Im haidi lun. We are an hour away from the open of australias first major markets. Just past 5 00 p. M. Here in new york. Im Ramy Inocencio. Heidi, looking at the markets on friday, you would have thought it would have been another down day with negativity, but look at that. We actually have green on the screen. Were going to get into why exactly. The rsi was headed close to 30, and that does trigger an oversold there. Possibly getting some resistance. Not exactly sure. Hop into the bloomberg terminal. While we are seeing some green on the screen, this the seasonality on the bloomberg best seasonality function on the bloomberg. Seasonality function on the bloomberg. He stx is down we are going to see if we can continue with that read in asia. Rading. Haidi we have a huge data calendar this week, not least indian inflation kicking off today and that fourthquarter number, which is expected to be an eighth straight quarter of gains. Is that going to be overwhelming when it comes to the sentiment on the other hand, where it hasnt been price action and momentum, liquidity concerns, volatility driving this selloff . Take a look here at asia. We are seeing a little bit of upset when it comes to kiwi stocks trading underway, just about 1 10 of 1 higher. For thenother decline bloomberg dollar index again after what was largely a good week for the greenback last and 2 10 of 1 . A big theme when it comes to the aussie open is that Royal Commission into the Financial Sector. The aussie kiwi trading at 1. 0790. We havent seen necessarily a strong correlation of risk and flows into safe havens. Gold futures of it down, by 1 4 of 1 . We have a couple of key opec reports coming through this week. Is that going to add to this overwhelming sense of bearishness when it comes to the supply future . Keep in mind there is no trading in japan. They are closed for the public holiday. Lets get a check of the first word news with tom mackenzie. Tom and and and and and inquiry into australias banks insurers, and Financial Providers begins monday, with the Royal Commission countering public anger from allegations of rates rigging and money laundering. All of that as banks bring in record profits. It will be an interim report in september. Chancellor merkel says she is determined for the new fall term in office. Some cdu members said it is time for a change, but merkel said she campaign on a fouryear term and stands by that. The fpd is yet to officially confirm the coalition. Former leader Martin Schulz has withdrawn his bid to be foreign minister. Soonsian plane crashed after takeoff from moscow, killing all 71 people on board. It was headed for the , but theern city spirit of the radar 70 minutes into the flight. It is not known what caused the crash. An inquiry is underway. The National InvestigativeCommittee Says it has opened a criminal case for an alleged breach of aviation safety. South africas Ruling Congress meets later monday to finalize the transition of power from president jacob zuma. The anc leader told supporters the party must resolve its problems, including accusations of corruption against zuma. He was replaced as anc leader in september. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Ramy thank you very much. It looks like bank of japans governor is one step closer to his widely expected reappointment. That after reports in leading newspapers over the weekend, but why now, and what does it mean for bank of japan policy . Bloombergs Global Economics and policy editor Kathleen Hays is here with the answer. To what extent is this a done deal . Kathleen there are many reasons why mr. Corona is still expected da is stillr. Kuro expected to be appointed. This comes from the boj on back channels. s terms of governor kuroda reappointment, it seems Prime Minister of a once him in place to make sure the stimulus stays in place and they start marching towards that 2 target. Two weeks ago when i was in tokyo i spoke to the former japanese minister of finance, widely respected in Japanese Monetary circles. He had an interesting view of how this reappointment may play out. Lets listen. If he would continue his Monetary Policy for a year or two, he may start to talk about, say, two years, three years from now. That is the time when he might retire. That likehis idea is past boj governors, he may stay in place until the boj is ready to make the shift away from stimulus, start exiting because they have reached close to the inflation target. Important . Y is this people say this will signal to the markets that the boj will keep stimulus in place even if the Federal Reserve starts raising rates. Our Bloomberg Economic team says it is also important to show the markets that with all this market volatility going on, you have a tested head of the bank of japan in place. When i was there somebody people i talked to about this said you got to a point the boj have to appoint new governors w 19thterms expire on arts march 19. Presumably the official announcement is on the way. Haidi clearly the market focus essentially is on the kuroda appointments come about how important are these appointments or reappointments for the Deputy Governor . Kathleen who is picked as Deputy Governor is very important in terms of support for these policies. Willdea has been that they be a career boj official in one of the seats and someone who is a true reflation asked in the reflationist in the other. One man has been overseeing the drafting of their policy directives. One of the masterminds, if not mastermind, but kind mastermind, behind things like youll curve control. Yield curve control. Amamiya. Him magic another has been a friend and forsor to operate to abe over 30 years, currently the ambassador to switzerland. He is considered one of the architects of abenomics and definitely a supporter of reflation. The boj should keep that stimulus in place. 