Transcripts For BLOOMBERG Bloomberg Daybreak Asia 20170627

Another financial crisis in our lifetime. We have the world covered on daybreak asia. We go to San Francisco and the followed from the cyber fallout from the cyber attack. We go to shanghai on the growth of the internet of things. Asia. S daybreak im in new york, where it is just after 7 00 p. M. We are in for some central bank speak. What an eventful tuesday, right . First it was mario draghi a bit more hawkish when it came to inflation. Then the selloff fueled by janet yellen talking about rich valuations in the market. Betty you used to not be able to get anything out of these central bank chiefs, but now they wont shut up. Particularly janet yellen and her talk about valuations getting more rich. That also sent some of these tech stocks tumbling, dragging down the nasdaq. We will talk about that in a few moments. Yvonne that is right. A lot of jitters when it came to tech. Alphabet slapped with a record fine from the eu. We will look at the cybersecurity attack we have seen that has embroiled in much of europe and the u. S. Lets check out the state of play in asia. Slow going in new zealand. Flat when it comes to the kiwi. Stocks heading lower. A fallout we saw on wall street, down one third of a percentage. Wti under 43. The market stunned by that report saying crude inventories rose. Oil given up the biggest gains in a month. Futures heading down by 12 points. Trade, another 1 lower for wti. Iser draghi and yellen, next corroded speaking today. We back above 112 territory. That should be good for stocks. We are seeing a bit of weakness when it comes to nikkei futures. We will see how things go. Looking pretty mixed so far. A lot of news flow coming out of headlines playing into the markets and wall street overnight. Betty stocks following the most in six weeks, following washington, and of course that cyber attack that seems to be more severe than wannacry from last month. More on how investors have digested this. In light attack of analysts say that cyber risk is already built into the market. There were a lot of crosscurrents, economic reports, the concern about janet yellen remarks. Lets get to some of the big movers. Hugebet, googles parent, 2 billion fine because of the way they have structured their Search Engine. Hightherapeutics raising against the tide. A lot of big funds have been adding it to their portfolios. A lot of green for the banks moving against the tight. Going into the bloomberg at bt streak since 5 drop on the record. This chart means there may be a drop coming soon. We also saw Health Care Performance pretty well. Even oil bouncing back. Su lets start with oil. It bounceback am a but is falling after hours it bounced back but is falling after hours. Lets go back into the bloomberg again. Looking at the technical indicators going into today, there is a view that on those indicators, oil was set to move higher. That will make the wednesday trade interesting. We have the api report, which is a front runner of the government report. It is not always necessarily the same. It indicates there will be a buildup. One investor saying they were blindsided. Lets go to the bloomberg one more time. When you Mention Health care, this shows there has been a rotation into health care out of energy, out of tech. That appears to be on pause right now. A lot of questions in the market. Yvonne talking about janet yellen, she did not give too many hints in her comments from london. She had views on stock prices. Su she was not there to sound alarm bells, but she kind of did. Was not there to talk about asset valuations, but she definitely did. Saying they were somewhat rich, but the markets took that as, uh oh. Chair yellen valuations are rich if you do traditional metrics like priceearnings ratios. I would not try to comment on appropriate valuations in those longtermending on Interest Rates. Of course there is uncertainty about that. Su what you saw was the fed chair wondering outside of the of what fed chairs normally talk about, and trying to wonder back in. Wander back in. There appears to be some concerns on wall street. Yvonne lets get to first word news with paul, allen, and cindy. Agenda hitt trumps another speed bump with Senate Republicans postponing the vote on a new health care bill. At least five gop members blocked votes on the bill, which was drafted in secret by mitch mcconnell. A setback on the republicans sevenyear campaign to replace the 2010 Affordable Care act, or obamacare. Pres. Trump we will see what we can do. We are very close. But for the country, we have to have health care. It cant be a obamacare, which is melting down. The other side is saying all sorts of things before they know what the bill was. This will be great if we get it done. If we dont get it done, it will be something we are not going to like, and that is ok. Googles record 2. 7 billion fine in the eu could be a fraction of the cost it may ultimately face for skewing search results in its favor. Googlesarely dampen 90 billion cash profile, but from is a talk of backlash restaurants and service reviews, and talk of further penalties. If we find noncompliance, we will have to prove it, even if you have to pay the penalty from day one. Lets see if we get there. I see no reason why google shouldnt comply. You have very strong incentives. You have a strong company. We need competition in the market for shopping comparison. Paul the imf outlook for the u. S. Economy, ending the assumption that President Trumps infrastructure plan would spur growth. A growth of 2. 1 , down from 2. 3 , and cut next years figure as well. The imf says the u. S. Will struggle to hit the president s target in the face of almost full employment but low productivity. Hong kong clearing cannot explain the sudden plunge of many smallcap shares. Toldormer hk exit director bloomberg it points to ongoing problems with directive systems. He issued a report called the Enigma Network are going to the companies were part of a complex web of shareholdings. Global news 24 hours a day powered by more than 3700 journalists and analysts in 2700 journalists and analysts in more than 120 countries. This is bloomberg. Yvonne a new cyber attack affecting institutions from russia to the u. S. East coast. It appears to be similar to the Wannacry Ransomware also last month assault last month. Lets get to our global tech editor. How bad is this attack . We have heard similarities to wannacry, but we are hearing it could be worse than last month. We are still hearing from different parts of the world that are just waking up. We just found out about some grain ports in latin america that were also affected. You have seen this spread from ukraine, russia, across europe and into the United States and latin america. We will certainly be on the lookout for any evidence of the impact in your region. In terms of numbers, not quite thatg as wanna cry reached hundreds of thousands. 