set back from the brink, putting independence on hold and calling for negotiations with madrid. ♪ betty: we hear often, what are the black swans out there? perhaps a few months ago you would not have heard catalonia -- who would have thought this? we have seen market reaction in europe in particular to the further independence moves by catalonia. spain saying this is deferred independence we are facing. i want to show a quick chart to show so far how isolated this is. it looks like it could possibly spread. 99, the white line showing you that point where we started to see more and more about the independence referendum. falling, dramatically diverging with the euro stoxx 600 index. that gap looks to widen as we see a bigger and bigger rift between catalonia and the madrid government. yvonne: seems they are still delaying this independence push. country, the politics and economics side of things, threatening a key economic region for spain in particular. we heard from of the imf, they have raised their growth forecast for everyone, with the exception of the u.k. and spain, which has been quite timely. we see risk appetite coming back on the table. the euro back above 1.18. richard saylor was saying earlier this morning that it seems the case we are seeing on wall street, as well. betty: who says the imf is behind the times? they are always behind the curve. but at least this time they are a little ahead. -- inound of the markets asia you are focused on many factors, including what is happening in japan with the election. on the you can see green screen, records for most of the major indices. the dollar lower for a third day against most of g10. new zealand going nowhere for the nzx 50 and unchanged for the kiwi. a bid for the aussie against the kiwi, they announced they will support government reform. .77 going for the asx 200, 80 for the aussie. oil, 50.89. slightly more convinced they may get opec to participate on the index curbs. japan index at a record high due to solid eco-data. futures slightly higher. about 50rders out in minutes time, dollar-yen holding steady. let's get the first word news with emma chandra. say north from seoul korean hackers stole vast amounts of military data when they attacked computer defenses last year. part of the loss includes seoul 's plan to remove kim jong-un, shouldn't war break out the codename was "decapitation." they have located some of the lost data. japan has candidates spanning across the country. 465 seats are on the line as prime minister shinzo abe looks to bolster his mandate and refine the economy. there is criticism that his first five years in office have failed to meet the grade. japan's latest corporate scandal may play a role in the election. after quality control data. kobe steel products have been used in cars and bullet trains. the scandal has shaken customers, and attracted the wrath of regulators. >> we first learned about kobe steel falsifying data on some of the products at the end of september. we asked them to swiftly investigate the cause of incident and details of any safety issue. we urged the company to inform their clients and recover the trust of society as a whole. fairead of south korea's trade commission urging foreign investors to speak up about improving corporate governance in the country. despite scandals involving samsung and other conglomerates ls, heas table -- chaebo said they did not raise their activism to levels you see in developed markets. >> it is a shame of foreign investors have been so passive in korea and of not raised their activism to levels you see in developed markets. one of the biggest reasons is, the korean governments unpredictability and inconsistency in how it enforces the law. we hope for foreign investors to adopt a more active and long-term strategy. >> global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra, this is bloomberg. ♪ yvonne: taking a closer look at the way stocks settled, bulls back on the run. a fresh run of record highs for the major benchmark. but a big assist from walmart. let's look at this with su keenan. the focus will be on the fed minutes. su: those will be out, and a lot of searching for clues on how soon, and what the pace of rate hikes will be. at the close, we are back in the green. not a major jump higher, but a solid performance for the market across the board. have their investor day, they came out with surprisingly strong projections for revenue growth and surprisingly strong confidence in their online marketing, which they believe will put amazon back at its heels. investors seem to like that. mannkind got a boost from fda approval. really took off as united and american have boosted their out book for affairs. -- fares. we have a story about the recently named nobel economist who is sounding a note of caution about the stock market, perhaps because it is so complacent. not know about you, but i am nervous. it seems that when investors are nervous, they are prone to being moved, and nothing seems to spook the market. they just crawled up, slowly but surely. su: let's look at the market crawling higher, the s&p 500 versus the vix. stock tickers tend to look at this. as we have gone record after record, but coat -- correlation has fallen. interesting to note. in terms of comments from the becauseonomist, he won of his unique research on how people make decisions. sometimes irrational decisions on how to spend money. to spend $1 how million in prize money, he said, as irrationally as possible. market, of the confidence over tax reform is wildly misplaced, and that this is one of the most nervous times in the market. he sees it as napping, asleep at the wheel. betty: we did see these records in equity markets. it seems stocks are on a totally different universe. today you saw gold rise, the dollar fall, treasuries up. there is nervousness in the markets over catalonia. gold,t -- if we look a five days, big sore in the price of gold. the past few weeks it has been under pressure, in particular for the expectation of fed rate hikes. it has a lot to do with the korean saber rattling is back, and tax reform. given the fact you have the dead ahead, the fact gold is getting $50.est, oil is back above we have supplied data back out in the morning. opec ispectation that on the job in terms of reducing these output cuts. are finally saying, there is a sign it is having an effect. that is getting oiled to back above $50. betty: thank you, su keenan on the markets. what political uncertainty in spain means for europe's economy and the world, as well. mike, we will get more headlines. spanish prime minister rajoy will make more comments today. what did you make of market reaction, was it straightforward to you? mike: i would say so. it is such a moving target. are in barcelona, the next, pyongyang. if you remember, the speech got delayed for an hour and you saw spanish assets, we were watching the ewp. before the catalonian president's speech. he finally came out and spoke, he rattled off his grievances against madrid and the government of spain. then he backed off and said, we will not immediately issue the referendum. you saw a swift reaction to scottish etf, german bund futures. it did not take off, but it was strong all day ended bolster the euro. the u.s., i am not sure how much it moved the needle, but it could not decide if it was risk on our risk off. yields,ee a reversal in tend the 30 year yield the closing higher on the day after being lower earlier. s&p closing higher after drifting. it helped to bolster sentiment, to some degree, in the u.s. betty: investors are a little confused about, where is the risk, where did a trade, how do they trade? the next thing to watch would be earnings in the u.s.. how will that shape up? mike: if you look at it at a superficial level it does not look like a great earnings season. about 3.5% is predicted, according to the consensus we look at. oil companies will have a big rebound. it is only about 1.8% growth. there areectors, alarming forecasts. financials are forecasted to post decreased earnings. most of that is insurance companies. there estimates have