We are drifting slightly higher. Dollar seems to be a little bit stronger on the back of asia fx. Continuing to price larger when it comes to sovereign yield. You look at the two, the five, the 10 and the 30 and where they have gone. It suggests that markets have been pairing back what many people have said a little bit more extreme expectations of the fed. Are they going to cut 50 basis points and will it make sense . This is where we are on the two and the 10 and sterling is under pressure. Yvonne twoyear low under the pound here after weak data when comes to retail sales and Boris Johnson on the nodeal brexit. We saw yields pick up after the inflation data. Take a look at the terminal chart. P. T. I. Prices were flat, zero and c. C. I. Prices basically unchanged at 2. 7 is what we saw as well. Continuing to show how deflation is coming back to china. A lot of headwinds here on what the factories are going to do here and how he is going to see or expect to see more factories close in light of what were seeing with this seismic shift. Demand is a problem. You see this in china on this chart. You see that with japan, in case you miss it, entered deflation. South korea is the other line on the chart. When it comes out with the latest data, dont be surprised if it comes in a little softer there. This is a problem. Currencies likely negative. Yvonne we have a south korea and japan trade too. Lets look at bay jing. Thanks. B. P. S. Began removing workers from offshore rigs in the gulf of mexico and shutting don production ahead of a powerful storm. Tropical storm barry may escalate in the region in the mex 48 hours. The gulf offshore region the white house said qatar has agreed to spend billions on jet engines and work on the petro chemical project. The agreements include qatar buying u. S. Military equipment such as war planes and a Missile Defense system. The former head of saudi intelligence says washingtons long awaited vision for middle east peace will fail unless it involves the palestinian state and jerusalem. It is up in the air and wont succeed without a vieable palestinian nation. The 34r57b was pennant the plan was presented last month. On itter is blocked chinas heavily censored internet. The ambassador is the new addition to the platform and said he is pleased to have the chance to engage with the american people. Global news 24 hours a day on air and attictock and twitter. Ticktock and twitter. Putting trade talkses back on track here after high level officials spoke on tuesday. Head way last werent and spring and then it stopped. Hopefully we can pick up where we left off but i dont know that yet. Our team is exploring all of that and discussions again when constructively. Too soon for details. Yvonne while they wrestle with those details the Worlds Largest supplier of consumer good is the latest to sound the alarm. It goes for the big retailers like walmart and nike and 2 3 of its revenue comes from the u. S. The supply chain extends across asia but it sources most of their good from china at a time when u. S. Customers are pushing for production to be shifted elsewhere with. Well have more of that interview from spencer fung. He says he cease it underway regardless of whether a trade deal is reached. The world has experienced a lot of changes, sometimes on a weekly basis. As a result that disrupts the trade flow. Global supply chains, especially for the u. S. Based customers. Now u. S. China trading corridor is disrupted by whether there is a deal or tariffs or not. As a result, a lot of customers, u. S. Based customers are trying to diversify outside of china, not leaving china but diverse fight outside of china to put less eggs in one basket and to spread out that risk. This actually has become a big opportunities for us. Because when you have to diversify oufert china, you go, lets say into Different Countries and we have the Biggest Network in world, actually in more than 50 countries where we have deep knowledge and history with local ventors and governments where we can help our commerce move very quickly. It is actually a big opportunity for us now that world is changing more and more. Why is that . Youre saying this is best opportunity in 20 years. We have seen Companies Shifting production outside of china in the past decade. Even before the trade war started. Why is now a more opportune time . Yeah, even though things have been shifting out of china but not enough. There are still some categories that are 80 , 90 sourced out of china and they are much harder to shift. So because of our globble presence and network, were able to help our customers and sflice shift out of china quickly and set up a new factory that fits the quality level much quicker. Youre getting more pressure to shift out of china. What about the european customers . I would say mostly u. S. Commerce because of the tariffs. The european customers see it is a buy opportunity inside china. In china many factories are not operating at the full capacity and they are more eager for business and when they are more eager for business there is actually a pricing opportunity to lower the prices so actually there is an opportunity for any nonu. S. Retailers. European, japanese, Southeast Asian and domestic. As the clients are trying to push for action outside of china, do you think the vietnam, the bangladeshs, indias of the world could ever replace china as a key supplier . Physically china has 1. 