Transcripts For BLOOMBERG Bloomberg Daybreak Asia 20170502

Companies that do business with north korea. Is daybreak asia live from bloombeergs u. S. And asia headquarters. Man. Am yvonne taking a look at how things are ,oing, we saw this slow churn Apple Earnings the big thing after the bell and what it will mean for suppliers. Thats right. President ok at why trumps pick for ambassador to china. We are at the milken conference in Beverly Hills. Hour. Eat guest this that, the austrian trade downter will be sitting with bloomberg on this tpp campaign after the u. S. Dropped out. It seems like he is turning the tide to their. We will see if he can continue to spread his message in Beverly Hills. Markets in the region, a slow churn higher come the fed come the jobs report friday, the second round of the French Elections over the weekend, but the kiwi dollar goting after we unemployment numbers dipping more than 4. 9 . Noteems like there will be be much resistance. Stocks flat. Australia snapped at days of gains on tuesday. Lets see how futures are pointing, quiet and asia. In asia. Fusion is futures flat. Crude,ed below 48 on gas stockpiles could be rising. Japan closed for their golden week holiday, but the yen extending declines for a fifth day with the yen at a six week low. Sitting onvestors their hands before those events happen over the next couple of days. Some muchtainly deserved rest for the japanese worker. Lets take a look at how equity markets closed. Apple in focus in after hours, but a little bit higher. , pay attentionow to the s p futures, slightly softer. Lets get to first word news. Tweeteddent trump has the u. S. Government needs an good shutdown after congress agreed a budget deal that denies him much of his wish list. Wall, a for the border smaller cut to the epa, and funding for planned parenthood. The Milken Institute global has heard warnings of a developing credit crisis in china. Thatbass told bloomberg Wealth Management products are another sign of a major problem. He has repeatedly warned that chinese banks need to be restructured. Whenat you start to see liquidity dries up is that people start going down, companies have problems. This is the beginning of the chinese credit crisis. Group has raised its stake and Deutsche Bank. It said it might increase that while intending to remain below 10 . It surpasses black rocks investment, which had been the largest according to data compiled by bloomberg. A slump in the Auto Industry shows no signs of letting up. Ales fell almost 10 . It was almost immediately reflected in slumping share prices. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Thank you. In extended trading after Second Quarter iphone sales missed expectations. Earnings came in ahead of forecast, though revenues fell short with analysts wanting big things from the new iphone later this year. Joining us to break it all down is alex webb. Shares falling some 2 in afterhours trade. They sold slightly fewer iphones, but revenue was still up for apple. Can we overlook these checkups as we focus on this super cycle for the next generation iphone . Part of the reason of the debt is because shares have been on a tear. That has created enthusiasm in the investment community. The stock has dipped, but not catastrophic. Saying they are expecting a lot of five funds in the super cycle. Reporting, we know there will be significant upgrades there. What do you read into these numbers . The mess was marginal. The june quarters have always been historically week ahead of the launch of the new product. This time around, it is a much bigger deal. Shift to thehe iphone 7 plus was much stronger relative to prior years. Shortages substantial , so even though units dipped year on year, the next was in their favor and the revenues were better year on year for the iphone segment here it that is a positive point. Positive point number two would be the services business, now on a 7 billion quarter run rate. Well, sos margins as you have those two things going for it. If we are able to go into the super cycle, if you may come with some strong momentum into it, there is some serious potential for the iphone business to pick back up. Beyond the upgrades, there is still this overhanging problem in apple. On iphonel reliant sales, contributing to thirds of its revenue. The white bars coming from the iphone services, the big Growth Engine potentially, but still far away from what the iphone can contribute at this point. Can they continue to grow the top and bottom line as the iphone matures and the growth rate is slowing . Could this super cycle still be at let down . R d spending has doubled in the past 34 years. A lot of people expect this our and the spend is going towards new products, and that is part of the issue, autonomous driving platforms, augmented reality, they arestingly investing in the core components to the iphone, semiconductors. We have seen the pounding that some companies have taken apple mightctations drop them. This is what is helping the bottom line. They come under pricing pressure from new competitors, they are able to squeeze out improved margins on the iphone itself, that maintains that 38 , 39 growth margin. Billion out of 53 billion comes from iphone. Ipad, forgetthe about the macs. Look, you would not be able to look, you would not be able to offset a substantial can offset a it substantial iphone decline. That is the story. The super cycle would not do well or will be substantially weaker, year on year doubledigit declines, there is nothing in the portfolio of apple that can offset that. Before we go, i want to ask about china. It is down when it came to sales. They were thinking some 20 drop, but can they continue and is there so scope to expand in the region . , the relativism he was talking about, declined, but not as bad as last year. You are comparing the size of declines rather than the absolute size of the business. , thesay the iphone 7s most popular models in the country, they are clearly enduring continuing problems there. The one other point i want to make is we talked about indian growth at the end of the call. Substantial market where it has low presence. Indian are able to stoke buying for a very high price product, then there are some serious numbers in india they could move the needle for apple. Theyu were saying earlier dont have anything else in their business to offset these declines. Thank you so much. Webb, thank you as well. Right. Thank you so much for that. Another big story in asia is the s continued desire to rein in north korea. Trumps pick for Ambassador Says sanctions could be on the table. That is later on this hour. As thetpp rise again remaining nations prepare to meet. We will ask our strays trade minister what can be achieved. This is bloomberg. This is daybreak asia. I am betty liu in new york. I am yvonne man in hong kong. Trade officials discuss the future of tpp. And talks will set the stage for the aipac trade summit. Istralias trade minister at the milken conference in Beverly Hills with Haslinda Amin. Deacon really determine the fate of tpp. He says tpp minus one is possible, but really . Good to have you with us. Why are you so optimistic. You say it is still possible. It is absolutely possible and good if it happens. Fundamentally, we