Where did the time go . We recap the last decade. This is daybreak asia, live from u. S. And asian headquarters. Betty i am betty liu in new york, it is just after 7 00 p. M. Yvonne it is just after 7 00 a. M. Here in hong kong. I am yvonne man. When itte dance we see comes to communications. We saw a little choreography over many different reasons. You have yellen, mark carney, the bank of canada, all signaling rate hikes are coming. Take a look at market moves on my bloomberg terminal. Doing damage control after the many taper tantrum tuesday. Markets not buying it. On the move, but not recovering the strike in yields. The euro taking a dip. We have the pound and the loony surging. Betty global tightening is just around the corner. Not more than three months ago we were talking about, what about the reflation trade . It seems it is losing momentum. Here we are, all sparked by these comments from the Central Banks. When will theis, markets be convinced and how long will that last . Yvonne we have to talk about the fed stress tests, seems all the banks are passing, broadly speaking, with flying colors. We will delve deep into those results later on. In asian pacific, a positive vibe set to carry into asia. The asx 50 up. A weaker dollar story, kiwi at 8, against the dollar at the moment. A key focus on oil, we did see a rebound overnight from the dip after u. S. Gasoline stock piles dropped, offsetting the rise in crude inventories, 44. 82 for wti. The aussie going nowhere. Up 0. 7 . Utures to japan, we have retail sales figures coming up in about 50 minutes time. Were expecting it to be weaker. Take a look at euroyen, breaking above 127. Should be bullish for equities and the nikkei 225. We are seeing a 55 point gain at the open for futures. Looks like we could be seeing a 170 point gain once it does tokyo opens. You have to wonder what led to this reversal in stocks. We did not get a whole lot of news. No, but perhaps markets were quieted seeing that tech selloff. We had that tech rebound. Lets pull up the boards and check how the markets close. We did see that rally for a second day, the nasdaq tech shares up 1. 4 . The dow adding on 143 points. The s p also higher by 1 . The fed a stress test, which were expected to come in, giving a clean bill of health to the banking sector. That, we did get. Several banks, including Stanley Morgan with a huge buyback and dividends after passing the stress test. Only one bank did not pass, and that was capital one. All 33 others aced the test. Su keenan here with more on the results. Many were surprised it was not wells fargo. Last year, Morgan Stanley past. But it is the first time all 34 technically passed. The party began right after hours. All of the banks, the big ones, began announcing dividends and chase,s and j. P. Morgan it was big. The stock was up 2 . The buyback, 19. 4 billion shares. They boosted the business. No objection to any of the banks capital plans. Much better results than expected. Lets go to citigroup, a big afterhours boost in the stoxx and the buyback huge. Much more than expected. It is well over 100 of profits. The dividends at . 32 a share. Bank of america both america, and bank of the expectation was for big payouts. Bank of america saying they would buyback 12 billion in shares, boosting dividends to . 12 a share. Investors were paying attention to wells fargo as a risk factor that they might offshore in the wake of their accounting scandal. But no, they joined the party, boosting the dividend by 3 . The plan was for an 11. 5 billion buyback. All of it setting up for a very strong thursday for banks. It is in a very strong week for banks as they tried to be a part of this. The surprise was the capital one test results. It is conditional, they have to resubmit. What in particular was the take away from that one . Su they did not identify material risks, which is what the fed wanted them to do. They need to shore up their risk oversight, resubmit a plan at the end of the year. There was a lot of afterhours activity here and they were down initially by the end of the extended session. The concern was that they did not identify these risks, ordered them to resubmit and broadly said banks are expected to pay out more than 100 of their expected holdings. That is a lot more than last year, where it was down 65 . Lets go to a quote from the fed. Firms continue to improve their capital plan practices. Fed noted this concludes the capital one stumble was a surprise. They said their internal control functions, did not identify material weakness. The fed could not provide reliable assessment. They did approve a share repurchase, . 40 a share. It appears they will be able to get back in line. Twos almost as if a page or was missing from their homework. They go back to the drawing board. The key takeaway, the banks technically passed. After the 2008 financial crisis, it was a struggle for many banks. The procedures have to become more streamlined, or they are in line with the process they go through. Yvonne less stress for the stress test now. Lets get first word news with courtney collins. Prepared toe e. U. Make a major concession to the u. K. Over brexit. Conceding ground on the assertion the European Court of justice must be the final arbiter on the rights of e. U. Citizens living in britain. The issue will be at the agenda in brussels in july. The u. K. Has already said it is prepared to consider the establishment of a new arbitration body in conjunction with the european union. China may block coal imports from saturday as beijing tries to exert stricter control over the crisis. The government is trying to balance keeping prices high enough to support domestic mine rs, while keeping them below levels that hurt producers. There is overcapacity. Producers in australia and indonesia could take a hit. Said to berump postponing a complaint against former fbi director james comey, so as not to end tag denies the council investigating his campaigns alledge ties with russia. Aboutill file a release white house conversations. Lawyers intend to launch the suit at some point. Trade will be high on the list when the president mean meets with the new south korean leader. The white house will talk to moon jaein during a fourday visit. During the campaign, President Trump slammed an agreement with south korea as a jobkilling deal. He said he will renegotiate the deal signed by george a updated by barack obama. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am courtney collins. This is bloomberg. Yvonne we have been talking about Central Banks setting the tone on global markets, as we heard from a series of speakers portugal. For them in andonditions have improved, there have been record high profits. However, they are still cautious spending,easing including investment. Some removal of Monetary Policy stimulus will be necessary if the tradeoff they face continues to sessen continues to lessen. , it becomes more conventional. Monetary policy should not be further burdened. We cant underestimate the importance of the innovation of productivity and growth. They are very important in informing our Monetary Policy. Betty a chorus of centralbank voices. Joining us is Guggenheim Partners global cio, scott minor. He is also an advisor to the new york fed. Great to see you again. What did you make of the central bankers indicating some of them are ready to tighten . Scott i took the message differently, especially draghis comments from yesterday. Saying,what he is things are looking like they are Getting Better and policy may be drifting that way on the fiscal side. But the central bank is there an looking to support economic activity. Betty you did not take it as tightening . Scott not at all. When they attempted to walk it back, which was in part responsible for the strong rally we had today, Central Banks are telling us, yes, things are looking better, but we are continue to providing liquidity and strengthening the economy. Betty i will pull up this chart banks,ows two central the fed and bank of canada, and how investors are viewing them the two stories. Chart represents the line, narrowing between u. S. Treasuries and canadian bonds. Indicates is that basically, investors are saying, we might see the fed slowing down rate increases, but very likely, we will sell canadian debt because we will see the bank of canada tightening. Ways, other banks will do that, as well. What do you make of that opinion . Scott it is a fair opinion do have at this point. I think the other Central Banks around the world are going to have to start assessing a tapering program but at this point, given the Federal Reserve has been pretty clear in its signal that they are going to go ahead, they told us exactly how they will do it. They have indicated that if things do not go as well, we could slow down or change it. Eventually, the other Central Banks will get around to it. Twoy will it be a tale of central bank groupings . Scott one will say, we have to keep supporting our economy. Especially places like japan, that had so many failed attempts at this. Iseurope, dr. Draghi committed to keeping this going because they did have a form of qe before. When they reduced their Balance Sheet, they have the greece crisis. Until we get out of the woods, we will keep doing it. The u. S. , we are feeling good. The economy, we think we are reaching potential output, especially with employment so low. The fed has a different story, they will be fighting a different battle than the other Central Banks. Betty scott, stay with us. Scott minerd to of scott minerd of google time guggenheim. Surveillance at 6 30 p. M. Tonight in hong kong, 6 30 a. M. In new york. ,onne and on daybreak asia Stephen Roach joins us from the new renminbi reality event this morning. Betty muddy waters joining Bloomberg Markets tonight at 10 30 hong kong time, 10 30 thursday morning in hong kong new york. This is bloomberg. We are counting down to asias first major market open. Nikkei futures carrying the rally today. Tech shares and financials in the u. S. This is daybreak asia, i am betty liu in hong kong. In new york. Yvonne i am yvonne man in hong kong. Scott minerd, it is good to see you. I know you have a different take on what the ecb did the last 48 hours. A lot of people are asking if this will be the pivot for the markets. Do you see this as an Inflection Point . Last 48moves in the hours sustainable in your eyes . Scott i do not think this is the Inflection Point. One thing i have been talking about is, the vulnerability of markets to a surprise announcement of some kind. Given where volatility is, where the market, when it gets to this characteristic, is typically vulnerable to some piece of bad news that comes out of the blue. I am not ruling out the possibility that as we go through the summer, and the Federal Reserve i think in september or october will start reducing their Balance Sheet, should another central bank in the world all of a sudden come out and say, it is time to start tapering, then i think that could be the Inflection Point. But right now, i would say it is a bit too early. Yvonne there is still a big debate about inflation dynamics. In a way, is low inflation the new inflation . We are seeing subdued prices that will continue to ease financial conditions, even if the fed continues to tighten, and they will still pile on that risk. How long can we stay in the sweet spot . Scott it is interesting with this inflation thing we are dealing with. Everyone is expecting the phillips curve to kick in, that employment will get so low, employment will pick up. But the phillips curve has not been a very accurate predictor of inflationary pressure. Is that what we are living with here is a massive deflationary trend which is still in place. Look at things like commodity prices, energy prices, apparel, owneroccupied rent. Look at any number of things which falls into the pce or cpi number. The trend is down. This down move we have had in inflation in the past few months is transient, is probably mistaken. The spike up in inflation we got , year over year from the First Quarter of last year to the Fourth Quarter of this year, ofch is largely the result increased energy prices, is currently being reversed. The reality is, the spike up was and inflation is probably running lower than policy makers think. Yvonne is janet yellen at risk of making a policy mistake here . Scott i think so, and i think they know that. The decision to start treating the Balance Sheet, will probably get implemented in september or october. They will hold off to do their third rate increase until december. Remember one thing we get with every Federal Reserve statement, it is all datadependent. Try to slow play the rate increases for the rest of the year to get an opportunity to find out if this inflation rate is structurally lower than they expect. If we do not see something ticking in through the decline in unemployment, then i think theyre going to execute their option to delay rate increases and look at it again in 2018. Betty another piece of data investors look at is Business Investment and whether it is increasing our businesses investing in the economy . I want up quick chart on my bloomberg. It is a graph that shows you that investment has flattened out in the u. S. Business investment has flattened out. That leads me to the question, from an investment point of view, are we getting more and more disconnected between what is happening in the u. S. Economy and where stock markets are . So. T i think the underlying rate of Economic Growth is not what we expected. It is interesting to watch that pop in interest investment to have occurred around the election and has tailed off after People Discount the president s ability to implement his progress plans. Until we start to see a meaningful increase in wages, where we see labor costs becoming a bigger component of the expensive output expense of output, we will not see an increase in investment. Betty there is a big debate around jobs right now. Back to the phillips curve argument, i wrote the piece a number of years ago about the return to the phillips curve. People do not even remember what the phillips curve was. The idea there was a tradeoff between unemployment and wages. What i demonstrated in the piece, there is no Empirical Data that supports it. Until you get wages starting to grow, there is no reason for businesses to start spending a lot of money on Capital Investment, because the reason you may Capital Investment is to improve the efficiency of workers. If wages are not increasing, you do not have pressure on efficiency. Egg here and the people argue you need Capital Investment to get the economy to grow. I think it is the other way around. We need to see stronger wage growth and then we will see more Capital Investment. Scott minerd, we will be talking about the fed stress test they came out a few hours ago. You can get a roundup of many stories to get your day going in todays edition of daybreak