I. M. F. To eliminate unfair competitive advantage thats been created by chinas action. This is according to Treasury Department statement. Remember, the last time that the Treasury Department had a policy report on the Foreign Exchanges, it was back in may and they stopped short of labeling china a currency manipulater. They havent done that since 1994. And the fact remains that there is a 2015 trade facilitation and trade enforcement act and china really does not tick all of the three different criteria. We are talking about minimum 20 billion trade surplus with the u. S. China does tick. But were not talking about repeated interventions in the currency markets or current accounts in excess of 3 of g. D. P. The fact that the Treasury Department went ahead with labeling currency ma china a currency manipulater will have to wait to see on what basis that has been done. There are analysts who have said there could be a currency manipulater designation through the older, 1988 omnibus trade and competitiveness act. Which gives more leeway for the Treasury Department to rely more heavily on this act, on a more subjective assessment. So lets see how things are shaping up in asia as we continue to see these developing tensions between the u. S. And china. Selina thats right. The big red headline today across the terminal is the fact that chinas being labeled as a currency manipulater and that is after we saw the offshore and onshore yuan blow past that seven levels. That offshore at 7. 1 against the dollar. Remember, this is the First Time Since 2008 for the currency to reach that level. Past that seven per dollar level. The pboc also set the daily reference rate weaker than 6. 9 for the First Time Since december. Worth pointing out as well that the pboc did say in a statement that the yuan continues to be stable and strong against a basket of currency and advises not to profit on speculation of the yuan. We also just heard that the current value is appropriate given chinas economic fundamentals. Shery thanks for that. Lets get a check of the japanese yen as well. Because we have continued to see the japanese yen rally against the u. S. Dollar on these moves. Weve seen across the broader markets, including that rally in treasury markets as well. Were seeing now the japanese yen at a level that we havent seen since april of 2018. And in fact we are seeing the japanese yen at the moment gain and breach that 106 per dollar level and at 105 per dollar. The u. S. Stock Index Futures also at the moment just taking a big hit. Falling. 9 . Falling 1 at one point. Of course we continue to see the implications of these tensions growing between china and the u. S. We have seen the biggest drop in u. S. Equity markets this year. Rallying global bonds as well with the 10year yield now falling to the lowest since before the 2016 election and u. S. Futures at the moment plunging. Lets turn to kevin in washington, d. C. , to walk you lose it this labeling of chinas currency manipulater. This is really surprising given that its not even time for that semiannual Foreign Exchange policy report that the u. S. Treasury department actually presents. Back in may, they refrained from moving. So what changed . The past 24 hours. In fact, i think theres three points that i would make on this. You mentioned what happened in may and then take a look at the events of last week. Where President Trump signaling that he was fully prepared to tack on additional tariffs to chinese goods, about 300 million worth in additional taferes. China responding at the end tariffs. China responding at the end of last week with comments of their own, suggesting they would be forced to respond. Then you look at what they did to their currency earlier today. That provoked tweets from President Trump in which he signaled earlier this morning that he said that they were manipulating their currency. China also having instructed their stateowned businesses to pull back in terms of some of the agricultural imports that they had made with regard to this. But this is without question the a red line from the administrations perspective that has been crossed. So President Trump for months, quite frankly for years, having said that he would assign this label of a currency manipulater to china. Now appears that he has done that. And this is without question an escalation of the trade dispute between the u. S. And china. Paul President Trump said hed do it on day one. So a tad late. But it has happened. Perhaps unsurprising in the current circumstances. But the president also said that hed like the Federal Reserve to counter the move. What hope of that, what hope of intervention from the u. S. . I think in terms of that front you have to look about the right decision, the right cut decision that the centralback here made rate cut decision that the central bank here made last week. The president saying hed like to see a more significant rate cut but the Central Bank Still having issued that rate cut. And then you had the pboc. From that perspective, they have released tough talk of their own against the united states. But i think in terms of a longerterm strategy, and this is a point that i would make in terms of the reporting that ive gathered not just from here in washington, d. C. , washington, but also last week in detroit at the president ial democratic debate. Everyone has suggested that china is poised to play the long game and outwait the Trump Administration, be it a fouryear or an eightyear term. But quite frankly, the same populist rhetoric that exists in terms of the conservative movement and the Trump Movement here