were disappointed, but it was not unexpected when the u. S. With drew. There have been questions about what countries might do, but we met recently and had a conversation and we decided to keep these options alive. We will come together again in hanoi to look at what that might look like. Thinkan takes a few they it could happen, then that is a good outcome. , vietnam saidr tariff free access to the u. S. Is the only reason why it wants to be part of tpp. Without it, it is not agreeable to it. What indications did you get from vietnam . They are keeping all options on the table. What is swaying it one way or the other . Perspective,alias we want to achieve a good outcome. Tpp can do that for us. Upmay be that it doesnt get in the but a lot of people have been saying tpp is not dead. We need to keep working through this process to see if we can put in place a comprehensive modern trade agreement that goods, services, investments chapter and digital economy, all of these benefits. We dont want to let that go, especially small to mediumsized exports. That go, especially small to mediumsized exports. Is there a time frame . It needs to happen by february next year. It becomes the 24 month window. It. Re 12 months into that would not have carriage under a tpp 11, but if we are to make it happen, it needs to happen in the fall to remain within that original window. Some say you are waiting for the congress to change its mind. That is a long way down. Think there is any realistic proposition the tpp will happen inside the next 12 months. President trump made it clear that he would be withdrawing from the tpp. It was disappointing, but not unexpected. There are still gains we should try to hold onto. No chance the u. S. Will change its mind . You must have had some discussions . I think it is such a small chance that we might as well not worry about it. Is there a chance of a renegotiation for those who are quite hesitant right now . I dont think so. If we start on taking threads, we run the risk of it all falling apart. All 11 countries have agreement. Certainly not having the United States changes the equation that some people have. By the same token, we are all at the starting line. We have agreement, so it comes down to domestic ratification and will for this to happen. I think there is a lot of benefit. New zealand and canada think the same thing. Japan is open to a tpp 11. If japan was there, we would get mexico, peru, chilling chile. Who is taking the lead . Japan has an Important Role to play. Mexico has an Important Role to play. Mexico is focused on negotiations around nafta, so these things start to crisscross , but ultimately comes down to the fact we can achieve a good outcome here with the application of effort. There has been a flurry of activity in asia, including australia, why is that the case . Europe needs to be chasing growth. We have concluded a scoping study with the european union. It was an important precursor to the formal commencement of negotiations with the european union. I think there is a lot of. Enefit to europe and australia it is our second largest trading partner. We want to do a deal as quickly as we can. Far,w much and how barriers rising in asia . We are seeing unfortunately an increase in nontariff barriers around the world. These are the antithesis to economic growth. The more bearish we have, the more interruptions and distortions and trade, the harder it becomes. An explosion around nontariff barriers. This is the issues exporters talk to me about the most. We are putting a lot of focus on it. We have had constructive discussions with my new chinese counterpart recently and australia to break down these nontariff barriers, so i am focused on removing these barriers. We know trade drives growth and jobs. We have to leave it there. Australias trade minister joining us at the Milken Institute global conference. Watch this space. Tpp minus one, whether it will happen or not, time will tell. That is a big minus one. That was Haslinda Amin there with australias trade minister. Sales haves. Auto put the brakes on, trade in focus. The latest results, which dont make great reading for the u. S. Consumer. This is bloomberg. This is daybreak asia. I am yvonne man in hong kong. Betty liu in new york. A slump in u. S. Auto sales continues, down for a fourth straight month after that record year in 2016, not only impacting carmakers, but triggered a selloff in parts suppliers as well. Su keenan has been surveying the damage. Su it was a bearish report. The slide is continuing. Belysts thought there would a bounce back from the harsh numbers we got in march, not so. In april, sales for six of the biggest carmakers dropped again with ford and honda posting 7 declines each. To make matters worse, each fallny had their figures short of what analysts estimated, and that sent the a fourth straight down month after record sales in 2016. Lets look at ford, a fresh low for the year, down 4. 5 . It has not been that low in a while. Honda is flat for the year, was down 1 on the news, but again, one of the steeper declines. We generally look to Companies Like honda to doing a little better, and yet it was right in there with the steepest declines. It makes you wonder are they going to continue with these incentives or will they talk about production cuts . Saw this selloff triggered throughout the industry. How bad will it be . Said, willanalyst production cuts be enough. It does not look like there is an end in site to this trend in terms of how auto markets, parts retailers were hit. Delphi has done well for the year, took a 2 hit. Where you rarely see the damage is in these retailers, is one thathat sells, finances new cars. Been down 70 year to date, so a rough year for them. 5 ashown berry down almost 6 on the day. What is interesting is some discussingo were this trend talked about how u. S. Consumers are not buying the bigticket items right now, even though the economy feels like it is rebounding, we are not seeing that translate in terms of sales. Thank you so much. Su keenan there. Coming up next, activist investing in japan, reforms are prompting a new way. We will be live at the milk Institute Global conference in Beverly Hills. Make sure to stick around for that one. This is bloomberg. A cloudy hong kong morning. It doesnt matter. It is a holiday. We are celebrating buddhas birthday. Thats right. The markets were open here. Closed after a choppy session pretty much higher across the board. Theyinly a lot of caveats are, and one is apple. I am betty live in new york. I am yvonne man in hong kong. You are watching daybreak asi. Trumps pick for ambassador to beijing says there may be a case for sanctions against Chinese Companies that do business with north korea. He told the Senate Foreign Relations Committee that he thed recent actions by north, including another failed missile test had convinced china to take the situation more seriously. Japans top diplomat says his country is ready to take the lead in reading north korea of Nuclear Weapons as than u. S. Warns tokyo it is under threat. He said japan would lead efforts rise thelear peninsula. Infosys to hire 10,000 American Workers. Apple is falling in extended trade after iphone sales and forecast came in below estimates. The company sold 50. 