Transcripts For BLOOMBERG Bloomberg Daybreak Asia 20170710

Stability. Betty this is bloomberg daybreak asia. I am betty liu in new york, just after 7 00 p. M. Yvonne it is just after 7 00 a. M. In hong kong. It certainly feels like summer. Not a whole lot going on here ahead of janet yellen. Also, for earnings to start kicking off real thing. The of all this is we did see a bit of a breather here in this bond the plus side of all this is we did see a bit of a breather here. G btv 2092. While we did see the 20 point recently, yourge look at the curve steepening, and that is a good sign, some say. You look at the white line, and the net treasury positions, that continues to fall. When that goes down, market is betting on a flatter curve and longterm bond prices to actually start picking up, so some questions whether you can really call this a route at the moment. Betty that just makes it all the more important to hear more details from the fed about, you know, when they are going to unwind their Balance Sheet because that is going to help lift the rates that have been stuck on the longer end of that yield curve, get the movie. It does not seem like the short term has any problem believing in the real inflation. Trade in the reflationary trade. Knowu mentioned, really sign of that route at all in the bond market. We thought was pretty much all clear in equities. Tech shares leading the way in the u. S. Yvonne let us take a look at how is it will play out here throughout the region. New zealand kicking things off. Shares seeing a bit of a boost, up one third of 1 . The kiwi at 7256. To australia, oil, not doing a whole lot either. 44. Ing around nigeria in on libya and joining in. 76 for the aussie. Not doing a whole lot as well. Stocks could be pretty lackluster out of sydney for the asx 200. Japan, a lot of stability in dollaryen. 114 against the dollar after the kuroda,rnor, reiterating his willingness to stay against policy. Pretty lackluster, it seems, so far, on how we are playing out this Tuesday Morning. A look ahead to the bank of canada. That decision, coming up later today as well. One of the first major banks to really telegraph that they will be hiking rates. Betty indeed. Let us get to the first word news with Nina Melendez for more on todays stories. Nina Rex Tillerson is in the gulf to he will shuttle between capitals this week, attempting to bridge the gap between the two sides. Qatar hosts the Regional Headquarters of the u. S. Central command, while saudi arabia is a top buyer of american weapons. The Saudi Alliance severed ties with delhomme on june 5 with doha on june 5. Theresa may will help steer the thentry out of European Union after losing status and power in last months snap election. She will fade her mission to tackle injustice and the vested interests she sees holding the country back. Saudi aramco is to invest more than 300 billion over the next to maintain capacity answers for new gas reserves. The ceo told the conference in istanbul that the outlook for oil supplies is increasingly worrying with 1 trillion in investments wiped out by recent low crude prices. Nasser also said the Petroleum Industry will say at the heart of Global Energy for years to come. And the transpacific trade deal, thought dead in the water when america pulled out, could be making a comeback. The 11 remaining pd countries will meet in japan tpp countries on meet in japan. The tpp was signed in february last year after almost eight years of negotiations. President trump abandoned it soon after taking office. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am Nina Melendez. This is bloomberg. Anchor all right. It is official now. Donald trump is dominating randy for the fed vice chair of supervision, a top regulatory position at the Federal Reserve. Previously, effectively held by dan in the obama administration. He left after the change in the admin efficient. President trump nominating Randy Quarles. We will have more as we are getting more details. In the meantime, that announcement likely to affect the banks, but its really the tech shares that had gains in equities. Natural gas, crude. That lift and commodities as well. Joining us now is su keenan with a recap of what happened today, so tech again, the best movers. Ech and and t materials, the big movers. Rebound,ned the tech but also, trading was light on this monday. 15 the 30 day average. This could have something to do with the peak of summer and a lot of vacations. Let us go into some of the big movers because material stocks tend to outperform falling rate increases. Look at century aluminum companytech was big aluminum company. Tech was big. The snapchat founder, it is down in a big way, and below its offering price at the ipo. That has a lot to do with some ative selloff, analyst let us go to the bloomberg. When we talk about the bond selloff, which is not reversing a bit. Thes interesting to note balance of investors. We are seeing more noise and signaled here. This is a chart showing the balance of most portfolios. Stocks, 45 weighted in treasuries. Hose red blocks, going down june, the end of june, was the biggest drop in this theoretical portfolio for the u. S. Elections. It seems to signal there is some kind of correlation between uncertainty, having to do with what is going on in the white house, and global economy. And fertilizer stocks. We normally do not look at those, but those moved considerably today. Walt grab the headline su grab the headline. We have a couple of Big Companies coming up for earnings. Take a look at these movers that combine to create some very big moves through it also, analyst upgrades for potash, which had the biggest jump. A lot of those stocks were reporting the next couple of weeks. Greed and futures have been rising. Et us jumping to the bloomberg we have a huge spike. If you notice the white line in the chart we are about to show 088, a lot of funds betting onerhaps downturn wheat are reversing their positions. Net long positions, bullish positions. Some of it short covering. There may be a drought. That is something they want to be on the right side of the trade for. That, it turned out fertilizers grabbed the attention of one of the hottest places to be at the start of the week. Anchor seems like soft commodities are in focus here. We have to talk about oil, too, because we are trading near 44 and even on news that libya and nigeria might actually start joining opec and cutting production, the market doubt that will do much in eliminating the Global Supply glut. Seesaw it is creating a trade. If you take a look at the oil chart, we have been pretty much below 50 since may. We edged above 44 in this latest trading session. The news is the possibility of libya and nigeria agreeing to caps, giving investors hopes that prices could rise. Kuwaits oil minister is saying the two have been invited to the meeting, and that the pact between opec and nonopec members appears to be working close to successfully. Again, these african producers have not been involved in a packed thus far the pact thus far. If they get pulled in, that is bullish for price. Let us take a look at how gold has been doing. Gold has not had a very good run of late. In fact, we have seen five straight weekly declines. You can see that trend right there in the chart. The longest slump so far this year. A lot of investors believe that the banks are going to be successful in raising rates as rates go up. The interest in gold generally goes down to one analyst says, if you look at underlying statistics, it is not that evident that the economy is as strong as the hawkish central bankers would indicate, and so, there is still some indication gold may move higher. Betty su keenan was a look at how the markets are trading. Might the the calm before the storm this week. What is really call my now is m right now is the ipo market. In the shadow of the coue ,erformance of a few listings they raised 300 million. Remember, that was cut by one third in what should usually be one of the busiest weeks for ideas. Other Companies Went public. They were all smaller, not the unicorns. They all caps on blue apron, performing 70 . Take a look at my bloomberg. G btv chart 2254. You can see snap the being below dipping below 17. That was its ipo price. Concerns over the longterm outlooks for these unicorns. Smaller companies are doing well. It is these 1 billion plus companies that investors are worried about, right . Can they sustain that high valuation . Can they justify this, particularly at point where they are not making money . Blue apron is a 1 billion company, but it is just not making any money, and that has got investors concerned, leading to a pretty poor performance here, postipo. For snap, if you take a look at the bloomberg data, you see 75 of analysts recommend buying the stock right now. We will