record profit. haidi: opening the bond market to renewed leverage. some say this is not a great idea. rishaad: world leaders preparing for g-20, trade, migration, and north korea topping the agenda in hamburg. let's get to this big corporate story. preliminary earnings out of samsung, not the phone side doing so great, but should business with -- chip business and the flagship smartphone winning over customers following that huge the follicle following the note 7, $12 billion in the three months at the end of june. i want simplified chart to bring up, the function of financial analysis, and that is showing you the main drivers of growth. this is what we see with mobile .nd semiconductors the oranges how much semiconductors are contributing to the bottom line, and green of being smart phones. that giving you the state of play for a company behind the scenes makes more money than what you see upfront. haidi: you have the reputational hit it took from the note seven debacle, but don't forget the heir apparent is still in jail and this bribery trial continues, not expecting it to wrap up until august. a strong beat when it comes to elementary earnings, a heavyweight on the kospi couldn't even bring that market up amidst a selling market. 30 minutes away from the open. areie, this is what we bracing for after the torrid selling and the overnight session. sophie: traders on the defensive falling -- following that selloff in bonds and stocks comes a little cheer in asia today. we did have the selloff in the unds, trading north of 2.37%. s 10 year today jgb' yields up, so focus on the boj and whether or not they will intervene to cap gains. asian currency traders will have to wait the rising global bond yields and a strengthening euro as mark cranfield points out, a couldollar above 114 be a sign of greenback weakness, prompting a low yuan fix. leadingnow, the korean a's in currencies, the singaporean dollar leading the drop in the space, the yen little changed today. in the equity space, aussie stocks the biggest laggards falling 1.2% this morning, a red day across the region with the nikkei 225 and the taiex falling .5%. something that doing much to help the kospi, very slight gains after opening lower this morning. asian stocks at their lowest in about five weeks. the last stop on the terminal , oilon the gmm falling over 1%. noble group shares surged as much as 38% thursday on speculation that large investors may be building stakes. morning, over 2% this the commodity trader is seeking a debt waiver from lenders. keep an eye on the stock. rishaad: thank you very much indeed for that. let's find out what is going on with some key data out of tokyo earlier on. let's get first word news from paul allen, and was it music to governor kuroda's ears? wages in japan rose their fastest, but not enough to push inflation to the 2% target. base our isnthly increased, the biggest rise since july last year. the forecast was for half that. the increase was 1/10 of 1%. the labor ministry says bonuses and allowances fell. the u.s. defense secretary says north korea's icbm test is not mean the two sides are closer to mattis says he was not surprised by the july 4 launch, but added washington self-restraint was preventing open conflict. president trump has promised north korea will never have a nuclear weapon and said he is weighing some pretty severe things and response. -- in response. russia blocked a security council condemnation of north korea's latest missile test despite china agreeing to the text. discussions are continuing to find wording that all 15 members can approve once and russia objected because the statement described the launch of an intercontinental ballistic missile, saying that requires more clarification. samsung electronics top estimates with his best ever quarterly operating profit as demand for semiconductors remain new flagshipe smartphone one over customers. operating income rose to $12 billion to the three months at the end of june, while revenue climbed to $52 billion. samsung is benefiting from higher prices and memory chips used in mobile's and computers. suing apple for patent infringement in a legal batter -- battle over technology used in the iphone. qualcomm once abandoned u.s. iphones that does not use its chips. --has previously caught off cut off payments to qualcomm. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. rishaad: world leaders in hamburg for the g-20 facing shifting global alliances and divisions on protectionism and client change in violent opposition on the streets. stephen engle is with me now. what a start to be dealing with this. we have qatar, the korean peninsula, so much to be getting on with. we can talk about a number of things. lots to discuss, and of course people taking to the streets in hamburg. welcome to hell. , well, let's roll the video. it is in a traditional leftist heart of hamburg, but there was a march planned and was infiltrated by 1000 masked writers who shouted, all of hamburg hates the police. was originally anti-capitalists, and armed vehicles are patrolling the streets through the night, shops close, larger protests planned today and tomorrow. andce used water cannons pepper spray and many people in hamburg feel under siege as world leaders convene on the city in germany. the common thread among all these issues, not necessarily the protests, but donald trump. was six against one, angela merkel saying the