19, soerms and on march we will see who actually emerges victorious in those two slots. Definitely like a slamdunk come up with these Deputy Governors will be given a lot more attention in the next few weeks. Haidi think for watching that story for us, Kathleen Hays. North korean kim north Korean Leader kim jong north unsn leader kim jong sister shook hands with south moon, and event invited him to a summit with her brother in pyongyang. Interestingvery since that Opening Ceremony when we had these remarkable visuals. Was an interesting thing to watch, wasnt it . Reporter there really was. Ofuess you could say ms. Kim north korea was on a charm offensive, and mike pence maybe sounded more offensive than charming. He didnt avoid the north koreans while he was at the olympics, but he didnt go out of his way to talk to them either. He did come out and say as he was leaving the country yesterday, told reporters on air force one that there is still no daylight between the south korean and u. S. Positions on north korea. I think this extension of an invitation to koreas president moon to come to pyongyang could really expose some divisions. I think easily been games were always going to be so interesting because the living venue is only about 40 miles from the dmz, and how fascinating is that from a geopolitical standpoint . Ramy so interesting to see the optics there. When we were on death when we were watching the opening ceremonies you can see mike pence when we were watching the opening ceremonies you could see mike pence right next to kim jonguns sister. It seems there are a few surprises in terms of growth and inflation in rates here. Talk to us about what we might expect. Reporter it is a very interesting time, given the turmoil we have seen in markets recently, the reemergence of inflation and concerns about that. Budgets in the white house are often seen as dead on arrival in congress, and i think this one from President Trump tomorrow will be doubly so because congress has passed its own , so the spending bill administration can make any point that once about what would like to spend or not spend on or cut. The die has really been cast. Today, see Mick Mulvaney the director of the office of management and budget, had some very interesting comments about Interest Rates may spike. He wouldnt have voted for this spending bill had he still been in congress. Very interesting. House andw, the white pentagon wanted a big increase in military spending. They got that, so they had to agree to quite a big increase in nondefense spending, so that all kind of puts the u. S. In a bit of a deficit hole in addition to the huge tax cuts passed in december. Interesting time for the administration and for markets, and really we still dont have exactly a plan from a logical standpoint of how the white house will roll out its budget, so that is kind of a little sidebar interesting in itself. Theyve been furiously rewriting that budget this weekend. Ramy were going to hear what happens in the next 24 hours there. Adding to the deficit 418 billion dollars by the most recent account by a nonpartisan group, and a half of the 1 trillion you were talking about from the tax overhaul from december. Thank you very much. ,till ahead, under scrutiny australia launches a major inquiry into its Financial Sector after a series of ranking scandals banking scandals. Haidi plus we assess the impact of last weeks market drama and take a look ahead into the frustrating week just about to commence. This is bloomberg. The pickup in Economic Growth was a conjuring factor behind the selloff in the market, but i dont think the action in the Financial Markets alone is likely to tip us into problem territory. I think a lot of the low vol type of trades that were the kind of free money as a result of central bank being there consistently, i think those unwind in 2018. We think the fundamentals are very strong. What we think is there is a massive demand for liquidity at this point in time and a very healthy repricing of risk. I think the data is ultimately going to come down the market. As the data comes out call him down the market. As the data comes out still at or below that 2 level, i think that will settle down the market. Ramy so many voices weighing in on Bloomberg Television last week as we were watching the markets meltdown. Joining us from melbourne is evan lucas, Market Strategist and founder of the lucas review, adding his voice into the conversation. Lets take a look at where asiapacific markets are going here. End ofa surprise at the friday with the s p, dow and nasdaq up by about 1. 