see if this is a catalyst for people to start selling. Especially on july 30. The insiders had their share is up. They started to see that open up again. Are they going to sell the snapchat shares . Something to watch. Looking ahead, we will talk more about another company showing impressive returns to growth. That is the opposite story of what we are seeing with snap. They will surge in the second quarter, but could a move to brick and mortar double up vital cash . Betty why hedge funds just had their first losing month of the year. This is bloomberg. Anchor we are counting you down to asias first major market opens this morning. Tokyo, beautiful on tuesday. Futures heading lower by 50 points with dollar yen hovering around 114 against the dollar. I am yvonne man in hong kong. Betty i am betty liu in new york. As the world with to hear what fed chair janet yellen has to say about u. S. Inflation, President Trump has stolen the spotlight in just the last few moments, announcing a key appointment to the Federal Reserve board of governors. Randy quarles is the top supervisor at the fed. Hays, herekathleen with more. Tell us more about Randy Quarles in this appointment. Kathleen it is very important. It came out of the whole dog think the regulation doddfrank deregulation. , janet the vice chair yellen, and stan fischer. They said we need a vice chair of bank supervision, not so much Monetary Policy. Someone has to be watching that because that is where the Systemic Risk can come in and we saw the financial crisis. This is a very important post to fill. You can call it the top bank called what are some of Randy Quarless publications . The Treasury Department under bush. He was an undersecretary for domestic finance. It has to do with bonds and issuing bonds. It is something that is the heart and soul of wall street and how policy is transmitted to the markets, to the economy. He was an undersecretary for international affairs. Someone who knows banking and Bank Regulation very well. He did not help right the doddfrank regulation nor did he oppose it. He is seen as a pragmatist, not ideologue. Rounding out his resume, former executive director, a lot of experience in private equity. He or debt groups in utah. This is a man with a lot of experience and understanding for how finance and money works. Now, he will fill the shoes that dan filled up until about last year. He left in april of this year. President obama could never get the senate to approve several people he wanted to a point to key positions. Emptys why there are decision that the board of governors now. It is ad hoc. He never was officially appointed to the position. He definitely played the role. He is seen as one pushing for more rules. People feel like you need to have a lot of capital regulation , all those kinds of things. Question now, will he be the guy who kind of simplifies people say may be a more neutral stance with the banks. I think that remains to be seen. I think that is a very important point. Dontlling, republicans let barack obama photo feeds. Republicans have a majority in the senate and house. Presumably, somebody like Randy Quarles will get through. Bob jones, wonder chairman and ceo of old national bancorp, and another name in the running to fill the vacancies. Does this mean that donald trump has got his, you know, appointmentmaking engine revved up and we will see more of those as well . Interesting. Randy quarles, no surprise. This has been out there since midapril. Everything else going on at the white house, this comes to the top of the queue today. Yvonne well see if Janet Yellens position makes it on that list for President Trump as well. And interesting t story on the bloomberg, a correlation between inflation and the u. S. And china. We did get the ppi Inflation Numbers out of the mainland yesterday. It seems a to show stabilization. It has stopped in its tracks. When the u. S. Is trying to get its inflation to move higher, what does it mean if the worlds secondbiggest economy has inflation that is best stabilized and maybe does start receiving more . The yearoveryear ppi stabilized at 5. 5 after coming down for three months in a row. The cpi, the broader measure of inflation, at 1. 5 , a little bit below forecast nevertheless, you can say it is holding steady. There is concern of softness in chinas markets, construction market. Will this reduced prices for commodities . That could be true and weaken the ppi. What does it mean for the u. S. . Btv 646. What youre looking at now is two lines. The white line is the u. S. Court pce yearoveryear. The blue line is chinas ppi yearoveryear. I want to go to 2012 in the middle. You can see the ppi. It has lowered. Look what happens to the u. S. Core pce. This is starting to come up, this starts coming up, they go down together. People thought this move up in chinas core ppi they were saying all my goodness, does this mean inflation in the u. S. Is when to start lreally roaring . Look how the u. S. Pce core has come down. There seems to be correlation. We do not know about causation. This does come at a time when janet yellen is expected to say the weakness in u. S. Inflation we have seen the last three or four months is transitory, temporary. It is interesting to look at this, and as our colleague dan maas, from our bloomberg ecoteam, said maybe china inflation should be a topic of discussion. [laughter] betty yeah. All right. We know we are looking at the right thing when it comes to the fed Balance Sheet. That will always be a big focus for the global markets, when yellen speaks. What are we expecting . Kathleen we know the Monetary Policy report on friday said they expect to reduce the Balance Sheet. It did not say when. If people want to get a better sense of are you on the verge . People think septembers rent it could be announced. Tell us how fast you want to do it. Get thedo you want to Balance Sheet. Again, to put this in perspective, let us look at btv 54. It is a Balance Sheet history. Before thee in 2007 Great Recession really get started. Here you have the first qe. Boom, qe two. Qe three really ballooned it. 4. 5 trillion dollars. Now, we are in a new era. Normalization. Means this that Balance Sheet line should come down. They are talking about normalizing Balance Sheets. Taking copious, notes so i can come back and explain to you all everything about normalizing Balance Sheets from the u. S. To the europe to japan. Yvonne all right. We will get an update from you later on. Kathleen, thank you. When it comes to hedge funds, we are seeing hedge funds overall losing some of that momentum. First, losing month of the year, event driven. Let us bring in bloombergs investing reporter ivan levinsohn. Good to see you. We have kind of hit a wall in june. How can earning is this ivan thanks so much that how concerning is this . Ivan thank you for having me. Comparing the first six month of 2017 the past performance, it is the best since 2014. The pricet is about for the industry that has been regaining its footing since the financial crisis and has been seeing solid returns. Anchor it has been struggling. I know, this industry, indeed. Challenges they are facing physically in this industry, i have been ivan yes, so the bad news in this month report from Hedge Fund Research was they saw declines in returns, and microstrategys really did poorly this month. Also for the first six month of this year, microstrategy funds in june, and6 that overall for the year, they are down. 25 , which is the only hfr to show decline. Betty where are the kind of growth . Rallybuoyed by the market, equitybased strategies did really well in the First Six Months of 2017. Chinabased hedge funds are also showing a lot of growth. Ok, in that area. Thanks so much, ivan, Ivan Livingston on the hedge fund world. Plenty more still to come on daybreak asia. This is bloomberg. Yvonne a quick check of the latest business flash headlines. Physiciansdding 250 over the next three years to boost Investment Banking and make up for slumping loan profitability at home. The bank will raise headcount at bcs smb see security sm security unit. They are diversifying operations as record low Interest Rates per earnings. Betty best buy dropping the most in more than a year after amazon introduced a service that threatened it geek squad business. Amazon Smart Home Services is designed to help customers configure their internetconnected product. Services account for 5 of revenue at best buy, which requires geeksquad. Shares have been up. German prosecutors are escalating an investigation into over half ofche these old emissions cheating. They are looking into the role of unnamed employees at the porsche market in germany and the u. S. There are diesel fraud investigations into other german aids. Other german companies. This is bloomb anchor it is a gorgeous Tuesday Morning out here in hong kong this morning. 