2000 is the estimate we have heard so far. In some ways this is more sophisticated. It does spread like wannacry. It attacks vulnerabilities in the Microsoft Windows operating system. We have not found what is called a kill switch. Lingos the tool in cyber that would allow you to easily shut this down. Again, your best defense in a case like this is to make sure you are upgrading to the latest version of windows software. Wannacry should have been a wakeup call for anybody out there. That is still your best defense. Betty i know it is still too early to hone down on who is behind this, but how difficult will it be to trace these attackers . Tom cyber researchers, they look at what this looks like and disliket is like or attacks we have seen in the past. Acry, we wereh wann hearing rumblings of russia. Later we saw the emphasis switch to north korea. Always hard to know who is behind these attacks in such a shadowy world. Its difficult to know how big of an impact they actually have, how much money do they collect . This is all happening through crypto currencies like bitcoin, where you are not exactly able to trace each transaction. Yvonne what about the victims so far . Who has paid, who has responded . Tom dollar figures, not hearing a lot of money so far. Ransom,f you are paying you will not want to put out a press release about that. You dont want to broadcast that you got hooked this time. [laughter] in terms of victims, we are seeing ports, infrastructure, wpp, the Advertising Company in europe, a food company in the United States. A pretty broad range. Betty you dont want people to know that you are a victim by any means. Our executive editor for Global Technology in San Francisco. Looking ahead, it is about making connections. Looking ahead, it is about making connections. Our daily devices we are addicted to. We will discuss the internet of things with at t later. Yvonne the bank of england governor warns about forgetting lessons of the past. This is bloomberg. Yvonne this is daybreak asia. Betty if you love Central Banks, then today was your day. Mario draghi and janet yellen all spoke. Speaking to the british economy in london, yellen spoke no change. Our Global Central Bank watchers today. Who doesnt love Central Banks . What are you talking about . [laughter] lets go to the boe. We are talking about some concrete action. That is in terms of raising capital requirements. Clearly governor mark carney saying there is a need for a diet in terms of the u. K. Financial system because of a credit binge we have seen from brexit accommodation. Pop into the bloomberg terminal. I want to show you the borrowing boom the u. K. Has been seeing. 10. 3 the annual gain. It has hit its fastest peak since september. They are going to take out about 11. 4 billion pounds from the system. They will increase the capital requirement. They will raise the capital buffer to 0. 5 from 0 . If all goes expected, they will raise that to 1 in november. Carney is keeping an eye on brexit talks. President mario draghi of the ecb is stressing persistence as well as prudence. Take a listen. Ghi we can be confident that our policy is working and its full effects on inflation will materialize. But for that, our policy needs to be persistent, and we need to be prudent in how we adjust its parameters to improve economic conditions. So prudence in the ability to change. This is btv 8489. Line, adding 2. 3 trillion euros since 2009. Credit analysts are saying that draghi has made his attempts to less accommodation. We look ahead to september 2. We will have more on this in the next half hour. Yvonne a huge move in the euro overnight. We did see the strongest gains for the euro cents august. Euro since august. Treasuries have also declined as janet yellen signaled the u. S. Economy can withstand higher rates. Raymond joining us live from sydney. Great to see you. A a few weeks ago we were talking about how the fed would be going rogue. But now the ecb talking more on a hawkish tone. Where are we on the convergence of Central Banks . Hi yvonne, thanks for having me on the show. Stanley was surprised by the comments from draghi yesterday. One view to take is they wanted to be a bit more hawkish. Over the last couple months draghi has been dovish when it comes to accommodation numbers. Looking in the eurozone, particularly gdp growth, and the low Political Risk in the eurozone, it could be in draghi providing wiggle room for the ecb. It allows them to be more hawkish should they need it later on in the year. You continue to hear the debate about inflation. Mario draghi also chimed in on this, saying the downside of pressure we see is temporary. First and Second Quarter have been quite noisy. With that tightening labor market, are we expected to hit more wage pressures . Do we assume inflation will start picking up . U. S. Nd i would say in the you are more likely to get Wage Inflation compared to the eurozone. The u. S. Has traded 60 million jobs created 16 million jobs in the last four years. You have seen Wage Inflation twos overthe mid the past couple months. The u. S. Has a stronger story. In terms of europe, my guess is that Wage Inflation remains low. We have had Commodity Prices selloffs as well. In europe, what they need is a lot of structural fiscal reform. If they get a bit of that coming, inflation could take up in the right direction. That would be a more mediumterm event. Betty you were surprised by the overnight moves. Did the markets get ahead of themselves . 4896, we have seen this yield gap between 10 year treasury reels and bund has narrowed a bit. Around Holding Strong 183 and 185. Do you see that as a game changer compared to where bunds go from here . Raymond sure. If you look at bunds overnight, they spread in about 10 basis points, and u. S. At about 5. Basic differential is narrowing. I would expect that to happen. Tenurelook at bunds over the last six month range, it has come from a very low base. Bang for really good your buck. If they get better Economic Data you will see bund yields increase. Increase. We have seen those other countries as well. That is a trend that has been handling globally. Happening globally. Yvonne i am curious what you are seeing. I want to move over to china and ask you about the flows in anticipation. We had big news about china shares being put into the msd i emergingmarket index. We know it will be happening until next year. Is that having any impact on interest, on flows . Any of that sort in china right now . Raymond over the medium to longterm, it will. It will happen in the bond market where both countries can buy the mutual debt of their counterparts. That is good for china. It is a step towards opening up their borders. We have seen some of money flowing out of china so they can encourage investments to come in, whether it is stocks or bonds. That will be good for their economy and currency as well. Yvonne thank you so much raymond lee, the head of credit at kapstream capital. Bloomberg subscribers, go to dayb on their terminals and mobile on the bloomberg anywhere app. You can customize your settings so you only get the news on the industries that you care about. This is bloomberg. Betty this is daybreak asia. Yvonne a quick check of the latest business flash headlines. China Telecom Giant bt has emerged from scrutiny as a stronger company. Pay 1. 2 billion to resolve allegations it restricted the sales of American Technology to iran. We are told bte wants to improve its position in the u. S. Smartphone market. A strong market is america, china, europe, and asia. North america, particularly in the u. S. , so the numbers in terms of market share. We now have 10 market share over there. We will continue to grow the business over there. Delay to capture device is aimed at younger people t he lightcatcher is aimed at younger people, allowing better quality photography in dark places. 