atre also family march undergoing structural changes. What progress is being seen . In the are very much infancy of that reform push. It is going to take a couple of years. What we are seeing is they are upgrading their stores. For example you are seeing a big push in technology towards efficiency. Some of these initiatives are quite costly. When you think about what they are doing with change registers, they are changing the ability of the consumer to go in and use tablets to order food. And they are going out and we working reworking their merchandise. That means having more lower end products for consumers but having more premium products. Cafens with their partnering to make desserts. We are also seeing from an income perspective, going to be challenging in terms of more volatility. Haidi thank you so much for that. Tom for us in hong kong taking a look ahead to the earnings season for japanese retailers. Coming up, is the bubble bursting when it comes to bitcoin . New headwinds coming from south korea today. Theill speak exclusively to ceo in over 40 minutes. One of the biggest players when it comes to the crypto exchange. This is bloomberg. David what was the strategy that you used . Paul i was completely determined to recapture my money that i had lost. David how does somebody raise 5 billion in 24 hours . Paul it was first come, first serve. David you have the image of being a person that strikes fear into a lot of ceos. Some people are probably afraid they will get a call from paul singer. Paul it does not bother me. David if somebody invested in the very beginning, what would the rate of return that would have been compounded . Paul one dollar became 160. David is it too late to invest retroactively into that . [laughter]