Paid hundreds of outside contractors to transcribe clips of audio from users of the services. More on that get exclusive story through the day. I want to check in on asset prices that show you what kind of risk on rally we had after donald trump said he would only put tariffs on part of the 300 billion worth of goods from china that he had previously flagged to start in september. We see asian stocks rising after the massive rally in european and u. S. Stocks, gains of 1 and more than 1 across the board in the u. S. You also see another contributor to the risk on sentiment. For the fifth day in a row, china has set the yuan peg stronger than expected. Five days in a row the pboc says it is stronger than the market signaled the. Signaled. Ket , no more safen haven bid, the dollar gaining strength against the japanese currency. For the yen. Nejra perhaps some part of the market saying we got ahead of ourselves yesterday. The s p 500 jumped 2 at one point. Apple leading the gains. Only some of the goods will have tariffs delayed. The market has to face whether this is an easing trade tensions, or something before further escalations. The 10 year yield back up as well. It is now back below 1. 70. Heading to zero on that. Wti, it seems the u. S. Stockpile is in focus. We trade at 56. 42. Matt it is a big mess for chinas Economic Data, weak figures across the board. It is taking some of the shine off of the market relief brought by Donald Trumps reprieve. Expanded 7. 6 compared to a projected 8. 6 increase. Asian equities trend the gains, futures stock into negative territory. Markets have been on something of a high after donald trump announced a delay to china tariffs on a variety of Consumer Products including toys and laptops. There are still products that including macffs, computers and agricultural products. Joining us now is Joubeen Hurren , Portfolio Manager fixed income, aviva investors Global Service. Great to have you with us. We saw that huge rally in the s p 500 yesterday, a risk rally. A pause in take markets, do you see this latest move by President Trump as a pause before further escalation . Joubeen i think that is a likely scenario. Is on some goods previously planned, and these are goods that china has over 75 imports shows it is not a function of the u. S. Administration wanting to put an olive branch to china, but to protect sales going into a holiday season. It is not a material shift in a negotiating stance from the u. S. Administration. That it has been driven by instead of asure step forward on negotiations means it is likely we are talking about further escalation down the line in the future. Matt we do see weakness at of the chinese willing to fix the you want the yuan. Maybe a little olive branch from them as well . Joubeen i think the initial move past 7 on the dollar was a shot across the bow. To remind the world and the u. S. Administration this is a tool they have and are willing to use. It is unlikely we will see a largescale depreciation of the yuan because we know what happened in 2016 when that took place. China will be quite willing to limit that. It is likely the depreciation we are seeing is measured from here and gradual. In terms of Growth Numbers, Industrial Production retail sales and fixed investment, but also the credit data we saw earlier in the week points to a slowing picture in china, and the question for markets is when will chinese authorities step up from here and talk about further easing, things they have been reluctant to do. Nejra what is your expectation in terms of stimulus . And what does it mean for how you want to invest in china . Joubeen we think the cmi rates are likely to go lower from here. The growth data looks week. Positive, itpi is is supported by food prices because of the situation with pork prices. His points to lower rates from a valuation perspective, a spread of 130 basis points versus swaps, ive your in china are attractive here. Matt i noticed you are shorting the korean won as well as the taiwan dollar. Can their Central Banks act to move the currency, or do you expect them to continue to weaken . Joubeen we expect them to weaken further from here. These are small open economies that sit in the axis of this trade war and slowdown in china. To us, these economies are vulnerable. The supply chains integrated in the tech sectors which is a key area of focus in the trade war. Currencies can appreciate depreciate further from here. The u. S. Looks like a good place to invest in even though the data has slowed. The dollar is relatively well supported versus asian currencies in that context. Nejra how much more vulnerable or risk assets when we talk about equities . In theget to lows we saw Fourth Quarter of last year . Joubeen i think equities are torn between two aspects, the Growth Outlook continues to weaken, so not only in china but globally we are seeing weakness in Growth Numbers in the u. S. , europe, and in asia. We clearly have a major shift in Monetary Policy this year, that is supporting valuations. There is a breaking point, but if growth we can sufficiently, central bankers, the amount of easing may not be enough. Ultimately, we think the central bankers globally have the ammunition and ability but not the willingness to do the stimulus required. The last Central Bank Meetings disappointed markets because they signaled further easing not as much as the market has been expecting. Matt Joubeen Hurren, Portfolio Manager fixed income, aviva investors Global Service has a lot more to go through. We are asking the question on mliv, how far can global stocks advance . Would the move by President Trump yesterday, you can join the debate and reach out to us on the online team mliv team to contribute your answer. Thus get the bloomberg first word news. Phase, angelault merkel describe the german from thecoming back Summer Holiday more pessimistic about the economy and inclined to do something about it. Monitoring the situation. At 7 00 a. M. Ts london time. Facebook has been paying contractors to transcribe audio clips. Are not told where the audio is recorded or how it was obtained, only to transcribe it. Facebook says it will no longer do so. Italian Prime Minister has been called before the senate on august 20 as Parliament Response to the political chaos that has gripped the thirdlargest economy. There are other options including the Prime Ministers registration. Negative yields in the u. S. , Alan Greenspan says he would not be surprised by the