7 30 a. M. Right now, 30 minutes away from asias first major market open. Mondayit is 7 30 p. M. Evening in new york. What a beautiful sunday evening. Markets close a little bit brighter. Mixed, but tech shares leading some of those gains. I am betty liu in new york. Yvonne i am yvonne man in hong kong. Let us get to the first word news with Nina Melendez. Nina good morning, yvonne. China has said to be stepping up telling providers to block access to Virtual Private Networks by for every first. We are told beijing, China Telecom, tube our users from vpns and unfiltered websites. They halted service of the start of the month. Jennas number two steel mill says firsthalf profit could triple with prices staying high in the World Largest producer. Et income ton reach 170 million, citing an improved product mix. Time it turns out half the world fuel and has long been the target of dumping complaints. The issue truce me last week during the g20 talks in hamburg. North American News outlets want collectivebargaining rights in talks with facebook and google digital and like an dollars had to miss media. They want to court may effort to extract revenue from the pair without violating antitrust laws. Facebook and google took more than 70 of the 73 billion spent on Digital Advertising last year. And the most expensive weapons system in history may climb even higher. Submitted toe congress is expected to say the total cost of the x 35 will top 400 billion dollars. The next generation plane is already well over budget and way behind schedule. President trump has been critical in the past and has tried to bring the cost down. Lockheed martin has yet to comment on the figures. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am Nina Melendez. This is bloomberg. Anchor nina, thank you. We are counting down to some of the major market opens in the asiapacific. Let us bring in adam haigh, joining us from sydney now. Adam, good to see you. Bond market into her steadied. Equities looking to a fairly muted start. We are looking for the next catalyst, earnings. Yeah, yvonne, that is absolutely steadying in the bond market. It has been a tough two weeks in that selloff, so that will be comforting. Say, you get the next key piece of information coming from corporates themselves and back to company fundamentals, which will be very welcome for Equity Investors. Bear in mind, expectations are very high going into this earnings season. In the u. S. , often by this time of the year, we have seen the expectations being operated a fair bit, and that has not happened this year. With expectations high going into this, that does leave risk of disappointment and the s p, very close to those record highs , and Global Equities performing very well. So that is very key. Also, we do hear from brainard. Her speech is particularly interesting because it focuses on normalization and how they get the Balance Sheet reduction started. That is one of the key debates for bond and Equity Investors at the moment, so they are the key things. Ahead of that, markets are looking for a fairly lackluster start in asia. You may see a little bit of upside and further ground higher, but there is no real reason to be adding to any risk position that this point. Anchor you have been looking at citigroups index on risk aversion. What is going on . Take us through that. Adam yeah, buddy, let us bring up the chart here of the index and have a look at it. G btv 2145. As you can see here, coming off have seen an we uptick in the risk aversion index. What this is showing is that in emerging markets, people are getting a little bit more sensitive to the rally in prices that we have seen over the past couple of years, but especially over the first half of this year , where emergent Market Equities have been such a good performer relative to, of course, the u. S. , but also to the rest of the world, so in a sense, this may tell us something about shortterm valuation premiums things in terms of the rally, just getting a little bit ahead of them self your of course, a lot of ahead of them self. Of course, a lot is going into markets as people reassess their global allocations. From u. S. Ate hike policymakers will be key for emerging markets. I mean, we did have some movements a few years ago. You remember what the taper tantrum, there is the potential for that to happen again. No one knows exactly what happens when we go through the next phase of this policy normalization in the u. S. Ithink what this tells us is is just showing us more caution around emerging markets, which is not a major surprise given the moves we have seen. So much, adamou haigh in sydney. Let us say on the markets, the crypto currency market. An unknown could do currency trader has turned 55 million of paper wealth into 283 million in just over one month. Bloomberg News Reporter tom metcalfe has been following this story. Tom, this is so fascinating. Ether, noter, bitcoin. Tell me the details on this. Tom it is a highly secretive space. Therium hasm e been going through an athlete tear until recently. What one investment manager did was, 230 million. The trick is, these wallets are completely anonymous. There are a few candidates, but we do not know who, for sure. They include an indonesian investor with credit on instagram. There are familiar figures as well. We dont know if it is a he or a she, indonesian or not indonesian. Whether they do on the wallets is a different matter. Betty and this person is only identified by this really long can we show that number . We have no name for this person. It is just a long serial number. Characters. O a real pain to type out. Betty that is i you identify this person. Tom that is a deliberate system , designed to be anonymous. With the huge amounts of money being made, some people are out there saying that there is as much money, profit, and potentially lost able to be made. Perhaps we should have more regulation around the space, and should people know who are on the other side of the transactions . Yvonne you had a pretty tough day on monday for the crypto currency, down 10 . It has a stunning runup in the past year. What led up to that . Tom there has been a lot of excitement around something they call initial coin offerings, which can be thought of as ipos, but purely on this ethereum space. It is largely quite a new market, so people are trying to get into this, and that has driven the price from eight dollars at the start of the year , crested 400 weekly, and it has been pretty volatile since. It is closer to 200, but it was up at 300. There was one day with a flash crash which saw the price drop to . 10. You have to be pretty brave to be in this space. Anchor marc cuban said it was a bubble market. Using a look at the bitcoin rival itself. It is not just individuals. Why are Companies Getting interested in this space . Tom partly, it is those ones that i mentioned. You have Big Companies like jpmorgan, ibm, basically looking at this because it is part of the blockchain technology, and what this means is effectively, you get all sorts of transactions which are essentially frictionless. There is a lot of talk about efficiencies and the amount of, kind of, unnecessary costs that can be removed from the Financial Systems and the tech and pharmaceutical products. Yvonne great to have you. Tom joining us live from new york on this story. Coming up next, how close are washington and moscow . We will discuss that along with u. S. And china relations with Eurasia Group, coming up next. Anchor we are counting you down to asias first major market open this morning. Japans futures lower, down point 25 according to nikkei futures. Around 114. This is daybreak asia. I am yvonne man in hong kong. Betty betty liu in new york. Let us get a quick check of the latest business flash headlines. The value of assets held by singapores company hit a high in march. They estimate the value of the portfolio rose. Just under 200 billion u. S. Dollars. Previous worst performance since the financial crisis. The news follows months of speculation that abercrombie might be acquired by express or american eel. The brand with the main a of aollege fashion mainstay of college fashion. It has been hurt by the slowdown in mall traffic and a shift to shopping online. Betty sources say emirates is cutting dozens of jobs at the dubaibased carrier moved to streamline after years of rapid growth. We are told the World Biggest Longhaul Airline is scaling back senior cabin crew as well as administration and i. T. Staff. The cuts began in the last few weeks and affect middle and upper level managers. Emirates froze hiring last month and has taken on new crew and have not taken on new crew in month. Yvonne on on the heels of President Trumps meeting for junior, is donald trump making headlines. With theed to