3 billion people. When you look at any country outside of china, most countries dont even have that many people in that country, so short of an extreme automation, i would say in the next five, 10 years, no single country can replace china but many countries will pick up different areas, different products that china is trying to move out and the Chinese Government has been trying to move out a lot over the low valueadd high labor intensive manufacturingout china. Each country will actually have their own focuses and vietnam is a big beneficiary of that. Bangladesh, indonesia, india, cam bode you and a lot of cambodia. No single country will take over the Production Capacity of china. Yvonne that was spencer fung speaking to us. Our next guest joins us here in hong kong. Fred, good to see you. On the back of what we heard from spencer fung, everyone talking about the likes of vietnam, bangladesh. How quickly can Companies Really actually build up manufacturing in these countries and is there really that capacity to do so . One thing that spencer was getting at is capacity doesnt exist in many of these countries. The risk is wage goes up very quickly in these places because there are only so many workers and engineerses going around. Yes, there is supply chain we jigging but they are stickier than you would think. Actually there is still a lot of stuff being produced in china. U. S. Consumers pay higher import costs to some extent and it will take time to shift to readjust the supply chains and what really worries business most here is not so much, they know they can relocate overtime. It is the uncertainty about it all. Where is this trade tension . Where is it going to end up . Is there another country that may face trade restrictions at some point . That uncertainty that weighs on activity more broadly. Chinese Companies Getting urgent and desperate. When does that start showing up in the statistics as well . How much can you mask, for how long . Well, i think it is very select in terms of getting desperate. It depends on the industry. But if you actually look at chinese overall total exports ince last june, they are up in dollar terms. Slightly down in the u. S. But up in other regions. Total china exports have not totally collapsed, in part because of what we just heard, some chinese goods rather than heading to the u. S. Are head to other destinations. There are pricing opportunities but broadly for the economy it is not as big a blow to the export machine as you would think. Thats not to down play it but it is not as catastrophic for the chinese as you would think. So that brings us why would he say things are looking urgent and desperate then . Because it is specific industries. Say youre a furniture exportser and you face a 25 tariff into the u. S. Since that summer. That was 90 of your market. Your particular factory probably is feeling a little bit of pressure and youre quickly trying to find customers to replace that and finding these individual companys is going to be an opportunity for anybody who wants to have a good deal and you know, probably this gentleman is right in the center of matching buyers and sellers. Thats where the opportunities lies. It is a drag but we havent seen a complete tumble of the chinese export machine because china is so dominant because china has found alternative markets in a very short period of time. One of our other guests earlier in show, lester ross, a Legal Advisor to a lot of these companies. A lot of these Asian Countries dont want to detach from china. Because it is still an important political link. It is, yeah. Is you look at sensitivity and analysis, most Asian Countries, their growth response is more to the China Economy than the u. S. They export more to china than the u. S. Their economic fate is driven more by china than the u. S. They dont want to burn bridges if they work with china. Which brings us to the next question. Producer prices in were released. They came out with the data this morning. Korea as well. That point that you made that everything is corelated to china. How big of a problem is this this time around . China specifically responds to heavy industry. If you see a pop in Infrastructure Spending which is likely to scrauf set all of the other uncertainties, probably you might see stabilization of p. P. I. That is a specific sector. The broader issue is we dont have enough growth in the world economy. We dont have inflation. Every central prank is looking for tweaking rates lower and adjusting more liquidity because of inflation and growth risks have increased. Were facing disinflationary pressures but the p. P. I. , i would not worry too much about it. P. P. I. Should hold up above water. Do they need that jolt of energy