in the united states, there is a parallel to be drawn in terms of progressive policies on the left. By the likes of bernie sanders, elizabeth warren. The bottom line, the point im trying to make here, is that this exists on both sides. Is if youre trying to gauge this out into a longer term or to try to see when this ends, im not sure that theres a precise nor an accurate depiction for when this u. S. And china escalation ends. And im not sure based upon my reporting if i can say that it ends outside of the trump white house. Selina whats really interesting when you go through the Treasury Department statement. Shery we are seeing theyre relying on that act that i mentioned earlierier earlier on the show. The 1988 omnibus trade and competitiveness act. In the Treasury Department says requires the secretary to analyze the Exchange Rate policies of all their countries. We had consistently talked to analysts saying that china does not qualify as the currency manipulater according to the 2015 trade act. But they could in the 1988 act, that is more subjective. Given this, its become very clear that this designation has become very politicized. And President Trump has also hinted at the possibility that the u. S. Might intervene as well. Has this latest action from china, and also the u. S. , raised those odds . Yes. Wholeheartedly yes. And in terms of the financial regulatory structure that you just alluded to, between 1988 and, you know, the second decade of 2000, thats the difference between a between a Bush White House and an obama white house. In terms of that legislation in particular. So how this is going to be applied is going to be open for debate. And in terms of the response. And this is where the politics of this, i mean, to bring it home, this is a geopolitical issue. But here in the u. S. , it is very much a domestic one. President trump does not have the full support of the Republican Party on his side when it comes to this. There are countless republicans, some of the most staunchest allies to President Trump, senator lindsey graham, for example, a republican from south carolina, boeing country, has suggested that he would like the president to back off. There is legislation that exists in the Republicancontrolled Senate that would seek to rein in how the president negotiates on the issue of trade. The point im trying to make and you know this well, this is a divisive issue that the ideological lines are so incredibly skewed. But without question, this is the most aggressive stance the president has taken with regard to china in his first term. If anybody was hoping for there to be some type of major breakthrough in the summer, by all accounts, this is not headed in that direction. And the president seemingly feeling emboldened as he is on the cusp of securing usmca in the fall. That he feels more emboldened to take an aggressive stance against the chinese. Shery you cant buy from china, then go buy from mexico, right . Kevin in washington, thank you so much. Our chief w. A. R. Are washington correspondent there our chief washington correspondent there. Bloomberg effects and rates reporter is here. Sue has been following stocks and commodities. Lets start with you. Because we continue to see this, the implication for global markets. This chart on the bloomberg just showing what emerging market currencies did as soon as we saw the yuan breach that seven level against the dollar. We saw the index plummet the most since may, 2018. Now we are seeing the Treasury Department designating china currency manipulater. How much worse it could it get for other assets . This label was completely unexpected. As you said earlier, we werent even supposed to get a ruling until october. So its going to be really interesting to see how asiabased traders wake up to this. What this does to currency volatility. I mean, already youre seeing the yen move and, i mean, we could be eyeing 105 by the time the dust settles. So for emerging market currencies, that could have vast implications. China acts as an anchor for that space. So, i mean, the yuan is moving right now. Its hard to keep up with it. But were already eyeing 7. 11. 24 hours ago we hadnt even broken seven. So we are seeing some wildfire moves right now and its going to be really interesting to see how the next 12, 24 hours evolve. Paul before even this development happened, wed seen global stocks selling off athe board. Futures already poing pointing lower. The u. S. Markets ended today down about 3 . So walk us through what happened. The selling was fast and furious. Its important to point out one strategist said it looks like we have a currency war starting. Both are bad for stocks. Lets go into the bloomberg, the title says it all. Rapid selloff. The dow down 960 points at the worst of it. The vix up 40 and the s p going from a record of a 5 drop with velocity rarely seen. In fact, theres only been two other times in the 10year bull market we dropped it less than six sessions by 5 . Lets go right into the os sox which was among the hardest hit. Semiconductor stocks in the last five sessions its been down more than 10 , as you can see. Five days straight is one of the longest selloffs weve seen in a while. Lets go into the specific stocks that were hit and you can see the size of the drop. Again, this has been a momentum sector thats been hit in many ways because theyre also in the bulls eye of these tariffs. Look, six, five, 5 across the board, lets also go in to some of the financials. Because you saw banks, you saw a lot of the financial firms, you saw visa, all sensitive to Interest Rate changes, all getting hit hard. Lets take a look also at the industrial companies, most exposed to china. The trade war and the tariffs. They dropped across the board. Whether it was Equipment Companies that sell to farmers, whether it was boeing and caterpillar. They dropped heavily and then theres big tech dropping also across the board. In fact, in the s p 500, there were only 11 companies that actually were in the green by the end of the day. Fast and furious indeed. Shery just not only u. S. Equities at the moment. Nikkei futures also falling below 20,000 in chicago. We continue to see the repercussions around the world and of course one of them was also the global bond rally. 