move. And that zero has no meaning. Global news, 24 hours a day on air and at tictoc on twitter, powered by 2700 journalists and analysts in more than 120 countries. This is bloomberg. Thank you so much. The u. S. Is urging china to respect the autonomy of hong kong. They claim china is mobilizing after the clashes at the airport for a second day. President trump we will see what happens. Am sure it will work out i hope it works out for everybody including china. Lets cross over to hong kong and stephen engles. We just had a response from china. Tell us more about what they said. Do not mistake this smaller protest today for being a lull. There is a lot of tension builds up. The big question is whether the protesters will come out in full forces like yesterday and the day before. Six days in a row. The rhetoric is being amped up. We were here in the thick of it yesterday. Protesters swelled into the thousands and left there contained area marked by yellow paint, and they went upstairs to disturb the departure lounge. Thousands of protesters in the re. This is chinas response in the last hour. China strongly condemns what it says were almost terrorism behavior. They also called them writers and said they must be punished they, that is from also called them rioters. Fromer statement we got that theon office says protesters at the airport have behaved like terrorists. This is significant because if , thatad the tea leaves could be justification for going beyond the normal scope of activity by the pla. To that donald trump alluded intelligence sources in the United States have indicated to him the chinese are building up troops on the other side of the border. Audience,ternational i must stress there is no indication china is sending troops across the border, but the rhetoric is getting tougher and quicker. Matt thank you so much for that. On the ground in hong kong. Coming up, secondquarter numbers. Watch for any update for german companiesguidance. We will talk with thomas blade. Do not miss that interview after 7 00 a. M. London time when german gdp figures come out as well. This is bloomberg. Nejra this is bloomberg daybreak europe. I am nejra cehic in london. Int i am matt miller berlin. We go to Juliette Saly in singapore. Juliette news of the tariff delay has given a boost. Msci is having its biggest jump in a month today. Stocks recovering nicely. The yen is being boosted by the disappointing chinese data. Hong kong stocks recovering after the 2 drop in the wake of the tests. Chinese Stocks Holding onto gains. We saw that data dump, lower industrial output weakening to a 17 year low. The aussie falls on that data. The kospi is looking good because of the tariff delay, a lot of positivity momentum. Tencent is coming through with numbers after the bell, and there is expected to be a bump of 27 on the quarter. Also off a low base from the Second Quarter of 18 which was hit by that sharp reaction in terms of china clamping down on mobile gaming. This chart shows analysts are less bullish on the stock than they have been in the past on concerns of advertising revenue impacting on the company, and what they are looking for in terms of future growth. When you look at the anr bloomberg, 50e buys, zero holds. Nejra zero cells, that says something. Lets get a Bloomberg Business flash. Has agreed to merge with viacom in a 12 billion transaction. Combines the broadcast paramountith parent pictures and mtv and nickelodeon. It will be called viacomcbs. The trade Commission Wants to hear complaints from amazon sellers. They are looking into allegations of merchants being punished by lower prices elsewhere. The fec is looking at a broad review of the tech sector. The market rout in argentina is wreaking havoc on some of the largest u. S. Money managers. It suffered its largest drop since the 2008 financial crisis. Argentine sovereign and Corporate Bonds erased 16 billion of value on monday. That is your Bloomberg Business flash. Matt thank you. Yields on 10 year treasuries have fallen lower again on weak Economic Data out of china. The rush for cover from global risk is overshadowed by u. S. Inflation data. It hit a six month high in a broadbased gain. The pickup may limit the case for an additional rate cut, but scott minor told bloomberg a halfpoint reduction between meetings would send a clear signal. Given the fact that the fed is boxed in the way it is, my view is they should go ahead and cut rates dramatically by half a point, and probably do it and get it over with. Matt Joubeen Hurren, Portfolio Manager fixed income, aviva investors Global Service is still with us. Markets are still pricing in more than 50 basis points in cuts. What do you think about the with aion they should go surprise 50 basis point cut between meetings . Joubeen i think the rationale would be that it is difficult at this point for the fed to outdove market expectations. Once it has priced in, it does not have impact on financial decisions. The price action we had after the last fed meeting, even though they cut rates and stopped the wind out of the balance sheet, the market says that is not enough, and the bond market rallied after that. We saw the curve flattening. That is not the price action the fed would be hoping for if they wanted to deliver a dovish output from that meeting. The idea they need to cut more aggressively or signal a more dovish response than the current market narrative, it does make sense from here. Those of the conversations members will have going into the next meeting. Curve, aretwoten you bracing for an inversion . Of curvethis kind conversation is a key input into many of the fed recession models. The fed will be looking at the fact that the bond market does not give them credibility, the current easing they have priced in is enough to arrest the slowdown. You could split the members into two camps, those focusing on meeting indicators like the global pmis are slowing. Then what complicates matters is that the Unemployment Rate is still very low, inflation is moving higher. If you look at the measure, one of the key measures, the problem is those data points are lacking in nature. Inflation lags growth by 12 to 18 months, and the labor market, wages, and employment are the last things that drop as the market as the cycle matures. Members saying there are parts of the economy that look strong, labor, wages, and inflation, and that justifies a less dovish stance going from here. It is likely the voices that are more forwardlooking will increase in the volume. Matt given the cpi print yearoveryear 1. 