come down dramatically because of the hurricanes. betty: is that expected to be a one quarter affect? mike: maybe in the fourth quarter, to. we are looking at a 41% drop in insurance company earnings for the period. if you look at the chart, you can see how much they have come down. cost of doing business, obviously, for insurance companies. but in the financials, it is not a super rosy picture. we heard from bank saying, expect that trading results compared to a busy third quarter for us for fixed income trading. diversified financials, which include jpmorgan, citibank, they are forecast for slight growth. also forecasts for negative growth for consumer -- it is not a rosy picture for earnings, compared to double digit earnings in previous quarters. the recession quarters are over now. that said, investors in general are ready to chalk it off as a bump in the road. i think the earnings season is what we are all focused on. out fromg to figure the ceos -- betty: good luck there. [laughter] yvonne: we have seen a breakdown in correlations when it comes to stocks versus the vix. i have a chart, g #btv 8318. the volatility in stock prices has taken a dive this month. theaid this was due to uncertainty we see on tax reform. what are the questions we should be asking of the ceos? are they pricing in a tax cut for 2018? mike: when you look at the correlation in the vix, it moves hand-in-hand. if they are not moving in tight correlation with each other, it needs to hedge a drop and come down significantly. if you look at tax reform, there are obvious winners, relative winners, and maybe not losers, but companies that are not going to gain as much as the big gainers. depending on how tax reform plays out. i think that explains the drop in correlations. a moved from a narrative of market driven by liquidities, trying to suss out what stocks will benefit most from a tax plan. it is still priced into the market. i think what investors are going to want to get from ceo's on the conference call is, do they believe this is really going to happen, for one thing? you mentioned richard thaler expressing skepticism. i have heard a lot of people being incredulous about whether congress can pull this off. if you hear that from jamie dimon, say, that will. more weight in the market. more weight carry in the market. that, i think will be the theme of the conference call. what can we expect with tax reform in the coming months? yvonne: mike, thank you for joining us, michael reagan, lead , lead blogger.n you can get a market run down in just one click. analysis,ommentary, from mike and his team of bloomberg expert editors to see what is affecting your investments right now. looking ahead, a closer look at the crisis to rock corporate japan. kobe steel's cover and how deep does the scandal run? latestpresident trump's feud, tax reform could scuttle his plans. we are looking at more obstacles to getting it done. this is bloomberg. ♪ yvonne: this is "daybreak asia." i am yvonne man in hong kong. betty: and i am betty liu in new york. we were talking about tensions in north korea. 1bheadline saying the u.s. b bombers across the korean peninsula yesterday. and trump met with his national security team on north korea. from theea, never far mind of officials here in the u.s. and asia. tax reform also in the u.s.. president trump saying he would make changes to his tax plan within the next few weeks, while dismissing returns his public spat with senator bob corker could scuttle any overhaul. not discuss changes he expects to make, but changes have been widely criticized. joining us from washington is joe sobczyk. do not get many details on tax reform, and now we are not getting many details on what the changes trump wants to make. what do we have here? joe: we do not have a whole lot. the president and his spokeswoman later in the day said, we do not have anything at this time. trump may have been referring to, this is a broad outline. the number of tax brackets, goals. none of that has been translated into legislative language. the ways and means committee said maybe that is what trump is talking about, because as they get down to the details, there will be a lot of give-and-take in congress, among lobbyists. and it will be generating reaction with the public, as well. there will be some noodling with this framework as they try to make it fit both economic and deficit projections. yvonne: we did hear from the president, he was brushing off this feud he had with bob corker, the senator, over twitter. he does not have a lot of votes in trying to continue for the push for tax reform. how much do think this could affect any hopes of a tax overhaul that could pass through congress now? joe: it is another distraction. vote would not necessarily be and easy get because he was concerned about the deficit and not adding to it by cutting taxes without some sort of revenue raisers, by cutting deductions or other loopholes. it also may embolden a few other senators to not be willing to go out on a limb for the president here. there are objections being raised by senators including rand paul, who was concerned the tax plan as it exists would raise rates for some in the middle class because of the loss of deductions. there are senators like john mccain, not much to lose by standing up to the president, who has previously objected to tax cuts, including the 2003 bush tax cut. there are number of other senators looking past their careers in the senate and looking past trump, that they may not be able to bite the bullet and give him what he wants, for the tax plan. on the other hand, there is the midterm elections next year. is going to be going to trump country, harrisburg, pennsylvania. joe: the white house is taking a very conventional approach. ordered this for the public, as well as the house and senate. by going to the public, they are hoping they can generate pressure on members of congress by touting the benefits to the middle income taxpayers. is thing he will try to do tell how the benefits of corporate tax breaks could economy as general well as taxpayers. he has a sales job as the first step. he will go out there and do dinners at the white house for lawmakers. betty: joe sobczyk, bloomberg's senior editor in washington. we will talk more about tax reform with the house ways and means committee chairman. very important person in all this, kevin brady. that will be on "bloomberg markets america." this is bloomberg. ♪ ♪ ,"onne: this is "daybreak asia i am yvonne man in hong kong. betty: i am betty liu in new york. world'srmani said the wealthy as investors are staying on the sidelines when it comes to cryptocurrency. bitcoin surged more than 3000% this year, drawing attention of wealthy individuals as well as regulators. he said it is more liking existing currencies may adopt the future of their crypto siblings. i do not think there is any meaningful desire by high net worth individuals to take on their back's this phenomenon. yvonne: hna outsourcing arm has asked banks to have a root -- raised funding round. there exploring a potential sale. hna has spent more than $40 million on worldwide acquisition, drawing scrutiny of chinese regulators. betty: bloomberg has been told that noble group is in talks to sell its oil trading units. noble announce a plan in july to sell its global is this, which sells 2.5 million barrels a day of crude and refined products. there are several complicated issues that remain unresolved. much more ahead. this is bloomberg. ♪ who knew that phones would start doing everything? entertaining us, getting us back on track, and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited. no one else lets you do that. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. hong kong, minutes away from asia's first major market open. 11:00 a.m. is when we hear from lambeau.m oh, -- we will talk about house reform and how to make it easier for first time buyers to get onto the property ladder. betty: important topic. a 7:30 p.m. tuesday evening in new york. aroundness remains catalonia and north korea. i am betty liu in new york. yvonne: i am yvonne man in hong kong. you are watching "daybreak asia ." catalonia has stepped back from an immediate declaration of independence, calling for talks with madrid about the future. supporters and opponents have been shaken by the reactions to the referendum, including the decision of some companies to leave the region. addressing lawmakers in barcelona, they said it has given them a mandate for independence, but he would pause for talks. in the u.s., president trump has renewed his threat to dump nafta, just as canadian prime minister justin trudeau arrives for talks. canada is a leading buyer of american exports and tensions -- rising with terrorists tensions are rising with tariffs imposed. to army sees -- pledges restore stability. of the votes will be held under the new military-backed constitution that critics say give soldiers, judges and era cap the power to stifle elected politicians. zealand, the leader has met the prime minister bill english, and will hold more talks wednesday. peters has railed against foreign interests, and wants to lower immigration and reform the central bank. in last leonardo da vinci private hands heads to auction with a presale estimate of $100 million. it will go under the hammer at christie's at new york. it was painted around the year fewer than 20e of known da vinci's. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. ♪ we are counting down to major market opens in the asia-pacific. australia has been open for half an hour. juliette saly joining us live from singapore. these catalan tensions seem to be easing, seems we are sitting quite pretty. juliette: absolutely. i love this quote from garfield -- little-- reynolds more than window dressing. we are seeing the asian markets off to a strong start. the asx 200 up 0.6%. it is gained more than 1% since friday. we see a lot of support from telcos. the nzx 50 at a fresh record high yesterday, above the 8000 point level. session, i.t. stocks leading the gains. every sector is moving higher. materials jumped .25%. look at the stoxx and the australian session. part of the reason why you have seen it new zealand stocks at record highs is this. 42%.rice target raised stoked adulto, nutritional development. evolution mining under some pressure. they have said while the outlook for battery metal prices is concerning, they have cut their outlook for galaxy. a bearish short-term lithium outlook. westpac had the consumer confidence number coming through. that was higher than it was in the prior month. betty: what are we expecting elsewhere in the region? closing at a record high tuesday, we are watching what is going on with kobe steel. topixte: we do have the trading its highest level in two years -- 10 years. we have been watching the limit index in japan for quite a while. worth noting, number of markets in the region are holding upwe e multiyear highs. hong kong is trading at a 10 year high, thailand, a 23 year high. also looking like it could get very close to a record high. investors certainly seem to be buying into equities at the moment, despite what we are saying on the geopolitical front. i know you're going to be watching kobe steel more closely shortly. we have seen the huge drop coming through. betty: we will be watching for that open. reporting kobe steel may have falsified data on iron and the possible widening of the scandal that shaw -- saw company shares plunging 20%. let's get an update with brian fowler in seoul. what does this mean? falsifying data on iron powder? to figurestill trying out exactly what that means, what products the iron outer is used in. it is clear that as this product developed, there is the possibility of further ramifications. rapport theyther are preparing to sell their real estate business. effort to like an perhaps prepare extra cash because they are expecting a lot of payouts, a lot of liability claims, as this problem revolves. betty: do we have a sense of how big those claims might be? betty: what are we talking about? brian: i saw at least one analyst report saying, big, but not huge. not like the scale of takata, manageable. kobe steel has a fair amount of cash on its books and generate profits. the theory is, it could be something like $1 billion, which would be a bad year for kobe steel, but would not put it in dire straits. not heard of any kind of safety issues just yet, either. what does it say about the state of play when it comes to corporate governance in japan? just when you think about how japan may have turned a corner on this, you see a headline again from another major japanese manufacturer. is the system still broken? brian: the japanese have an expression that goes, put a lid on smelly things, or cover up the problems. it is fair to say in recent years, a lot of lids have been blown off a lot of smelly problems. we had government and accounting scandals. we had product safety at takata. we had data falsification problems that toyota tire and rubber. and now, kobe steel. there are a lot of these issues. ways.n spin it intwo you could say it is bad news because we have so many of these problems. or you could say it is good news they are coming to light. yvonne: we have lines coming in from kobe steel, a spokesman confirming the iron powder data that was falsified. supporting the case the scandal continues to widen. any sense how kobe steel will deal with this crisis? my to become an acquisition target like we saw with takata? brian: there has been a lot of consolidation in the steel industry and some would say that is part of the problem. toe steel, in attempting compete with its much larger rivals, which are mergers, has had to diversify and branch out into other businesses. that makes it a lot harder to quality control and oversight. one thing we might see kobe steel do is try to pair off of the non-core businesses, try to strengthen its focus on what it does that -- best. that would mean selling off a lot of assets to raise money can use to pay some of the liability costs. yvonne: thank you, brian fowler, our managing editor joining us from seoul. more detail from kobe steel, reports of the iron powder data. the report was true. they found falsified data for one product, but no safety issues. the safety concerns at not elevated just yet. we will talk more about corporate governance in japan and improving it. it is one of prime minister shinzo abe's priorities. we will talk that when we're live in tokyo. stay tuned for special coverage of japan 2017, abe's gamble. betty: going to be huge. the imf has good news for the global economy. but it comes with a warning. this is bloomberg. ♪ betty: this is "daybreak asia," i am betty lou in new york. yvonne: and i am even man in hong kong. the washington-lender raising its forecast on countries that make up around 75% of world output. let's get the ramy inocencio at the wall with an explanation and three charts. 78.first up, g #btv, 50 taking a look at the forecast for the imf. this on white on your right-hand side is the 2017 forecast. white is the global growth. we are looking at 3.6% for 2017. the blue here is the u.s. forecast coming in at 2.2%. a hike from one point 2%. the eurozone also higher. japan higher, 1.5%. the definitely the least of all of these. china, that is one of the 6.8%.t, some of the biggest points to know out of this are coming from the united dates, where the imf's says it feels it is very supportive here because of the financial conditions it is seeing. especially with consumer confidence in business confidence on the rise. within the eurozone, they are talking about domestic demand on the uptick, as well as falling with the risk, elections of happen both in germany and france. let's go to my next terminal chart, g #btv 232. what kind of growth do you want? nation,re an advanced your growth is not as good as emerging nations. they are having a growth of about 4% or 5%. ish advanced nations, it less than 2%. what kind of growth do you want? ask where you are living right now. monetary base, g #btv 1239. the imf is saying if monetary base stays where it is, maybe the markets in global economy will be fine. some of