10year yields falling to the lowest level since before the 2016 election. Were talking about the threemonth 10year yield inversion, also the most extreme since the 2018 financial 2008 financial crisis. Yet theres pecklation that perhaps given the expectations of where the economys headed, perhaps the yield curve could steepen. Yeah. Perhaps. Thats what you would expect to see. As the fed hikes again, you would see short end yields get supported. I mean, but at this point its really a 10year yield move, investors are seeking safety and theyre going straight to benchmark 10year yields and i mean, before we got this headline, we were already at 1. 7 on the 10year yield. So now its really a question of how low can you go . Shery what are we hearing out there . Well, its interesting. This morning in new york, we had blackrock on tv talking about 1. 5 . 10 hours ago it looked pretty far away. But i mean, yields are moving with a fury right now. U. S. Still has high yields relative to the rest of the world. Which just increases the attractiveness of treasuries right now. Paul sue, you were talking about equities earlier. Lets talk about commodities now. Getting hit hard. Oil sinking. Weve seen ironore drop from 120 to 100 now. That will be very significant for us here in australia. I guess unless its gold, commodities have really been getting hit pretty hard too. Yeah. Again, the moves were fairly extreme. Traders were not shy about hitting sell early and often. Lets go right to the oil chart. Because a veteran in the oil field mentioned oil is taking a hit with the escalation of the trade war and also the slide of the u. N. And yuan and he also points out it is overshad ogbueze the demand story overshad ogbueze the demand store overshadowing the demand store. This story trumps all. Not auto to use a pun. Lets go quickly to gold. Gold also having quite the day. Im looking at an e. T. F. Here that hit a high for the year, as just your investors from wall street to main street, piling in to gold. Gold is the underlying commodity. Trading near a sixyear high. It continues to be bolstered by is these factors which is instability, the conviction soaring to 40. Shery lets talk more about the currency markets. I was asking kevin this. Given President Trump really not happy with whats happening with the chinese yuan, and in fact not happy with a lot of currencies, including the euro, what are the expectations that perhaps the u. S. Could intervene in the markets and what would that look like . This is a Fascinating Development because i was talking with someone from jeffries earlier today and they were telling me that before you saw the u. S. Intervene, you would probably see the u. S. Label china a currency manipulater just so they would have that justification to go in and forcibly weaken the dollar. It was said this morning that they would put 20 odds on u. S. Intervention. Id have to imagine those odds have increased in the last 20 minutes. And it will be really interesting. Trump can ask treasury to intervene and that doesnt require congressional approval. So well see if this is the first step or where we go from here. Paul all right. Katie and sue. Thanks very much for joining us. Lets get back to selina in beijing for a check at whats happening in the markets. Selina were looking at red across the board here. Youre going see, look at the nikkei down almost 1 . The kospi down more than 1. 4 across the board. Theyre looking at the fallout from trumps latest trade escalation. Well have to see also how the stocks when they open react to this currency manipulater labeling and we also saw stocks take another beating. Late yesterday after bloomberg reported that china asked state purchases to halt imports of american agricultural products. No window into how these trade talks are going to develop. And also look at the new Zealand Stock Exchange right now. Down more than 1. 6 . About 1. 6 . Were looking ahead to the new zealand Unemployment Rate later this hour that will be breaking. Also looking at south koreas june current account balance and japans household spending. In addition to that, switching boards here, five Central Banks will be making Rate Decisions this week. Markets are predicting that policymakers in india, the philippines and new zealand will all cut Interest Rates to shore up this faltering growth while those in australia will be pausing after those backtoback moves. Shery thank you so much for that. We are seeing q. E. 10year bond yields dropping to a record low of 1. 