8 , we were looking for 1. 7 , the core at 2. 2 , we were looking at 2. 1 , how do you feel about your u. S. Chips long right now, and what trade you want to make on top of that . Joubeen weaving bonds in the u. S. Are well supported here. We are operating where inflation in the u. S. Is relatively elevated on a global basis. The view on tips is for the fed to credibly extended this cycle, they need to increase inflation premium. One of the key differences in operating when policies toward the zero lower bound, and this is a narrative from the u. S. And europe already has negative rates, with rates at these low levels, you need to act faster and more aggressively than you would in a slow cycle. You do not see a collapse in Inflation Expectations, because we know how hard central bankers are looking at japan as a case study, how hard to reignite Inflation Expectations once they fall. Nejra is that why you think the fed will deliver more than the market expects after 2021 . Context in think the the late cycle environment, the market is pricing about 100 basis points of cut from here. It is probably the midcycle adjustment powell was talking about in his previous rest conference. We think that is likely to be delivered Going Forward because the global picture does look weak, but it also looks like the next three to five years the fed nearbe needing to cut zero. Nejra do you expect the curve to steepen . Joubeen we do expect that. There is value here. Is stayingeen hurren with us. Coming up, a bloomberg exclusive, facebook admits contractors listen to recorders of users without their knowledge. We get into that story next. Traveling to work, tune into Bloomberg Radio live on your mobile device. Radio is available in the london area. This is bloomberg. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Nejra this is bloomberg daybreak europe. Matt as we have been covering, it was a big miss for chinas Economic Data. We figures across the board are taking a little of the shine off release brought by u. S. President donald trump straight reprieve. But we have confirmation that china is sticking to september for trade talks. Nejra you do have a bit of that push and pull in the markets. The reaction in the u. S. Session yesterday was stunning. A job reduction of 2 at one point for the s p 500, the biggest jump in two months on an intraday basis. You are seeing that come down a bit today, and it could be because of the china data. Any kind of data or just a pause before further escalation . Matt i think it is interesting that the chinese continue to set the yuan at a stronger rate than what it is looking for. Although they have allowed it to weaken to seven, it doesnt look like they wanted to go much further, at least in a very quick way. As we know, it is not the level of Currency Exchange rate that matters, but it is the speed at which they get there. Nejra speaking of speed, we did see quite a flattening yesterday. We got to two basis points, something that preoccupied me through the afternoon yesterday. Athave backed up since then, six basis points, but thats another preoccupation of the markets. A bank of America Survey of Fund Managers seeing a Recession Risk at the highest since 2011 now. Matt what is it, 35 , 36 now . We have heard that from other investment banks as well. Facebook has been paying hundreds of outside contractors to transcribe clips of audio from users of its services. Facebook confirmed it had them transcribing the audio and said it will no longer do so. Joining us from beijing is selina wang. How much pressure does this story add to a company that is already being hauled in front of congress to discuss privacy issues . Selina it builds on to the litany of privacy abuses that have been reported. They also settled with the ftc after a privacy probe. It didnt facebooks ability and their trust, the trust that they are trying to rebuild with their users. The report that facebook was paying hundreds of contractors to transcribed messages, but facebook is saying these users had given approval, saying facebook was allowed to transcribed these messengers inside the messaging chatting app. But what facebook did not tell their users is they might have human reviewers reading these messages. Facebook said they did this to improve their ai algorithm, but there is nothing in the busy part privacy part that says anything about audio transgression. Facebook is trying to say this is something other Tech Companies do as well. Google and amazon had come under fire for using reviewers to look over transcriptions, to look over human voice to try improve the ai in terms of improving their software. But these companies have said they discontinued that, facebook saying they discontinued it as well. It certainly puts a dent in the trust they are trying to rebuild with users, and this creepy sounding program does not help. Nejra certainly not. We are also looking out for results from tencent. After a rough start to 2018, what can we expect . Selina 2018 was difficult, after the Chinese Government put on a gaming regulatory freeze that lasted nine months, but things seem to be looking up for tencent. They are expected to have a 20 revenue boost to be helped by growth in some of their games like honor of kings as well as a new title called peacemaker elite. But investors are going to be watching as well for how some of these investments in newer areas, like business services, artificial intelligence, cloud computing, how that might be paying off. Least,shortterm, at investments in those areas are going to be somewhat eroding margins, but they want to see those investments are starting and breedrowth monetization in its one billion users that use the app we chat, which here in china you have to use for everything, from talking to people, getting a haircut, anything and everything can be booked through wechat. Nejra selina wang, thank you. Joining us from our bloomberg partner in mumbai is near russia. Lets kick it off with you. We are seeing a lot of green on the screen in terms of asian equities. We are seeming to be focusing on the risk Positive Side of the terrace for some goods, rather than the weaker data out of china. Why are we getting a lift in indian equities today . Nejra, good morning. It is late station green that is rubbing off. We had a dropping yesterday in india. It might have been weak, but it was certainly very weak area todays session is rising