now and actually cut benchmark rates . That is in play. They will focus more in liquidity fow. Focusing on private sector lending. Doing a lot of these other tools at their disposal. Even for china, but everywhere else, were seeing rate cuts. Well continue that conversation on rate cuts. Specific the fed and how it affects other central banks. If you have questions for our guest, please send them in. We were talking about japan and south korea planning talks. Trade tension there. When you look at chips. Chips away, pun intended. More on that. Yvonne up next, foul play. The markets are in a holding pattern. Is a rate cut from the fed still a sure thing . This is bloomberg. Welcome back. Have a look at treasuries ahead of that testimony from the fed chair were flat. Yields generally over the last few weeks inching back up. With us here, fred newman, hsbc head of economic research. Some of these fed officials have yet to address, the specific question, how will the lower rates actually Lethal Weapon the situation . It is a tough, tough question. It is mostly in the u. S. It still works a little bit. We saw Mortgage Rates come down. Rates are fairly low generally speaking so it is not clear youre going to get that much of an impulse growth. The thing at this point, it is more preemptive telling the market we got your back but whether it will lead to sharp acceleration and growth i think nobody really believes that. Yvonne do you think the fed should act early this month or wait until september and the Balance Sheet to wind down a little bit. Does that give the fed more clarity . Actually i think they should wait a little bit. They are giving in too much. The data is not too bad. Payroll is pretty solid again. If the fed caves every time there is a bit of a dip in the data flow, very quickly they will run out of ammunition again. The market has to learn to live with sometimes not getting its way. This might be a good opportunity. That is not with the markets what rcurrently pricing in. Were saying september. We have s p, suggesting were going to see Capital Expenditure growth down to 3 this year. It was 12 last year. Is the fed trying to get ahead of that and are they trying to into nothing and a little bit more on this, another 100 basis pointss is not going to help. They are pushing on a string with regards to Monetary Policy now. Thats right. And there is two other factors here. You have one reason why capex is down generally in the u. S. And the trade policy, uncertainty. It is not just about tariffs being imposed. What comes next . Restrictions. That uncertainty the fed cannot fix by just cutting Interest Rates. We had a huge tax cut last year. Obvious lib corporations are obviously corporations are responding to that. You have a hangover from the fiscal impulse. That is something the fed cannot fix with Interest Rates. Maybe not just run behind the market and try to cave into aggressive rate cuts. Are we heading towards a recession like it or not, is it better just to actually swallow it, get it over with, clean up some of the muck in the Financial System and some of the muck in the economy and start again because we have jue been trudging through sludge since g. F. C. . It is easy to say. Recession always has a tremendous human toll. Unemployment. Social issues. But if you just take a very hardnosed approach, recessions themselves are not necessarily a bad thing because they do kind of reset the table. They do sort of it is kristoffer destruction and you need to clear away the timber every once in a while. The reason why policy makers are so fearful now of a recession is because were so scarred from 2009 and second issue is we have very little policy ammunition left so we want to be preemmingtive. We dont want to be caught in preemptive and we dont want to be caught in a recession and have rate cuts. Youre slulte absolutely right. A recession in itself is not necessarily the worst thing from an Economic Perspective though it is a social and human toll to be paid. I didnt want to be flippant about that. Thank you very much, fred newman. Coming up, the turbulence of geopolitics, seeking shelter in rivate equity. A c. E. O. Telling us why extra care is needed in investing in Public Markets this year. This is bloomberg. There are latest business flash headlines. Security investment from thailands biggest bank. Unclear how much money is involved. Sources say it will help ndonesias most valuable tech. Online growth will lift revenue. The possible biggest i. P. O. Of. E year a Census Survey says the division will price just under 42 hong kong dollars a share. 2 below the midpoint. The worlds biggest brewer xpected to set the price for Budweiser Brewing on thursday. It has an evaluation of up to 64 u. S. Billion dollars. The companies are working with advisors to offer shares in hong kong before the end of the year. It could raise half a billion u. S. Dollars. That is based on current market value. Shares have soared since that i. P. O. 360 odd percent year to date. Yvonne lets look at some other market moves not as dramatic as that. We are watching the likes of chinese auts. The downgrades continue. Downgrade once again by d. V. S. Bank and cicc. Were seeing here a fifth day of declines when it comes to that stock. Were down about. 