8 million phones against forecast of 51. 4 million. 43 pointevenue between 5 billion and 45. 5 billion, again below analyst estimates. Investors are expecting a major up phone iphone upgrade later this year. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. With a number of apple suppliers located in asia, where he may see knock on effects when trading resumes. Our focus will turn elsewhere, especially in taiwan. With this dip in apple shares, will that way on equities today . It has largely been a positive earnings season so far. It has a strong earnings have been one of the dig things propping up stock prices in the First Quarter of this year along with sentiment around the aonomy, so this gives us dampener on sentiment freely. As you say, a lot of markets in the region closed today, so not a huge amount for traders to jump on this morning, especially ahead of the fomc commentary later on, jobs on friday, and the French Election at the weekend. It is not a great time to the putting on a huge amount of risk decisions of this point. We have had a good move in the kiwi dollar on the back of that new zealand jobless rate, coming down more than expected, sales some buoyant sentiment there, and the japanese yen remains in focus. The Japanese Equities markets are close, but the yen is still trading against major payers, and that has gone through that key level comes of traders in dollaryen will be watching that closely. A lot is coming up in the next notle of days, so riskwise, a place to be putting on more risk. There is a call out on the again. What are they saying . Their coal is related to yen dollar going through that 112 level which we got through yesterday, and they are advocating a short position on dollaryen and expect further weakness in the yen to prevail, and one of their key themes is that American Economic data has gone from positive sentiment to a slightly more negative tone on the economy in the u. S. , so they seek further yen weakness from here. A lot ofnly have seen strength on buying over the last few weeks in the yen, so we could see further weakness up to 113114 levels according to the rbc. Thank you so much. What to watch for in the markets as they open. Time to head back to the Milken Institute global conference. We will stay on japan. The progress or lack of progress under Prime Minister shinzo abe, Haslinda Amin is standing by with a big gas. What has abenomics done for japan . Thats right. It has prompted a new wave of japan. T hedge funds in the problem is it is not happening fast enough. Lets give perspective. Good to have you with us. What is the difficulty here . Shinzo of a wants to happen, but it is not happening fast enough. Activelye then investing since 2004 in japan, and it is a different culture. The boards of directors are controlled by insiders, so we have to enhance shareholder value in a different way that were used to in the u. S. In europe where we can push on management and respectful way to get things done. If it becomes contentious, we can go to the board and push for change their, or they agreed with our proposals and implement them to get a higher share prices. Those motivators are not really there, so we have to find other ways to do it. Same way init the terms of meeting, writing letters, being respectful the same way you go about it . It is the only way to go about it. If you have an overt position as an activist, we want to stay liquid, respectful. We are not interested in board seats. It isight be mistaken for ok not to do anything come and we definitely want to see positive shareholder value and we will put it under discussion is necessary. Shinzo wants to independent directors in each company, and an 8 r. O. E. Difficult . Been so we certainly have seen a change, and improving change, and the discussion about Corporate Governance and getting directors on these boards. We have had conversations with government officials putting for a majority of the board to be independent, and that is a long way off, but that is something they should strive for. Labor and changes in the labor force, reducing the size of labor is an important change. The r. O. E. Debate, clearly they can improve by doing acquisitions and doing more capex and share buybacks. In many cases they do 20 and have a goodl Balance Sheet and the investment grade. The pe is assigned to you, eps is only by looking at upward income growth. This is Earnings Growth in the use of the Balance Sheet, and reducing share count and doing acquisitions is the way to enhance earnings per share growth. That will get rewarded with a higher multiple. How Many Companies in japan are making the cut . Can you give us a percentage of companies that are meeting the standards needed . I would say the number is probably 10 or lower at this point. This is an uneducated guess, but the companies we are dealing billion to the 2 15 billion market cap range. We are seeing in many cases improvement, 70 to 80 of those are starting to make the cut. What is needed for Greater Transparency among Japanese Companies . It comes with outside directors, reporting the results more openly. Is there a way of expediting the process . Towe are forcing management come up with a credible threeyear roadmap to enhance eps which will enhance r. O. E. We will hold management accountable for achieving these performance targets. That is something we are pushing for. It is not only happening. They do have midterm plans focused on sales growth, which we dont really care about, or operating profit growth, which is important, but the next thing would be earnings per share growth. To beave invited us shareholders, so we will make our opinion known to push for higher share growth. Has three arrows, but only one has been fired. What are the risks in investing in japanese markets . They are limited. Ande economy is steady valuations are low and the companies are wellfinanced in many cases. High tech,away from biotech, or financial services. It is company specific, but overall, this is a developed market with deep liquidity. Picking out one company of time and sit with management to help them do a better job is what we are doing. They really appreciate what we have to and how we can help them. We have to leave it there. That is it for our coverage from the Milken Institute here and l. A. Back to you. Great work. That was Haslinda Amin there. In a moment, china and korea have been dominating the headlines in asia. President trumps pick for china suggest sanctions over chinas handling of north korea. That is next. This is bloomberg. Bloomberg daybreak asia Donald Trumps pick for ambassador to china says he is open to sanctions on china over its handling of north korea. A senatenstad told confirmation hearing that the goal is to pressure china to do more. Ramy inocencio has the details. Ramy can he have the leverage here . He is hoping he does because he has a long history with president xi jinping. He has had 32 years of history with him ever since he visited and they have been building on the relationship ever since. When president xi jinping came over, they met then, and now he could be living in beijing in xi jinpings own backyard. The ministry of Foreign Affairs when it first nominated him to be ambassador, they called him an old