asia. You can go to your terminal, it is also available mobile. You can customize settings to only get the news on the industries and assets you care about. This is bloomberg. ,tty this is daybreak asia i am betty liu here in new york. Yvonne i am yvonne man in hong kong. The Indian Government has approved plans to sell a stake. The decision paves the way for privatization of the company that is only surviving on taxpayer monday money. Air india is nearly 8 million in debt. Their share has fallen. A 50 million operating profit through march 2016. Noty aig says they should expect them to repurchase shares as aggressively in the past. They need flexibility for other priorities, such as expanding through acquisitions. That signals a shift in approach, from Peter Hancock who stepped down last month, after losing confidence of investors, including carl icahn. Yvonne can you believe it, 10 years since apple turned around the fortunes and changed the way we use the phones. A look back in the past decade for the iphone, coming up. This is bloomberg. [ noises inside can ] [ laughing ] its driving me crazy come on. [ spitting from tongue ] time for my secret weapon. Sports, movies, tv, ah, show me music to distract a minion. [ voice remote click ] oh [ pharrell starts to play ] [ minion so happy to see screen ] ahh im pretty smart. Ahhh [ lots of minions ] [ mooing sound ] show me unicorns. [ click noise for tv ] ahhh that works too. Find your awesome with the xfinity x1 voice remote. See despicable me 3. In theaters in june. This morning in hong kong, 30 minutes away from asias first major market opening. It is gorgeous out there. Betty 7 30 p. M. Here. It was a gorgeous day, but not in the evening. However, the markets are pretty bright for the bulls, up almost 1 on the s p. Adding on a rally here in the shares up almost 1. 5 . I am betty liu here in new york. Yvonne i am yvonne man in new york. This is daybreak asia. First up, capital one was the lone standout as 33 other u. S. Angst aced the second part of the feds annual stress test. They have been ordered to shore materialversight and weakness and resubmit plans at the end of december. Banks are expected to pay out close to 100 of their expected earnings over the next four quarters, much higher than the 65 last year. The global cyberattacks seem to be abating but leaving with victims in its wake. They could suffer material financial damage after the petya bug. Shares up more than 1. 1 . Another place shut down shares in india and on the u. S. East coast, saying they are carrying out a full assessment of the damage. Bankruptcy of takata has dealt a major blow to its parenting families. The value of that takata stake has plummeted from nearly 3 billion to less than 70 million, and could go to zero. The family used to collect around 9 million. The year in dividends. As tesla finalizes its gigantic battery factory in nevada, china is poised to flip the switch. Beijing aims to pump out more than 120 gigawatt adders a year, by 2021. That is enough to supply batteries for 1. 5 million electric or hybrid cars. The tesla factory will make only 30 gigawatt battery cells. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am courtney collins. This is bloomberg. Betty lets check what we should be watching as trading gets underway in asia with adam haigh. The latest impetus from the Central Banks, does that have any more momentum in asia . Yes, indications are that it does this morning. Not a huge an, but positive sentiment rolling through, all a part of the global assessment they are making on high rates. Clearly, the expectation for high rates has been coming for some time. But the language changes by the central bank in the last 48 hours or so. It is significant for the implications on this part of the world, as well. Tests those fed a stress and u. S. Banks have done well in afterhours trading in new york sessions as well. That is a bit of positive sentiment. There is a light economic calendar, japan sales and a Business Sentiment survey. Dial. Amount to move the but we expect Equities Trading in 20 minutes or so. In sydney you have been looking at the rivalry between australia and new zealand. We are not talking about rugby, but the stock market on the asx as well as new zealand. Why the hysteria we are seeing now . Adam it is really stark. Have a look at this chart on the bloomberg terminal. Showing us is a pronounced outperformance of new zealand equities, often seen as a proxy for higher rates. A lot of equities offer high yields under popular historically with Foreign Investors looking for that. A lot of momentum has been going into that trade in the last few years. Backdrop of australian equities, they continue to struggle. That is largely a function of financials coming under regulatory pressure and the surprise tax we saw from the Central Government and south australian state government. There is no shortage of Global Investors wanting to allocate an underweight position in australian equities. The Energy Sector performed particularly poorly. Performancee worst in the developed world of the 24 markets we tracked. It does not bode well for the second half of this year. Like a toughs environment for australian stocks at the moment. The aussie banks and iron ore versus new zealand milk, it seems like. Adam haigh, thank you. Iphones 10ththe birthday. It was not the worlds first smart phone, but jumped ahead of the competition. There were rapid transitions for society, as a whole. Emily chang takes a look back at the decade of the iphone. Today, apple is going to reinvent the phone. On june 29, two thousand seven, consumers got their hands on the very first iphone. A decade later, the smart phone is the undisputed king of apple products and in turn, revolutionized an entire ecosystem, destroying heavyweights of the day and spurring new rivals across the globe, like xiaomi. It is open the doors to a large chunk of revenue apps. They generate much Gross Revenue for apple, more than 16 Million Developers worldwide producing apps ranging from uber to snapchat. The iphone did not just change the way people work and socialized, it transformed the company itself. Apple grew by every dimension, from a company with a staff around 18,000 preiphone, to a workforce of 116000 and 2016. Sales went from 19 billion in 2006 to over 215 billion a decade later. It does not stop there. Since its launch, apple has sold 1. 3 billion iphones, generating more than 800 billion in revenue. That blows other iconic devices out of the water, including soldndos game boy, which 118 billion units in its lifetime. With the that astronomical growth rate comes heavy dependence. The iphone makes up a whopping 63 of revenue for apple, making it the companys most crucial product. Some tech heavyweights are sounding the alarm about the future of smartphones. Peter thiel saying he does not think there will be any more innovation here. It is clear that tim cook sees it differently. I think we are just getting started. I am incredibly excited. There is nothing anybody would say is going to replace the smartphone anytime soon. Emily as apple looks toward the next decade and the competition stays red hot, the major question remains how long can the iphone remain at apples core . Emily chang, bloomberg, san francisco. Betty i think 2007 was also the year when people became add on their smart phone. It is true, we are all addicted to our phones. You agree with what emily was reporting about innovation . Slowing down. We saw that burst in 2007 and we have peaked since then. Scott trees do not grow to the sky, certainly in terms of profitability. We have to separate innovation from profitability. If you take the amount of innovation that went on in products like radio, the great growth boom in radio and best returns were in the 1920s. Radio has been with us ever since, the margins have just been compressed. In general for the whole tech industry, now that they make up about 20 of the market cap, there are met maybe better opportunities elsewhere. Betty i want to talk about the growth in tech. It is not just here, it is overseas. I want to pull up this chart. What is interesting is that even in the emerging markets now, the msci emerging markets index represented in the white line, now you have Companies Like samsung, tencent, alibaba, bigger and bigger on this index. It used to be things like oil and industrials were the dominant forces. What do you make of that . Scott we are going through a classic rotation. There is no sector that remains dominant over the longterm. 