this will be unwinding. ty, i know you will be talking to kathleen hays about that. betty: we will be talking about monetary policy around the world. imf warning about the risk to recovery. concerns it noting about tightening financial conditions are warning the fed and ecb to move carefully, do quickly.en too kathleen hays has the central bank roundup. kathleen: they did not say it like that. who in the world is talking about raising rates, moving quantitative easing? leading the pack is the federal reserve, the european central bank. , the chiefchard economist said, the fed can move slowly on rates, even with slow unemployment, they do not need to move quickly. let's look at g #btv 189 to see what he is referring to. he is talking about low unemployment, the yellow line. it is down to just over 4%, while wages, average our earnings have plateaued. why move quickly? let's listen to what he said earlier. >> maybe the equilibrium unemployment rate is lower than where we are. it could be that labor force participation could be increased a bit. on the aggressive side of monetary policy. being more relaxed about when we increase interest rates. also endorsed a janet yellen to be the next fed chair. we will watch the fed minutes at 2:00 wall street time on wednesday, see if they support the idea. hike coming rate 77% of that it will happen december 13. ecb sources telling bloomberg there agreement not to raise interest rates will last well past the time qe has ended. but they are still wrangling over what to do about it. between the imf meetings and institute for international finance, we will hear from governor kuroda from the boj, janet yellen, mario draghi, mark carney, a stellar lineup. yvonne: busy for you, for sure. starbucks ceo on why china is its hottest market. this is bloomberg. ♪ ♪ ."tty: this is "daybreak asia i am betty liu in new york. yvonne: and i am yvonne man in hong kong. japan machine orders month on month, a sizable beat, rising 3.4% for august. a survey of economists were expecting a rise of 1%. office some of the highs, that rebound in july, 8% in machine orders. year on year looking better. swinging the positive territory at 4.4%, beating the estimate of 0.7%. solid data, not stellar as r.b.i. economists were saying. but it did show companies were expected to increase. looks like they are wrapping up the third quarter on a decent note. betty: better than what economists were estimating. as we have seen with shinzo abe, he is riding on this momentum with the japanese economy. starbucks sees china as its hottest growth economy with the thatredicting an expansion could last decades. more coffee drinkers in china. kevin johnson explains his ambitions, as well as outlining the differences between him and his predecessor, howard schultz. >> howard is an iconic merchant and founder. in many ways, he has years of intuition. i would characterize howard as a much more spontaneous, intuitive sort of leader. with my background in tech and digital i am much more thinking about using data to help inform me of decisions and being more essential to what we do. we have worked together a long time. i value his creativity, his point of view. that brings many things to the table that will help us as a company as we make this transition to the future. >> he has taken a stand on political and social issues, upland a higher refugees. you got a push back from conservative shareholders to read how do you navigate that? and how long do you plan to continue? --oftentimes people listen misinterpret things we're doing as a political statement. for example, we have an entire pillar around opportunity. that started with the work we are doing to hire veterans. you recall, we said we would higher 10,000 veterans or spouses. we exceeded that, topped that number to 20,000 by 2020. we identified the fact that there are more than 6 million young people ages 16 to 24 that are not at school or work, and we started opportunity youth. we committed to hire 40,000, now we are hiring 100,000. the refugee portion is consistent with that. that was our first global initiative, given their refugees around the world that we felt we could play a role in helping those communities, give those people jobs and opportunities. in many ways, this is scored to who we are, creating opportunities for people. it is not about making a political statement. >> is the board involved? >> the board is heavily involved. the things we do, we make sure it is consistent with our mission. they are not politically driven things we are trying to do. the fact is, we hire military veterans and they have made our company better. the young people we hired from opportunity youth have been fantastic partners, they make our company better. much of this is core to who we are and how we get talent to create experience in our stores. >> you are getting pushed back about your maternity leave, 18 weeks for corporate, four weeks in the stores. employees on the front lines are not getting the same benefits. >> we offer best in class parental leave, compared to anyone in the industry. every year, we take feedback from our partners about what is important to them. what has been important to them is the increase in wage. we have made a significant increase in wage, invested over $250 million in wage increase to do the right thing for them. this is a journey. we continue to listen the partners a new what is right to help them in their unique situation. >> you announced your closure of teavana. the future of retail is changing. everyone is at home shopping on amazon. what does that mean for starbucks? the good news for starbucks, we are in noise have been a consumer destination. that is a key ingredient in retail, going forward. we innovate in a way that customers want to visit, versus us trying to intercept traffic in the mall. this last year, we built over 2000 new starbucks stores, at a time when there are record closures of other stores by retailers. they're posting higher avu's than prior generations. we innovate, create a great retail experience. our ability to extend that experience from brick-and-mortar to digital mobile experience, are the two key ingredients we think will power us into the future. >> markets around the world are saturated. they have their coffee now. it is putting pressure on accelerating in countries like china. what is the plan -- how much faster can you go? >> china is our second largest and fastest-growing market. we are now at 2800 stores in china. we committed to build more than 500 new stores a year for the next five years. china is the biggest growth opportunity before us. the u.s. will continue to grow. the u.s. and china are the biggest growth engines for starbucks. ceoy: that was starbucks' kevin johnson speaking to emily chang at the geekwire event. thate watching a company may need a few cups of java this morning. headache., what a yesterday, the stock down 20%. i want to pull up a quick chart. overnight, the short interest volume spiked as the stock price here in blue tanking. indicating investors are bearish -- orthe survivability certainly, the outlook of this company. yvonne: that 22% drop, the biggest intraday drop we saw for kobe steel since it went public in the 1970's. you look at this function, you can see how we are setting up for the market open. $13.3 million. it keeps changing. now $18 million. looks like we could be heading back to another daily limit down. it is going to be an exciting market open coming up. betty: much more ahead, including the kobe steel open. this is bloomberg. ♪ is this a phone? or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. ♪ >> 8:00 in hong kong, live from the asian headquarters. welcome to daybreak asia. kobe steel faces another tough day after tumbling on tuesday. it is confirmed taking data on another of its products. geopolitical tensions are on the rise as the pentagon said -- sent bombers to korea. pyongyang to be misaligned -- readying a missile launch. betty: it is past 8:00 on tuesday night here. imf raising its forecast for global growth but warning of a risk that may undermine the recovery. catalonia