5 or 2 . Lets unpack that and see if we get a cue into the asiapacific. Saw . Was it you guest friday was very interesting. Pretty big range. I think you got addicted whole week in terms of what happened and look through that data. Trigger points are quite very. There were a lot of people pointing to the impact of inflation and the possibility of what inflation could mean in the u. S. Particularly. Does that bring the fed forward in terms of its expectations of raising rates . That was part of it. I think friday was also interesting for what happened in washington and what the white house released about getting out of the shutdown it had for the second time in three weeks, the spending package behind that. The interesting thing behind that is that is a lot of stimulus to go into a an economy moving quite nicely. I would say it is humming along quite dramatically. To put that and im a stimulus into it along with the company tax in december, it is an interesting conundrum. It is a positive shortterm movement for markets, or at least it should be. But as we saw last week, riskfree rates and possibility and vol tradeonds is all part of it. It is quite an interesting conundrum and i think has to play out before we get an understanding about where the market was to reposition itself. Ramy you talk about vol. I am looking at the vix right , right now a 21 9. 06 , up 194 over the past month or so. Im going to switch to my bloomberg terminal. Evan, what i have here is an equity vol spike come a but we dont see what is happening despite, but we dont see what in spreading just yet. Do you see that this might have some contagion going into the future . Guest this is the interesting thing, a lot of comparisons are drawn between 2008 and 2009, and the last time we spike towards this level in 2015. It is an interesting conundrum. The difference is that then you could look at the macroeconomic reasons. You had your issues, things like the euro crisis. This is different. A Movement Across portfolios, across Asset Classes in terms of where funds flow. If you look at last mondays trading in the u. S. Come you can see the s p moves down. The money was heading straight into the u. S. 10 year. The other thing i would probably answer that way is between 10 and 12 is the standard level you should be seeing in the vix. I dont forget should be. Historically it is north of 15 or 20, which people will point to as being possibly complacent. They always over correct. The vix market is always rapid. You do actually see the protection into it and holding the vix around that level between 16 and 20, i think that is probably more likely. It will come back, there will be bumps, but this feels more like classesing across asset. Haidi i suppose the question is whether we are in an environment where price action is the ultimate fundamental. I want to bring up this quick chart. Lots of people saying were going to be testing free percent since 3 soon. What is this kind of negative feedback loop we are stuck in right now . Guest it is very much something youve got to ask yourself. Basis factor in the 75 points the fed is forecasting for 2018, that was the 10 year towards 3. 5 . If you do see that Infrastructure Spending and 300 billion released by the federal government friday night pushing into markets and employment, the possibility of inflation punching straight through to present quite quickly. Could we be seeing 4 in 2018 . It is not hard to make that forecast. Other interesting thing is that if you look at where equities set they are still sitting at probably a premium. All of that falls into it. It is why you will get volatility like last week. It is why markets will be asking about where money flows to. Where it goes is an interesting question and one that i can say i dont know yet because i think we still have a good way to go. If you are getting an extra 1 , that probably gives a fair amount of risk equity moving the way towards that area. Haidi good reason for caution going into this week. Evan lucas, lucas review founder and Market Strategist. Remember you get a roundup of stories you need to know to get your day or week going. Bloomberg subscribers can go to tv on the terminals come also available on the mobile terminals, also available on your mobile. This is bloomberg. A quick check of the latest business flash headlines. Alibaba is moving into homeimprovement. The deal adds to the recent expansion into brickandmortar retailing that combines its expertise in the cloud with physical stores. Last week alibaba beat earnings estimates and raised its growth it isst, and also said buying 33 of online paying service and financial. Apples supplier is seeking to use the proceeds of an ipo in china to fund billions of dollars in investment in next s. N project hai wants to move beyond pure Electronics Assembly as a Global Smartphone seller. Ramy verizon has cut its 2018 coal volume guidance, saying demand has improved but competition is hitting contract prices. The rail Freight Company now sees volume of 210 to 220 employerons, and has reportedance underlying profit of 485 million aussie, down from 512 million when youre ago. Later was the two later we will speak to aurizons ceo. Haidi hyundai is seeing a Seismic Shift in driver ship thanks to automated driving. This is bloomberg. Haidi Sydney Markets opening in just about 30 minutes time for a brandnew trading week after the bloodbath that was the selloff last week. Asian stocks are down close to 10 from the highs of january year to year. Sydney futures selling on downside of about. 