8 . Downgrade the likes of ccv. Fake recovery. Essentially if it didnt happen, that is not the stock you will see. There was an error from one of the brokers in manila that sent the stock down 40 . Were tracing back up. Speaking of gold win, Goldman Sachs setting up a new unit in shanghais free trade zone. That headline crossing the terminal. This is bloomberg. It is 12 29 p. M. In sydney. 12 29 a. M. In hong kong and beijing. The worlds top supplier of consumer good is sounding the alarm on the damage to Global Supply chains. Customers are increasingly looking to shift production away from china. In an exclusive interview with bloomberg, say said it is hard replicate chinas manufacturing power. There are a few Million People in the manufacturing industry. When you look at any country outside of china, most countries dont even have that many people in that country. So short of an extreme automation, i would say in the next five to 10 years new york city single country can replace china. Prub attacks india for imposing tariffs on u. S. Good and denounced the move as sun acceptable as officials are set o meet in new delhi. The Prime Minister agreed to restart trade talks after they met at the g20. Trump ended concessions on india on goods shipped to the u. S. Iran says a tanker was in International Waters and not headed to syria and described u. K. Action as piracy. B. Spmbings said to be keeping an empty carrier close to is saudi coast rather than risk having it seized by iran. Tax cuts to the more business Friendly Administration after years of austerity. The lineup has technocrats considered experts in their fields. Global news 24 hours a day on air and twitter powered by more than 2700 journalists and analysts. This is bloomberg. Back to you. Yvonne thank you. Just on line coming through here, the south korean president meeting with a dozen or so Business Leaders in seoul at the blue house this morning and the Business Leaders include the likes of samsung, l. G. Basically talking about this japan and south korea trade, it is an unprecedented emergency. They are hoping that japan responds and not come to a dead end here. But they are preparing countermeasures to these export curbs from japan here at the moment. Short gain. The government will support the countries to diversify their production. Longterm along those lines, it should reduce their dependent dependence. Rishard absolutely. 60 of the worlds memory chip making capacity. Japans tech curbs under scoring concerns, over the supply chain which is entailing all of that. Our guest is a former official industry. Lets start off with the basis and why this has come about. It has come about for these official reasons as in dealings th the north korea and other excuses being made on an official level and why this is happening. The cynic inside me says it has nothing to do with ewell of that. Does it have to do with political pressure on the korean president and that of course is manifesting itself largely with the world war, the second world war. Thank you for letting me speak. My thought os on japan exports that japan is actually the dissatisfaction with the supreme courts decision on labor that came out last year. So in other words japans export restrictions are actually retaliatory measures. Since japan has taken measures to express its dissatisfaction, the w. T. Sombings the official channel to deal with trade conflicts among countries. While japan has argued that measures do not violate the rules, they actually do and as you know, japanese government to be the with korea main reason. However, it cannot be be a legal basis for trade measures against countries because basically the restrictions are a violation of the blue book that outlaws any other type of restriction measures other than input curves. However japans measures cannot be justified under the w. T. O. Rule book. The trades that they are making have no legal grounds under the production clause in the w. T. O. Either. Rishard ok. Sure. You have all of these moving parts here but ultimately you have two u. S. Allies at each others throats on these issues which seemingly came out of left field. Eijing must be at the moment must be rubbing their hands in glee with all of this. Beijing . Rishard yes. Are you asking about the relationship of this matter on the china issue . Rishard what im saying is you have two American Allies who are at each others throats. Now what better news is there in geopolitics that the two of those alleys allies are doing this and it must be pleasing for administration in beijing. Our age with the relations with china. The crux of the matter here is japans dissatisfaction with the korean Regional Force and they have taken retaliatory rade measures to express their dissatisfaction with this issue. They have violated the u. N. Resolution. E think because maybe they may have ulterior political motives. The japanese