500. Ope at about prices for north america have yet to be set. Yvonne Facebook Says its top 2 billion regular monthly users a quarter of the worlds population. The site reached one billion in october 2012. It is up almost 600,000 new users each day since then. Facebook says its concentrating on building virtual communities and is working harder to reduce violent, hateful, and misleading content. Betty of the next, a record antitrust fine for google. What will betty a beautiful morning out of hong kong, 30 minutes away from asias major market open. Looks like no rain for now. Yvonne incredible. I should have just come one week later. York,. M. Tuesday in new where markets closed decidedly lower. A pretty grim day if you are a u. S. Bowl. But u. S. Bull. A beautiful summer evening in new york. Betty you are watching daybreak asia. Lets get to first word news with paul allen in sydney. New cyber attack is hitting institutions from europe to the u. S. , similar to the demands from wannacry. More than 2000 entities have been hit so far, from governor sneft, and ukraine, ro utilities along the east coast presenting problems. Chair janet yellen gave no indication her plans for tightening have changed, while some assets have become rich. While speaking in london she says it is appropriate to raise fed conflicting production remaining sluggish. Mario draghi repeated his mantra in the pursuit of inflation and that he will be drawing support. Ecb becoming less accommodative in 2018. A considerable degree of accommodation is needed for dynamics to become selfsustaining. For us to be assured of the internal inflation to our objective, we need persistence in our military policy. Monetary policy. Paul just days after calls for a shakeup. The company last completed a repurchase in 2015. The new ceo says a buyback was a lower priority than reinvesting and paying dividends. Struggling commodity Trader Noble Group slumped again after indications that a default was possible. The stock finished 5 down. Nobles rating to ccc, the first downgrade since the middle of may. Noble agreed to a credit extension and was talking to potential investors. Global news 24 hours a day powered by more than 2700 journalists in more than 120 countries, this is bloomberg. Yvonne trading gets underway with asia. Adam, we have been talking all yellen all the time so far. She said asset prices have become somewhat rich. She should be careful saying things like that, right . Test immediately sent shares down quite a bit. Are investors really concerned by this . Of course it wasnt just yellen on the main comments on valuations, although as fed chair she is an important voice. Lets look at valuation. Bring up the bloomberg chart here, 491. This shows the earnings ratio on the s p 500. There are plenty in the market that will put an average line nothingt chart and see that particularly worries them. The latest bank of America Survey shows people are over u. S. Stocks on a Global Portfolio basis. I think more interesting is the comment we have heard from importantanother big policy maker in the u. S. He says the u. S. Stock market is running on fumes. That certainly isnt a view held by investors that are ready to bet on the Earnings Growth expansion continuing, and indeed the recovery we are seeing in the economy that has driven u. S. Stocks higher over the last number years. So sure, interesting to hear that yellen is making these comments. Investors, they are looking in the comments around these statements and whether or not they need to make adjustments. The overall message is, nothing huge from these comments to alter their view they wouldnt have yesterday. Seems like there was a bit of overreaction to those comments. Thinking of the moves in offshore and onshore revenue as well. Those gains holding. The biggest gain we have seen in a month for the currency. This is on speculation there could be some intervention from the pboc. Indeed, lets bring up the bloomberg chart gtv 492. The move was very pronounced. This was in the Asian Session yesterday. A very pronounced move. There was general agreement amongst analysts that this was about intervention from the chinese authorities. Of course this would not be the first time this year we have seen such intervention. That was not a unanimous description of what was happening. Some analysts said it was more about flows than intervention itself from the authorities. Of course this is in the context of the authorities wanting to stem capital outflows, and the pressures around that. Interesting when we compare, we are almost halfway through the year, comparing opinions on how the chinese deleveraging exercise is working in how it follows through to the economy, comparing to where we were at the start of the year. A market shift over the past six months. People less worried about the potential fallout of how they are managing the economy there. Big moves in the currency market yesterday. We will be looking in a couple time to see hours how those moves will play out today. Betty the eu record 2. 7 billion fine for google could force it to backtrack on upgrades to its search results pages. It has been given 90 days to stop favoring its own Shopping Service or face more sanctions. Tech editor alister ball bar joining us from San Francisco. What has been the response from google . Damage control from google. The top lawyer inhouse saying they are considering appealing. The company has 60 to 90 days to put a fix in place that will appease the eu. That is a big challenge for the company. If they dont do that after about 90 days, there will be a fine imposed, about 5 of alphabets total worldwide revenue, which is a lot of money. Yvonne how will that change the way google does business there . Alistair interesting to note that googles Search Engine is about 18 years old. The company has never had to change the way it runs that Search Engine based on any outside influences. It always decides to do things itself. This is a real watershed moment for the company. Depending on how that fix those, fix goes, they will have to change their Search Engine to not favor these vertical specialty searches. A focus on a shopping this time, but in the future it could be travel surges, maps, searches for restaurants. It could have quite a big effect. Betty what is the latest when the eu will investigate other factions of google, particularly android as well . Alistair even broader investigations going on. Android is the most important as you mentioned. Another going on for its advertising platform. Those things are looming over everything. Dideus competition chief not make mention of the enjoyed case. It is interesting to note from a googles point of view whether or not they acquiesce to europes demand on the shopping search investigation, hoping to get a better negotiation position for the android investigation in a year or so. Or if they acquiesce to much on the shopping search, that might embolden regulators more to ask for more on the android settlement. Betty 2. 7 billion. Google is investing heavily in the internet of things. We will look at the enormous strike in making connections and influencing people with at t. That is next. This is bloomberg. Betty this is daybreak asia. A quick check of the latest business headlines. Expected economic expansion boosts lending margin and borrower ability to pay debt. Icbc says its Net Interest Margin shows widening. Shares in hong kong and shanghai building its market value in line with its largest peers. Yvonne takata received firstday requests from a court in delaware. Shares plunged more than 30 when they finally opened at the end of the day in tokyo. The company briefed shareholders coming under attack for japans biggest postwar manufacturing bankruptcy and recall ever. There wasnt enough of an expedition from takatas management until now. They were quite eloquent at the shareholder meeting. I am wondering why they couldnt explain the situation to shareholders like they did today. Betty reuters reporting that toshiba has given up on assigning a deal for its chip unit yesterday. F gave june 28 is a deadline or bain capital to sign off on buying the unit. Western digital submitted a new offer tuesday, despite an earlier bid being rejected. Western digital soft to derail sales via legal means. Yvonne we will talk more about toshiba later on when we hear about the proxy advisor that plastered that blasted the companys board for poor governance. She joins us ahead on daybreak asia. Telecoms t and china giants have signed a Framework Agreement to cooperate on more advanced Network Services for multinationals doing business in china. We can find out more about this agreement with chris, at ts Senior Vice President in charge of the internet of things solutions. Great to have you on the program. Before we get to the details of this deal, i want to ask you, because youre in charge of iot its such a big thing right now, it seems like its hitting this apex. A day where we saw this Global Cybersecurity