10you look at financials, years ago we would be talking about how financials make up roughly 20 of the s p. The dominance of every industry or sector changes over time. I think in 10 years, we are not likely betty what is the next one . Scott that is a great question. If i were that good, i would not be doing what i am doing. [laughter] financialsmight say, have to catch up. Yvonne i have to jump on a point betty was making in terms of waiting. You mentioned how mobile tech seems to be dominating when it comes to what we see in the s p. I want to throw up a chart and show oil. Focus on the white line, the apple chart. You can see a sense in the last 10 years, clearly the outperform are here compared to exxon, general election, petrochina in orange. Before, low rates leading to distortions and asset prices. Do see this as a potential bubble in the tech space . Scott absolutely. It is a really strong candidate as a bubble or a forming bubble. The problem with bubbles is, they tend to go much further and play out much longer than we think. I will never forget Alan Greenspans irrational exuberance comments back in 1997, where he said stocks were wildly overvalued. 2000 andntil march of had one of the greatest bull markets in our history. Stay with us. We will talk about the fed in the stress test. Our next guest talking about the banks, a reverse public ritual that belongs to the past. This is bloomberg. Yvonne this is daybreak asia, i am yvonne man in hong kong. Betty i am betty liu in new york. One of the big banks stumbled in part two of the feds annual stress test. Capital one has to shore up risk oversight to fix material weaknesses. Us,t minerd is back with cio of Guggenheim Partners. Josh rosner joining us, as well. I do not get the sense you like these tests. Josh i do not like these tests. They were important during the crisis, they gave a sense of confidence that the fed has this. But at that point, there was a lot of missing information the fed did not have, they were takehome exams. Now the fed is saying we will focus on one specific portfolio each year, primarily. Betty the fact that some banks, fewer and fewer are not passing the test, but the fact there still are some banks not passing, doesnt that tell you these are tough . The problem with that is, one, it starts to feel like lake woebegone, where all of our children are above average. We had only one bank in trouble here today. In the fed is really putting premature behind public companies, saying they are fine, testing one portfolio more than the others for the stress test portion, and this year as examples, was commercial real estate. Belief the fedis has a strong ability to see the future. As we know from the prices, the fed missed where the risk areas were. I am more concerned about commercial and industrial loans and commercial real estate. That is what the fed is stressing, they may be missing the ball, giving the market a sense of false confidence. By the way, they do have an examination process which is private. All the information has to be held, it is a felony for a federal official to disclose it. That is where the real said fed action should take place. I am not sure the stress test is a good thing. I guarantee it will be gone by the beginning of the next cycle. Scott i think josh makes some great points. It is like the Good Housekeeping seal of approval. It is saying, these banks are all safe. Betty do you think they say they are safe . And does it is weak not mean anything. To theit is signaling world that are regulator thinks they are safe. Josh is 100 right. The fed totally misread the environment before this last crisis. When you look at what they are doing today, they are not necessarily identifying or saying where the risks are. They are just exercising a test and putting it up there, and letting the market assume that the fed is focused in the right place. If you are to go through the bank call reports of the top 10 banks and look at the loss if youces by portfolio, are to look at the 90 day plus nonaccrual by portfolio, you would see some absolutely stunning spikes over the past year, in the nonaccrual and 90 day plus, for cni. That is not an area of focus. You see banks that are not accruing for that appropriately. For the fed to put this betty they are missing the ball. Josh and they risk ruining the feds credibility. Yvonne josh, i want to throw question to you. We saw a lot of moves in the after hours when it comes to financials. I think we have a long telegraphed how well capitalized some of these lenders are. Is there enough of a catalyst for stocks, or are we waiting for some reform . I do not think we will see meaningful reform. The polarization of the political environment especially on the senate side, will make it almost impossible to get any significant reform. We saw the choice act passed through the house, but i think it will be piecemeal through the budget appropriations process. I think it will be very hard. The catalyst i think this was the catalyst. Week,on bloomberg last take it for what it is. It is a wonderful headline trading event. It is not really change anything fundamentally. I do not think it should be giving investors a great sense of confidence. We need to make sure people are doing the fundamental analysis. Scott dont you think it does one find a mental thing for investors . It gives them the green light that they are going to get bigger dividends. Josh absolutely. But that gets priced in almost immediately. Therefore, it is a trading events. Scott lets assume the economy keeps going for another year or two. They will be able to use up some of the nols, keep flash cash flow strong. I agree with you on the fundamentals. But when i look at the market and market expectations, it could well be this continued loss in dividends and buybacks will push shares higher. Agree withestion, i that. We are late in the cycle. I am not sure we will get another year or two years of a full cycle. Thecraped the bottom of barrel in most portfolios they lend into. There is not a lot of demand left. We are almost at the back end of all of the costcutting we can do. At this point, youre right. What kind of a multiple do you end up putting on it late in the cycle . Betty do you think the fact that the fed is in your view, the fed is missing the ball in one area commercial industrial . Is it another case of too big to fail . Josh almost all of them remain too big to fail. Remember, we