elections are coming up soon. Yvonne what can seoul do now to retaliate fingerprint . To retaliate . We need to take this sthow the w. T. O. , the official channel regarding trade conflicts among countries. We need to see if the japanese measures actually caused damage to Korean Companies and if we need to take any measures if there is any official harm done to Korean Companies due to procedures. We just heard from the president who put the statement out that longterm companies should reduce their dependence on one country as a result of the imports. Japan knew where to hit korea. How does this play out longer term . They need to diversify their sources with or without a resolution to this case, dont they . Yes. Hey need to diversify imports. The main crux of the issue is actually the diplomatic matter matter between the two countries. Although they tried to diversify their imports and tried to increase their risks hightech imports thank you. Korea National DiplomaticAcademy Professor joining us on the line. Lets have a look at a state investment for singapore. They are staying cautious. Lower everything. You look at yields, returns, what have you, returns. A modest 1. 6 gain in its port foal glow past 12 months. Dilhan Pillay Sandrasegara told us how he is positioning in certain environments. Uncertainties have been there for sometime. They have manifested themselves in different ways. We have a very different environment. In the investment world we have a lower Interest Rate, lower growth, lower returns in environment. I would say the challenges of the future will be different than the challenges of the past. How will they turn out . Im not a futurist. We are definitely paying attention to a number of things. You talked about the environment. This no yield environment. Low returns, yes. Where do you see the best riskreward opportunities . We use a cap mod. It is higher than if the benchmark inflation cuts. If youre looking at a low inflation and low Interest Rate environment, your return retirements will be much lower than an ledell eacklesity investor. Risk investors. It consists of financials and were seeing an increase in the a next three years. Will you be tweaking that . It accounts for 25 . Within that mix, we see very bank centric. Today it is more you have a growing part in insurance, payments, and over time that, grows against the Banking Services portion. If you think about how were building the portfolio, i would say Financial Services remain one component but technology, Life Sciences takes up as much capital. 75 of your investments are outside the country. What about the volatile any the currency market . So youre right. Almost 75 is outside singapore. Is much ortfolio higher because of the type of companies that we own, have also exposure part of the 75 . The volatility to where the revenue is generated, so we can we have no duration limits. Rishard dilhan Pillay Sandrasegara there. An exclusive interview on the way next. This is bloomberg. Welcome back. Youre watching bloomberg markets. Quick stock check here. Were up 4 . Broader markets are up. Obviously outperforming. Up 3 . It was up 4 yesterday. Up 4 as we speak. Yvonne they Just Announced this partnership with 10 cent which is interesting. Shot up 4 . Perfect time for our guest today to talk more about this. Absolutely. A key driver of that was the key bip 10 cent they announce Key Partnership with 10cent they announced yesterday. Tell us about the partnership and why is it important and how does it move things forward for you . 10cent is our shareholderer and partner. Yesterday we announced the Partnership Strengthening our cooperation in different areas 10cent investments, music and entertainment and 10cent picture and production. It is not only about the partnership product, it is also about how we work with both ecosystems. 10cent has the social network ecosystem. We work with 10cent to create the value and enable more contentdriven business. And you have quite a broad portfolio in terms of business and the online ticketing, the fundraising, the marketing, the data. Which part of that portfolio do you expect to drive the greatest Revenue GrowthGoing Forward . Were aiming for the broader business entertainment sector. It is not only for the business driven by is first of all, there is a promotion, marketing this is the key. Definitely the online ticketing platform. Third talking about the funding platform for or a data platform. Almost the media platform. It really helps the businesses getting to the next stage and so how things are the basement is stray. We know the box office is starting to often. How much of a drag is that on near term outlook . We are optimistic about this arket. The box office is only a portion of the overall business. We have to think about the bigger, broader entertainment segment. In 2020, we can see it will 200 e over 20,000 only and this is their starting point of rebuilding the value for the longterm. There is a long way to go. In terms of subsidies for some of these tickets, the online ticketing, there has been a move overseas to