meeting russian lawyer during the Election Campaign on a promise of potential dirt on hillary clinton. Let us discuss this with the managing director and practice head of asia at Eurasia Group and a former special assistant to president barack obama. I was asking our congressional editor in washington we heard President Trump say during his meeting with right after his meeting with putin, look, i pressed him on russian involvement in the campaign. He denied it. Let us move on. Then, you come back home, and you are confronted by this piece of news. What do you think can be gained from this . There here . There what will get out of this . Evan nothing will be gained from this. This is more evidence that the u. S. Russian relationship will be characterized by managed confrontation. Despite what trump may aspire to have in terms of a personal relationship with putin, the differences on syria, ukraine, and the neverending distraction a russia gate in the united dates, is going to be a huge domestic political constraint on trumps ability to improve the relationship. Eurasia group, we think, confrontation is the framework to use. Betty how do you think china is looking at this . Evan i think china is looking at it as a great opportunity because the more tension there is in the chinarussian relationship, it creates greater space for china and russia to Work Together. The fact that, in their recent summit, that both putin and xi jinping called on or advocated the freeze for freeze proposal, is just another example of russia and china trying to Work Together to press the u. S. On Major International issues. Betty you know, evan, i will tell you what, and im sure you know this very closely yourself, lots of newspaper headlines over the last several months talking about how china is going to emerge as the new leader, right . Is china going to replace the u. S. Of a Global Leader . Are they at the forefront of Climate Change . If the u. S. Going to take the back seat to china . There is tons of headlines. Is that really true . Evan sure, absolutely. Betty ok, why . Evan no, i mean, i dont think it is true. I think china is not going to emerge as a Global Leader of globalization, for example, because the chinese continue to protect their Service Sector at home, so they cannot operate the economy in a fairly restricted way at home, but claim to be the great vanguard for openness, trade, and globalization. The fact that there are huge sectors of the chinese economy that are simply cut off to foreign investors, and even cut off to some private tiny capital, private chinese capital, i think them becoming the vanguard of globalization is a misnomer. The fact that they have continued to adhere to their commitments under paris is a good thing. It is a good thing given the challenges of chama change Climate Change. The problem is the Trump Administration has not articulated a real comprehensive vision for the u. S. Role in the world that does not involve the u. S. Being continually engaged. His involvement looks very episodic, and that provides china and opportunity come an opportunity, especially in asia, to demonstrate is there and it was to work with all the countries in the region. Evan, we were just talking about this g20 bilateral meeting between xi jinping as well as President Trump, and it seems like they were quite cordial, given the attention we have seen leading up to this meeting, and a potential reset of relations possibly. Do you think there is a fundamental understanding of both of these men of each other and where they are coming from right now . Evan yvonne, that is a great question. I do not think so. In fact, i am increasingly concerned that neither xi jinping nor trump fundamentally understand one another. So, the public messaging around the recent xitrump bilateral meeting was pretty positive, but nothing substantially came out of the meeting, and both countries are in relatively different places on the north korea issue and on trade issues, so i see the trajectory of the u. S. China relationship as downward. It is not a steep downward curve , because both sides are trying to find greater space to work on, but i see a series of differences that are going to fester and get worse over time. Yvonne but the perception that north korea is the card china has to wield influence over the u. S. I mean, do you think that has been shaken now . That it is becoming more of a strategic liability for beijing . Evan there is no question that north korea is becoming a strategic liability for beijing. There are surprisingly public debates in china about how to approach the north korea question. The fact that the Trump Administration appears to have now shifted to a more coercive approach, in other words, the u. S. Will now begin sanctioning chinese entities, chinese individuals, we are going to see more chinese banks, especially provincial banks, hit by u. S. Sanctions, means the north korea issue will become a source of tension in the u. S. China relationship. Anchor you know, i was going to ask you just that. We have seen the u. S. Threatening trade ties with countries that are supporting or helping fund is mrs. With pyongyang. The fund businesses with john yang curie do you think this will work, those 100 days of trade talks . That is coming to an end as well. Ben i think it will difficult for the u. S. To use pressure and sanctions two, number one, elicit more corporation from china. Chinas not prepared to impose regime threatening sanctions on north korea for strategic reasons. It simply cannot and will not support major instability in north korea. More broadly, it is unclear to me that sanctions and pressure will actually bring north korea back to the negotiating table. And it is important to keep in mind, all of this is playing out as north korea is sprinting to develop a nuclearcapable icbm. So the question is, which goal is going to be reached first . Is north korea going to become a nuclearcable country, or are sanctions going to bring the north back to the table . Betty just on a final mode, not to make this to light, chinese chinaso light, officials did apologize for their misstatements, calling president xi jinping the president of the republic of china. Taiwan, that they gas over the weekend. It looks like they smooth relations over this. Too muchading into it or was it simply a mistake . Evan that was a mistake. Im sure it was an honest mistake. It is a mistake that under scores the administration its not have the advisors needs. There is no assistant secretary for asia at the defense department. If you are going to have a serious strategy on china, on north korea, on asia more broadly, you need people. When you do not have people, mistakes happen. Betty evan, thank you so much for joining us. Managingiros, director at the Eurasia Group. Joining us from singapore. You can get a roundup of that rory and many more you need to know to get your day going in todays edition of daybreak. Bloomberg subscribers go to dayb on their terminals. It is available on mobile in the bloomberg anywhere app. You can customize your settings so you only get the news on the industries and assets you care about. This is bloomberg. Anchor chinese smartphone maker says it is over. By 70 in theales second quarter. Isare joined by a guest who in hong kong for the week. We talked about xiaomi was able to achieve this pure quite a remarkable turnaround. It was able rewrite of the Business Model. Is with a company that was very proudly rewriting the Business Model all those years ago, saying forget the stores, forget the two bidders, forget the telcos, we will sell direct. Fthey will ship directly to the consumer. That worked for a wild. For a while. They basically said we are going to have modest stores, which is an often much everything they believed and were founded on, and now, they have more than 120 stores, and it is hard to argue that it is a bad idea because it did help the top line and helped them get 70 quarter on Quarter Sales per shipment sales in the second quarter, so this really did work for them. Anchor tim, in his column, you seem concerned about the sustainability of the turnaround at xiaomi. What exactly are you worried about . Tim look. We need to know whether this will be a oneshot thing or oneoff boost. Like i said, this was a business by cuttingdid well margins because they got rid of district eaters, retail, brick and mortars. There are all these leaders. Coming back to retail, they have to build the cost back in, which means, either margins are going to be squeezed, and we already knew xiaomis margins were low, possibly negative, have to build upsomehow margins or build the costs, maybe sell their phones for higher prices, there is a lot of competition from all the others. My concern really is, can they sustain they are looking at 1000 stores by 2019. That is a lot