up. We succumbed to a lot of pressure in todays session. The only reason i can think of is the green across the board which is helping the indian markets, in spite of the weakness we have seen in the pharma companies, a heavyweight sector. We are hoping for some fund flows to return to india specifically, because while the rest of the nation might have is hat, it that may be the case for many days, but the green on the screen is not looking all that bad. Matt we will keep an eye on it. Atemarie, you are looking the gains across asia and the fallout from the hong kong protests. What are you seeing . Is we are getting a bit of a breather. This comes as donald trump delays some of those ticket items that are going to be high on your christmas list, but still, we are seeing modest gains. This comes down to the chinese data. Weak data for retail sales. The kospi is up 6 10 of 1 . We are seeing weakness across asian currencies. We are seeing a movement into the yen, and that can reflect weaker chinese data. We are seeing a selloff in bonds in some markets across asia. And in commodities, iron ore is up 3. 5 this morning, just a few cents away from 90 a ton. These metals have been in the crossfire of any great headlines. Trade headlines. Speaking of the hong kong protests, in hong kong the airport might have settled. The Cathay Pacific recovery faces unprecedented challenges, according to bloomberg intelligence. Of course, the disruptions in the protests have already added to a bleak outlook. Icbc is out with a note today saying it is a strong sell for them, and they are citing irreversible damage for the company. We should note it is higher today for the first time in five days. Nejra thank you so much. You do wonder whether the equity market is going to catch up with the bond markets gloom. Futures slightly positive right now, s p futures flat. Speaking of europe, last night chancellor Angela Merkel said into anomy is heading difficult phase. We will find out what she means. The data is out in around half an hour. Here is what german executives said to bloomberg when asked about the current climate. We have seen impacts on the industrial base. Exports are getting slower, stuff like that. It is having its impact, thats clear. You see it from our competitors all over the world, that they are hit by the high iron ore and the weaker demand. Obviously we are not immune to what is happening around us, but the good thing is we have a very broad and diversified folio. Isthe growth rate in germany a reflection of that. We see clearly more uncertainty in the market, but also in the macroeconomic environment. That is why we are a little bit more careful, especially in the Semi Conductor space. We know the environment is weakening. We are aware of that. Thats why we have to work cautiously on our costs. The trade war makes car production down. There is overall weaker development and a technological shift. Nobody said it was going to be easy, but we stick to the guns. See that we do contraction in the data today, how much more concerned would you be about german and euro zone growth . I think it would be a continuation of the data we have seen so far. Clearly the Business Survey we had yesterday was very negative, so the leading indicators are still pointing south. Tricky situation, diary for the German Economy at this moment. The slow down we are going through is a trade focused slow down and germanys economy is heavily reliant on that dynamic. And they are heavily reliant on the auto sector. It sits on a nexus between the number of different risks, and the question is, what can policy makers do to try and arrest the slow down . The narrative has moved toward what we can do in the physical. Interest rates are low. The bend curve is a negative yields. The bund curve is at negative yields. Matt the question is, what does this data mean for Angela Merkel and Government Spending . What does this mean for ecb policy and how much they move . I have german industrial output, the biggest slump we have seen since 2009, since the great fiscal crisis. Does this push merkel to open up the taps and start spending some of that money that is key to European Growth . We have not really had any coordinated fiscal easing in the euro zone in the period. Monetary policy has had to carry the mantle for any sort of easing in the last decade. Clearly in euro zone, it is more difficult given how fragmented the political situation is, but it is likely the weakness we are seeing in europe is enough to galvanize politicians to come around the table and say, we have had a decade of skull austerity, now it is time for us to start loosening the bowstrings the purse a bit. Nejra the pursestrings a bit. Nejra but in terms of what this means for the ecb, when you add the german data toward the risks you have pointed to and feed that into your expectation, what does that mean for how you would invest in fixed income in europe . I understand you are not buying any negative yielding debt, so does that mean you are looking at credit . Jub we think credit in the euro zone is well supported. If we get an Asset Purchase Program from the ecb, it is likely to involve corporates. The messaging has been that they think the corporate Purchase Program has been effective because it directly targets annies eases financial conditions for corporates. We do think the economy is weak enough to justify easing. You have trade risks, tariff risks still looming overhead. We do think the conversation for easing in the second half of the year is going to become a lot more live. In the previous ecb meeting, the market was disappointed because china was talk draghi was talking about china hammering out the actual details, but it is difficult to argue the economy is not weak enough to justify more easing from here. Matt if you think more easing is going to come and the conversation gets more live, why are you jumping onto the negative debt for Capital Appreciation expectations . Manage onortfolios we a multistrategy side do not have a benchmark, so you are free to invest anywhere across the entire fixed income universe. Bthink you are right, unds this year have been a great investment. Returns. Have high negative yields are not a limitation anymore. You can still get Capital Appreciation from negative yielding or low yielding debt. In europe, though, the better place to be positioned days in the Corporate Bond market. We are not in negative yields in some parts of the bond market, and it will be one of