stepped back from the break -- brink, calling for negotiations with madrid. ♪ betty: and of course we are watching kobe steel very closely in the open. where that stock is, it looks like from watching the free market going into trade, lower, this is on new revelations that there is also word of phosphate data on -- falsified data on iron powder in their products. yvonne: we will see where the fallout spreads. this scandal is really getting bigger and bigger. no safety concerns, but looking at the offers and bids for kobe three toming off about one. we see some downside today for the stock. betty: in the meantime as we watch the get -- the japanese markets, let's get to first word news with paul allen. paul: catalonia has stepped back from an immediate declaration of independence, calling for talks about the future. supporters for change and opponents have been shaken by the referendum, including the decision of companies to leave. method there was a mandate for independence, but he would pause the talks. the b-1 b bomber sent to korea on tuesday as president trump discussed north korea with military advisers. the show of strength comes amid claims north korean hackers stole vast amounts of military data when they attacked defense computers and the south last year. part of the plans remove kim jong-un if war breaks out and it is called operation decapitation. canada has a new round of talks. trump told forbes magazine the agreement will have to be terminated despite the chamber of commerce sounding the alarm on that. canada is the leading buyer of united states exports. the election campaign is underway in japan with candidates fanning out in search of -- search of support. 444 seats are on the line as prime minister shinzo abe seems mandate.r his he faces challenge of renewed opposition of the tokyo governor and that his first five years office have failed to kickstart growth. theesa may may trigger anger of brexit supporters after declining to say she would vote to leave the eq at a future referendum. i'm a series of interviews, she said she voted to remain -- in a series of interviews she voted to remain. there is no chance of the second vote. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. ♪ yvonne: thank you. the fellow we are waiting for, kobe steel, despite the tensions in spain, we are sitting nicely for markets in asia. let's look at the open with juliette saly in singapore. that is certainly giving a strong boost to investor sentiment in asia. investors shying away or and 49 -- ignoring the political space and focusing on equity rallies we are continuing to see, the -- broader energy index and a 10 year high. 0.1%.ly lower, down elsewhere solid moves coming through, the kospi is up. close to its own record high. you can see some strong movement through the australian share market which has underperformed regional peers, risen 1% over the course of this week. a lot of that is thanks to a strong by in telstra and the i.t. players. you can see gold is stronger, reached a two-week high, this despite the catalonia disputes. the japanese yen not moving much, still 112, similar to yesterday. let's look at the stocks in the japanese session. we are waiting to see whether kobe steel comes back online. it could be a similar situation to yesterday where it is forced open on the close. 21%elt 21% -- fell yesterday. they may have falsified iron powder as well as copper. authbank is rising, leading $93 million investment in an ai startup that symbolizes machine learning. panasonic is a strong way. it has been raised to overweight equal weight at morgan stanley. looking at the broader asia-pacific index, a lot of the front runners are the australian stocks. they are flat, 3%. there has been a management change. bluescope steel down 1% in sydney. it is holding its agm today, but it warned the first half could be less that were around 80% of the second half. a little bit of concern the numbers may not match up. we are seeing fairly positive moves for regional equities, just a bit of a pullback from japan with the topix. yvonne: juliette saly on the market opening. we are watching for kobe steel shares at the open and how they will trade, looking pretty ugly as yvonne had mentioned. now arers to bid right three to one. this after the company confirmed reports about an hour ago it falsified data on an iron powder and a widening of the scandal. let's get an update with brian fowler in seoul. how big of a fallout we talking about? brian: they falsified data for the iron ore powder. that product was sold to one client. they have not said which client it is. if you know anything about the powder, it is used in machine parts, often anything from powder steering and exhaust to the camshaft. there is a decent chance the customer was an automaker. we are trying to chase that down. the bigger problem is, will we see more of these kinds of disclosures and coming days? -- in coming days? betty: and coming clean, right, we seem to be hearing on this company isadding the scrambling internally -- imagine the company is scrambling internally right now. how much must they contain the situation? brian: we had a story this morning talking about how the digitalization of data makes this problem pursued easier. it can be easier chasing things down. i think it is fair to say at least if we have more of these disclosures, they will come quickly. that is a good thing to get it out as fast as possible. betty: and you mentioned earlier how the reports that the company is looking at selling real estate to shore up their cash. have you heard anything else on what they might be doing right now in order to protect themselves against when you can imagine are going to be lawsuits after lawsuits coming out? brian: absolutely. that is a story we are looking into. we are calling all of our resources and banks and m&a advisor firms to see if there have been any hints of that. so far we have not heard anything. it might be too early for them to tell us, but that is something we will be looking into, and which parts of kobe steel might be attractive assets for other companies looking to make an acquisition. yvonne: thank you. the energy editor for japan and korea. our next guest says kobe steel is up next takata, but it will suffer a loss of faith in overseas customers. we have the research partnership director joining us. thank you for joining us. showually get you on the when something like this happens. through march 2016, which is a record high for japan. -- that is nownt nissan and kobe steel. have we not learned from takata? robert: we keep looping back to the same problem. self-serving entrenched management in japan. co-pay cop -- kobe steel on their website they talk about core values and how they are supplying trustworthy products to serve society and serve their community. but we see they have effectively abused shareholders, stock prices down huge amounts. they have abused pensioners. now they are abusing their customers. very little seems to have changed in senior management. it is very sad. yvonne: where do you think the problem lies? we have not heard safety issues. some say it will not big -- be as big as takata. but so many customers, they have to look at every piece of metal to see if this is proper. how could this cost kobe steel? alexander: i suspect the local domestic customers will stick with them even if they ask for discounts. salesbe, 40% of their are exports. when japan is exporting, yes, you pay more, but you paid for quality. but now you are not paying for quality. you are just pay a more. customers will start to look elsewhere. that is a long-term problem. one of the questions to be resolved is, were they delivering subpar products because they could not afford to make the prices they were quoting, or just unable to make it? i suspect they quoted too low. they could not afford to deliver at the right price. this means the profits have been overstated in the past. when we looked at their accounts yesterday, we noticed like in germany, they are interfacing there profit margins because they are underappreciated. is a lot deeper, not just