attack. I wonder if that forces you, when talking to clients and partners, to talk about the safety of iot. That is big on consumers minds. Chris it absolutely is. It is great to be with you today. At at t we design with security in mind with Iot Solutions. We have to take a multilayer approach to this. We have to understand what we are doing at the device layer, what we need to do at the Network Layer as data moves from the network into the cloud, at the application layer, and how we bring realtime threat analytics to our partners to let them know if we are seeing that actors. When we stitch thats together, we think at t is in the best position to connect the internet of things. Yvonne when you hear Something Like this, does it impact the business at all . Does it slow down growth at all . Chris i think it continues to heighten the importance of making sure as we deploy the internet of things, we take security front and center in everything we are doing. We take great pride in working with our Business Partners around the world to make sure we are designing the solutions, making sure we are looking at the threats and opportunities, and even creating an iot cybersecurity consultancy practice, where we can Work Together and understand their cybersecurity solutions, and make them more secure Going Forward. Betty lets talk about this partnership with China Telecom and at t. What will this entail . Chris we have had a longstanding relationship with China Telecom, working across both our wireline services, as well into wireless solutions. This helps us make sure we have a partner in china as we are deploying solutions to follow our customers around the world and offer them global capabilities. We know we have Close Relationships to offer those solutions and take care of their business end to end. Yvonne we have been talking about the internet of things, big on china as well. It has been slow going when it comes to the consumer side of things. We were expecting we would be talking to our refrigerators and water heaters and whatnot, and we have not seen that kind of development as of yet. Do you think 2017 is the year where this Technology Takes off . Chris i think we are seeing more and more consumer adoption of these solutions. It is about how you create the Value Proposition for the consumer, what they get in return for connecting things that have not been connected before. On the business side you see a clear line of sight to transform the way the business is operate, save money, or operate revenue streams. We are connecting cars, cities, from direct to drones dirt to drones, shipping containers and storage tanks. What we have to do in the consumer space is making sure they are seeing the real value of connecting those devices in their lives. Betty we just talked about yesterday about these partnerships for fleet when it comes to apple and hurts. A tie up between the old and the new. You are diving into Autonomous Vehicles as well. You have partnered with ford. Where do you see this type of partnership going . Chris i think partnerships inside the autonomous space are important. At t is investing in creating a proving ground called the American Center for mobility, where automakers can utilize all of our networks, from 5g to 4g, lte, and some of our lowpower networks to see how their cars will work in these environments. The other piece we have been doing with ford in particular, we tested that Vehicle Infrastructure communications to make sure that we can safely and effectively move information from the vehicle two other vehicles. You think about the ability to pass that information about icy roads to vehicles down the road behind them that ability between partnerships will make that happen. Yvonne do you see this coming to the consumer anytime soon . Years beforeto 10 that Technology Hits the road . Chris i am seeing it come much faster than that. Most automakers have made pledges to bring autonomous you either by 2020 will still have a long adoption curve to be fully autonomous. You are seeing lots of Solutions Show up in these vehicles coming up in the next few years. Yvonne chris, great to have you, the president of Iot Solutions at at t. One feature we like to bring to your attention is our interactive tv function. You can find it on tv. You can watch us live and dive into some of the securities and functions we talk about during the program. On the right side of your screen, you can see the chart and save it in your own library. You can also send us instant message during our show. If you have a question from one of our next guests, please send it in. This is for bloomberg subscribers only. Check it out on tv. Betty this is daybreak asia. Yvonne chinese Telecoms Firm bte says the global transition to 5g will give it a strong advantage over its competitors. It is emerging from a difficult period, fined by u. S. Regulators by allegedly violating laws restricting sales to iran. We asked the mobile devices ceo what new technology will mean for the company. Is a always say there cloud, there is a pipe, and there are devices. We talk about infrastructure, which is more about the pipe and the cloud. In order to be connected to the end consumers, we need mobile devices ich is which is the business i running. Because we have a better understanding of how the cloud and pipe words, we have very efficient innovation on the device side. We will be able to provide that kind of experience to consumers. You016 was a bad year for with fines in the u. S. How has that compressed investment in r d . Cheng we emerged as a stronger company. Learned we are glad to transform it. That is fine, but how is it affecting your spending in terms of r d . Cheng you mentioned 2016, and we had a big loss because of this fine. From the financial point of view, we had to write off of yearsines from last book. We are clean coming into this year. We are investing about 10 of our revenue back into r d to support innovation in this industry. Rishaad what do you foresee as being your real strong Growth Markets looking ahead . Cheng our strong Growth Market is america, china, europe, and asia. In north america, particularly in the u. S. , we are a solid number four in terms of market share. We have now about 10 market share over there. We will continue to grow the business over there. China being the most competitive market. It is very important for us. Display the security phone at the World Congress in shanghai. We will demonstrate the leading Encryption Technology in all four layers the chip, hardware layer, system, and platform computational layer. Those will be framed into the business and Public Service sectors. Rishaad that is where you see growth. You mentioned china, europe, north america, and asia. That does not leave elsewhere in the world, does it . Where is your toughest market . Cheng i think it is in china. The consumers are very sophisticated. They also have an entry barrier, the barrier to entry is so low. Our ip portfolio does not appreciate the value we are bringing to the market. We have to invest more into the goto market in china more efficiently. Zte mobileat was the devices ceo. We are counting down to trade in australia, japan, south korea just moments from now. We will be talking about many of the issues in this past half attack,cluding that big whether or not that virus is just the beginning of more. Yvonne absolutely. We have to continue to watch toshiba as well. The proxy advisor just a couple weeks ago issued a 25 page report saying that the board of directors need to be voted out, a clean house. We ask why. Yvonne volatility spies and it wall street fell the most in six weeks. A growing unease about the u. S. Economy. The yen saw a low against the euro. Betty a new cyber attack adding to those concerns. Hong kong small caps tumbled in what could be a scene from mystery novel. The Enigma Network. Betty Top Central Bank is talking up the strength of their systems and also their ability to adapt. This is the second hour of daybreak asia, coming to you from the headquarters. Ime yvonne man. 00y it is just after it p. M. In new york. I am betty liu. It was all about central bank tech shares and this cyber attack. Those were some of the themes that dominate the markets here, ending lower in the u. S. , setting you up for asia trade. On a good noteot so far. Let us take a look at how things are playing out wednesday morning. On theto my function bloomberg. We are seeing this selloff in equities continuing with the kospi leading the way so far. The nikkei as well. 80 points down at the start of trade. A weaker dollar story overall after the euro rose to its highest since august after Mario Draghis comments over, talking about inflation. He said the downsides risk has downsides risk has been temporary. Aboutyellen talked with the lost evaluations on u. S. Markets, putting a damper on this side of things right now. On the right side of my terminal, wti crude falling 1 this morning. 