245 . Really that global bond ral rally, the flight to safety continuing. Joining us now is a u. S. Investment strategist. Great to have you with us. What a day to come on the show. Theres so much to digest. Just before you came on, the Treasury Department really shockingly now naming china currency in a lip a currency manipulater. We were not expecting this. Whats next . In your notes you say the black swan would be escalation of u. S. China trade war. Its already happened. War. Its already happened. Yes, absolutely. I think this currency manipulater label is probably another form of escalation here. Clearly the chinese are not going react well to this. Especially right after they said just this morning that they are not using the currency as a tool in this trade war. Were looking at whether this tariff goes through and whether or not this has an impact on the u. S. Economy. Is this going to be a Systemic Risk . Otherwise what were looking at here is maybe a 5 to 10 correction in the markets. Were already down about 6 in the s p. If we can get through some data that shows us this will not impact the consumer, that the u. S. Is not going to go into recession, perhaps were looking at a run of the mill correction. If not, if we are getting into more Systemic Risk, potential recession is closer than we think, then were looking at something a little bit more severe here. Shery how justified are the moves in the chinese yuan . Especially given that the given that the tariffs have been announced . I mean, when you apply tariffs on a country, you weaken their currency because their terms of trade have worsened. Yeah. Generally speaking that is the natural path of a currency. What we saw this morning and last night was that move above seven was really crossing a line in the sand that a lot of investors had been looking for some time. So that was kind of, you know, what we were looking at more optically here. What ear seeing now is a reaction from both sides. One saying were not interfering. The u. S. Claiming they were interfering. But clearly the currency has been on top of mind of the u. S. Administration and President Trump. So he wants and perhaps the got to some extent the dollar to soften as well. That helps our exporters and consumers to some extent. This will be key in the trade war going forward. Paul if i can just float a rather odd idea out to you. Perhaps this labeling of china as a currency manipulator is a tad backwards. All theyve really done is step back and let the market doits job. They stopped being a currency manipulator. Thats a great point. If were going to impose a 10 tariff, perhaps a so decline in chinas currency is a National Market reaction. There is a camp that will probably tell you, china has not interfered here. This is a Natural Market reaction to whats happening because of the u. S. Aggravation of this trade war. So i think there is a camp that will say, you know what, this is Natural Market reaction, if we go to 25 , perhaps we get a more severe reaction in the yuan. Theres certainly a case for that, i think, as free markets unwind here. Paul unsurprisingly, this is something im sure well see over the course of the day, a lot of traders getting defensive. You remain defensive as well. Very crowded place to be. Where do you find yield now . I think generally when we were looking at even ahead of the fed meeting, we thought the expectations for dovish fed were rising. We saw the 20 increase in the s p. We thought perhaps there was some chance that we would get some disappointment around the fed, little did we know that would also be then followed by a tweet about trade wars. But we thought perhaps wed get this 5 or 10 correction in equity markets. What were thinking now is as we said earlier, will this 10 , 5 , 10 correction, be something a little more systemic . That remains to be seen. Our general positioning remains defensive up in quality, in terms of yield itself, you know, there are parts of the u. S. Yield curve that remain attractive. Duration is probably still interesting here if you think about whats going on globally. But more broadly, what we like to see is up in quality, investment grade. Parts of perhaps the securitized market thats more levered to the u. S. Consumer. And then there are areas that do offer yield. Including parts of convertible and preferred securities as well. Maybe some global highyield areas as well, although we remain a little more cautious there. Shery we see the yield curve start to steepen given the expectations that the fed has to do something now . I think the fed was hoping that would be the reaction when they cut rates last week. We havent seen that happen. In fact, the long end of the curve, which is typically driven by g. D. P. , growth expectations and Inflation Expectations came down. So i think if they go on a rate cutting cycle, perhaps cutting rates two, three plus times, perhaps they get that reaction in terms of steepening. But for now i think more Market Participants are worried about, are we going to get a slowdown in growth and him that pacts the long end of the curve. Shery as he continue to see this mentality as wen to see this mentality, a at a time when the fed is cutting rates, when were seeing pretty positive economic data, how do you have to position for that environment . I think before the tariff tweets, what we were seeing clearly is that the u. S. Consumer was decoupling. Strengthen the consumerdriven, buy low Unemployment Rates, High Consumer confidence, wage growth starting to accelerate. So we clearly saw a u. S. Economy which is 70 driven by domestic consumption, being supported by the consumer. Now, that still may be the case, but what well have to see is this last trauverage of tariffs is focused on consumer goods. So areas like textiles, apparel, footwear all will be impacted. 