friend, but it is interesting to see whether there will be some stress on this. He said today that the may be room for economic sanctions. Lets take a listen to what he had to say. At the moment, geopolitical risks is a constraint on the rating of korea. That takes into account these these low, probability potentially big impact events that would affect the economy and the governments capacity to manage the economy. That wasnt the potential ambassador there. But Terry Branstad did say in front of the Senate Foreign Relations Committee that he thinks there are other things that can be done diplomatically as well as economically. That is one thing. There is also trade issues, mr. Out that he pointed recognizes there is criticism that for example china is something u. S. Steel and the china is not a live chicken imports into the country. He also said he is committed to making sure the trade relationship between the u. S. And china puts the american willr first and said they stop the unfair and illegal activities from china they have seen in the steel industry. You have these tensions surrounding north korea, but the outlook for the south. The south isk for something we have to look at here. Earlier we had moodys head of sovereign risk, lets take a look at what is happening in terms of the south korean ratings. Aa2, fitch has aa minus. Talk of a said shed low probability, but a high impact event of a conflict there. Here, but sheny is talking about a ratcheting up of potential tension here. Go ahead and take a listen. At the moment, geopolitical risks is a restraint on the rating of korea. Theseakes into account tail risks, these low probability potentially big impact events that would affect the economy and the governments capacity to manage the economy. She is talking about this low probability event. Hop into the bloomberg terminal. While we are talking about this tension going on with the north korean peninsula, it turns out that when it comes to south korea and the korean won, look 8092. White line, it is at its lowest since june 2011. She says the support of the won is in a range because of physical strength that offer the in which isdebt moderate, only 40 of gdp. Stilleign investors piling into that market. Thank you. Lets do a quick check of the latest business flash airlines, autos and airplanes, United Airlines again apologizing saying it was a mistake of epic proportions. The ceo told lawmakers it should never be repeated. The House Transportation Committee comes after david dao was dragged off a flight after refusing to give up his seat to a crew member. Erica talley a has entered bankruptcy for the second time in a decade after staff rejected a turnaround plan. Litalia bankrupt the second time. It said it was not prepared to continue. Westjet airlines plans to order 20 boeing 787 dreamliners as canadas secondbiggest carrier expands longhaul capacity. The order is worth around 5. 4 billion and help to clarify westjet strategy of entering markets in the western hemisphere and marks a victory for boeing over airbus. Autos, a slumput in the u. S. Auto industry shows no sign of letting up. All six of the biggest carmakers falling again in april. Ford and honda posting the steepest year on year declines, 7 each. Gms sales dropping 6 . Fiat chrysler, 6. 6 . Immediately was reflected in slumping share prices, ford closing at its lowest in 4. 5 years. Just to bring up a chart to illustrate why investors are so not justit is automakers and auto suppliers, but consumer stocks in general. 8261 shows that when auto sales much right after that as represented by the blue line here, Consumer Discretionary stocks also underperformed, and interestingly enough as autos go up, Consumer Discretionary stocks outperform, but i find this chart it in more interesting because on the righthand side, auto sales represented by the white line declining or separatists the, but Consumer Discretionary stocks are on the way up, so maybe that correlation is starting to break apart. Right, and it is interesting because we are still waiting for the soft data to match the hard the secondound in quarter after that week print for the First Quarter. Be the focuswill to determine how big of a rebound we will see in the june quarter. We will continue to watch this win here, especially with consumer stocks. You can check with that chart as well as a roundup of all the stories to get your day going in todays edition of daybreak. It is also available on your smart phone and the bloomberg anywhere at two do can customize anything you want, news, industries, and assets you care about. This is bloomberg. This is daybreak asia. I am betty liu in new york. I am yvonne man in hong kong. Group furthering its ambition and finance, raising its stake in Deutsche Bank to nearly 10 . This would make them the largest shareholder now. They are behind blackrock when it comes to Deutsche Bank. Why Deutsche Bank . They are diversifying through its many affiliates into financial services, port , even in this era of capital controls. It is still making strategic investments. Californiabased i. T. Company last year for 6 billion. According to people familiar with its situation, increasing its stake in Deutsche Bank. Deutsche bank has had his problems as well. John cryan the ceo trying to return to growth because those scandals, if you want to call them that, eroded capital. Getting an investment from goinge like hna group towards that. People familiar with the deal saying they will raise their stake from what in february it was a 3 stake him then in march, they announced it was a 4. 8 stake, so they are under 10 ,it to just basically doubling its stake. As you rightly said, this larger position in Deutsche Bank would surpass blackrock, which was the largest shareholder which has a stake of 5. 9 percent, followed by ubs of 3 . Stake . About this what does it say about their ambitions outside of china . Diversification overseas, not just at home. They have taken stakes in the swiss dutyfree company, singapore logistics, hilton worldwide, 6. 5 billion investment there. Sky Bridge Capital said to be. Ooking at a stake nordea bank, swiss port international, cargo handler for airports, also gave group, a caterer in switzerland. I mentioned ingram micro last year for a 6 billion buyout. Thank you so much. Do, withre still asias first major market open now just moments away. We have circa got some markets that are close have got some markets closed for the holidays. South korea and japan, hong kong as well. It will make sophie kamaruddins job a lot easier. Breakeel like i am on with the Light Trading today. In australia, we are looking at Spotless Group as well as down er edi. We will be watching apple suppliers in taipei, hon hai among them. Future signaling a weaker start. Apple fell in extended trading after iphone 7 sales disappointed. Tension between beijing and washington as trumps time to pick threatened sanctions against those helping north korea. H h raising its game in global its stake ineasing Deutsche Bank to nearly 10 . A looming credit crisis in china. This is the second hour of daybreak asia coming live to you. It is just after 8 00 p. M. Here in new york. I am betty liu. I know some of the major markets are closed. Japan is closed as well as hong kong and