the primary beneficiaries of ecb Going Forward. Jub, you are going to stick with us here, our best guest host for the hour. Ia President Trump has delayed some of the new china tariffs until december. Farm goods, clothes, and footwear remain on the list to theit september 1, but levies on items such as smartphones and childrens toys will not come until the end of the year. Resumedgs airport normal operations after another night of chaos. Protesters clashed with police and now the airport has a court order to block people from blocking flight operations. Reports show beijing forces amassing at the border. The italian Prime Minister has been called to appear before the senate on august 20, in response to fiscal chaos that has gripped the eu areas thirdlargest economy. It could lead to a confidence vote, but there are other options, including resignation or further delay. Global news 24 hours a day, powered by more than 2700 journalists and analysts. This is bloomberg. Nejra coming up, no escaping negative yielding debt. The First Company to have yields on 10 year eurobonds dipping below zero. We will discuss what this means with a Portfolio Manager, next. Nejra this is bloomberg daybreak europe. Matt tencent has been on a shopping spree, and not just in the gaming space. Barely a week has gone by in the Second Quarter when it has not been making a deal of summed kind, and the tieups have involved everyone from super mario to lady gaga. In april, tencent struck a deal with nintendo to revive stalling switch sales and unleash the mini console on the mighty china market. Namess one of the few that hold the rights to wings right strings to win a banking license. And shenzhen, it was equally bullish. It kept out the pen to sign an lab for cte to build a testing five gtech on cloud gaming. In june, it teamed up with a singapore giant that invested early 5 million in a fin tech startup in the u. K. Last month, it went mobile in india to partner with it also partnered with bmw to develop self driving cars in china, and it said go, go, go to pokemon. The two are developing new Computer Games to help you get pikachume help become pikachina. Ad it is negotiating terms of 10 stake in the worlds Biggest Record label. If thats not enough, sources tell us it is planning to come back to the loan market with a bang, seeking theresa 5 billion from banks. If the loan is approved, there will be plenty of ways for tencent to spend the money. Tencent will report numbers later today after a horrendous 2018. The internet goliath seems to be back on track with Revenue Growth projected to rebound 27 in the june quarter. Negative yield and corporate debt has come to europe. Nestle has become the First Company to have 10 year eurobonds yielding below zero, another blow to Portfolio Managers who look at corporate debt as an alternative to government bonds and less they expect massive price appreciation. The confectionery maker may soon be joined by walmart and airbus, which have bonds trading slightly above zero. Joining us is our credit market importer reporter. Is still with us. Let me ask first about the nestle paper. How did it get to this point . Nestle is one of the best credits in europe, arguably one of the best in the world. Lower andelds go lower, it was only a matter of time before a name like this one made it to negative yields. But lets not forget that even below 0 , it drop still is 60 basis points above the bunds. It was obvious that a very good company like nestle, that there is no reason for its spreads to widen. At this particular stage, it would only follow the government bonds lower. Nejra is it only a matter of time before we see these other corporates turned negative as well . Tasos of course. Nestle may be the first to become negative yielding on the 10 year space, but we have 806 billion euros of negative yielding debt seen europe. The difference between where we are now and there is seven basis points. If they only drop by seven basis points, we will have one trillion euros of negative yielding debt. Ub, the whole idea here, you are not buying these bonds for a return. These are old savers getting ready for retirement, putting nestle bonds in their ira to build cash. You are looking for Capital Appreciation, right . John that jub thats right. Clearly there is no carryon in the negative yielding world. It forces you further down the credit spectrum, and that is a desired function of current ecb policy. You have government bonds into ig, then highyield, then equities, and hope that the easing of conditions will soft in the current slowdown. We do think there are parts of the credit market that are attractive. We think you can still find companies with attractive spreads that are likely to compress from here. But on the government side, there are regions globally that you can go to. China has positive yields that we think are attractive. For unconstrained funds, there are parts of the world where you still can find an attractive return profile from fixed income. Nejra what are you doing on the credit spectrum . Are you preferring shorter duration, Higher Quality . Jub we think the highquality space in europe is likely to be the outperform or over the next six months. That is the likelihood of former cspp programs coming in. There are other markets in the highyield space that are more attractive, and in those you want to be positioned in the front end. In the european banking sector, you get paid quite well. Space,the hard currency we do think the front end or the fiveyear part of credit curbs are attractive. So do bc demand affected, or do the markets still want to buy this kind of debt because they expect prices to rise . Tasos there have been 25 or 26 consecutive weeks of inflows into investmentgrade funds. For the traditional Investor Base of credit, negative yields are all over the world. As said earlier, we have Capital Appreciation because negative yields can get more negative. With thee the 15 bonds most negative yields in europe, everything they turned negative, they still have positive return, and that is something you can get with this market. Nejra in terms of different sectors, what are you seeing in terms of the spreads, but also what you are hearing from managers when you talk to them in terms of preference . Tasos several months ago, we are talking about triple bees and how they could be the bane of the credit market. That has become sort of a haven. We are still talking about investmentgrade companies that you dont