10 not as bad as 25 . So maybe theres some ways to work around it. Diversify its supply chains, etc. But if the consumer is impacted, i think well have to see if the u. S. Economy also softens. So thats the next step to watch out for. Paul if we can look into the crystal ball, into the second half, you really do have to wonder, after a pretty mixed earnings season this time around, how earnings for the next half are going to look. Yeah. Thats a great point. I think coming into this earnings season, we were looking at a negative 3 yearend expectation for the s p. Well probably end up about negative 1 . So better than expected. What were really watching for is that second half and particularly q4. Theres still this expectation that well get this almost lshaped recovery with q4 being up 4 to 5 . If theres any risk, i think thats where it lies. I think q3 expectations have come down, given guidance that weve gotten this quarter. Generally speaking, were looking at an s p this year, 2019, that will be up, low sickle Single Digits in earnings. Somewhere 2 to 3 range. Quite a stark con forecast from 2018 where we were up contrast from 2018 where we were up 20 plus. Low earnings have not been a driver of low returns in the s p. 2 to 3 you can typically get a doubledigit return from the s p. So not necessarily correlated from that perspective. What really is worrisome is more this escalation and risk from trade in particular. Paul as sue was mentioning earlier, we had a look at the Philadelphia Semiconductor index. One of the hardest hit in yesterdays selling. Its probably not going to be a great day today either. How heavily can you see tech being hit over the next few months . I think the areas of technology that are exposed to china and the china story and more globally or yebted with this slowdown in growth oriented with this slowdown goth from china and europe in particular will be hit. There are areas of technology that we think do still have longterm secular growth themes. Perhaps not as oriented to china, areas like cloud computing, cybersecurity is an area that we like. Mobile payments continue to be interesting globally. So i think there are areas that you can invest in and perhaps start to pick at as we get through this corrective phase. For longer term investors. Shery thank you so much for that. U. S. Investment strategist. Of course you can get a roundup of the stories you need to know to get your days going your day going in day break. Also available on mobile in the bloomberg app. You can customize your settings so you only get the news on the industries and the assets that you care about. This is bloomberg. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Paul 8 30 a. M. Tuesday morning here in sydney. The market open here 90 minutes away. Right now we have futures pointing lower by a little more than 1. 5 . However, these futures do not press on the news we just had that the u. S. Has now labeled china a currency in a manipulator. When those numbers reset in about an hour and 20 minutes time, you could see a pretty big change to the down side. On what promises to be a day of pheeskal on the markets. Shery youre watching day break australia. Lets get the first word news. Thanks. The indian rupe fell the most in almost six years as the government stretched the special status. The move stripped the people of longheld rights to employment, scholarships and land ownership. And triggered protests from local residents and from pakistan. Critics of hindus government see the move as an attempt to dilute the demographics of muslim majority kashmir. The u. K. Will join an International Mission to protect shipping in the gulf as tensions rise with iran. The government is encouraging strait safeguard the strait of or muzz although e. U. Nations have been hormuz straight of hormuz although the e. U. Nations have been reluctant so far. The u. K. Called for a european initial toive protect shipping s it sought to protect the deal. North korea has launched more project aisles, ramping up the pressure on the divided peninsula. Seoul says the north fired two unidentified weapons into the east sea before dawn. Before such launch in about two weeks. The latest test comes as south korea and the u. S. Began military drills which pyongyang described as a violation of an agreement struck between kim jong un and President Trump in singapore. Wall streets biggest fall of the year has seen the wealthiest 500 people on earth losing more than 2 of their net worth. 21 members of the bloomberg billionaires index each lost 1 billion or more, as markets reeled from the escalating trade war. Jeff bezos lost the most, shedding 3. 4 billion dollars as amazon shares tumbled. However, hes still pretty well off with a fortune of 110 billion dollars. Global news 24 hours a day on air and attic tock on twitter. Powered by more than 2,00 journalists and analysts. This is bloomberg. Shery now watch to what to watch in markets this morning. Selina its another massively busy day for the markets, digesting that news weve been talking about all morning. That chinas been labeled a currency manipulator. The futures are pointing to weakness at the open of asia trade. Look at the nikkei futures. Down about 1 or more. Later this hour well also be breaking the new zealand unemployment, south koreas june balance and japans household spending. A busy day aside from the trade esca laces. I also want to escalations. We have five Central Banks that will be making Rate Decisions this week. Markets are predicting policymakers in india, the philippines and new zealand to cut Interest Rates to shore up that familiaritiering growth while those in australia will be pausing after those backtoback moves. And thailand also looks set to avoid lowering borrowing costs. I also want to bring up this terminal chart, switching gears a bit. Australias dollar, falling to near its year to date low as china has been escalating its trade dispute with the u. S. The low so far was at. 6748. Thats never sauce. 