south korea. Some lighter trade. We are looking ahead to the news in the next 24 hours, including the fed eating. Right. It is all quiet here so far with australia and new zealand. It was pretty quiet on wall street. We did not get much of a leadin except there is a lot of waiting going on. You have the decisive second round of French Elections on sunday. Lets look at how things are looking. Front,quiet on the asian to for now we are looking the potential event risks on the horizon. Now, we are seeing policy stocks fall for a second day. It didnt snap a sevenday rally on tuesday. Look at the currency space. We have the kiwi dollar on the rise after the jobs data for the First Quarter. Thanobless rate fell more expected to the lowest level since 2008. When it comes to outlook for the kiwi dollar, i want to show you the chart. There easing up on their bearish thats. Sinceas risen the highest 2014. This is the line in blue. There is falling demand for protection. Showing hints of a againstsignal, forming the u. S. Dollar. The dollar yen is a key focus for traders after rising to a sixweek high. It is showing signs of busting a move above a 55 day moving average. It could turn out to be another false break similar to what we saw in early march. Treasurieswatch for for a hint of what may come. The drop in yields on tuesday perhaps could give us a sign of what could happen. Little change in the dollar. Now its into the first word news with paul allen. President trump has tweeted the u. S. Government needs a good shutdown in september after congress agreed that a budget deal that denies him much of his wish list. It includes no money for his famous order wall and only a small cuts to the epa. Democrats called his threat to shut down the government after a successful bipartisan deal foul and shameful. Diplomats say the country is ready to take the lead in nuclearnorth korea of weapons as they were in tokyo is under threat. The security environment is increasingly severe. A global conference has heard warnings of a developing credit crisis in china. We were told ballooning assets are another sign of a major problem. The products have swelled to 4 trillion in assets. Investors are wonder. To chinese banks needed to be restructured. What you see when liquidity dries up as people start going down and companies have problems. This is the beginning of the chinese credit crisis. Chinas h and a group has raised its stake in Deutsche Bank to 10 . It might increase while intending to remain below. The holding would surpass blackrocks 5. 9 investment, which had been the largest. Global news 24 hours a day powered by more than 2600 journalists and analysts. This is bloomberg. Lets get back to an of our top stories. Apple dropping in extended trade after reporting secondquarter iphones sales were behind expectations. They want big things from the new iphone later this year. What is this mean for the suppliers, or the company . Bloomberg gadfly columnist joining us from taipei. I want to take a different angle. A lot of people focusing on the sales this year it i am focused on this egg cash horde they keep piling up that we keep hearing is going to be deployed, but when . Did we get any more clues from apple about this . Not so much. It is still sitting there. It is a lot of money. Speaking from the asian supplier perspective, one area we might see them use the cash is in. What apple does do is they go out and buy a lot of equipment and put that equipment in their suppliers factories. The suppliers cant use it for any other client. It helps give these supplies of bit of a leg up if there is a technology that is struggling to ramp up. When i predict is that apple is going to spend a lot more of that cash, especially offshore, on basically buying and installing equipment in their suppliers factories so they can be more and more differentiated in their technology. Imagination ditched , i think it kind of sent a signal that they possibly could be pressure when it comes to margins. Is that how you see it, . Is applei i see it needs to differentiate their technology more and more. We know the lovehate relationship with samsung, and there has been reporting that they are dependent on samsung. Not the able to procure enough of that. To have to go it alone and make sure they go out and build their own technology, that absolutely could impact some of the suppliers who have relied on being able to sell their products to apple. Trouble ford be big some of these suppliers. Hard to put all your eggs in one basket. About apple and their expansion in some of the asian markets. We know china is important for them but what about india . Indias a big one. Where hearing reports some of their local suppliers will start manufacturing iphones in india this quarter. It seems pretty solid that will happen. Indian government has increased the tariffs on imported phones. They need to get around that. Continuing that forward, apple sees that will be a big market for them. They in the suppliers realize it is worth the investments to build a factory there. It wont be the kind of highlevel factory we see in , probably an assembly factory. China is a struggle for them. There are some strong local players that are doing well. Applemaking it difficult to hold onto market share. If they can get into india early enough with the right product at the right price, they can educate a young indian market that is keen to have technology. Some of them dont even have a smart phone, most of them still using what phones in india. Lets go back to china. Did they shift the focus away from china . They are being pressured by the vivos and walkways. Can they return the same sort of growth we saw in 2014 and 2015 . It is very easy to say china is not growing at the pace it used to, but it is still a huge market. There is no way tim cook this turning his back on it. He visits china a few times a year. You will see photos of him being taken with the bike rental company, they have invested in another company. They are key to get exposure in the chinese market. They can really build the phone in the future. Apple is more than a phone, it is about all the services they are building in. The watches there also adding to that. Is applee going to see trying to understand the market or so they can find the ditches they need to find the niche is. No one should write it off. Thank you so much for joining us. Before we go, one more note on apple. Lets bring up this chart which really shows despite these declines that we saw, or despite the shortfall that we saw in the revenue forecast and worries thet the iphone sales, stock just continues to hit these record highs. Bearish contracts and options are now at their lowest level in two years. It is hard to bet against apple, even when there are some yellow flags on this company. It is hard to that for a stock fall here. Usually you see these head fakes in the after our trade. You can see, the increased the dividend and announced this buyback program. We will watch that one there. Still ahead, china on the verge of a credit crisis. We talked to a Hedge Fund Manager. Isnext, more signs the u. S. Turning on the screws on china to act on the north korean threat. This is bloomberg. This is daybreak asia. Im betty liu in new york. Lets do it check of the business headlines. Alumina profits doubled last year, rising to 1 billion. Earnings late. The producer is suing for a defamatory. Mastercard shares hit a record after posting profits that be estimates. Latin american spending drove the game the gains. Mastercard highlighted south korea, japan and australia as Company Countries that are helping its bottom line. Too many emerging markets have not yet embraced digital payment. China bank is trying to raise as much as 4. 