5 . We do have japanese markets closed this monday. Im haidi lun in sydney. Ramy im Ramy Inocencio and new york, just past 5 p. M. On a sunday. Lets get the first word news with tom mackenzie. North korea has confirmed it has invited south korean president moon to talks in pyongyang. Sister extend the invitation during a weekend visit to the winter olympics. She said she never expected to travel to the south, but found many things to be similar to the north. She also said she hopes to meet again in pyongyang. Reports from japan say boj governor kuroda is to be given a second term. Kyoto and nikkei say Prime Minister abe will promote him for another five years when his term ends april 8. That would indicate the Prime Minister was to continue with the bojs unprecedented Stimulus Program which has weakened the yen, boosted exporters and corporate earnings. Some executives are accused of making misleading safe misleading statements according to a legal from the rest. Iran are seen edging towards outright confrontation amid the most serious confrontation between the two since the Syrian Civil War began seven years ago. And theli f16 crashed military said it hit 12 targets in syria, including four said to belong to iran. Israel has said it will not allow iran to take control in syria. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Ramy thank you very much. Now lets get the outlook for wall street after fridays close brought a surprise positive end to the worst week in two years. Weeksrally reduced the plunged to only 5. 2 . Even though we saw that green on the screen, year to date all three indices are still in the negative territories. Reporter for most of friday was in the red, so buyers came in late in the day to set up positively for monday. Lets go into the vix and take a look at volatility because that is clearly the biggest fiveday spikes since 2015. We are looking at volatile times , double the prior weeks average. There was one small hedge fund in colorado that had a multithousand percent profit off of a very small that they made on what some said was a one in 5000 chance of there being a need to protect assets in one of the call missed markets desk markets. Calmest lets take a look at the close, green on the screen. The s p 500 managed to reduce what was still the worst weekly loss in two weeks. Lets go into the market snapshot because is a they focus is going to be on the dollar and the treasuries as we head into the week and check out oil, below 60. 66. Two weeks ago it was lets go to the bloomberg quickly. This is a chart titled the agony and ecstasy. Momentum is the largest in history, and what youre looking at is the change in the s p 500, 1400 rsi. Look at this right here. Not really helping the story. Ramy that is the agony part. Looking ahead, we have a lot of the docket. New fiscal year 2019 out on monday. Lets start with the fiscal year budget. Reporter that is going to be a huge piece of action and news for the market. A 1. 5 trillion budget is planned. That is going to be something the market will trade off of. In terms of the retail sales and cpi, that is, hello, inflation. Lets go to the bloomberg because that is clearly going to be a focus for the market. If you are following at home, take it slow is the title of this chart. In the yellow, the manufacturing capacity coming over here, and the blue is energy. Inflationnumbers peaking after we got a hence they are in the wage increase and jobs data . Lets take a look at some of the economic reports that are expected. Economists surveyed by bloomberg do expected increase in the cpi, and except housing stocks to increase, and also expect retail sales to be solid and steady after a robust fourth quarter. Again, all of that telling us that the economy is stable, and as you know, trump tweeted out used to be good news is good news coming out good news is bad news for the markets are go news, nowcontinue good news is that news for the markets. Looking at some of the big aircraft makers, lows. You got metlife, the insurer. Also some utilities, all of them in the mix. That will be a very actionpacked week on the washington dc front on the earnings and economic front. Haidi we had that contagion spread to oil as well last week. The bulls seem to be running scared. We had a huge jump in u. S. Drilling. Is this adding to a bit more bearishness this week . Reporter we did see net long positions among hedge funds seriously reduce. Again, we were at 66 is that the end of january, all the way down below 60 in the friday close. What we got in the latest data was also 10 Million Barrels a day output exceeding saudi arabias output. That just added to the pressure, along with the surge in rigs. The head of Global Research for commodities for Goldman Sachs said that the rest of the market is granted experiencing what Oil Experience last year, but he does say the correction in the market has extended the oil. Fundamentally nothing has changed. The irony of all of this is the catalyst for the selloff in the equity market was that inflation print last friday because of strong global Economic Growth, which is really the foundation of our upgrade on commodities last week. Reporter he is stressing irony because he upgraded his outlook for commodity prices. He believes the fundamentals are robust, demand is rocksolid. Let the end of the chart downward. He believes that upward path will continue, but everyone seems to concede more volatility shortterm is the mood of the market. Haidi thank you so much for that. Lets take a quick look at how markets here in asia are setting up for this week after a very painful challenging week of trading positions last week. New zealand seeing upside about 1 4 of 1 . Credit card spending coming in at the biggest spending increase in about a year. I dollar trading at 72. 