walked out of the crisis saying, too large, too complex, too interconnected. None of that has changed. The fed has authority under title i of the doddfrank. It demands you get a blueprint of resolution, that you have simplified corporate structures. Fed has punted on the. That. I do not think we are in a different place other than capital. And that is dramatic and meaningful. Do i think we have any real systemic risks in these institutions . But, we do have a lot of leverage in the Balance Sheet exposures. Who knows. Scott i agree 100 . Macro financial but policy, ther capitalization relative to what we were offered if we look at leverage ratios in 2007, they were ridiculous. The question is bigger today. One thing i agree 100 about levels. E cni i talk about it in terms of corporate bond. But the amount of leverage in the system on a corporate level is awesomely scary. Josh what scares me most about that, is the first time in history, our fortune 500 companies are funded through debt market. They are adversely selected through banks. Betty thank you so much, josh rosner. And the scott minerd, cio of Guggenheim Partners. Yvonne retail sales letter japan missing on all fronts. Month on month numbers for may, down 1. 6 . This is down from the 1. 4 we saw the previous month, also short of estimates. Retail trading numbers year on year, positive, at 2. 2 . Losing momentum from the previous month. Stores, supermarket sales, may have been a contributor to the downside, down more than 0. 5 , to 0. 6 . We had four or five months of positive figures, but now it seems we are headed in the opposite direction. This brings us back to levels we saw last august. Governory the boj and kuroda remain accommodative when it comes to qe. Not joining in the chorus when you see. Plenty more to come. This is bloomberg. Betty this is daybreak asia, i am betty liu in new york. Yvonne i am yvonne man in hong kong. Alibaba said to be close to buying ztes software on to strengthen its position in the cloud. They have been speaking to zte text for months. Alibaba is investing heavily in the cloud to compete with amazon and microsoft. Record 1. 2 billion fine in the u. S. Betty amazons position as the goto place for online merchants is increasingly threatened by walmart. Thirdparty sellers account for one third of product sold on amazon. Complaining, they are starting to move some of their business elsewhere. Walmart is benefiting the most after buying startup jet. Com last year. Yvonne plenty more to come as we count down to trading in sydney and seoul. We are seeing positivity in the region after we saw a bounce mac and bounceback and reversal on wall street. Betty centralbank watch, it seems the past couple days. We will be watching the reaction to those pretty disappointing wall streets confident tone extends to asia, should support financials with metals and oil strengthening. Rewriting the second half outlook for the year, more interesting. The u. S. Calls for closer global collaboration. Failure to comply could mean a total ban on electronics. Koreas new president visits washington, trade on the agenda. This is the second hour of daybreak asia coming to live from bloombergs u. S. And asia headquarters. We just got those disappointing retail Sales Numbers from japan, down 1. 6 , much more than what economists had asked acted, although less the year on year figure, only 2 . Economists had expected 2. 6 . Disappointing overall. Reason to notves take accommodation away soon. Governor kuroda did not chime in on this chorus from central , butgovernors and portugal the market is interpreting these moves from bank of canada and mark carney. We did see the ecb how to away from some of the comments yesterday after that mini taper tantrum. Lets get the latest with shery ahn. Draghi himself did not dispute that his comments were misinterpreted. That said a lot. Yes, it is the Central Banks. The major banks have spoken about the Global Economy and that will set the tone for markets in asia. U. S. Stocks gaining the most in thateeks, so we are saying come into the asian trading session. Gaine seeing the kospi wound is even at an alltime high. Gainingh korean won after losing ground in the last session. Brent crude continues to rise. 2 , past 47 a barrel. Central banks and seem webe turning more hawkish, could see fields continuing to sayingnd our colleague 2. 25 is a key number to watch on the 10 year treasury, now resuming their trade in the Asian Session. That would be where the 50 day that key00 day and down trendline from march meet, passing this level for the 10 year yield and could mean we are leaving the bond market rallied behind us for a short while and could see yields continue to rise or the bear market in bonds , i should say. Are seeing this yield continuing to rise in the Asian Session and we will see it those moves continue as we see more Central Banks turn hawkish and investors trying to readjust their position. Thank you so much. Outlook in the early going, lets get first word news in singapore with haslinda amin. Ready to make a major concession conceding ground that the European Court of justice must be the final arbiter for the rights of eu citizens living in britain. Theissue is set to top agenda in brussels in july. The u. K. Has says it is prepared to consider the establishment of a new arbitration body in conjunction with the eu. President trump postponing a complaint against former fbi director james comey so as not to antagonize the special counsel investigating his campaigns alleged ties with russia. They had planned to file a complaint about the release of memos. Sources say the president s still intend to launch the suit at some point. Tensions will be high when the president meets the new south korean leader, greeting moon jaein on a fourday visit. President trump slammed the trade agreement with south korea as a job killing deal and said he will renegotiate or scrap a deal signed by george w. Bush and updated by barack obama. U. S. Security officials are demanding airlines around the world step of checks on all flights headed to america or a total possibility of ban of electronics on planes. John kelly said compliance with the new rule could mean the lifting of the ban on large devices from 10 mideast and african airports. A first upouncing toward this goal by requiring new security measures to be applied to all commercial flights coming into the United States from abroad. These measures will be seen and unseen and phased in over time. They will include enhanced a screening of Electronics Devices , vetting, and mitigation to reduce insider attacks. Has dealt a major blow to its founding family. The value of the takata has to 70ed from 3 billion million come and could go to zero given the enormous liabilities. The Dividend Payments will be curtailed. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Investors are betting on less easy money in the eurozone and u. K. After the ecb form wrapped up. For japan, a different story. , those japanese retail numbers telling the story. Honestly no surprise. It has been on the downturn for the past three years or so. And the boe and the fed, we are seeing this rhetoric towards renormalization. For example, the ecb doing that tapered tease yesterday, and janet yellen saying we will be on the same path, one rate hike by the end of the year, and now mark carney saying 46 chance by analysts something could happen. The most uncertain thing is with the ecb. Mario draghi a little positive, lets listen. Asi am relatively confident the economy will improve in the eurozone and we are entering a natural business cycle, we will also see a cyclical improvement in productivity. Lets remind viewers what is happening here. It looks like investors are pricing in a possible move later this fall. This is 8489, the Balance Sheet for the ecb, now 4. 