of stores they need to pay for. Level ofsustain the sales needed to make a profit and keep 1000 stores open profitably . Betty all right, tim, thank you so much. Tim culpan on xiaomi and the rebound and cannot work . Plenty more still to come with and can it work . Plenty more to come, yvonne. Yvonne Sophie Kamaruddin is opens at ae sydney, tokyo, and seoul. Ofhie we are expecting more the same when it comes to the muted session we saw extended into the tuesday session here. We are looking at a mixed open across asias major markets. We are looking at 30 points for nikkei futures. Fight games in seoul slight gains in seoul. Janet yellens testimony to congress on wednesday. There was a lot of expectations going into the u. S. Earnings season. We do have the earnings continuing in japan. That is due to report results at 2 00 p. M. Hong kong time, and watch for shares of toshiba in a company to replace toshiba. John by and kia hyundai and kia are reportedly lowering their sales targets. Later thist due afternoon. That is a brief look of what well be watching for trade late. That is just moments from now. This is bloomberg. A client start for asiapacific stocks this tuesday. Markets shrugging off political uncertainty. The Dollar Dollar strengthens. President trump and defend. The fed. Competing for customers. That loans alongside groceries and closing. This is the second hour of daybreak asia, im yvonne man in hong kong. Its after 8 p. M. Here in new york. Im betty liu. Kind of a next session makes session on wall street. It was a low volume trading day, certainly a lot more volatility ahead with janets testimony and the earnings season underway. Randyt got the news about quarles being named essentially wall streets top cop. Yvonne yes, and what that means when it comes to doddfrank, is he going to be pushing measures to tweak it or fully dismantle it altogether . Little guessed to talk a bit about that throughout the hour. We have to take a look at that market open. We are seeing equities quite positive to start Tuesday Morning, although the volumes have been lackluster. Lets get to the latest in the first word news with paul allen. Has President Trump nominated Randall Quarles to be the top banking regulator. He was a in your treasury official in the george w. Bush administration and is currently managing director at a salt lake citybased private equity firm. He is expected to play a pivotal role in trumps plan to it easy regulatory concerns. Secretary of state rex in the gulf to resolve the saudi led crisis in qatar. He will attempt to bridge the gap between the two sides. The crisis puts washington in a difficult position. Qatar hosts Regional Headquarters of u. S. Central command, well saudi arabia is a top buyer of american weapons. The 70 11th u. K. Prime minister theresa may will call on her parliamentary opponents to help steer the country out of the European Union, after losing status and power in last month snap election. Sin a speech she will stage her mission to tackle injustice and vested interests cc holding the country back. To also say her political enemies said should contribute and not criticize. Ceo ayman nasa told a conference in istanbul that the outlook for oil surprise is increasingly worrying with a trillion dollars in investments wiped out by low crude prices. Be Petroleum Industry will remaining at the heart of Global Energy for years. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. I am paul allen. This is bloomberg. Lets get a quick check on how the markets are trading at the open. Sophie kamaruddin has more. Sophie we are seeing a slight bid when it comes to asian markets so far. There is little on the agenda to inspire the markets today. Taking a look, shares in sydney, down about a 10th of a percent. A little change on the nikkei 225. Kospi adding a 10th of a percent. Some catalysts here that investors could be waiting for, the start of the u. S. Earnings season. Improving corporate earnings could be the key ingredient needed to sustain the equity bull market. Up onds this week lining wednesday. Asian bonds are looking steadier this tuesday, studying the recent slump after the treasury nice higher overnight. Oil is holding on to as u. S. Supplies are expected to dip, and caps off libya and nigeria are being considered. Iron or is gaining over 1 . That could lend support to the aussie dollar, which is a little changed at 76. 06. More ofthics c the cience for the aussie we are seeing the kiwis lose about a third of a percent. Rbz. Is to satisfy the the yen remains on the defensive. 11 114. Kean 11. Traders await more clarity when it comes to politics as well as Monetary Policy. Against Holding Losses the dollar below the 114 level. Canadian, looking little changed despite the part prospect of a rate hike on wednesday. The bank of canada has turned more hawkish of late. Currency traders are betting that likely rate hike might not the rise,to sustain seen as claiming to far, too fast. Yvonne meantime, the waiting game set to continue and Asian Session as investors anticipate the start of earnings in the u. S. In hong kong, joining us is the head of asia Financial Markets research. Great to have you. Take a look at this pause we solid the bond market overnight. We have seen significant repricing overall. Do you think markets got it right when it comes to mario draghi and the rest of the ecb . If we start with the ecb, think if the market is pricing at hikes, it is getting ahead of itself. We do believe tapering of qe is going to have to start for various technical reasons that will be flagged fairly soon, and that could begin some point next year. But to move for tapering qe2 thosely raising rates, are two separate thing. The latest research we have done on the eurozone shows even though the economy is showing a the jobsclical uptick, being created are generally similar to the lowquality jobs we have seen in the same u. S. Ery in the in other words, there isnt any wage pressure. If there is a pressure, why are you rushing to raise rates . Betty why do you think weve had this chorus of talking about raising rates and tightening . Fabulous question. Everyone is scratching their heads. I look at it like this. The fence already had embarked on this tightening cycle and left everybody else behind. We are seeing more and more commentary in the media, generally in the markets, saying with low rates are negative rates environment, its not helping the country because its sending a signal we dont have confidence the Central Banks have listened to this end. And said we are all going to hold hands and basically move allard together as one, hiking are tightening at the same time, to show we have enough confidence in this cyclical uptick that it will force every businessman to invest and give a pay raise to his workers. Thats not going to work, but thats the theory. Betty it is, indeed. Im curious, looking ahead to the week here in the u. S. And janet yellen and her testimony, michael, can you hear me . Yvonne can you hear betty . No, sorry. Yvonne i was going to pick up on what that he was saying, the market is pricing in two 10 basis points for the ecb in 2018. Is the market raw . Wrong . I think they are. We had a positive yesterday, but we are seeing a selloff across the curve, and steepening. Has reverse the trend from months ago. If we are not seeing wage growth taking up, and we are not, then that steepening is not going to last. It is a temporary selloff. You want to be longduration. At some point when we reach a certain pink peak the markets realize they are making a mistake. Yvonne marla view coming up next. We also want to establish the audio. We are focused on Central Banks. The market is doing, as well as the boj. Betty plus, amazons expanding air force set to kick off their big deal day. That is hours of away. This is bloomberg. Betty good morning. This is bloomberg daybreak asia. Im betty liu in new york. Yvonne im yvonne man in hong kong. Chinese inflation probably wont be mentioned when fed chair janet yellen faces congress for week. Ys of testimony this maybe it should. There was a key in chinas inflation rate, which could make the fed struggled to boost inflation and high grades even harder. Reporter very interesting. I want to give caps off to my , our executive editor spend a lot of time in asia, he was pointing out this fact. Just about 24 hours ago the china ppi cpi data, and the ppi yearoveryear stabilized at 5. 5 after decelerating for three months, and the cpi came in steady at 1. 5 , basically holding steady. The question is, where does inflation go next . Will it solve property markets, construction in china, reduce prices, pressure on input prices, commodities, bring it down even further . Why does it matter for janet yellen . Lets take a look at a chart. Btv 646. You will see two very simple lines. You have the u. S. , the white line, the court pce. The blue line is chinas ppi yearoveryear. You can see on the far righthand side of the screen, weve had this declining yearoveryear inflation. 