5 billion dollars in shares in hong kong. They are set to buy up to 2. 9 billion worth. The remainder will be purchased by the everbright group. As we mentioned, Donald Trumps take for you china Ambassador Says he is open to sanctions on china over north korea. Ramy inocencio has more on this. Another chapter here. The diplomatic side clearly pushing into the economic side. China has most economic leverage with north korea, being the biggest trading partner. Terry branstad is going to try to use a very longterm relationship that he has had with xi jinping. They have known each other since visited xi Jinping Branstad when he was a firstterm governor of iowa. Nominated mr. Branstad to be the envoy, the ministry of Foreign Affairs to china said he is an old friend of the chinese people. This will be put to the test. There may well be room for economic sanctions in order to make north korea get a little closer to resolving the tensions that are happening. I think there are other things they can do, diplomatically and economically, to send a clear signal that they as well as the United States and other countries in the world do of tolerate this expansion Nuclear Technology and missiles by the north korean leadership. There is the Nuclear Issue but there is also trade issues that have to be dealt with in regards to congress as well as china and north korea. In the senate, senators have said if china does restrict imports of u. S. Chickens and dumps steel on u. S. Markets. He does have his work cut out for him if and when he does become the u. S. s top envoy to china. I have to talk about some military aspect and develop that are happening. The Missile Defense agency said that theyre going to test the Missile Defense system with regards to potential missiles out of north korea there into continental Ballistic Missile attempts. Tests have been long planned and there is no provocation. There is a lot of ratcheting of tensions. This could only add to that. With the tensions surrounding north korea, what is the threat to south korea . We see investors piling into this market. When will this hurt them . What we are seeing is it is not hurting them in the shortterm. Longterm, it is anyones guest. They have their sovereign rating. You can see where a sand the and fitch stand. Low talk about conflicts, probability. At the moment, geopolitical issues are a constraint. That takes into account the ,isks, these low probability potentially big impact events that would impact the economy and the government capacity to manage the economy. One other thing i want to show you in my bloomberg terminal, what you are looking at is the risk factor for the south korean won. We are at its lowest. This goes back to june of 2011. We are not seeing worries priced into the currencies. Rising tore already levels we have not seen in the past several years. They have a political vacuum as we near those elections in south korea. The richestne of men in the philippines says his that on the Casino Industry is paying off. This is bloomberg. She said today she will be a bloody woman in negotiating with the european union. I fear for this. The First Companies that become distressed in an otherwise lush market are usually Bad Companies with Balance Sheet. Investing in retail, the companies have had a fundamental transition in the Business Model that has not been good. That does that mean there are not opportunities to play. You have to be careful. The United States economy grew by 1. 5 last year. The president would like it to grow 3 or more. That might be difficult. I think that would spur a lot of new investment and new jobs in some of the views from the Milken Institute global conference in Beverly Hills. From the conference, one of the richest men in the philippines putting his honey on the casino gaming industry. Speaks to us that how the Gaming Market is growing in the philippines despite a government crack down. Crackdown on illegal gambling, which is good for us. The market is growing. I think is paying off. House so, what are you seeing . How much money . We have not released our results. We are seeing huge growth from china. The tourists are growing. Having said that, china itself is cracking down on gambling across the board, including in the likes of the philippines and south korea. Yes theyre cracking down on online gaming. What theyre cracking down on is illegal gambling in china itself. But in other legal jurisdictions there is not much they can do about it. They can crack down the movement of funds. How is the vip market doing . It is growing. Mid between 25 to 40 . That will be sustained this year. What are the risks . As far as domestic and local market is concerned, that is three factors. Chinese come id think that is pretty steady business. If china is able are successful to curtail the sending out of funds from that the players, that happened during macau. When you look at the philippine economy, it is growing gangbusters. Fastest in southeast asia. Is that sustainable getting what is happening in congress . The president has been trying to push through tax reform. That would impact the country. Think it will get the reform at the end of the day. They need to execute the infrastructure program. If they are successful in that, then that will sustain the growth. We are choking with lack of infrastructure. We need everything from airports to roads. We need the subway. We need all of that stuff under the plan. The way to pay for this is tax reform. They need to get the two done. There is political risk, at least that is what the world is saying. Do you agree . The president has shown he has political will. So far he has shown the will to get things done which is what we need. 7 growth sustainable going . As long as we spend the 5 of gdp on infrastructure. Coming up next, chinas eight and a group the biggest stakeholder of Deutsche Bank. This is bloomberg. 8 30 in singapore, a half hour away from trading in the lion city. I yvonne man in hong kong. Looks quite gorgeous there. Equally gorgeous here in new york. Us get to the first word news with paul allen. Slump in the u. S. Auto industry sews no sign of letting up, with sales falling in april. Around 7 each. Gm sales fell almost 6 . The slowdown was immediately reflected in slumping share prices, closing at its lowest in four years. Pick for trumps ambassador to beijing says there may be a case percent sanctions against Chinese Companies that do is this with north korea. Showed the s told the Senate Foreign Relations Committee that china needs to be convinced take the situation seriously. Onre is a plan to take 10,000 American Workers by expanding hiring in the u. S. While adding for research hubs. President trump signed executive order aimed at typing work visa outsourcing other programs to take a workers to america. On theckdown has weighed stock prices. Apple falling in extended trade. Sold 50. 