1 trillion since 2009. the euro has been falling, down 50 during that time. We see that because of what is happening here, we are seeing a euro pop, the highest since february, so you know what . Even though the ecb walked back Mario Draghis talk, they said, you know what, we will call your bluff. We are thinking you will not do this and looking ahead we think you will price it in and that assets are going to be shelved as we move further afield. Unicredit saying that could happen as early as september. Onmarket not quite convinced that backtrack from the ecb, but there was a clear dichotomy between Central Banks in the west and the boj, right . Governor kuroda looks like to stay the course of stimulus. When i was watching him speak in front of the ecb form today, anelt like he was giving eternal sigh when he was painting does not rosy picture of what is happening in his country. Lets listen to what he has to say. Economic conditions have profits and record high , however, we are so cautious about increasing spending, including investment. Investment from business not happening, and now we know Consumer Spending is not happening. We need to fill this income about 1. 6 is where this needs to be. The last time there was something positive was early 2016 and over the past three years, only three months were spending by consumers was positive. The current trend continuing to keep on going. Thank you. For more lets talk about central bank in all this speak we have been getting the last couple of weeks. Were joined by bob bowers, the chief global economist at principal Global Investors. We arenterpreting what seeing here from the likes of doe and bank of canada. Carney comeen, mark all signaling that it is time to hike, but are we getting ahead of ourselves at the moment . I dont think so. The consensus has come around and what is going on today is a synchronized Global Economic upturn. U. S. Growth is picking up, europe is doing well and has said to quarters above 2 , looks like it could be higher than that for a couple of quarters, even japan is one plus percent and china is stable, synchronized global of turned says synchronized action on the part of Central Banks to at least remove some of their tremendous accommodation. Just about the data dependency, but we heard from bill dudley, stanley fischer, janet yellen, and John Williams talking about these richer valuations in the market, right . Do you think that will be the agenda now for the fed . , the financial conditions continue to loosen in the u. S. Compare that to europe and right, edging higher in terms of financial conditions loosening, but you can see the u. S. Is definitely outperforming on that front. Our financial conditions giving more prevalence . I think financial conditions have eased, and Central Banks are clearly watching those, but they are also watching Economic Growth, which is picking up. That is the key. I know janet yellen and dudley have mentioned the rich friday rations in stock market, and i know they are wary of bubbles given the bubble in tech stocks 20052000 six,g so i know they are sensitive to that, but i dont think that will be a Guiding Force going forward. I think it will be growth, inflation, and wage growth. I want to bring it back to the u. S. And one of the topics we talked about, which is the stress tests here do you think they are effective in protecting the economy from another too big to fail fiasco . There is always the question of where do some of the problems lurk, often in faraway corners that you cant find, but capital has then raised in u. S. Banks and they are starting to outperform, or at least they did late last year as Interest Rates rose, so i think banks are in good shape today, higher Capital Requirements and we dont see loans out of allens, so i think thanks are in much better shape going into the next recession certainly than the last one. Stay with us. We will be with you again. Bob baur. , one of wall streets leading voices on the economy. Morgan stanleys former asia chairman joining us to talk china and global risks. Of next, how has hong kong changed since returning to china . The first man to take charge of the city after the handover. This is bloomberg. Chinese president xi jinping is due in hong kong has the city prepares to mark 20 years since returning to chinese rule. This will be his first visit since coming to power of. Amazing. The citys first leader in the postcolonial era, and i asked her about his biggest achievements and what could have been done better here in hong kong. Hishat we are most proud of is the successful implementation one country, two systems in hong kong. Why did one country, two systems come about . Ingenious approach to solve a problem which is unimaginable to solve. For tubing nations to agree to a agree nations to peacefully to solve a sovereignty problem like hong kong. And the fact it works so well. It did work so well. Understands hong kong people would like to see a way of life is maintained, and he also recognizes the importance of the rule of law, the importance of maintaining hong kong as a very international city, and the market economy is being kept, so all these things, you see, has come through really well. Has come true . Yeah, and you can look at a World Bank Report looking at. Ome of these areas they rank about 200 countries in the world, you know, as to how every country does this, and you is unimaginable. We were about 63 in the world, 2016, ite time it was 16, so it is all in proving, you see, and our confidence was way up there, so on and so forth. So when you think could have been done better in the last 20 years . The real challenge for hong it starteds, i think since the 1990s when globalization started, when wto andined globalization developed very rapidly, and globalization has good things and bad things, and then the other is the rapidity of development of science and technology, what the technology has done for the world is enormous, that it is also a very distraught to force. In many of the advanced countries, they have suffered from this, like United States, like britain. You mean the job losses . The job losses and the disparity between the wealthy and the poor him and it happened in hong kong. We were one step more serious the last 810 years we did not provide enough land for housing so the property prices when a very very rapidly, ad all these things create much deeper divide between the rich and the poor, the shrinkage of the middle class has appeared come us of these of the challenges come at these are the real challenges we in hong kong are facing. Lets continue our conversation with bob baur. You are listening in on that interview with the first chief executive of hong kong. It has been interesting, right, real estate has become a real problem in hong kong, but i want to pull up a chart for our viewers that you are familiar with as well which is how much Mainland China has become the force in hong kongs economy, and just looking at retail sales, almost 141 tracking so when chinese gdp peaks, so to retail sales in hong kong. When it slumps, so do retail sales in hong kong. Likely only going to get more and more tightly correlated , and given that then, what is hong kongs role in the 20 years . I mean, china determines its future, but where does hong kong delay here in the Global Economy . There will continue to be a big role for hong kong in the future. Has been a, it terrific role model for china. From 1957 torowth 1996, 40 consecutive years of eight. 