5. 5 . Go over here. Here is the fence court pce deflator. Ds core pcee deflator. It is down to 1. 4 . Was interesting is in the middle of the chart around 2012. Look at how chinas ppi peaks around here, and then look at deflator, look how it starts going down. A little uptick here, a bigger uptick, then this one starts going down. When this line, the core ppi for china, started really moving higher, people who follow this link and correlation are going, is this a sign that maybe u. S. Inflation will be picking up, . Oo the other the question, if chinas ppi is coming down, the worlds secondlargest economy with a huge demand for the u. S. Come instead of having inflation closer to target, is pulling further away. Toet yellen may repeat this transitory weakness in inflation, but its an interesting signal. Betty very interesting correlations are the Balance Sheet reduction, we were just talking about that was michael. Reporter it got the feds Monetary Policy report. It will be delivered to congress. Got it out publicly friday. The first time the fed has ever done this. They showed an expectation they will unwind the Balance Sheet. No details or dates, but under a lot of questioning from the senate, maybe she will say something. Tomorrow, very interesting conference being held at the new york fed. Normalizing Balance Sheets. The fed board of governor will be the keynote speaker at lunch. You some of the key questions the new york fed shows on its website that will be addressed by people from around the world on tuesday. First of all, when should i central bank start normalizing, start unwinding . The fed has signaled it wants to. Around the world, they want to, but they are not there yet. What should you communicate to the public . How much should you communicate policy to keep it a smooth process . What about International Spillovers . What happens to the rest of the world as the fed on lines . Bond marketsct around the world. The newark fed will be examining global challenges, domestic challenges as the Balance Sheet online. Inds. Line unw i know you are excited. Betty i am. Are you going to be taking copious notes, michael . I think everybody will be. I will be listening carefully. I dont think there will be anything in there that addresses most of the points you raised, however. We have heard from the fed repeatedly in the past that they are only just turning to be aware of what a large global role do have. They still tend to look domestic. Ok, you are referring more to the international indicators. You dont think that will be addressed by yellen . I dont think she will raise excellent point about the chinese inflation outlook and what it means for u. S. Inflation. If they were to do that, they have to admit u. S. Inflation is a derivative of chinese inflation. They should be targeting china rather than what they are doing at home. Can you imagine any u. S. Central Bank Standing up to say that . It may be true. But theres no way they will admit that publicly. Betty can you imagine . Can you imagine in front of congress saying that the u. S. Is led, that where china goes, the u. S. Goes . Can you imagine how well that will go over with senators and congressmen and women . Outside of that, i was curious of whether you agreed that is something that you see, that the china ppi and inflation is a leading indicator for us in the u. S. It is for everybody. I have been arguing consistently ,ince the beginning of the year particularly in europe, everyone sayingy seeing fantastic days are here again, a brief moment in the sunshine, because inflation globally will be lower because of china. The chinese Inflation Numbers, they stem from the fact that the chinese credit impulse has been time. For quite some that leads to a lower inflation. In china, that leads to lower inflation everywhere else. At the end of the day, we should all look at chinese credit growth. Thats what drives everything globally. Yvonne and its interesting as well, your call on the yen, we have seen a string. I was going to show this chart on my bloomberg. We have seen this divergence you could argue because of the dollar weakness, the yen strengthening, but some , itsven the volatility actually a good safety play when it comes to a haven currency. What do you think . Im lost for words. The idea of using the renminbi as a haven doesnt make sense to me at all. The chart you have the hind is looking at the dollar says it all. If you are only looking at the renminbi and saying it is stable, you are missing the bigger picture. You have fx reserves that has arisen for a fifth ,traight month, free commitment keeping the unstable. In terms of renminbi, we have been stable about this line, it is psychologically important. We dont know how much of the 3 trillion are real or how many have been pledged or are accessible. We dont know what the forward book looks like. We dont really know what the actual figure is. We do know even if it is static around 3 trillion because of the attempt to hold up the world from the pboc, they are still expanding the local money supply year. Ut 10 year on how can you have static dollars and local money growing up 10 and not have downward pressure on the currency . You cant. Yvonne so you are keeping a bearish call. Im not shifting on that one. For year end, around 725. Yvonne michael every with us. We have much more coming up. This is bloomberg. Betty this is bloomberg daybreak asia. Im betty liu in new york. Yvonne i am yvonne man in hong kong. German prosecutors are escalating an investigation into vw owned porsche over impossible diesel emissions cheating. Investigators are looking into the role of unnamed employees at company in porsche germany and the u. S. A former audi manager was arrested in munich last week. Betty thats by dropping the most in more than a service that threatens their geek squad business. Amazons Smart Home Services is designed to help customers install and configure internet products. That is about 5 of revenue at beast by best buy, which acquired geek squad a decade ago. Shares have been up 36 before mondays tumble. Yvonne of the doubters abu the fifthlocks biggest investor in the struggling commodities trader. The fun increases holdings from 5 to just over 8 on july 6 to help boost noble stocks twice, and shares have almost doubled since hitting a low in early june. Lets bring back michael every here. Just some final thoughts. I wanted to ask you, we seem to see this coordinated effort from centralbank saying it is time to Start Talking about getting out of qe. What do you think mario draghi or janet yellen knows that we dont know . They do come ik think they are praying. If you bring up the long run of the fed rate on your bloomberg screen, and clearly we are going then you look back at past market events, you will see since the 1980s, every single time we go on a tightening cycle, we end up with markets blowing up somewhere, whether it is mexico, asia, the u. S. , globally. You tell me how we can have every central bank raising rates together. China not doing that, and said they will not dance to that feeling, because they have their own debt problem. The renminbi staying stable. Betty they got a little bit of a hint of that in the most recent bond rout in the last few days. And youve seen some of the other credit markets around the world get shaken by this selloff. I just want to point to my bloomberg in indonesia. Foreigners just bailed out of indonesian bonds as demonstrated by the blue line, and the yield premium shooting up between indonesias 10 year yield over treasuries. That is one small indication that the bond rout could have global implications. Where do you think we could get shaken the most . Excellent question. I dont think china is at the forefront. They are likely to be something that goes off through a delay. I think emerging markets erased each and indonesia there. Malaysia might be another one that comes to mind. There are flashpoints for you could see pressure building up. Yvonne having we come a long way from the fragile five . Current account balances seem to be much better than decades ago. Arent we a little less vulnerable to these types of shocks . We are, some countries have considerable deficits. There are still plenty of countries with weak points. Global that is higher than its ever been. Emergingmarket debt is significantly higher than it was a few weeks ago. A lot of the countries that have delivered have leveraged back up again. Yvonne what a Balance Sheet reduction from the fed that is seen as a lesson brunt kind of tool could that be a good substitute . I think its infinitely worse. Youre talking about physically reducing the stoxx