4383. The market blindsided by that aip report saying crude inventories rose. Oil giving away the longest gains. 4630 46. 30 a barrel. Some socks we are watching include toshiba after made a digital and kkr bid for the memory chip business. Toshiba is set to go with a incj. Tium featuring we will keep an eye on takata. Shares tumbled 31 in tokyo on tuesday trade and south korean conglomerates are going to remain in focus in seoul with the embezzlement trials against members of the group. Trial resumess today. Australia, we are watching commodity related stocks after the rally in iron ore prices. Might that be a turning point for iron ore . It has lost a quarter of its value so far in this year and many are saying, given inventories, and that is only going to fall further. In the meantime, first word news with paul allen in sydney. Paul the new cyber attack is hitting companies and institutions from europe to the u. S. Accompanied by ransom demand similar to the attack by want to cry. Terminals on the east coast are also reporting problems. Googles record 2. 7 billion fine and that you could he just a fraction of the cost that may search results in its favor. It will barely dent the cash pile. The prospect of lower ad revenue and in backlash targeting services from mavs two restaurant reviews. There is the chance of further penalties. If we find noncompliance, we will have to prove it even though you will have to pay the penalty from day one of noncompliance. We get there because i see no reason why google should not comply. You have very strong incentives, a strong company, and we need the competition in the market for shopping comparison. Paul President Trumps agenda hit another speed bump with Senate Republicans postponing a vote on a new health care bill. Five gop members said that debate on the bill, drafted in secret by mitch mcconnell. The delay is another setback on republicans sevenyear campaign to repeal and replace the 2010 Affordable Care act of obamacare. Pres. Trump we are going to talk and see what we can do. We are getting very close. For the country, we have to have health care, and it cannot be obamacare. The other side is saying all sorts of things before they even knew what the bill was. If we not get it done, it will be something that we are not going to like and that is ok. Paul Hong Kong Exchanges are clearing, saying they cannot explain tuesdays sudden plunge. The former director told bloomberg it points to ongoing problems with regulatory systems. They issued a report titled the Enigma Network. They argued companies were part of a complex web of shareholdings. The stocks accounted for all but three of tuesdays 20 biggest losers. Powered by more than 2700 journalists and analysts in more than 120 countries, i am paul allen. This is bloomberg. Central bank are a watchers, you were paying close attention today. Mario draghi, mark carney, janet yellen, all spoke about their of respective Financial Systems and the ability to a doubt. Ramy inocencio has more details. Let us recap this with the fed and what we heard from yellen. You guys have been talking about how the markets got hit by her talk about market valuations being higher than normal. Positivity is some in terms of rate hikes as well as the future in terms of any financial crisis. Let us remind everyone of where we are in terms of the dot plots. This is dots. We have one more rate hike in the cards. You can look at the bottom left in terms of 2017. The line that has the most yellow dots here. Looking ahead, miss yellen says this is much safer and less sounder than it has been. She also looks to the dodd frank stress test in terms of phase one. All 34 banks passing that. Most of them with flying colors. Looking ahead, she says in our lifetime, it looks like maybe we are safe in terms of another financial crisis. You will never be in another financial crisis . Probably, that would be going too far. And think we are much safer i hope it will not be at our lifetimes, and i do not believe it will be. Ramy in our lifetime, that is a pretty good thing, right . Betty indeed. What about inflation . That is not picking up even though we have got an Unemployment Rate at a low 4. 3 . What did she say about that . Ramy she thinks it will pick up at some point. She did not give any details on this. The question that hangs over us is what has happened to the phillips curve here . On employment as well as inverselyshould be proportional. Head into my bloomberg terminal. I want to show you another chart. I love this title. This is not supposed to happen. We are supposed to see one doorway from the other, but both are going the same way. Inflation is falling. 1. 7 is where we are. The Unemployment Rate is at 4. 2 . She is thinking this is going to be kicking and eventually. She did not say when that might be. Yvonne. Yvonne mario draghi, his comments. They are arguing both for current stimulus and the ability to change. This sounds a lot like classic draghi. Ramy it sounds like him. There is a lot of hedging. One of them was prudence. Of them was persistence in the current policy, but prudence in the ability to change. Let us take a listen to his exact words here. We can be confident our policy is working. Effects will gradually materialized. Our policy needs to be persistent and we need to be prudent in how we adjust its parameters to improving economic conditions. Ramy what does he actually mean . He could be talking about the Balance Sheet. 8489. The white line is the ecb Balance Sheet. 4. 1 trillion euros, adding 2. 2 trillion eversons 2009. Unicredit saying mr. Draghi may have just shown one of his cards, alluding to a first step accommodation. Of course, as we spoke about earlier, the euro did rise the most in two weeks off of that. Some investors seeing some possible optimism. Yvonne i suppose there is optimism. Inflation has been a chronic concern for the ecb already. Wey in terms of patience, have to talk about inflation. Hopped back into the terminal with me. This is a g btv 4442. The inflation, where we are with inflation is at 1. 4 . The forecast is 1. 