6741 of the flash crash low. According to asiabased currency traders, what weve been learning is that the pair saw a really aggressive selling from hedge fund and macrofunds as the yuan breached that barrier. Shery thank you. Lets discuss a little more the latest development with the u. S. Taking the rare step of labeling china a currency manipulator. For more on the implications of this, lets bring in Bloomberg International economics and policy correspondent. He joins us now on phone from new york. The reason that this was so surprising is that according to a 2015 trade act, china doesnt really classify as a currency manipulator manipulator. So how does the Treasury Department go ahead with this move . Reporter it appears they may be leading on the original 2008 law that was modified by the 2015 law. Youre right. Under the 2015 law, there are three criteria that enable the treasury to name a country a currency manipulator. One would be a significant bilateral trade surplus with the united states. China certainly qualifies on that. A current account surplus that is at least 2 of gross domestic product, chinas under 1 right now. And then persistent onesided intervention conducted repeatedly, china hasnt intervened at all to affect its currency. At least it didnt in 2018 according to the i. M. F. Last month. So two out of the three criteria, china doesnt meet. Under the old law, the treasury secretary could just determine that a country was manipulating its currency for unfair advantage in trade and name them a currency manipulator. That seems to be what this Treasury Department is doing now. Paul mike, its obviously very big news. But in practical terms, what does it mean . When chinas been labeled a currency manipulator . What happens now . Reporter well, essentially what happens now is the u. S. Asks china not to do it again. Thats really the main penalty or the main currencies that the u. S. Is supposed to start negotiations under auspices of the i. M. F. To recommend digit situation. But since the i. M. F. Doesnt think that chinas currency is undervalued or overvalued, they think its broadly in line with fundamentals, it doesnt seem much would come out of that. After a peered of a period of a years, if nothing happens, then the u. S. Could take some minor steps to sanction the chinese, including suspending overseas private Investment Corporation loans to china. The u. S. Has already suspended those loans. So there isnt really much they can do. At least under this law. What they might do and what people have been worried about is the Trump Administration is , lking about imposing tariffs additional tariffs on china if determined to be a to be a currency manipulator. Its never been done before. Its questionable whether its legal but the treasury Commerce Department and the administration think it is. So that might be something to watch for. Shery of course we are also continuing to hear speculation of whether or not the u. S. Could actually intervene in the markets. We have heard from the white house Economic Advisor that that was not on the cards. But President Trump seems to disagree. So, are the odds rising now . Reporter its hard to see how they would do that. Because you cant bayouan directly. So how you would influence the value is hard to see. You could buy offshore yew en yuan but its not a very deep market and china could offset that in a very short period of time. So it wouldnt have much effect. Its the administration if the administration thinks the dollar is overvalued across the globe, it could intervene by buying currencies that are in the say the Federal Reserves tradeweighted basket. But that would involve buying the canadian dollar, the japanese yen, the mexican peso, countries with which the u. S. In theory has good relations and doesnt want to start a currency war. Its hard to see how they could go into the markets and have an effect at least the kind of effect they want. Paul all right. Bloomberg International Economics and policy correspondent. Thanks very much for joining us there. Kokkinakis ok. Lets get more on what we should be watching as trading gets under way in asia. Emerging markets hardest hit in this trade. Currency crossfire. But theres one market in particular looks like its the most vulnerable. And that would be korea. Thats right. Emerging markets have bor nembings the brunt and are borne the brund and are probably going to see brunt and are probably going to see more pain today. I think weve got a chart that shows the correlation between e. M. Current sis and the offshore yuan is the strongest its ever been. But as you point out, korean assets, they declined both in the equity market and in the currency market. Yesterday we saw the one sliding to the weakest since march, 2016. The threeyear yield in korea falling to a record low. What is adding to this pressure on korea is this spat with japan. Tokyo has removed seoul from this list of trusted export destinations and korea saying it will do the same thing. So not only do you have an exportdependent market being hit by being caught in this crossfire of the u. S. China facing r, its also this potential slide in the demand for its memory chips following this spat with japan. So a double whammy for korea. Shery talking about japan, we are seeing the japanese yen continue to surge against the u. S. Dollar. Now at the strongest level since april of last year. Given the risk of sentiment around the world are these the traditional