8 million phone in the Second Quarter against forecasts of it to 1. 4 of 51. 4trade million. Investors are expecting in major iphone upgrade later this year. Global news 24 hours a day powered by more than 2600 journalists and analysts. I am paul allen. This is bloomberg. Several asian markets are closed today. Sydney, withn aussie stocks falling for the second day. Stocks in the red, matching that dreary weather in sydney. We are going to get into that shortly. Miners also under pressure. Gold is just holding steady. Despite oils terrible performance on tuesday, Energy Shares are leading gains over in sydney. Going back to that telco story. Plunge asing shares much as 27 after its trading update. It is trading at the lowest september 2013. We are seeing a harsh reaction in the market. Are maintaining a buy on focus. Now some other stocks in sydney. Downer edi has not raised its offer for spotless. At 115 aussie dollars a share. They said shareholders should reject the takeover offer. 20 stake in spotless before making the bid. Downer shares up 1 with spotless heading in the other direction. And begun Fairfax Media after regulators in new zealand locked a proposed merger between fairfax and ncm he. Plunging 12 . As you mentioned, some of the major markets are closed. Clearly watching the others in trading asia. H and a said to be furthering gets stake in Deutsche Bank to nearly 10 . We have more. That becomes the biggest shareholder. That is right. Theis famous for being parent of high nonairlines. They are diversifying into other areas. Also in the financial community. A subsidiary that wants to become a Global Investment bank. They took a stake in sky Bridge Capital earlier this year. They were purported to be interested in a stake in the german bank and in february announced that 3 stake in Deutsche Bank which was raised to 4. 8 in march. Now people familiar with the situation say they have in that stake to 9. 9 . Threshold that 10 they said they would eventually like to take. The previous stake was 4 . Chinas theake largest shareholder in Deutsche Bank, surpassing blackrocks 5. 9 . Deutsche bank has been mired in scandal. They had legal probes and misconduct charges. The ceo wanting to focus on returning the bank to growth. Certainly they have come along way in their history and shifted beyond the aviation sector. They had these big visions to be a investment bank. Keep in mind, this is in the air of capital controls and where the Chinese Government once companies to be more selective and strategic rather than ambitious and blind spending overseas. This is a strategic investment. It really is diversifying into insurance, into a number of different areas. It acquired stakes in a swiss dutyfree company. Hotel operator hilton, its worldwide. Also a Swiss International air cargo handler. Also buying outright that california i. T. Company last year. And media as well. Can add that to the list. A Hedge Fund Manager has warned ballooning assets are another sign of a looming credit crisis. They have told bloomberg it is time for debt burden in chinese banks to be restructured. When you look at the wmd market in china, they are basically levered money market terms. Some with dubious assets. Buying a longterm asset with shortterm liabilities. That ballooned in the last few years to 30 trillion yuan. Imagine 4 trillion worth of assets. What is happening is some of the longerterm assets are at doing very well. As soon as the liabilities have problems and depositors decide not to roll their liabilities, all hell breaks loose. 4 trillion on a banking sector. Asset liability is at the peak of our subprime greatness. We are at 2 of the system. They are at more than 10 of their system. Heres the problem with a forced deleveraging. You can often get out of hand. Do you i guess, are they going to blink . As you can imagine, you can remember how everything unraveled. Warren buffett famously said you see who is swimming naked with the tide goes out. Things got to be pretty dubious early on in some of these big mismatches. We sell the bank just a few days ago say they sold a three elliott you want 3 billion yuan worth wmd and never invested the money. It was just a ghost. You have seen in the last couple bought theang, which waldorf and Strategic Hotels and life insurers raising money in china, by using these shortterm liability products. The chinese insurance regulator was just detained and arrested for corruption. Now it is rumored things going on at anbang. When liquidity dries out is all of a sudden people start going down, companies have problems. This is the beginning of the chinese credit crisis. You believe were seeing it now . Sure. We have been talking about the inflation of the bubble. The timing is hard. This is 10 years in the making and i am not good enough and very few people are adept enough to decide when it exactly happens. If one were to say that the system is running out of money, running out of cash, what would you see happening . One of the charts i gave you is the chart on the interbank corridor. You expect interbank lending rates to spike every now and then. Interbanke cleared rates spike over 9 . Have a maxs when you levered system with interbank funding and your intimate 3 toank rates spike from 9 and settle at 5 . That blows you up. We are seeing spikes through the corridor. That is the evidence that liquidity is dropping. You cant clear it with certainty but it deals to you like we are beginning to see the bursting of the credit bubble . Yes. I dont know how long it takes. It could take a wild. Things typically unwind a little quicker. Think about the u. S. We had our first bumps in the road in february 2007, but we untilt have bear stearns march 2008 and Lehman Brothers in september of 08. Even a large unraveling takes a while. Speakingas kyle bass at the Milken Institute global conference. We will have much more ahead here it something every investor is watching. The fed. They are expected to hold fire on another rate hike when it beats this week. What should we be watching for . Well ask Carl Weinberg in just a few moments. This is bloomberg. This is daybreak asia. I am ready lose here in new york. See makes its next great call on thursday. Traders think a hike is unlikely. How to unwind the fed Balance Sheet. Lets get more analysis with Carl Weinberg. Byalso joined from yokohama Kathleen Hays. First, we had some data this morning. The auto Sales Numbers really taking a tumble. It has people wondering have we peaked in consumption . Is the company is the economy about to peak . Maybe these firstquarter numbers were not such an aberration and the red should not be moving as quickly . May be and maybe and maybe. The big story on the data is that the economy is doing well and is creating a lot of jobs. That is leaving to an Unemployment Rate that is below and they target by. 2 will have to Say Something about that this week. Seem to suggest it will not stop at 4. 5 and will keep going. Their mandate will be for the Unemployment Rate, not gdp growth. As long as we still creating 100,000 jobs a month, Something Big happened to the economy. Kind of the same story. Firstquarter growth this slow in the season secondquarter growth rebound quickly. With atlanta gdp forecast, they are saying we could be seeing growth that 4. 