for product. it is creative accounting, probably understating their reliability. when they face lawsuits in the cash crunch, they will be in trouble. yvonne: you don't think their customers will jump ship? we have seen this before with japan. these relationships that are live or die when it comes to manufacturers, but the gadfly columnist was talking about how kelly -- kobe steel has rare opportunities. they are moving with the industry, high durability and strength, lighter weight aluminum. in a way it is hard for the suppliers or customers as well to go away. it isder: domestically hard, but the export market is different. that is what he percent of their sales -- 40% of their sales. there is plenty of overcapacity in the steel market. there are plenty of other places you can buy the majority of their product. at the very least they will cut prices to offset this. they could lose those sales and you end up with a fixed cost business, they make losses. the last year when it was a good year in the steel industry, they were barely able to cover their interest costs. they had negative sustainable cash flow's. the company is in trouble. because theive this japanese rating agencies are ising it a credit, which incredible. betty: the rating agencies have not always been ahead of the curve, as we have seen with sliding risks, with any means. their accounting problems and their lack of cash flow has been around for a while. i agree, credit rating agencies follow rather than precede. if you look at noble group, if you look at several other companies around, it is almost a problem. one of the reasons high of come to us is because we try to get ahead of credit problems, not react to it. betty: on the broader corporate governance issues, we have talked about this before when they mentioned the boj and how big a factor the central bank is in the markets, buying the etf market. whether that has an effect on corporate governance, are you seeing some of that now taking shape or coming out in companies like kobe steel? the interesting thing now about this price is the government insists they may go public on a. that is a big change. they have to realize the share price, the reputation of companies. the bank of japan has two choices, it can either be a patsy and passive shareholder, or it can turn around engines list on change. on change.st i am skeptical whether it will, but i would like to think it might. one of the things we have always focused on is on it casts. -- audit casts. we did a quick number run and saw the vast majorities of costs haveaudit fallen. that is a whole round of accounting staff. do people take accounting seriously in japan? yvonne: could this hurt abe? alexander: i don't know. somebody should take the challenge and say this is a scandal, we are going to change things. is the incumbent, so that might be difficult, but it would be a good opportunity for one or the other. if one of the two takes the challenge, it will look good if the other doesn't respond. yvonne: always good to get your insight, joining us in hong kong. the last couple of minutes, australia selling a record 3.5 billion aussie dollars in new bonds. cover 3.68, just goes to show how much demand is out there right now, quite large for australia, $3.4 billion. australia is capping the market before deals moves much higher. record sale for the 2022 bond aussie.t $3.4 billion we will look at kerry land's agenda later in the show. betty: our interview with the free trade commission chairman of korea. why it is time for investors to call out. this is bloomberg. ♪ ♪ yvonne: this is daybreak asia. i am yvonne man in hong kong. betty: i am betty live in new york. south korea is rolling out the welcome mat for activist investors. be careful what you wish for. the chairman of the free trade commission told bloomberg he is serious about changing perceptions korean markets are rigged in favor of the family-run conglomerates known as the table. >> it is a shame foreign investors have been so passive in korea and have not raised their activism to levels you would see in developed markets. one of the biggest reasons is the korean government's unpredictability and inconsistency and how it enforces the law. newhe future, the government will try its best to create a healthy environment for foreign and local investors to invest into korea's capital market. in the midst of this, we hope foreign investors adopt active and long-term strategies. i promise to make it bigger. >> what is your view on why the government -- >> it would have been hard to imagine samsung vice chairman jay y. lee dismantling the control tower office and sell its treasury stock without the scandal. i believe this is a symbolic change to korea corporate. there is no one left to can make big decisions about the decision of samsung. we would have to change the group structure into a holding company system. it is not easy for korean tables including samsung to create a holding company structure very quickly. as an alternative, korea could reference europe's dual or -- dual approach where founding families have brought strategy, but instead of directly and forcing them to the affiliates, the parties are affected -- protected. companies should have independent boards that also allow institutional investors like national pension service to call for changes. reporter: what are your thoughts on jay y. lee? >> i cannot predict the ruling, but i cannot rule out the possibility that his sentence could be reduced during appeals in higher courts. i personally think jay y. lee will return to run samsung after he is released. even if he is back at the helm, he will not given all the details for make all the decisions like he did in the past. instead i believe it is desirable for him to delegate is mrs. professional managers and take a role -- delegate businesses to professional managers. i think south korea's future depends on whether the third generation of table families like jay y. lee at hyundai motor vice chairman john nissan -- shung e son can be respected leaders. yvonne: that was our reporter speaking with the bloomberg free trade chairmanship -- you can watch us live, but also see the previous interviews and dive into the securities or bloomberg functions and charts we talk about. you can be a part of the conversation sending us an instant message during our shows . this is for bloomberg subscribers only. this is bloomberg. ♪ ♪ yvonne: a quick check on the business flash headlines. air asia considering swapping in order for 66 airbus neo's to larger three 50's to boost capacities. they launched a review of the requirements and there could be a trade up to bigger planes. the ceo said the dreamliner is also under consideration. he said air asia will continue to look with four to eight hours flying time. vietnam airlines have signed a partnership with air france to strengthen services between asia and europe. this means more flight options between three hobbs. -- hubs. it opens the door to 50 destinations in europe and 20 in southeast asia. france has been one of the most important markets. moneys see ceo sergio said the investors are staying on the sidelines when it comes to cryptocurrency. bitcoin had 300% this year, drawing the attention of wealthy individuals and regulators. it is more likely existing currencies may adopt some features of the crypto siblings. >> people are more curious about doing their best. i don't think there is any meaningful desire by high net worth individuals to get in on this phenomenon. yvonne: with the conduct of the -- four banks under australia's big four banks are in a hearing. the money laundering is a scourge on society and fighting it is a major change for the banking industry. the hearings come when the commonwealth bank is facing legal action over allegations it was money laundering and financing terror. still ahead, risk appetite returns as catalonia suspends the independence push. why the pause. this is bloomberg. ♪ ♪ kobe steel started trading in tokyo. yet another tumble. shares are down more than 15% right now. this is on top of the 22% we sought down yesterday. down