expect to get an investment in a few years time. The larger they are, the larger the segment of the investmentgrade markets. There is a big pull of bonds to choose from, especially if you go for slightly lower rated names, but not junk rated bonds. And if you go further down in terms of maturity. Nejra thank you for joining us. Up, fiscal hands. Signals possible fiscal stimulus as we await secondquarter growth data for europes biggest economy. We will break that next. Early looking forward to breaking that data. We are expecting a contraction for the quarter. We will see if we get any move unds off that. Meanwhile, what is preoccupying the markets is delay in some goods. The gdp number is key for European Growth, kiefer ecb policy, and certainly key for those bund yields as well. This is bloomberg. Nejra good morning. Matt this is bloomberg daybreak europe. These are todays top stories. Gains asties trim china data misses the march, taking some of the shine off President Trumps tariff reprieve. Industrial output in the nation slumps to a 17 year low. See you in september. China is sticking to trade talks month after trump delays some tariffs. Many are still scheduled, though, to hit september 1. And Angela Merkel signals possible fiscal stimulus as we are up as we await secondquarter growth data. Merkel says the government may have to react. Plus, tweets and tensions. President trumps as an Intelligence Report shows the type shows the Chinese Government is moving troops to the hong kong corridor, and beijing has protesters acting like terrorists at the citys airport. We are getting german gdp numbers. The economy shrank 0. 1 , in line with the street estimate in the Second Quarter. The German Economy shrinking now, contracting for the first time in two years. We are taking a look at what this means for fiscal stimulus, which the German Government has previously said it is not interested in doing. It does not needed, according to the finance minister, because the economy is not in a crisis. But merkel, in a speech yesterday, for the first time indicated that the government may be willing to consider it. We are getting secondquarter private and Government Spending higher than the First Quarter and the Second Quarter. It looks like the taps are being turned already. In any case, the headline number, a contraction in line with the street estimate. Hardy, heads john of fx strategy at saxo bank. That may get your take, first off, on what mario draghi wants from the German Government. So far he has not gotten it. Do you think this number will help push Angela Merkel toward helping the ecb . John i certainly think this number will help the process, but at every turn, germany has shown high reluctance to move in the direction of fiscal generosity. It is ironic, you are talking about a country running a surplus around 1. 5 of gdp. With negative rates, why not borrow more and stimulate . I think they will eventually get there, but it seems to be the german pattern that we wait for a crisis to be in full swing before we respond to some sort of measure. Nejra what should the ecb response be here . John the ecb has shot most of its bullets. We are looking at asset purchases, they wont move the needle. It is on the fiscal side of things to bring stimulus to the table. That will be the question after november 1 and we have the new leadership in power. Matt what kind of crisis do you see, then . Here is only one quarter of contraction. Do we see a recession in germany . Is that your expectation . John it is. It is not necessarily a deep recession, but the export sectors are in a deep recession. It is going to go back to spreading Recession Risk across the eu, and all the risk we have revisited since the e. U. Sovereign debt crisis that was never really solved, just papered over by draghis program of money printing. Nejra do you expect much of a reaction in bunds . We got to 60 yesterday. John given what happened yesterday with trumps conversation, we had a little more of a risk on, maybe a consolidation. A thought we would see negative trend in german recession. I do not expect much from germany today. Nejra speaking of the risk on, lets get to the futures. Yesterday we saw u. S. Equities jump as much as 2 at one point on the news that trump would delay tariffs on chinese goods. Our be getting ahead of ourselves, though . Is it just a detente for further escalation . The equity markets are still getting a touch of a lift tear from that news, but we had worse than expected chinese data, and that is showing a bid for some safe havens in other parts of the market. Matt and we are maybe we will see that bid die off when we get discontinued risk on. For example, you can by more than ¥106. 5 now. You could only by ¥102. 5 yesterday. The bid has given way a bit. Maybe we will see selling a bonds when we start to talk about bond futures are the live cash trade. Here you see futures are up, so it looks like there is a bid for 10 year bond futures priced in, but it is weak. We will see if that turns around. The olive branch tweeted out by President Trump may relieve that pressure. Lets check in on the markets in asia. Lets go to Juliette Saly. Is the best day for asian stocks in a month, despite the week china data that nejra alluded to. The Hong Kong Market up around six tencent 1 within a couple hours of trade to go 6 10 of 1 with a couple hours of trade to go. Upia also rallied strongly, over 1 , and the nikkei closed higher by about percent as well. You have also seen a lot of positive momentum going through in the chip stocks today on the back of trumps latest news on the terror of being delayed until december 15. A lot of Semi Conductor players look good. And we have tencent coming after the bell with its numbers. Lets look at the reaction to currency in the wake of the china data. The china data was weaker than expected, so you saw a drop in the aussie dollar, down around two tens of 1 . The offshore yuan is also weakening despite the fact the pboc said the yuan fixing little stronger than what the market was looking for today. The korean won, though, jumped the most in nine months, up by seven tens of 1 . The japanese yen is stronger, but it weakened quite substantially yesterday, said the dollar coming off a little against the japanese yen. Of course, we still have tariff concerns weighing on markets. Just kick down the road a little, matt. Matt Juliette Saly, thanks very much for joining us. Speaking of, it is a big miss for chinas Economic Data. Week figures across the board, especially on the industrial front, are taking some of the shine off the market relief brought by President Trumps trade reprieve tweet. Fromtrial output rose 4. 