2. The 2018 forecast is slightly higher. The target rate is just under 2 . We are far below that. See, isn, as you can still headed in the wrong way. Draghi is blaming energy prices. You have been looking at oil. He does say we could whether this in terms of other issues. He is blaming slow wage growth for keeping inflation low. Inflation being one of the weights here. We will have to see what more fed speak, boe speech, ecb speak is trying to tease out from the tea leaves. Yvonne we have boj speak later on with haruhiko kuroda. Ramy inocencio, thank you with that wrap up. Guest,look at our next bill. Good to have you. Headwinds and inflation are temporary. Does that mean much to you . Do you think there is urgency coming out from him or business as usual for the ecb . I am not sure if it is any of those things. I think the news in europe, the economic news, has been positive and surprising to the upside. I think that has allowed the central bank to suggest that maybe, they are reaching the end of the accommodation phase and the recovery is setting in, and paint a rather positive picture of the economy. That is what we would expect them to come due. The news has been positive and surprising us on to the upside rather than the downside. Bunds selling off . With currency, it is so much more complicated. You have the of the occasion you have the dollar side of the equation. I think draghi is wanting to capitalize on that while he is able to do so. Thought it was interesting what janet yellen has a spoken about. She says we may not see a financial crisis in our lifetime. Then again, she mentioned valuations as well. Is that a red alarm . Bill i wanted to come in on that because i watched the speech this morning. If you listen to what she says, what she says is that on certain traditional measures, equities are looking a little rich, i think is the phrase she uses. She goes on to suggest that in a low inflation, low Interest Rate environment, traditional measures may not be appropriate. Unfortunately, the meaning of what she is trying to say has not come out. What is being picked up and reported by everyone is she is saying things are a little rich. She goes on to qualify it and suggests that there is not much to worry about. That is my take on it. Most that is not the nuanced and detailed take we have heard. It sounds like we have missed the mark, reacting to the headline, you know, headline statements that came out of that speech. On the whole, you agree with her . Look at the detail, if i am right and you listen to the speech and look at the detail of what she is saying, we would definitely agree with her. If you look at a very long run ,hart or anything like that stuff looks very expensive, but i think the point being made, which we have been making for a while, is when youre sitting in a very different regime, visavis Interest Rates and of theon, to the rest time period you are comparing it to, it does not make sense. You have to look at things in the context of where you are sitting. Betty why do you think she brought it up . Bill i think she was being asked the question directly about valuation, so she was trying to answer the question and i think she then went on to we are not looking primarily at valuations. That is why she got into the answer about the safety and structure of the u. S. Economy, so i think that has led into it. Betty hang on with us. I know you will be staying with the hour. Out cio of asiapacific and hsbc global asset management. On daybreake ahead asia. Hong kong losing more than 6 billion of value in one session. Thedown to what is dubbed Enigma Network. Enigma indeed. Yvonne look at the companies involved. A new cyber attack threatens the u. S. East coast. We are speaking to a security expert who says more effects our on the way. This is bloomberg. Yvonne this is daybreak asia. I am yvonne man in hong kong. Liu in new betty york. A new cyber attack affecting companies to the east coast of the u. S. The virus appearing to be last monththe one which affected hundreds of thousands of computers and more than 100 50 countries. 150 countries. We are joined by paul. Expert on with us a couple of hours ago who said wanna cry wasy the test. We are watching what is happening. Do you agree it or are we going to see is this the first of another string of attacks . Paul i agree with that. Ass is the first of numerous you look at what is happening europes it rolled across and now is hitting the u. S. I mean, we continue to see a tax cks a large organizations. They are prime target. Etty who is most vulnerable, paul . Paul i do not think we can see it as a segment. If you look at the four largest attacks today, that is over 350,000 desktops, so that is an amazingly large surface. As organizations try to keep up with the attackers as well as keep up with the vulnerabilities of what they deployed, it is a Monumental Task for those organizations. Anchor this is your area, so i am sure Many Companies game doubt what they can withstand. Where would you rank the attack . Of this i am told it is quite serious. Where would you rank this . Paul i see it as another proving ground. The way this played out, i think it was not in the best interest of the folks who wrote this ransomware. The ability for organizations to pay, it will shut down very early. We see the Financial Impact or gain of that attacker are very low, but what we do see is organizations such as wpp, for capple, 29 billion market basically told their employees to turn off their computer. You name it,that, the impacts are very farreaching. Still . Do you think that we have not heard much from wanna cry or what we heard a month ago that companies i wpp, tens of billions of dollars in corporations are being too reactive when it comes to cybersecurity. Paul we had 60 days from the know, what and, you i urge all litigation to do is to bring together the i. T. Shops , the security shops within the organizations, and really take this conversation to the board. The ability for a company to patch that many computers is a Monumental Task, but something that absolutely has to be done. Yvonne why do you think ransomware in particular is happening, spreading . Is it because companies are giving in and paying some of these ransoms . Walk us through the decisionmaking the Company Needs to make when they get hit by an attack like the one we saw in the last 24 hours. Paul sure. First and foremost, my recommendation is to not pay. I do not think that solves the problem. I think organizations need to look at their attack surface. Basically, how exposed are they not only to the internet, but to attackers in general . Again, this has to be a board level conversation where resources that an organization can bring to bear focuses on how vulnerable the brand is and the infrastructure is. Again, when it comes down to pay, even if you look at today, 300 does not sound like a lot to pay to get your machine decrypted. The machine, by the way, was inoperable from the time it was encrypted and infected, which is much different from the way wanna cry played out. It does not sound like a lot, but it does ruin the brand. It does provide an interesting opportunity for a ransomware off er today roy across europe. We have not seen the full impact yet. Yvonne all right. So much. Nk you ceo of east when network on the cybersecurity attack we saw earlier today. We have breaking news here on. Mart and sears two u. S. Retailers suing toshiba for lithium battery pricefixing. Not a new case in the sense that retailers have already accused other Companies Like technicolor for also pricefixing and they settled that case late last year. Kmart and sears are suing toshiba for the lithium battery pricefixing. Those are the details that we have right now. We will have much more ahead on daybreak asia. This is bloomberg. Betty this is daybreak asia. I am betty liu in new york. Yvonne i am yvonne man in hong kong. Chinas Telecom Giants as it is launching a new highly encrypted phone at the mobile World Congress in shanghai. Told bloombergce company will continue to set aside 10 of its annual revenue for research and development. They said China Remains the toughest market because barriers to entry are so low. China, being the most competitive market, and it is very important to us. We are going to display the security here in shanghai. We will see that we will demonstrate the leading Encryption Technology in all four layers. , system,are layer platform layer. Things will go into the business and other Public Service sectors. Anchor they have launched their latest smartphone. Aimed at younger people as well as what honor calls people who act young. The label comes from the technology that allows better quality photography and art places. It runs android seven and goes on sale in europe