1 real growth. In some sense, that set an example for what the chinese can , imnd with it so close sure the first economic ministers, for them it was a tremendous example. Even today over the last 20 the placeg kong was to transfer currency and show china what the rule of law could do, what some capitalists and free markets could do. They have been a tremendous example. Behink they will continue to come a but i lesser role in itsa as china has developed own capabilities. Shanghai is becoming a huge financial center, so hong kongs role will diminish, but still be a great economy. In 20 years, do you still see the dominance though . There is that fear that as china and to greats more, we could lose relevance as a city and it could just turn into another chinese city. It is possible. One country, two systems, may be there will be some melding of those two systems as the future unfolds, but i think hong kong is a very successful place and will continue to have a strong role in the Global Economy. Always great to have you. He joins us live from tokyo. Plenty more to come on daybreak asia. This is bloomberg. A quick check of the business flash headlines. The Indian Government has approved selling a stake in its lossmaking flag carrier, making the way for a privatization on taxpayer monday. Air india is 6 billion in debt and its share of market has slumped to 13 . It made 15 million operating profit through 2015. Needs says he liquidity for other priorities. That signals a difference in approach from Peter Hancock, who steps down after losing confidence from investors including carl icahn. Chinas biggest aluminum producer has secured a credit line of 3 billion. China citic Bank Approved the. Inancing shares have been suspended after a wave of short seller attacks. The Company Denies allegations about its accounting and is suing one researcher defamation. Up next, north korea casts a shadow over president moon jaeins summit. We will look at the difference between the two leaders ahead. This is bloomberg. 8 30 in singapore. It looks to be dark clouds hanging over. Away fromf an hour the opening of trading. You are watching daybreak asia. Lets get to the first word news in singapore. Growth slowed. Sales growth against any of 2. 6 . Japans economy has had a run of stagnantowever with and falling wages, private spending has been weak. Capital one was the lone as others as to the stress test to shore up risk of material weaknesses. More broadly the banks are expected to pay out close to , muchf expected earnings higher than the 65 last year. A global cyber attack seems to be abating. It could suffer material financial damage after the worldwide operations are hit. Investors seem unconcerned. Shutting down systems in india on the east coast, caring out a full assessment after damage. And facial recognition at a teams to verify identity and crackdown on Money Laundering they have to stare into a camera for six seconds to have identity confirmed. Beijing is trying to stem outflows that sell 800 billion leave the country in 2016. As tesla finalizes its battery nevada, Bloomberg Intelligence says beijing aims to pump out 120 gigawatt hours by 2021. Bloomberg says that is enough to supply batteries for hybrid cars. The giga factory will make 35 gigawatt hours of battery sales annually. Global news powered by 2700 journalists and analysts in 120 countries. Time to see time to see how the asian markets are shaping up. It is a strong market for equities here in asia at the start. We are seeing the nikkei gaining 6 10 of 1 . Ground, up gaining 1. 4 . Marketthe drugs in the drugs in the market, Consumer Staples out of japan. They are falling more than expected. 1. 6 on the month. Currencies across asia, one leading the gains after declining the most in a week in the last session. Theave more strength for offshore chinese yuan. We have seen speculation of the pboc intervening. China security journal saying the yuan will be biased stronger in the second half due to sound economic fundamentals. Continued oil continued to gain. Doubting this rally, unless we deeper cuts from opec. It seems prices are recovering. Were seeing gains that would erase the losses since oil entered the bear market. People are not optimistic. We are seeing a survey coming out saying the most Energy Executives are not positive about the market rebalance. They dont expect that to happen until the latter half of next year. Falling. Ying they are they fell for a sixth consecutive time lapse. Week at the lowest level since november. Even this data has been contradictory. Showing ae api data growing u. S. Stockpile. President donald trump a and his south korean counterpart will hold their first meeting. The economic challenges are up for discussion. Lets get more now. With, we continue to see north korea, its between what the u. S. Wants and china. Lets talk about the impact here in terms of trade. Moon wants to keep trade off of the agenda. It will be difficult. President trump has talked repeatedly about his dissatisfaction with the free trade deal the Obama Administration negotiated with south korea in 2012. A bilateral deal. Which President Trump has called horrible and a oneway street. That can show a chart shows, the trade deficit the u. S. Had with south korea. That continues to get bigger. Horrible. Led the deal why . He is pointing to those numbers. The trade deficit. The koreans respond that it doesnt tell the whole story. You have to look at the Foreign Direct Investment from south korea into the United States. That has gone up sharply since the deal went into effect. Executives will be traveling with president moon from the largest korean conglomerates and will announce some investments. Samsung electronics is going to be investing in a factory in south korea south carolina. Chances of moons success here . Well, it is probable that trade will, given how important this issue is for President Trump and his voters. It seems a reach that they are not going to be discussing at all. Something like the samsung toouncement will help lighten the mood. The koreans can point to deals like that which President Trump can highlight as well sayingim achieving something. Scarlet thank you for joining us. Coming up we are live at the rmb reality summit where we talked to Stephen Roach about how the u. S. And china are finding Common Ground as the g2 power couple. This is bloomberg. Scarlet this is daybreak asia. , alibaba closek to buying is the te. They have been in talks with softek for months. Alibaba investing heavily in the cloud to compete with amazon and microsoft. Scarlet amazon spit is arety sellersr half of the products sold on amazon. Kickite is too quick to them all. They are sitting to move business elsewhere. Moment is benefiting the most after buying jet. Com last year. Another food company hit by amazons deal for whole foods. Blue apron cutting its ipo. It slashes to 2 billion from a 3. 