8 a year earlier, versus the median estimate of 6 . Fixed Asset Investment also slowed. Asian equities trimmed gains on the data, and u. S. Stock futures now sit relatively flat. Nejra in terms of bids for the safe haven, the 10 year treasury yield moving lower by three basis points in todays session, back below 170. The offshore yuan also seeing declines. Markets on something of a high after President Trump announced a delay to china tariffs on a variety of Consumer Products, these including toys, apple tvs , and laptops, which will now only be subject to tariffs after december 16. But there are items that will suchtariffs september 1, as Mac Computers and a list of agricultural products. John hardy of saxo bank it is still with us. Is your assumption that this is simply a pause before further escalation . If it is, how would you trade that in the fx market . John yesterdays tweet from trump shows how difficult this is to trade but because we dont know because we dont know when he will come in with the next trade. We have not pulled all the way back to where we were before he threatened this latest round of tariffs. Simply soft and the the blow a little bit we simply softened the blow a bit. I thing we are on the long road for its a bifurcation of the global economy, or at least the ande relationship andde deglobalization. I see this as hopeful, promising, lets hope for the best, but i am not going to put all my chips on we will see a third deescalation of the situation. Matt do we go down to 100 on the yen, for example, or do you cs holding above 1500 on gold and moving higher . John we are on the process, so i see those coming into view. The question now is the timing, with the unprinted ability of the tweets from trump, or how the trade talks go. I definitely see the dollar on the path to 100, and the big part of that is the crushing of u. S. Yields all across the curve. We almost saw a record lows in the 30 year, but i expect that trend to continue. We could see consolidation in the nearterm. Nejra what about the yuan, then . John generally lower. D as an immediate intent to devalue. The trade talks are coming on board, but i expect the human to be lower than the dollar. It would maybe be more disorderly if we are seeing a sudden renewal of the escalation of the trade show down. Matt so dollar strength, and you expect yields to continue to fall. We are hearing forecasts from that of america of 1. 2 , 1. 3 on the 10 year. Do you think we move that far down by the end of 2019 into 2020 . John i think we do. The timing will depend on how the u. S. Economy takes shape. Ice yields going below that in the u. S. Isaac we will see the u. S. Eventually joint europe and japan. Nejra what does that mean for the dollar . Does it maintain its strength, or is it dragged down . John it is more about funding issues. A lot of those are driven by trump deficits and the inability of the system to absorb those. The fed has essentially lost control of Monetary Policy. It will be driven by the needs of dollar liquidity and to supply that liquidity to the market. Higher it goes may go a little bit higher, but we will immediately see a forced response to that. The fed is not in the drivers seat. Matt they wont want to see a stronger dollar. We dont want to see or draghi does not want to see a stronger euro, and lagarde will not either. You are starting to see Central Banks start to cut, some of them at faster rates than anticipated. War,e in a global currency or will we enter into a global currency war . John you hit the nail on the head. I thought the question was about two in into. Was about to end. You see the Australian Central Bank and the rbnz mentioning currency as well. When you run a policy and you are doing q. Week, you look for ways to devalue on a currency basis, and that is the environment we are shifting into. Nejra and you would want to short which currencies most . John i think the dollar is actually longerterm, versus the japanese yen, eventually towards the euro as well. I think the dollar yen is the more straightforward trade. The fed being forced to respond and the need for dollar liquidity around the world to bring that liquidity. The rest of the world is more difficult because he met this appetite angle on things, so emerging markets because you have this appetite angle on things, so emerging markets could be in a rough spot. John, thanks very much. You are going to stick with us. John hardy is head of fx strategy at saxo bank. Right now, i want to get over to hong kong into our chief north asia correspondent stephen engle, because it looks like we injunctionerim against obstruction from the hong kong authority. This is a tougher stance. What does it mean . Stephen what this means is the courts in hong kong have approved the application from the Hong Kong Airport Authority tappan interim injunction to have an interim injunction to give security at the airport the ability to restrain any protesters who go beyond the scope of lawful gathering and , like what we saw yesterday when the protests move from the containment area up into the departure hall, where they crushed in, thousands crushed in and blocked passengers from getting in, therefore disrupting the operation of the airport. On this glass wall right here outside gate 2 of terminal one is where they will post a very large interim injunction order from the police from the courts, excuse me, that have been delivered by the hong kong police. We knew this would be happening for some time, but the Airport Authority said they were waiting for the sealed copies and to ify and by the law in a lot of other countries, the place would have probably cleared them out, but in hong kong it is the letter of the law, and they will posted on this wall here, and in the security can make their decisions on whether the assembly downstairs is legal or illegal. And we talked to a number of the protesters. They know about the injunction. They are just waiting to make their decision on what to do once the injunction is posted. I can review the key line from that injunction and that order from the court. Basically the Airport Authority has obtained interim injunction to restrain prisons from restrain persons from unlawfully interfering with proper use of the airport. To sixuld put an end