at 500. Prices for north america have yet to be set. Yvonne Facebook Says its top to billion 2 billion users it reached one billion in october of 2012. It signed up almost 600,000 new users each day. Facebook says they are concentrating on virtual communities. This is bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Tthats why at comcast,t to be connected 24 7. Were always working to make our services more reliable. With technology that can update itself. And advanced Fiber Network infrastructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. And sunny morning in the lion city, 8 30 in singapore. You are watching daybreak asia. Lets get to first word news with paul allen. Icbc expects to maintain stable Profit Growth as better than anticipated economic it expansion boost lending margins and the ability to repay debt. It said its debt interest margin shows signs of whiting. Shares surged in hong kong and shanghai, bringing its market value in line with u. S. Peers. Janet yellen gave no indication for her plans to tighten have while acknowledging asset prices have become rich. Oh she said it is appropriate to raise rates gradually and said plans for its Balance Sheets are well understood. The ecb president has hinted at how he may unwind the banks stimulus program. Mario draghi repeated his mantra that patience is required in the pursuit of inflation and he will be prudent. Critics say he has set the stage for winding back asset purchases and the ecb much less accommodative in 2018. The considerable of degree of a commendation is needed, so for returningssured about inflation to our objective, we need persistence in our monetary policy. Warren buffett says he would never take credit for anything the market does if you were president. He was asked whether President Trump was right to pat himself on the back over rising stock prices. The stock market has been going up basically since march 2009, that is when it hit the bottom, very early in march. It has been going up more or less since then. If our i am elected president come i would not take credit for the market because i dont want to be blamed when it goes the other direction. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. I am paul allen. Thank you. Trading formarkets about half an hour. Overnight,all street texas selloff, treasury yields higher on comments from yellen, ecb sending the euro to the highest a sense august, but for equities, read across the board. 4 , the nikkei 225 down 56 points, the asx 200 pretty much flat, new zealand stocks down 23 points. Breaking lines on the toshiba sale of its chip unit. We were expecting to hear , but weg yesterday heard they would hold off and did not see any hurry to make this decision. They said they need more time to finalize this chip deal and aim to close the deal as soon as possible and says it has not reached an agreement yet when it comes to the sale of its chip unit. Western digital throws a wrench into this because they threaten litigation and legal action, so that is what is complicating things for toshiba. Get more onets that and markets and how they with adam inp sydney. Plenty of weakness across equities markets, but there are a couple of stocks you are watching in australia. What is going on with those movers . Indeed, a pretty weak start for this session here. One week stock is sky city entertainment down 3 or 4 , and saletially that is a stake , a five. 3 percent stake sell down overnight at a discount of discount andy reflected in the stock price this morning. Immediately who is involved in the transaction, but the stock getting hit hard. Market, ainers in the nice bump bump in nine entertainment, lifting their profit forecast, expecting profits in the range of 210 million, higher than the street had expected at 170 million, and that is around what the government has done. They have cut the license fee broadcastersal will have to pay for 20162017 year, so that will be a nice bump for nine earnings. They do say it is a oneoff relief, so unclear how that will be for the future. Australian bonds are selling off fairly strongly this morning. What is going on . Are they just tracking treasuries . Yeah, to some extent they are, but it is a pronounced move. We saw eight or nine basis point lived in the yield on the 10 year aussie bonds this morning, and we have not seen that magnitude of move since the back end of last year around november, so very pronounced and treasuries have had a big move, and there is reassessment from global investors, but more from mario draghi and europe and assessing what that means for better outlook and starting to withdraw some of policy, so aative huge move higher in the aussie bond yields, one of the main drivers, the bond markets the main movers as we start the day here with stocks weaker. Thanks. Back bill from hsbc asset management. Mention,of what at the i want to bring in richard, but talking about the global market, stocks and bonds selling off, not which you typically see. What do you make of the moves in the market . What has been happening over the last 18 months is that are you wish ands have been compressing and all the stuff that was really steep, equities, a lot of credit plays were quite cheap, valuations have compressed and are getting closer to neutral. ,n the other side, treasuries the government paper has been getting a little more expensive. So what do you do in that convergence . Andt is hard for investors asset allocators because how can you tilt your portfolio to beat the benchmark and the pierce . S . Ere peer you end up getting more granular, so instead of region maytry, instead of country be a sector, so forcing allocators getting more and more granular in whatever they do. That always keep hearing despite that convergence that the u. S. Remains still popular among the other regions. In particular not just stocks, but also the on market, how long will that continue . I think that is a question for bill. Im sorry. I was not paying attention. Apologies, betsy. It was more about the excuse me, it was more about the u. S. Asset markets versus the other regions and how you have to get more granular, but the u. S. Markets remain the most attractive . Know, so the u. S. Because its further along the curve than other markets both in terms of the economy and in terms of the market, it recovered first it has moved up first, so it is the one that is closest we think to being expensive, im talking about the equity market, and it is getting harder and harder to find plays in that market, so we prefer to allocate away from the u. S. , for example europe and japan hedge, and asia look much better value and like they will produce better returns Going Forward than u. S. Equities, so we are allocating away from u. S. Let me bring in richard, 6 billion in fight wiped out in , the smalln tuesday caps tumbling because of this activist investor, a former director of the Hong Kong Exchanges, talking about the regulatory issues. Used to thecoming spectacular crashes among companies in hong kong, but i dont think we have seen anything like such a series of stocks collapsing. It is unclear what the trigger was. Sterdays the kleins an activist investor well known in hong kong had put together a list showing 50 companies you dont want to own, and showing all the links in terms of shareholder ties, liquidity, and the stock as risk. Something, to many of these companies is a brokerage colorado financial, whether or not they had shareholdings in these companies, now under investigation and shares currently suspended. Suddenly there was a cascade of selling, 17 Company Selling more than 40 in the space of a short time. Or maybe even 100 for some of them. Mean in what will that terms of sentiment towards the Hong Kong Markets . Will this poop some investors out . , we are getting used to them whether two years ago or recently in march this year, it hasnt shaken Investor Confidence towards the broader market. It may make