safe havens like the japanese yen, like bonds that are going to see further upside . Hi. Yeah, look, thats right. I think investors are really looking where to park that money in this route. So we did see gold rise yesterday. Heading towards that 1,500 an ounce with bond yielding tumbling around the world. The u. S. Treasury now at the latest low of the since before the u. S. Election. We also saw cryptocurrencies spike up again, bitcoin heading toward that 12,000. They are becoming increasingly place of refuge during these times of distress and as you said, the yen also jumping quite sharply in the last few days and that sevenmonth high. I think you will continue to see investors flocking to this market in these times of turmoil, as tre try they try to assess whether we are on the cups of a currency bar war. Shery thank you for that. Bloombergs asia cross assets editor joining from us sid nifment you can find her charts sydney. You can find her charts on gtvgo on bloomberg. The unrest in hong kong continues as protesters move to shut the city down with a general strike on monday. Flashes flared between pro and antibeijing camps with at least six people arrested overnight. Our reporter is watching the development. What happened and what are we xpecting the rest of the week . Reporter just to set the tone here. Im here in the neighborhood of where one of the seven districts that saw protesters rally on monday. Its a very different scene were seeing this morning. We have morning traffic. While yesterday we saw this area she rouded in white smoke shrouded in white smoke as protests intensified. We also saw residential areas being caught up in those demonstrations which brings that protest so much closer to home 82 people were detained on monday. Taking the total tally to 420 arrested since the clashes began on june 9. The ages of though arrested yesterday range from 14 to 76. Indicative of how widespread the discontent has become with students to retirees joining in he demonstrations. Paul we are expecting to hear some more comments from beijings office in hong kong today. It will be the second time in two weeks, after many years of silence, what are we expecting to hear there . Reporter yeah. Officials from the hong kong and the Affairs Office in beijing plan to speak to the media today. Expected to announce something new. And this comes after state media on monday reiterated support for. These are a headache for chinas leaders who are having their annual retreat in the resort area and one observer, who is an advisor to chinas cabinet, his take here is that china is hoping to win over the hong kong public by underscoring the economic damage while also bringing charges against violent protesters. But this approach so far, that has not worked, to stop the protests which are being fueled by students who do see little Economic Future in the city. And Market Sentiment has also een expected to stay sour. Developers and casinos shares among the biggest laggereds in the city and that is seen continuing with more demonstrations expected in the coming weeks. Plus there is little impact for the u. S. China trade talks which have weighed on the hong ong economy. Paul sophie in hong kong. Thanks very much for joining us. Well, coming up next, you could have been for given for forgetting this was happening but the bank of australian making a Rate Decision in the coming hours. George Bank Senior Economist tells us what to expect next. This is bloomberg. Paul the bond yield has fallen below 1 for the first time. Well have proper on that in a moment more on that in a movement the record low for the aussie 10year bond yield. But we have also breaking news out of new zealand. Weve got the Unemployment Rate falling quite steeply, down to 3. 9 . The expectation was for 4. 3 in the second quarder quarter. So a big decline in the kiwi Unemployment Rate. Down to 3. 9 . And were seeing a require spike in a currency today. Thats the new zealand dollar. Its rising quite sharply against the greenback now at 65. 74 after those much stronger than expected unemployment figure for the second quarter. Shery plenty to watch on todays market moves and the coming hours from will bring us a Rate Decision from the reserve bank of australia as well. Policymakers are expected to keep the cash rate at a record low 1 after backtoback cuts back in june and july. Still markets expect further cuts ahead. As a wave of global easing threatens to neutralize its previous moves and boost the aussie dollar. Which has led slid to near its slash crash lows. Westpac among those who have fulled up forecast for more cuts ahead. The chief economist sees the r. B. A. Cutting twice more to half a percent and is bringing forward its call for the next move to october from november. Theres no shortage of reasons ment more fed ease something expected and the domestic label market is fast deteriorating. Regardless, australias role as can glar in the global coal mine canary in the global coal mine will continue to stay in the spotlight. Paul thats right. You did touch there upon westopinion acs modified view for the bank of australia. Thanks for joining us. Tradition dictates that the r. B. A. Usually cuts a couple of times and then sits back and waits and sees. If they move today, it would be a bit unusual. But the markets kind of stipped skipped to the end, hasnt it . What do you see happening . It is very likely that the r. B. A. Will cut rates again, given the global outlook. The domestic outlook. And ultimately the r. B. A. Wants to see the Unemployment Rate lower. To get inflation back to its target. And it sees that it can do more to get this there. So it will do more. Paul what is the full employment rate now . Part of the reason its set that low is to get inflation going. But the phillips curve sort of seems to have joined flying pigs in terms of mythical status hasnt it . Is it going to work . It doesnt work anywhere else in the world. Thats an argument for the r. B. A. To do more, not less. And yes, there is that recognition that Monetary Policy does not have the effectiveness as it has in the past. So, the r. B. A. Will do what it can. In terms of where full employment sits, there were estimates it was around 5 . But given where wages and inflation is sitting now, there is that evidence of spare capacity. The Unemployment Rate at full employment is more than likely lower than what it is now. R. B. A. s estimated 4. 