51 at. 751. Aussie shares relatively contained in their shares last week, i open downside of about 1 . Aussie dollar trading at. 7 890. The big banks today as that yearlong Royal Commission into the Financial Sector gets underway with Opening Statements in melbourne this morning. Lets get more on what we should be watching of trading gets underway here in asia. Markets will be licking their wounds ahead of this asian open, but we are back and looking at the deleveraging theme for china. Reporter one thing we can guarantee is volatility will stay for the shortterm. As you mentioned, australia looks like it is going to open a little lower despite that strong finish on wall street. There are some local factors at play. The headline number looks quite good, but the actual outlook they gave was a little disappointing. There may be some weakness coming in for the retailers. As you mentioned, chinese new lending data is out this week. That will probably be a key focus for us here in asia. ,s you can see from this chart there is still Strong Demand for financing and lending in china. Economists are expecting a jump to over 2 trillion yuan. The 100 variable is the deleveraging drive by the government. We dont know how that is going to play out and whether there could we some weakness still in these january numbers. It will be interesting to see what we get there. Ramy looking at copper year to date coming down about 6. 8 . I understand it is looking like there is more risk of decline. Reporter that is right. Obviously copper is known for its ability to hold from the global economy. Im not sure if that is true in this case. As you can see from the chart, bearish sentiment has reached its highest levels since june. I take that with a little bit of a pinch of salt because in june the market rallied, so it could be just a little bit of a blip. In the shortterm people are expecting the market to come under a little pressure from the Chinese Lunar new year holiday, which does see copper top off at the factories wind down a bit for that holiday. It is difficult to read is that is a trend coming in or whether it is just a shortterm impact, but certainly copper is always an interesting market to look at as a barometer for Global Economic sentiments. Ramy break stuff. Thank you so much great stuff. Thank you for taking that apart for us. Coming up, a yearlong inquiry into australias Banking System begins monday. We will discuss what is under the microscope next. This is bloomberg. Ramy im remy innocence you in new york. Haidi im hot remy innocence you Ramy Inocencio in new york. Haidi im haidi lun in sydney. Been so many negative headlines that it culminated in this inquiry. Reporter the commission is essentially an independent commission leading cory. D inquiry. Le and away, the air had to be cleared. He Prime Minister decided would open this independent inquiry. What we will get today is the leader of this inquiry putting out a statement for a frame of reference, if you like, about with the key themes are they are going to be pursuing. This is a going to be the last time we will be talking about this. Haidi absolutely. I notice a lot of apprehension in terms of what is going to come out of all of this. You seem to think it is a positive kind of get this out of the way. Yes. As emily said, if been a number of years where theres been a lot of intense public and political scrutiny aimed at the banks for their misdeeds or missteps. This is obviously going to take 12 months. February next year is the expected completion date. It made no longer than that, but lets say 12 months. I am looking longerterm. I expect there will be some surprises that come out of it, some further cases of misconduct. The key issue for me is not necessarily historical misconduct issues. The key issue for me is the overall structure of the australian Banking System and the dominance of the four major banks that has been a joy for major years. The key issue is will they continue to enjoy that strong market position Going Forward . Ramy i am glad you bring up the prospect of Structural Reforms because there is this gannett across the spectrum this gamut across the spectrum saying people will get ousted. What do you expect . I dont expect the Royal Commission will be the main driver of Structural Reforms. Arguable thatt is we need Structural Reforms in the Australian Financial system. We have a very strong Banking System. We havent had a recession in australia for 26 or 27 years. Australias sovereign Credit Rating is aaa. They are very highly rated entities. Theralia is one of wealthiest countries in the world, so the major banks and the Banking System and the Financial Services system has served australia very well over many years. As i said, it is arguable we actually need major Structural Reforms, but it is not just the Royal Commission. At the moment there is what is known as the Productivity Commission in australia, a Government Entity also reviewing competition issues, and that could have some more serious outcomes than the Royal Commission. Ramy out of the big four we are talking about, who you think might be hurt the worst . Come up