reduce those subsidies. Where are you now in portion of revenues and the box office side of the business . The number should be two trillion overall. But anyhow, the subsidy is not an issue. In the past, when the market didnt grow rapidly, it has been the catalyst. It had been the catalyst for the past few years. Now we get into the content, the high quality contentdriven business. We have to brings in the best accountant. We have to bring the accountant to the audience. Really drive the audience, the target audience into the cinema. This is the key point. They are trying to address with our strength and with the partner we work with. There is a lot of focus on the trade conversations at the moment. I wonder how much a business like yours benefits when there are Tariff Barriers protecting your business from foreign competitors. Well, i dont think that is their issue. The key is everybody expects the trade war can be resolved. It is in the Mutual Benefit of the people in china and the united states. Really improving their movie market and china Entertainment Market and also at the same time we work with hollywood companies. Think about how many movies we release, we work with over the past two years. Spiderman, men in black. The lion king this week. It is good news for china movie industry and hollywood. We definitely look at all the options to help the industry definitely. Ok. Give me some more details on that Strategic Partnership with 10cent. Thank you very much. That is an exclusive interview maoyan. C. E. O. Of under an hour from now, our guest is with us out of mumbai to give us a preview of what to expect. We have the tweets from donald trump to consider as well. The far in yeesd session Broader Market setup seemed to improve. Historically we have seen investors coming into the market and the Broader Markets doing relatively well. That is from yesterdays session. Most of the large gap stretched in valuations, you did see a lot of profit taking across the rld for some of the larger companies. The from that, you have heavyweights in the banking space, the names i just mentioned. You get what happens from the futures and options point of view. Yvonne youre watching inner globe here. A big blow to the company, the Aviation Company after a spat between two promoters that is not reaching the securities and Exchange Board of india. How is that stock going to open today . Well, that is going to be a big blow because the last time it was in the month of may when this came on the Public Domain the stock fell about 10 . This is now becoming a serious issue. If that is prolonged spat and it continues it could have an impact on the stock as well. We predict a downside open for the stock. Rishard thank you very much indeed. Charts. P, we have were going to head to head in battle of the charts. Thats next. Yvonne time now for our battle of the charts segment. We have our china correspondent. Im excited about this one here. Ishard i think we both are. David, you better have something special. Anyway, lets have lets kick things off with selena. Thanks, guys. I have the unlucky job going up against david. We saw passenger sales rise for the first time in a year in june but what im talking about here is some pessimism about the numbers. Obviously it was a huge improvement from fouling as much as 18 in april but to see the recovery, the car market needs to be a boost in consumer demand. Pressured with weak sales growth and inflation. The blue line is tracking very, very closely to the auto sales and you can see that it is very much in the negative territory which shows that the auto sales look like they are not going to be turning up very soon either. General weakness and chinese Credit Conditions have not helped. Autmotive loans are not looking for an uptick either. The future is looking bleak despite that brief respite. Yvonne i like it. David i actually like it as well. Very quickly, also in china. We have car sales yesterday. We had inflation today out of china. Just something to watch moving forward. Not exactly right now but because inflation has been pick up because of food, egg prices, chicken prices, protein essentially, your real yields in china have been pushing down. That is your shaded portion of your chart. The blue line on the top is the oneyear benchmark. I just put in difference. The difference between the line and the shade portion is of course inflation. Ust keep it in mind. Yvonne i like both of them. Im going to give it to selena today. Because we have some big auto guests today and they were talking about how were seeing some momentum now. Sorry. You win all the time. Selena, congratulations. Rish . Rishard i dont know. I was expecting better of you, david at this time. He let himself down. Emily im emily chang in san francisco, and this is bloomberg technology. Ivm closes its 34 billion deal with red hat. Our conversation with the ceos of both companies on the second largest tech deal ever. Plus, ibm isnt the only one making deal headlines. Cisco agreed to buy acacia communications. How does it fit into ciscos corporate makeover