out there. Stocks out there. If you are talking about tightening, you physically taking we dollars from the rest of the economy. Yvonne michael every, always great to have you here. More to come on bloomberg daybreak asia. This is bloomberg. Yvonne we are happen hour away from the open of trading in the lion city. Im yvonne man in hong kong. Betty im betty liu in new york. You are watching bloomberg daybreak asia. Lets get to first word news with paul allen in sydney. You, that he. China is said to be stepping up its fight against the global internet, trying to block access to Virtual Private Networks by february 1. We are told beijing ordered China Telecom to bar usersrs from tpms and unfiltered websites. One Popular Network has already run afoul of authorities. Chinas number to steal no says firsthalf profits could triple with prices remaining strong. Net income is expected to reach about 170 million through june, mix. G improved product china turns out half the world steel and has been the target of dumping complaints. The issue drew scrutiny at last weeks g20 talks in hamburg. The transpacific trade deal falls dead in the water when america pulled out and could be making a comeback. The 11 remaining countries will toin japan on wednesday determine what options exist to move the agreement forward washington. That tpp was signed in february of last year after almost eight years of negotiations. President trump abandoned it soon after taking office. North American News outlets one collective bargaining rights in talks with facebook and google as Digital Advertising, dollars they want to extract revenue without violating antitrust restrictions. Facebook and google took more than 70 of the 73 billion spent on Digital Advertising last year. The most expensive weapons system in history may climb even price. In a report to be submitted to congress is expected to say that the total cost of the as 30 top 400 billion. The next generation plane is already well over budget and behind schedule. President trump has been critical in the past and has tried to bring the cost down. Lockheed martin has yet to comment on the figures. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im paul allen. This is bloomberg. Thank you. Time to see how the asian markets are shaping up this morning. Just looking at the price action right now, we are seeing a mix. Volumes are low. We also had earnings coming out. A lot of a Holding Pattern right now. Sophie curb your enthusiasm might be the mantra for traders. Light volumes has been prevailing in recent weeks. Take a look at asian markets so far. Kiwi stocks and bonds rising. The kiwi dollar is on the back foot. In seoul, the kospi up about 2 10 of a percent. Energy players are leading gains for a second day of gains in the kospi. Nikkei 225 is twitting treading water for a second day as the yen holds losses above 114. Over in sydney, the index is falling over 2 10 of a percent to resume losses for a fourth day. Miners are making headway with iron ore in sydney, adding over 1. 1 in singapore. Staying in the 60s territory. Sydney,ght spots in bhp, fortescue making headway. Shares in the company are moving bidwhat after receiving a from affinity partners rivaling that of kkrs. Real estate leading the drop in sydney down around 1 . The board on at the screen, we will show you movers in the early asia session, kicking off with suzuki in tokyo, falling after the Vehicle Authority in the in the netherlands sent admissions data to the prosecutor and the netherlands. The Vehicle Authority tested 16 car models and found that two were insufficient when he came to pollution controls. Take a look at precision ball bearing makers, rising as much as 13 earlier. This is after they agreed to buy and incorporated ball bearing unit for 375 million. Seiko epson is set to replace toshiba on the nikkei futures. Yvonne thank you. Sophie kamaruddin with the early markets. The world is waiting to hear what fed chair janet yellen has inflation. T sagging President Trump sort of stole the spotlight by earlier this morning announcing the key appointment to the Federal Reserves board of government governors. We have Kathleen Hays here with more on Randy Quarles. Already there are criticisms coming out from the other side, from those opposed to him, saying that hes too friendly on wall street, hes not going to be able to be a good enough regulator. Reporter that is a very interesting observation. I think its possible if you were to appoint anybody with wall street experience, anybody you has worked with banks, you are going to get that kind of criticism. People who support this would say, wait a minute, you need somebody who understands how wall street worst, how banks work, to oversee them and understand what they are doing and when they are getting off track, and when regulations need to be changed. Randy qualls, lets look at his qualifications. A wealthme manager of Management Group in salt lake. Its private equity investments. As one of his first positions, he worked at treasury under george bush. He was undersecretary for international affairs. A lot of experience. Seen as a pragmatist, not an ideologue. He was a farmer imf u. S. Director, worked at the prestigious carlyle group. He has a long and somewhat say impressive background. Hes filling the shoes unofficially filled at the Federal Reserve as vice chair of bank supervision, created by the Federal Reserve as part of the doddfrank reform. Fell because president barack obama could not get the nominees. Look at his the position has been open, and s name has been floated for a while. This is what trump wants. Now he has a republicancontrolled senate. It is a much smoother ride for Randy Quarles and other people barack obama wanted. Betty its amazing that its a 14 year term. Reporter its always 14 years. Not everybody serves it out, but it is a long time because they want you to be there and feel independent and not be subject to the pushes and pulls of an administration. They i want to bring in chairman of wayland global advisors. How do you think Randy Quarles is going to be . What sort of regulator do you think hes going to be . I think he is someone who understands the industry, which is a nice change. Weve been through eight years of what i call spanish inquisition as a result of doddfrank, particularly the mortgage industry. But the banks have also been put through a lot of hoops that dont matter. A lot of doddfrank was just retribution. It is Elizabeth Warren embodied. Betty it doesnt matter to make banks safer. They want to punish people. What i mean by that is shareholders, the victims, who investors have been paying for this since 2010 when the law was passed. What did we accomplish . We had more capital, but we didnt need more. We have fewer loans to risky projects. I think theres a whole raft of things quarrels will be dealing with. Hes very credible. Hes been confirmed by the senate twice. I dont see any problems. Remember, you guys have a great piece on the website right now, i know a lot of people who have been interviewed for these positions at the fed. They took a long time. Theres like 150 of them. Yvonne what needs to be done . Specifically when it comes to Randy Quarles, you think hes the right guy, why is he the right guy . I think he will look at what dan tarullo did at the fed. He did not know about banks. He attacked the problem he was given and came up with a mechanistic regulatory structure which is insting, doddfrank, you have to do it. Now that we have a republican house, Randy Quarles is going to look at the industry and say, how can i accomplish most of the good that was in doddfrank, and trim back some of the things that dont matter . They have taken enormous amounts of time and money. Living wells, total waste of time. The stress test, a media circus. We shouldnt do this in public anymore. The crisis is over. We should do it, and they should force banks to prove they are going through the process of enterprise risk management. You have to prove to us you know whats going on, then we will let you increase dividends. Ok, but we dont need to do it in public. Then theres a whole raft of other things. Capital liquidity, the paying points that have distracted things for years. Yvonne its yvonne in hong kong. Its interesting, two years ago we interviewed quarrels Randy Quarles, and he said if you are going to be transparent, you have to be much more ruled based in what you are doing, basing decisions on the influence of fed in officials officials is a career as crazy way to run a railroad for the Federal Reserve. Do you see the fed coordinating well with randy quarrels . It looks like he could reshape how the Federal Reserve performs or communicates when it comes to policy and rates. I think thats true. I think he would be more cautious about the fed and how it expresses itself