2 in the Second Quarter. Just skyrocketing higher. Usually the official data follows through. Is that too high . Chiefief economist u. S. Economist is looking for more like 3. 5 . This pattern of a slow firstquarter followed by a rebound is nothing new. It has been for the last four years. Strange things happen in the first order. One year ago the fed had exactly the same problem. Week gdp data going into a comparable meeting. The first two sentences of the statement dissed the notion the economy is slowing. The gdp may have slowed but the factors driving consumption are still strong and they are again. The Unemployment Rate continues to go down and that is the issue. We are watching for the fed continue saying what it is saying and keep its eye on the longerterm rather than the shortterm. It is interesting that the Federal Reserve ended up only hiking rates once last year instead of four times. Lets talk about the inflation rate. I think that is something i am watching more closely. The inflation rates are now the core pce in the headlines. They moved away from 2 . Seems to me there is a global problem. How does the fed deal with that . Do they mention that in the statement . Inflation is going in the wrong direction, how can you claim there is an urgency to move . The same story as last year at this time. The wages are showing clear signs of acceleration, a strong eci coming up there. All the indicators that the labor market is continuing to tighten. People for jobs is getting tougher and tougher. Thishave to be viewing slowdown in prices as unexpected but more statistical noise than a new trend. Wages are at a fraction. Prices have to follow in due course. Wage costs are three quarters of the entire cost bundle. Fed has its eye on the longerterm ball and acknowledge that this happened. Nexts slow a lot in the data reviews, maybe they wont go in june. Right now, everyone is teed up for it and they dont have anything different in order to keep that expectation around 7 according to bloomberg calculations to. Stepping away from the fed and that eating, i want that meeting, i want to ask about the bond market. Issuing thisasury ultralong bond. What do you make of that . I have had a problem with ultralong bonds. Who is going to buy them . You buy a bond to hedge against the liability. Bond against of the 30 oh person who is going to retire , but who you hedge with a 50 year bond. While it is attractive for the treasury to issue, there may not be enough demand for it to create a link market. That would underline the basic principle which is to keep the market liquid. Is at all talk . With this administration you just dont know. Treasury secretary has been in favor of it and that is a plus. They have been preparing a way to move in that direction. You cant will that out, but i dont think they will find the demand they are looking for. Especially when the fed is talking about shrinking that 4. 5 trillion Balance Sheet. What we got from the president was that he was serious about breaking up the banks. Do you see that having a Material Impact . With the president , you have to draw a distinction between what he says and what actually gets done. This president seems to be increasingly isolated from the republicans and the republicans seem to be divided on pretty much every issue. Im going to take a deep breath and wait and see whether we get a return to glasssteagall or not good wall street does not want it. Regulators to want it. The balance remains to be seen. Speaking of balance, lets take a look at the Balance Sheet. Even though this may meeting, no rate hike expected. There is no press conference. That is why people are looking at june. Our Intelligence Team making an important point that gives them a chance to work harder on their Balance Sheet reduction strategy. I was speaking with economists who are saying this is a tricky move for the fed and for the boj and for the ecb because of this because there is no rulebook yet, what does the fed have to do . And what do you see as the risks of this historic move . Im sure the fed will be by the end of the year talking overtly about its plans for reducing the Balance Sheet and we will probably get motion for that in december. As you pointed out, we are not looking at press conferences at this meeting. It is a bad time, an inauspicious time to undertake something complicated that might be explained or explainable by questions raised at a press,s. I dont think this is the right moment for it. We are expecting a reiteration of the language they have been using december 2015, which essentially says they will keep doing what they are doing until they do something else. We make it more clarification in june with a change in interest rates. Get a june move, a fall move, and then a pause in the end of the year, with all details tbd. Carl, great to see you. Chief economist in managing director, and of course Kathleen Hays as well who has been covering the doj meeting. Joining art special coverage our special coverage 2 00 p. M. Wednesday new york time. We will have the reaction from princeton economics professor. They will be giving their instant read on this. You are watching daybreak asia. This is daybreak asia. I am betty liu in new york. I am yvonne man and hong kong. Airlines apologized for calling it hasnt are off a plane of saying it was a mistake of epic proportions. The Transportation Committee hearing comes after david dow was dragged off of a united flight. Staff rejected a turnaround plan. Alitalia says it has exhausted all options after workers voted against a 2 billion refinancing land. Refinancing plan. As many as 20 boeing seven 87 dreamliners will be purchased. The order is worth around 5. 4 billion to clarify westjets strategies in asia and the western hemisphere. Lets have a quick look at what is coming up on Bloomberg Markets. I know youre taking a look at apple as well. They were a miss. Also forecast as a bit of a mess as well. Laying it all on the doorstep of the iphone eight due out in autumn. No one is buying smartphones because they wait. They have to kick this thing out of the park. It has to be something really special. Also looking at what is going on in Chinese Markets as we see Retail Investors becoming more cautious and going away from these financial and energy companies. Health care as well, just asking what is going on there. I am sure you have a lot of guest coming up talking about that. Certainly do. We are looking at the Exchange Rate funds. To be new ones everyday. There seems to be one for every day. Next,talking about what and active investing versus passive investing. Talking to the British Airways executive Vice President in about an hour and 12 minutes. Seeing their strategy when it comes to china. People say they have been complacent and have not tried to maximize their opportunities. It is 9 00 a. M. In hong kong, 9 00 p. M. In new york. Im haidi lun. Rishaad i am Rishaad Salamat coming to you from bloombergs asian headquarters in hong kong. This is Bloomberg Markets asia. Haidi new warnings of the credit crisis in china as well management products boom. A increasing its stake in Deutsche Bank to nearly 10 . Haid