2 initial. As we mark the 20th anniversary of the hong kong handover we have extensive coverage through the next couple of days starting tonight when joinedt british governor the surveillance at 5 30. Tamara our special coverage begins. We are joined by emily. Daybreak asia, the former Financial Services and treasury secretary, now the chairman of hong kong mtr. Today 10 a. M. Tomorrow, this is bloomberg. Quite steffen only going to be a great day. Definitely going to be a great day. Talking more about this milestone in this city. Stocks have extended a rally. Growth picks up. Lets cross over to beijing. Tom mackenzie has one of wall streets leading voices on the Global Economy. Central bankers the last few days, we are here with the new reality summit hosted by bloomberg. We are looking for opportunity in china. We will ask about the Central Banks as well. Yale, fantastic to have you with us to kick this off. Great to be here. Let me start with the conversation around the central bank. You have push for a normalization of rates. He pointed out the risks involved. How do you view the comments we have heard in the last few days . I think it is long overdue. You look back over the last eight years. It is a policy of zero Interest Rates. Helpfultive easing was with arresting the crisis but a significant disappointment in terms of prompting a normal cyclical recovery. Of problems with the financial markets. Setting the stage for another crisis. The sooner Central Banks get out of that policy the better coming up on. It looks like they are doing it. How should investors be positioning themselves . Now looking for this higher rate environment . The one thing we have learned studying japan is even in the easing,of quantitative longterm rates can stay lower for a lot longer and you think. They were moving into a significant bear market. Overdone in my view. I wouldnt be aggressively bullish. I would certainly not need significantly irish either. Bearish either. About thee written u. S. China relationship. You are going to be speaking about that today. Is the honeymoon over . Moved toing they have taiwan. Essentially announcing tariffs on u. S. Steel. One, i have learned never to take President Trumps latest view as indicative of where we are going. He changes in a very whimsical way. Threatening for china after the north korea negotiation disappointment could quickly be reversed if the u. S. Engages in military activity in syria. Unwilling to destabilize on two fronts. I think the u. S. And china, as i will stress, has a lot to be gained by their codependence, complementary of china if they open Services Sector to the worlds most Competitive Service provider, the United States. Steel, onthreats on chinese tariffs, all during the campaign by candidate trump. It seems like reason is prevailing but that is always a tough call when it comes to someone like mr. Trump. Got the connect about to be announced shortly. Capital markets are performing. How much of an opportunity to you see their . Transparency too much at the moment . A small step in the right direction. Tiny inclusion of a small number of chinese stocks. The chinese have always said how committed they are to reform but in the last couple of years there has been a significant disruption in the equity market. They have had to reimpose capital controls. Those are setbacks on the road to market reform that the chinese will still need to overcome in the years ahead. What you make of the Deleveraging Campaign we are saying in china . Seeing in china . , some of thes local government financing vehicles. How do you see that playing out . Chinese authorities are focused on deleveraging, as they should be. Sharply. Risen the speed of the rising mountain of debt has been so worrisome in china. The government seems to be serious right now. China,lways the case in when they take restrictive moves, signs of a significant impact, they tend to back off. I suspect they will temporarily deleverage the campaign. It is a risk. It needs to be addressed. Where do you see the citys future in the next 10, 20 years. The next 10, 20 years are quite secure. Given the talent pool, the institutional frameworks, the wellestablished companies that have been dealing they are, beyond that time frame, you can raise questions about the future of hong kong given the growth of financial markets. Horizon that0 year you asked about has an Important Role to play. Thank you very much. Former chairman of Morgan Stanley asia, giving his views. So many more to be done for the capital markets. Thank you so much. Peaking with stephen you can get a round of the store you need to get your day going. Bloomberg subscribers on your terminals. Customize your settings so you only get the news on the industries and assets you care about. This is bloomberg. This is daybreak asia. Im betty liu in new york. China is going to be arriving in hong kong soon. The city has been rocked by a wave of street protests. Near thein the city hotel where she is expected to stay. Protester the umbrella really being global news several years ago. Are there any signs of protests right now . There have already been some protests. There was some disturbance around the golden you can see it, glistening gold. Gift from china to hong kong. To symbolize the unity of china and hong kong operating under one country. Two systems. We saw protesters who tried to shroud the statue in a black material. 26 were arrested. They were calling for universal suffrage and the release of the novell prize laureate nobel prize laureate let out of prison a few days ago and is now in hospital with terminal liver cancer. They were calling for these releases. He became famous during the occupy central protesters. Now he is a lawmaker, also arrested among those. . Ow did they get there they find a way. Xi, what is his message going to be . Were expecting a carrot and stick message. One country,ll be two systems, underlining the benefits of one country, china. Hong kong has accrued the benefits of xbox somebody to china being the financial gateway to one of the fastestgrowing economies in the world. Belt and road initiative, another message hong kong can benefit from this Infrastructure Program being put in place by china. They can provide Financial Services, logistic services, Many Services to benefit from that. The stick will be that one country to systems means no room for talk of independence. Running out of time, a threeday business visit. What is on schedule for xi xi . There is going to be a big gala tonight. He will stay in the Renaissance Hotel next to the Conference Center at the grand hyatt on the other side of the Conference Center. We do not know that. Security has not given those details out. 10,000 police are going to be patrolling the streets. The highlight will be the big variety show friday night followed by the inauguration and flag raising. Perspectivee the and what we can look ahead four. Time for a quick look. Center. , front and already seeing some arrests from protesters. We are going to be looking at the state of play when it comes to the economic situation. The new chief economist for asia , talking about brexit, and these fed stress tests. Place asummit taking well. A few tensions there. That is all to come. This is bloomberg. What would you say this skill set was your brought, great intellect, great drive, great leadership . Phil all of that. David lets talk about golf. Phil tiger woods you could see coming from way back. I woremichael jordan, if those shoes phil you might. David when you give a 400 million gift, you write a check . Is it hard to do that . Phil yes. Would you fix your tie, please . David well, people wouldnt recognize me if my tie was fixed, but ok