5 . If we do get towards there, we would want to see wages and inflation pick up as we get there. Shery and yet we are seeing the Housing Market in australia stabilizing a little bit. The chart on the bloomberg showing that according to core logic numbers, the Property Market is starting to show some signs of pulling out of this twoyear slide. Home prices eking out a little. But still, you would say signs of stabilization, does that increase the incentive for the r. B. A. To move right away . We are certainly seeing those signs that the Housing Market is stabilizing. Now, for the r. B. A. To move right away, i mean, it is coming back from two backtoback rate cuts. Not something we can i think we can altogether allow. But given that they have just gone two times, the data over the past month or so have had inflation data, weve had label market data, that wouldnt suggest that urgency for them to go again as soon as today. Rhetoric has also toned down a bit. But still leaving that door open for rate cuts. So october seems like a more realistic month. Given that there will be time for labor market data to feed in. We are the view that labor Market Conditions are going to moderate. And leading indicators are pointing to slower employment growth and the risk that that points to a risk that the Unemployment Rate is going to edge higher. So thats moving in the wrong direction for the r. B. A. And that could trigger the r. B. A. Again. Paul we want to bring up another chart on the bloomberg terminal. This shows the us aiay dollar getting close to a aussie dollar getting close to a slash crash load. Its nearly the weakest in 10 years now. Im sure, like myself, you remember the old days when the former r. B. A. Governor tried to jaw bone the aussie dollar lower. Might we see the r. B. A. Try to jaw bone is higher . Does that look oversold now . I doubt the r. B. A. Would do anything of the sort. They want the Australian Dollar lower. I think the fact that the aussie dollar is weab be weakened, the positive development for them. Of course the reason behind the aussie dollar weakness is not a positive. The fact that Global Growth concerns have escalated and trade tensions are becoming a bit more uncertain, so thats not a positive. But given the weaker aussie dollar is better for the r. B. A. Than a higher one. Shery lets talk about the kiwi dollar now. We are seeing it jump as much as 0. 7 . In fact, to 65. 73. This after better than expected jobs numbers. We saw the unemployment raw now dropping to 3. . The unemployment also growth. Does this change the callation at all for the calculation at all for the r. B. A. That were expected to cut rates this week . It does i guess change the equation a little. That it does suggest that the labor market is performing a lot better than what people had expected. Growth ave the global environment, a lot more uncertain. Australian economy also looking a little looking weak as well. And so its the Global International developments which i think tilt the risk to the r. B. A. Cutting. Hey have signaled that another cut to the o. C. R. Was likely. And so i think that those international factors factors could get them to go. The domestic economy in new zealand has held up i think rather well. So i think its more continue to signal that strength in the domestic economy. But those international factors are going to be a concern. Paul all right. Thanks very much for joining us. You can watch us live and you can see our past interviews on our interactive tv function at tvgo. And there you can also dive into any of the securities or bloomberg functions that we talk about and you can become part of the conversation by sending us instant messages during our shows. This is for bloomberg subscribers ofpblete you can check it out at tvgo. This is bloomberg. Shery trading in new zealand under way. Were an hour away from the open in australia, japan and south korea. At the moment, risk sentiment across the board, were seeing stocks down 2 despite the fact that we saw some stronger than expected jobs numbers. The kiwi dollar jumping at the moment. Sydney futures down 1. 7 . This is before it actually gets updated. And we are seeing the stock market there at the lowest level since december. Nikkei future downs 1. 3 as the japanese yen now is at the strongest level since april, 2018. This of course after the Treasury Department labeled china a currency currency manipulator. Paul yeah. Promises to be a wild ride today. Theres meanty more ahead in the next hour of day break asia. Well be joined by jeffreys global head for his take on the u. S. Decision to name china a currency manipulator. Shery good evening from new york. Selina and im in beijing. Welcome to day break asia. Good evening. I am shery ahn. I am selina wang in beijing. Welcome to daybreak asia