in public, may be rein in the reserve Bank President s and governors and stop this symphony. I dont think its helpful. They all come people each other for media time. Kashkari, all these different voices. I think the chair of the committee should decide what they want to do. They should communicate that to the public. Reporter but thats Janet Yellens job, isnt it . Besides being the point man on overseeing the the fed does,t especially big banks, what exactly does he do, and how does that relate to telling the fed Bank President s not to talk . I dont see the connections. What im saying is at a governor apart from the bank supervisory, i think you will see core of Randy Quarles asking questions about what seed she what we could from investors. Qe1 was about liquefying the banking system. The fed lent them all this money and they didnt have the cash to pay it back. That was the purpose. The rest of the quantitative easing exercise which distorted credit markets and encouraged Additional Debt injuring issuance is, what did it achieve . Betty it increased asset prices. Right. If you look at Randy Quarles views, i think hes going to demand they justify their actions in a very clear way, and that they not just do whatever they can. That has been the rationale behind a lot of fed policy. Reporter do you think he will be a hawk or a dog . Dove . I think he will be a hawk on Monetary Policy. Hes not going to get along with yellen. Yellen is one of the most radical fed chairs weve ever had. I think it is interesting Randy Quarles is married to one of the eccles girls. Tom mccabe, one of the greatest examples encourage, but i think we have free the fed from the thinking that has we have been on the border of chaos at times of the fed. I have to tell you, economists and others who follow them are worried about what they say. Im glad you mentioned the relationship between randy calls and yellen. Els, doesntment of quar that precede the appointment of a new fed chair . Stuff, changes in regulatory agencies, is the most immediate benefit that financials and wall street journal generally, all the rest of it will take years. But when you see richard leave the cfpb, they will have a party on wall street. The same way all of these hands toohat change harsh antibusiness coloration of regulatory actions, which i think is on the verge of abuses, its going to change overnight. Significant. It will mean a lot for banks. You wont see it immediately and earnings, but you will see a change in the message the banks are getting. Right now they signal no more real estate lending, no more commercial real estate. I dont know if thats the right message. [laughter] i agree, not a lot of tears will be shed. Thank you so much. , and thank you to our global editor Kathleen Hays. We would like to bring your attention to the interactive tv function at tv. You can watch us live and see previous interviews. Also, dive into any of the securities or bloomberg functions we talk about, and you can become part of the conversation by sending instant messages during the show. This is for bloomberg subscribers only. Check it out at tv. This is bloomberg. Betty this is bloomberg daybreak asia. Im betty liu in new york. Yvonne im yvonne man in hong kong. Meta Financial Group planning to expand its overseas business, adding about 250 staff over the next three years. Lets bring in our banking reporter, derek allen from tokyo. Good to see you. Coming from the japanese banks. They are expanding abroad, trying to diversify operations. Record low rates at home are hurting profitability, but what kind of profits does sumitomo see . Reporter i understand they are a bit behind. Boosting staff, looking to hire around 250 people to take total security two around 750. The end game is to boost the top growth profit two around ¥50 billion. They are looking to boost cooperation between their Banking Units and security unit, trying to leverage regulations they have with customers and lending relationships with nonjapanese firms in the u. S. , and try and get into do business. They are trying to get advisory fees from clients as well to boost profits on the securities side. It goes both ways, they will try to get in with the banking business as well. It so how competitive is the bank globally . Reporter they are a little bit behind their competitors. They understand that. An analysting to this morning, and he said thats why he prefers to me, because sumitomo, because it has the potential. Betty we also heard this month daewooe bank is joining and taking frankfurt as its eu base, falling brexit. These japanese banks are making plans early. Reporter thats right. Japanese banks have their post brexit structures sorted. Amsterdam. Basis in Sumitomo Mitsui has been hiring. They are going to go to frankfurt. They are following the brokerages. Winners that the biggest in terms of banking locations will actually be frankfurt postbrexit. Betty thank you for joining us on Sumitomo Mitsui and the other japanese banks. You can get a roundup of that story and many more you need to go in todays edition of daybreak. Go to tv on your terminals is also available on mobile and. In the bloomberg anywhere app. You can customize settings so you only get news on the industries and assets you care about. This is bloomberg. Betty this is daybreak asia. Im betty liu in new york yvonne . Yvonne yvonne im yvonne man in hong kong. Millions of chinese choppers using shoppers have a world of choice at their fingertips. You can get everything from groceries to clothing, and now you had one more thing, bad debt. We are speaking with an orion from emma ryan from beijing. We know it means digging for treasure in chinese. The stress assets now ranked on that list as well. How does it all worked . Reporter thats right. You are looking for cat food, shoes, designer bag, you can get anything you want, sort of like a mashup of ebay and amazon. If you go into the options section, you can find a vast array of bad loans and soured assets for sale. We calculated about one billion be marketed every day on taobao. Its a bit of a solution to the npl problem in china. They are at a 12 year high. That means they have quite a little a bit of interest. The government is pushing banks to find market based waste of disposing of assets and loans. If you want buyers, there is probably no better place than how about taobao. Yvonne what sort of deals are being auctioned off . Reporter the banks we spoke to said they would get bids for offers for npls, that they some of the ones we aacross still aeelmaker in chinas east, 10 million loan they missed payments on, the Asset Management company was marketing that with a starting bid of about half of. We found 118 loans from another company in china. There was a villa in a can now y in the south that was canal city in the south that was collateral for a deal gone wrong. Theres commercial property in beijing that was defaulted on. Betty how do people feel about this . Do they feel its a good thing . Reporter surprisingly, a lot of people do see it is a good thing. As a westerner, i automatically honed in on the risks. Npls are pretty complicated transactions. They require a lot of due diligence. People we spoke to in the area talk about the time that is required to assess a bad loan deal. But then we spoke to a number of chinese distressed asset managers, and they sort of moved towards transparency, that theyve opened up the deals to a wider market to more scrutiny and more buyers as well. Yvonne definitely not the same as buying stocks or bonds. It does take a bit of a sophisticated investor. Great stuff, thank you. That is it for us here on bloomberg daybreak asia. Time for a look at whats coming up in the next you hours. We are talking about how quiet markets work. The breaking news we got was Randall Quarles being nominated by trump for vice chair of supervision for the fed. Rishaad that came in this morning. We will see how that goes. Theres a lot more process involved as well. Onwill get the views everything asiapacific. Darby also looking at mr. , the chief global strategist, about what the job will entail and what the ramifications are. Rex tillerson is on his way to the gulf. Andill be looking at this how it will play out. Weve got all these compare sites in you up europe and the u. S. A lot ahead. That is it for bloomberg daybreak asia. Markets coverage with rishaad and haidi is next. Standby for Bloomberg Markets. This is bloomberg. Rishaad 9 p. M. In new york, 9 a. M. In hong kong. Im rishaad salamat. Generally positive for the asiapacific. The yen weakening as investors await earning season. Randy quarles is trumps take to oversee the banks, seem to be fulfilling a pledge to east coast crisis constraints. Haidi im haidi lun in sydney. Competing for customers. Saleo puts bad loans for online. This is Bloomberg Markets asia