that market slightly cheaper, after two years of turbulence locally in 2017 weve sinceeen a drive higher 2015, and even yesterday, the hang seng index was barely changed by this. The small cap market, dignity m market, a highly risky market, down 90 since it was first launched in 2000, so i would caution against people being too worried about that spilling over to the broader sentiment. Bill, lets give you the final word on this, do you think with what has happened with the shortsellers in hong kong, does it give the Hong Kong Market a bad name . Agree with richard, smaller board, much more speculative board. When you are investing in small caps, and we might describe them , but when you are at that end of the spectrum, one thing you have to worry about is the Ownership Structure and how broadly based that ownership is. If it is very concentrated, that could be a problem because somebody wanting to sell out, having pledged shares in return for financing, could have a big impact on share prices. I dont know if that is what happened in these names. Hink the owner said Ownership Structure is key. Is there something unique to the Hong Kong Market . You see that in korea, right . Great pointhat is a and worth pointing out. It is not just hong kong suffering from these issues. Anytime you are listing Small Companies and have somewhat opaque Ownership Structures, i think that should be a reflect for investors. Great to have you. Thank you for sticking around. Coming up, toshiba dealing with setbacks on several fronts, the latest on the companys attempts to seal a deal for its chip unit , and the trials and tribulations of its American Nuclear unit. Kmart and sears suing toshiba and nec for lithium battery pricefixing as well. 20 more to come. Plenty more to come. This is bloomberg. This is Bloomberg Markets asia. Toshiba has confirmed it will not reach a deal i selling its chip unit by todays selfimposed deadline. See that toshiba one of the consortium sign off today. Is the holdup Western Digital . I think it is with the main bidders. Western digital has been a bit player. Aey are trying to derail purchase by a rival, but it whaty is coming down to the equity breakdown will be and who will do the financing. These things take time. Mainly this was about toshiba a selfimposed deadline by today, which is in fact the Shareholders Meeting for the company. Realistically, i think we will get a final agreement in the july through set timber timeframe, and that really isnt going to affect things all that much because ultimately the are deadline for toshiba is to close the deal and get the funds into its bank account to bolster its Balance Sheet by the end of march of the current fiscal year. Once it does that, he can state listed on the tokyo stock exchange. Western digital and kkr have made that new bid. So what are the chances for these rivals . I would say the chances are slim. Ndrst, Western Digital a kkr, it is about financial firepower. I dont know if they are able to essentially come up with a lot of cash, but more critically, ofy dont have the backing the Innovation Network corporation of japan and the whosepment bank of japan involvement was going to be absolutely necessary to gain government approval on antitrust grounds, and so basically the preferred bidder is always going to come down to the ones that are linked up with the state act. Unds youd wit the japanese government has been so vocal and saying they dont want Technology Going to china or south korea. Thank you so much for joining us on toshiba. We will get back to this toshiba story. Dropping 69 to ¥34 after the daily limit was removed on the stock price. Having filed for bankruptcy a day ago. Akata is another Company Proxy adviser covers, but they made some news when they blasted the toshiba board for port governance and urging shareholders to vote against all the directors at the annual general meeting. Joining us now is the glass lewis director of asian research. How much support to think youre getting from shareholders . Hi. First of all, thank you for having me today. Sure. Ot i am sure shareholders are still struggling what to do because we are aware of that. This was a harsher recommendation. And the ceo. We noticed some criticism, is not thesm, but it best time to shuffle around the board members. This is a crucial time. It is a critical time, so why do it now . I know they have the key annual general meeting, but have you been raising these issues earlier . Yes, since 2015. ,hey had a special meeting 2015, 2016, and the problem is is just wea, it think it is not this bad, just one issue and another, so i am not sure when is the time to address this failure through the board, and also we understand that like some of the nominees who are nominated because they have to continue to take care of the issues and cleanup all the mass. Mess. How will that be productive, knowing as you say some of the bad actors are on the board . How will cleaning house help the company . Somealistically, i think member will get the lowered support, however all the members just need to get the majority of support to get elected, and this is the type of recommendation that we send a message to toshiba to wake up. They really need to take these issues seriously. It has already been two years. Have they responded . In your internal discussions with them, what have their responses been . It was a tough decision because it is including the independent directors too, which they already recommend against. Who needs to step in . If you are cleaning house on the board, does she the need for outside directors to lead . It is my opinion that all the members, especially independent directors, if you see their background, they are very talented individuals, but i dont think we can working together in the board to clean new since toshiba 2015 how to clean up the mess. In 2016, again, another issue came up, like westinghouse and other subsidiaries. Sure. We are still uncertain if the shareholders will be on board on your recommendation, which is a bold one. Toshiba has been demoted to the second section of the total stock exchange. Do you think a delisting will the wakeup call toshiba needs to reform itself . I hope so. It is kind of too late to wake up, but they still have a limited time frame, and also, they like the last two years which we hade, thisrouble, like toshiba time they could not release the Financial Statement because the independent auditor won it to go back a few more years of their Financial Statements, and toshibas response was, no, we dont need to we have deadline, and a statements are fine. Of course the independent auditor will argue, no, and they have to be careful, they cannot miss anything else. Isannot believe that toshiba in the position to oppose what the independent auditor wants. Great to get your perspective on this. Still more to come. This is bloomberg. This is Bloomberg Markets asia. More bad headlines for toshiba, being sued along with nec for fixing the price of lithium ion batteries. Say that pairs operated and textbook cartel to maintain prices from the beginning of 2002 may 2011. Angie when it rains it pours. Oh aces managements chief Investment Officer talking about , well, bring this up, but talking about this sale of this chip business as well, then we will be off to the World Economic forum. Banks, about central what janet yellen and mario draghi said, and where are we in the tightening cycle. Then jeff watchers from boston consultant. ,ast and certainly not least the days of your with andrew sullivan. Market coverage continues. Standby for Bloomberg Markets. This is bloomberg. It is 9 00 a. M. In hong kong, 9 00 p. M. In new york. I am haidi lun. Rishaad i am Rishaad Salamat coming to from bloombergs asia headquarters right here in hong kong. This is Bloomberg Markets asia. Haidi asia pacific negative after wall streets the kleins. Rishaad a new cyber attack adding to concern, affecting companies anit