banks front and center and that have the most at risk. I think by one estimate does been like 52 inquiries into the australian Banking System in the last 10 years. It is certainly a lot. How much of a distraction is this to the banks senior managements . Up in frontng to be delivered evidence for more inquiries. The over 58id, of degrees i think 12 of them are going, so it is a major distraction. Expensive, i would estimate a list 50 million estimate at least 50 million for each of the major banks. The Financial Results provided 200 million australian for compliance related costs that they are expected to incur, which includes the Royal Commission and all those other inquiries ongoing. It is very expensive. The Royal Commission is, as you pointed out in your intro comments, illegal a Legal Institution and a cory and inquiry. The nature of the interaction with the Royal Commission is now more legal. There will be a lot of lawyers involved. The four major banks have done a lot of work to try and the work that is required by the banks away from the gated a running of the operations in the business. Crucial,momentum is and as you pointed out, maintaining profitable growth is bank senior management, but a major distraction, that is for sure. Haidi Major Business if you are a law firm. Talking about this theme of profitability, one of the things in the piece is this quote from citigroup saying there will be material recasting of the economics of the banking industry. What does that look like . Investors are looking at how probability changes in how they are penalized at the end of all this. It is difficult to say how it will happen, the banks, one evidence that the banks p rofitability is return on equity. Not as high as the canadian max canadian banks. It comes down to pricing. The core of the prophets is the durability to change prices for customer products like Interest Rates on home loans and deposits as they see fit. ,f the government somehow through whatever mechanism, is able to control the banks and limit the amount of repricing that they do, then that could damage the profitability and you could see the returns on equity fall closer to the cost of capital, and conversely you can see the returns on equity for smaller players increase. At the moment they are well below the four major banks. Ramy i would let to pick your brain a little bit on the four pillars policy. We seem to be getting a little backandforth. Malcolm turnbull saying they are not going to return to this. Does this stand, and what might happen if they went ahead with it . The key tostanding, the four pillars policy is the four major banks are restricted from kicking each other over. Taking each other over. As part of the policy, there is no restriction, no major restriction on overseas buyers taking over an australian bank. They would require the approval of the treasurer and Foreign InvestmentCommittee Review board, and other regulatory garments regulatory requirements, of course. As it stands come and get back to my earlier comment about the Australian Financial system and Banking System. It is not broken by any stretch of the imagination. Profits major banks dipped a little during the gfc, but they did not require any government subsidies or bailouts. The Banking System, mainly to quench her major banks, ended up paying the Australian Government proximally 5 billion mainly the four major banks, and it up paying the Australian Government approximately 5 billion during the gfc. What other developed nation in the world, or other financial and Banking Systems in the world, can say the same . Is old, pillars policy but it has done the country well and the economy well. And of course we should review it. The government should if it is decided the changes need to remain, that is fine need to be made, that is fine. Even if the key plank of that policy is that the four major banks cant take over each other, i cannot see in this current political environment that the government would allow a takeover of one of the other banks as it would lessen competition, and the government is all about promoting competition within the banking any of so i cant see the four major banks taking each other over. This gets back to the four pillars policy. Sure, lets review it, but i cant see the changes necessary. Haidi im sure will be talking about this for the next 12 months. Thank you so much for joining us. As we get it today one of the Royal Commission with the , david statements today and emily with us. Plenty more to come on bloomberg daybreak australia. This is bloomberg. Ramy welcome back. A quick check of the latest business flash headlines now. Uber is said to be paying about 245 million to resolve allegations that it was involved in a plan to steal information from waymo via a senior employee. That case capped a year of sandals scandals that forced Ceo Travis Kalanick to resign. Haidi disney has raised ticket. Rices sundays price rises see tickets for californias disneyland rising to 135. Ramy coming up in daybreak dont miss it. This is bloomberg. Haidi it is 10 00 a. M. Image sydney. We are live from bloomberg 6 trillion headquarters. Welcome to bloomberg. 5 trillion in equities prepare for another rocky wide ride. Japan willernor of get a new the governor of the japant the bank of will get a new fiveyear term. Ony we are just past 6 p. M. Sunday. Accusations of banks in australia include