days of demonstration and unrest that culminated with violence last night at the Hong Kong International airport. It is moments away from the paper being posted. Nejra thank you so much. Great to have you with us, stephen engle, bloombergs chief north asia correspondent winning us from hong kong. Potential earnings from the first half of the year, but the focus will be on the pending split of its u. K. Business and thats u. S. And asia division. We will speak with the ceo of prudential, shortly after 9 30 a. M. London time. Matt good morning. It is 20 past 8 00 in berlin, 20 past 7 00 in london. This is bloomberg daybreak europe. Im matt miller in germany. Nejra and i nejra cehic in london. Asian equities seeming to take a cue from the strong rally yesterday. We are seeing green after president from delayed tariffs on chinese goods. We have weaker than expected data out of china, though, putting pressure on the u. N. Yuan. S p futures down a 10th of 1 . We saw a strong rally as much as 2 yesterday. Apple gaining along with some retailers. Did we get too excited, given this could be just a pause before further escalation in the trade war . The bond market seems to be suggesting that. Matt absolutely. The hong kong situation getting out of hand does not help much, that we did not see much of a reaction there. We do see the 10 year yield coming down three basis points. Remember, it went down to 150 and change earlier. Could we be headed to those levels or further in the short term . We have not seen a line action in eurodollar in may sessions. Many sessions. The german 10 year bond future rising still. Could we see investors buying the bund, rather for safety and pushing the yield down, or for Capital Appreciation, expecting it to go further as the ecb prepares to make moves that it is forecast, or it has intimated it is going to . The blaber business flash lets go to the Bloomberg Business flash. Cbs has agreed to list and viacom. It captures years of onoff attempts to reunite the two media giants that split in 2006. It combines the most network with the parent of cable channels such as nickelodeon. The chairman of the federal trade Commission Says he wants to hear complaints from amazon sellers. The regulator is looking into allegations that the ecommerce site is punishing merchants that offer lower prices elsewhere. The ftc is looking into a broader view of the tech sector, but stopped short and having a broader provost of amazon. A south African Group says the shift will allow parts of the business to grow and inflate them from legal battles and help rate down debt. We spoke to the companys chief executive. Previously there was a lot of emphasis on the vertical integration model. Model ised that the not necessarily sustainable Going Forward. The operation should be an underlying businesses. We must act as a pure shareholder. That is your Bloomberg Business flash. Matt olivia, thanks. Yields on 10 year treasuries have fallen lower on weak Economic Data out of china. Betterthanexpected u. S. Inflation data has been overshadowed. Core cpi surprised in july, hitting a six month high. The pickup may limit the case for additional fed rate cuts. But a quick halfpoint surprise reduction would send a clear signal. Given the fact that the fed is boxed in the way it is, my view is that they should go ahead and cut rates hermetically, lets say by half a point, and probably do it interim meeting, and basically it this over with. John hardy,g us is head of fx strategy at saxo bank. This is an interesting turn, because previously scott minerd said he thought the fed should be raising rates, especially after you see a core cpi print of 2. 2 . You have growth that more than two percent, wage growth that double cpi. Why would you want to continue cutting rates and do it so deeply between meetings . John because we need to have our eye on the right ball. I dont think the economy is the right ball to be looking at. It is on tour dollar liquidity and the state of that as linked to trumps deficits. Like 806 toomething 5 billion. We have the treasury that needs 865 billion. Like we have the treasury that needs to rebuild. The funding has to come from somewhere. It is not just about the surprise rate cuts. It does ease and send a signal, but it is about qe. We will have to see qe back. Nejra what does that mean for the curve . Is the curve going to invert any time soon, or are fed cuts going to save it . John they cut additionally quickly and large and you go qe, then you see the curve going to the steepening cycle. Until then, it stays flat or even flattens further. Matt wouldnt an inversion of the yield curve mean what we all expect it to mean . It is interesting now that zero is no longer the lower bound. Does the inversion of the yield curve, then, have less meaning in terms of a recession predictor . , and it isld say no more impressive when you are able to inflate a yield curve when recessions are still going. China had the yield curve never getting to zero, yet they had multiple recessions from the very flat but not inverted curve. Whether it goes flat for a few basis points negatives i think is immaterial. The damage has already been done. Nejra john hardy, great to have you with us as our guest host today. Thats it for daybreak europe. Bloomberg markets the european open is next. When you are traveling to work, you can tune in on your Bloomberg Radio. You are looking ahead to the open on tv, matt, and it is interesting, because we have seen a little bit of positivity coming through in futures based on the delay of tariffs on some goods from President Trump. Matt although very little. Right now we are just treading water on ftse futures and cac futures, seeing red on dax futures. It will be interesting to see how the german data plays in Going Forward, and how the hong kong protests affect the mood today. From the 5am wakers, to the 6am sleepers. Everyone uses their phone differently and in different places. Thats why Xfinity Mobile created a Wireless Network that auto connects you to millions of secure wifi hot spots. And the best lte everywhere else. Xfinity mobile is a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you buy an eligible phone. Click, call or visit a store today. To Bloomberg Markets european open. I am matt miller in berlin. The market say who spoiled the party . Stasis in hong kong can be in u. S. Ands fall asian stocks. The weakness looks to carry on into europe. The cash trade is less than 30 minutes away. Europes