tuesday. this after the falsifying data for aluminum and copper. on to the damage, we learned today they falsified for one product that was regarding iron powder as well. the scandal continuing to widen as we speak. betty: however the company reiterating so far they are not seeing any safety issues related to the falsification of the durability and strength of some of these products. you are seeing while the stock is plunging, it is coming off a little bit. it hit in the first moment of trade. we will continue to watch this very closely. let's get to juliette saly who is standing by looking at kobe steel and how the overall japan market is trading now. seentte: we have actually the topics and the nikkei -- topix and the nikkei retreats. not just from kobe steel but the ramifications is, now that toshiba, that is it going to be another toshiba, another takata? many japanese companies our clients of kobe steel. but notei is down 0.1% significant when you saw the 10 year high yesterday. there has not been much movement with the japanese yen. elsewhere, things getting close up 6%.ustralia's market it has been a good read on consumer confidence. we see investors hunting a yield .n terms of the 2022 bond sales selling record of -- $3.5 billion australian. it is still looking attractive to foreign buyers. in the commodities space we see gold still holding at a two-week high with the catalonia tensions , gold at 1290. what we have been watching, hitting the 10 year high, off a little bit, but the strongest levels we have seen since july 2007. this is as we continue to see support for japanese export companies and the tech players as well. looking at the victims today, down.px is some cell companies and big material companies down 0.9%. japanwas japanese data, and machine orders, rising 3.4%. it was above estimates. kobe steel story not going away, likely to have impact on investor sentiment in japan today. yvonne: all right, thank you. let's get to first word news now with paul allen in sydney. paul: thanks. thailand's return to democracy is supposed to happen next year after the military government that elections would be held -- said elections would be held 2018. they pledged to report -- restore civility after weeks of political unrest. the ruby a new military backed constitution which some say stifles politicians. kingmaker will not support a party until after the thursday deadline. the first leader has met english and the other one and will hold talks. peters has railed against foreign interests and wants to reform the central bank. vinci inleonardo da private hands goes to bid. this will be at christie's in new york on november 15. it was painted around the year 1500 and one of fewer 20 known da vinci's. it will stop to be destroyed but was rediscovered 2005. the seller is a private european collection. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. ♪ risk appetite may be returning to the market. tension in spain easing, that cap --sident stepping back from the catalonian president stepping back from declaring immediate independence. our reporter has been tracking all of this. we saw pretty big nervous energy over what is going on in catalonia, but that is pulling back. volatility is relatively low here. mark: definitely. there is a tone of relief on the announcement. it is important to note in this situation there has not really been resolved. the catalog government does not , and theack down spanish government will offer concessions. we have the same crisis that we knew this would be a long-running issue, on to ultimately it will come to a head, but we don't know when or how it will play out. it remains difficult for traders to play. ? tty: how do they play this we have the spanish government holding an emergency meeting, who knows what we will hear tomorrow from the prime minister. try to hedgeestors against these events? mark: there is a few different things on the account. there is an adonis story driving price action at the moment. it is a relatively strong story. because it is not going out as i mean you can dismiss it. you need to see it on the radar and it will become dominant because it will at some point. this could be a few weeks away or later this week, so keep an eye on it. it will not dominate now. in the interim it is dominating fundamentals which are positive for the euro overall. it is one of those environments where you need long-term tail risk hedges to allow for it. know, what isu happening with kobe steel, seeing the shares taking a tumble, there is a big question whether there is financial for this deal, the manufacturers and reputational damage involved in all of this. how big of a wake-up call will this be for investors on where they put money in japan? upsettings a really time in japan because the story around japanese stocks is starting to look better. the data has been picking up, the inflation and it is looking solid. it looks like there is a real macro season. and suddenly you get another one of these big scandals with a real negative story. it is a real blow to sentiment, it will hold free time, especially with the election, but there is a worry about how much of a bigger issue this will be globally, how many people supplied by kobe steel i have to recall their products. what does this mean by -- this is a much bigger issue. we don't really know. we will keep an eye on that. yvonne: that is right. take a look at the election which is a couple of weeks away. we have seen equity markets rallying, the topix at a 10 year high. are we overlooking political risk with spain? mark: it is hard to answer. we seem to dismiss the political risk domestic and geopolitical. this started from the trump election victory. it did not have a lasting impact people thought it would have. we have seen europe and korea, political risks possibly overlooked. there is this whole theme to that at some point these risks may play into markets more suddenly. they have not had a big impact so far. the japanese one is not one of those. whatever happens in the election, i don't think it will change the dynamics of the yen, which is much more a story of the boj. i don't think the japanese election is a risk, but keeping an eye on the better political risks. betty: tax reform is back on the agenda in the u.s. how do you price the risk of tax reform? will it or will it not pass? mark: i don't know whether it will pass or not, but i know about all of the problems passing anything and the divides within the politics in america. to me it looks difficult but i am not an expert how the vote will go. the market is not fully pricing yet. it will be disappointing, and they cannot until their progress. if it does look like tax reform will pass, there is still a massive upside to be given by the news. i would not want to see it much in advance. you.e: all right, thank joining us live from singapore. forecast for all of the economies except the u.k. and spain, and also raising the outlook for the global economy as a whole. they warn against complacency say global recovery may not be sustainable, but varying degrees of wage growth and inflation. let's go to ramy inocencio. ramy: in terms of the lower than desired inflation and the possibility of unwinding the central bank tightening on the horizon, again over the medium-term, but let's look through the numbers the imf dropped overnight. 5078, the first of three i want to show you. 2017 right here. the white bar chart is for global growth. it has been revised upward to 2.3%, looking ahead to 2018 when it would be three persimmon -- 3.7%. blue is that united states, that is also up. it is up a little higher for 2018 to 2.3%. yellow is the eurozone, purple is japan, china is red. these three other countries, these will rise this year, then growth is expected to pull back in 2018. specifically for that united states, the imf saying there is supportive financial conditions and business and consumer confidence is on the rise. for japan i want to show you while we are expecting 1.5% for 2017, something on the horizon next year, they are expecting it 0.7% because of the fiscal policy they will not think to continue. let's go to g #btv 232. we will talk about growth and how it is on advanced nations in emerging markets. the question here, what kind of growth do you want? you probably want growth that is higher. you will have to find yourself in a emerging market economy over the course of the next few years. the imf expects growth will be in the 5% range through 2020 with developing markets. if you are advanced, that will be less than 2%. you can see from 2017 onward, the purple line and blue line are widening a little bit. and also finally, one more thing, the reason it is widening is because of lower than desired inflation for the advanced economies. this is 5848. i know there are a lot of lines. don't worry about that. but i want you to see is the lower for lines -- four lines are advanced economy numbers compared to some choice developing countries. they are all below 2%, the u.s., japan and the eurozone, china in purple. india three point or percent, indonesia and vietnam 3.5% to 3.7%. are the numbers that have dropped, these are the terminal charts you need to know. betty: discussion, robust discussion. thank you. we will have much more ahead on daybreak asia. plenty more to come. this is bloomberg. ♪ ♪ betty: this is daybreak asia. i am betty liu in new york. yvonne: i am yvonne man. new initiatives to boost innovation and technology sectors in hong kong. this comes at a time when hong kong is trying to open up a new era of smart banking. let's go to stephen engle at the legislative council for us this morning. speech quitethis short for questions here today, which we have not seen in a while. stephen: yes. he has a long laundry list to go through at 11:00 hong kong time in the legislative council. affordable housing and social issues will be high on the agenda, but you are right providing incentives and allowances, tax breaks for start ups, especially in innovative areas like syntax which we have seen a lot of innovations north in mainland china. is hong kong lagging? that is the question we will put to our first guest, the director of one of hong kong's largest fintechs. thank you so much for joining us. what do you want to hear from him today? >> maybe she would talk about more innovative like policy on basically meat -- get talented people and the necessary funding, and some regulatory environments for them to support. i am probably expecting something related to these areas from her. stephen: what do you want to hear from her? i have lived in china and talk to alibaba and those who are disrupting the traditional ways of doing finance in china. they seem to be ahead of hong kong. why has hong kong lagged? >> it is because hong kong now, when you look into china, how they are becoming a more successful in syntax -- finte ch area, they encourage startups to go to work. they are more relaxed with andlatory environment policy. more, do moreve a like trial and error projects for the business model. then they will start -- stop regulating them and be more successful. stephen: do you see in the regulatory environment and incentives has favor the established financial institutions in hong kong rather than encouraging startups like yourself? doing, they have good policies as well for companies and small companies. they can do better by encouraging more people to come to hong kong to develop. thehen: what do you think biggest challenge is, a regulatory environment that is to take that leave of faith for a start up, or is it the high cost of entry or just getting trained, talented people? >> actually it is getting trained, talented people and also the high living standard of hong kong that puts people on pause to consider coming to hong kong. tothey can encourage people come to hong kong, it would be a good thing to build up the fintech industry. stephen: tell me how you plan to grow the next few years? 90% of your customers are from mainland china. you are online, so how will you benefit from this connect program with shanghai, shenzhen and others? >> we try to develop the local market as well, though we have .ore chinese currents when you talk about the population in china is larger than like the hong kong population, so that is a fact anyway. so what we can do right now, try is try to is our goal become the biggest fintech for ethnic chinese. so now we provide training in hong kong stock and u.s. stock. we plan to provide options, interests on foreign exchange to encourage more plans to try to move us and try out our business. stephen: are you encouraged or discouraged by the level of reform in hong kong in this sector? >> i think more encouraged, not discouraged. toause people have [indiscernible] stephen: thank you so much. threw two securities into -- futu securities international. we will talk about the affordable housing initiative in the next hour. yvonne: thank you so much to both of them. you can get a roundup of the stories you need to know to get your day going in this edition of daybreak. go to dayb on your terminal. it is also on your mobile and the anywhere app. you can customize settings only get news on industries that you care about. make sure to check it out at dayb . this is bloomberg. ♪ ♪ betty: this is daybreak asia. betty: a quick check of the business flash headlines at this hour. hyundai has launched an offensive to fight apathy in the u.s. they will have transparent prices and discount online, also offering three days money back guarantee. drivers can also reserve a test drive wherever they want and do paperwork. the 10 year end and warranty consume -- convinced consumers of its quality in 1999. yvonne: starbucks is the biggest -- china is starbucks' biggest growth opportunity. they are betting on the demand for coffee for the growing middle class and the team. outlets byis 5000 2021. >> we are at 2800 stores in china, and we are going to build more than 500 new stores for the next five years. china is the biggest growth opportunity before us. the u.s. will continue to grow. the u.s. and china are the growth engines for starbucks. been toldoomberg has the commodity trader noble group is talking about selling us trading units to switzerland. they announced their plan to sell the global oil business which traits 2.5 million barrels a day in refined products. the geneva-based bit tall talks are ongoing. -- vitol talks are ongoing. and look at how kobe steel is trading, it fell almost 17%, right now shares are down 15.5%. this after revelations of the .alsified data and iron ore we will watch for more fallout. , howe: the big question is are these customers going to start identifying the falsified data and parts in all of the vehicles and aircraft. we are starting to see that pressure on the carmakers as well, particularly in japan. .oyota is down 0.8% honda, subaru, mitsubishi also affected. toyota had a great day yesterday. they are trying to identify which vehicles are subject to this, but the iron powder issue seems to add on to the scandal. the company confirming they sold this iron powder to the automotive gears for some of the automakers. so this follows from kobe steel, we will see that more. rishaad: you are looking at corporate culture in japan. the consultancy group. looking at corporate culture, japanese corporate culture. it does not actually exist. it is a red herring. it is unique in terms of these coverups. so that is about an hour and 15 minutes or thereabouts. stephen engle, we will talk to him and the strains of the property market in hong kong. he will talk to peter church about what is happening property wise. and [indiscernible] about 15 minutes from now. betty: looking forward to that show. that is it for daybreak asia. market coverage continues next. stand by for bloomberg markets. this is bloomberg. ♪ ♪ 9:00 a.m. in hong kong and singapore. i am rishaad salamat. sophie: i am sophie kamaruddin. this is "bloomberg markets: asia." ♪ rishaad: kobe opening with a second sharp loss, admitting faking quality data on products. wasie: corporate governance supposed to be a foundation of abenomics. japan's latest scandal

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