discord is obvious and would be dishonest to paper over the conflict. donald trump comes with one set of agenda items, and others like angela merkel and xi jinping will talk about their shared vision on climate change in the global rules on trade. again, this is what angela merkel's finance minister had to say, the repositioning of the united states is a global leader. poweris the strongest that wants to be even stronger. , if it saying only america, it does remain the strongest power. it becomes less important. >> let the fireworks begin in hamburg. welcome there, but whether the forefront or backdrop, the steady home is meant to focus on economics and tax reform, but surely it were all of the about north korea? >> north korea will be the backdrop. already we had i profiled in her between donald trump and the new president and south korea mr. abe sayinginzo dialogue for the sake of dialogue is meaningless, shinzo abe said. it is essential to put pressure on pyongyang. pressure will not come necessarily from the un security council because it looks as though two of the permanent members, russia and china, are balking at a harsh statement from the security council. russia and china have objections to the draft statement that called the missile and icbm. perhaps this is a technicality, but clearly a defeat for donald trump as he heads to the g-20. the u.s. had hoped to use the statement to perhaps bolster the sanctions on north korea, cutting off hard currency and the flows of oil and the restrictions of air and maritime restrictions. haidi: donald trump tweaking a picture from that meeting saying, great meeting with president shinzo abe, not prime minister shinzo abe. ahead, wrists and divisions overshadow g-20 in hamburg. joins the show with his views on realistically what can be achieved. rishaad: next, some sounds earnings, and a book published on the company and the empire behind it. this is bloomberg. ♪ haidi: this is "bloomberg markets: asia." i am haidi lun in sydney. rishaad: i am rishaad salamat in hong kong as we have a look at business flash headlines. $5.7 billion for a majority billion dollars of real estate loans and assets it inherited when it ought a bank. santander shortlisted funds before 51 percent of the assets by the end of month. it will keep the remainder and manage the whole thing with the winner. haidi: scrapping orders for after a-three 50's delayed by supply issues. it is the biggest order with 80 orders. of theas a history climbing planes that fail to meet exacting standards. rishaad: toy go to -- toyota looking for a boost as auto sales decline in the u.s.. fleetl nearly match customers this year despite those deliveries slumping 20% in the first half. it has been hit hard by a rapid shift in u.s. demand towards suvs and away from traditional sedans such as the camry. posted a record quarterly profit boosted by its chip division, overtaking mobile devices to be the main global growth driver. our next guest is finishing a book on samsung and the current scandal it is embroiled ain. jeffrey, great to have you. the numbers are exceptional. is there a sense that the reputational damage from the note seven and the corruption leaving theargely business and performance side of things untainted? >> what is interesting about samsung, and they have this ,emarkable ability to move fast even if that involve some sort of corruption scandal in south korea. the company is an engine that and reboundfast from whatever problem existed before. samsung isig victory posting now, something spent years in the making. they are world leaders in memory, flash, dram, and displays. company hasing the been building for decades and we are seeing the outcome of that work they did in the past with it without that family leader at the moment. haidi: it continues to run itself, where as the division for the future is the succession side of things still a risk given you do have the bribery trial ongoing? yes, and that could become a problem in the future. the short-term and medium-term prospects for the company are quite good simply because these ands of flash memories displays are doing quite well now, but the big problem is in the long-term that the ruling family of samsung has a history of division, laying down the big idea, future growth engines, where will we be in 10 years, where as the professional managers, the ceos and everyone below that level, their job is to manage the day to day affairs, implement and exits you'd the vision of the family. jay y. leestion is to be found guilty or something is to happen, what will be the future of samsung, who will be an charge? a family lieutenant or a professional manager in his place? no one really knows for sure what exactly 10 years down the line samsung's big businesses will be. thisad: companies such as suffer from a lack of secession planning because they are family-oriented. street?the word on the if jay y. lee is going to jail, they must have somebody in the fact pocket. >> the person running the in the semiinvolved conductor business for a long time and is one of the leading semiconductor people within samsung and well-liked by the company and jay y. lee and known approach toodical business, someone who can set a goal and reach it. all theseence of other samsung leaders, there are in its top office called the future strategy office. this office was disbanded and it sets the group strategy. the big problem now is you have ,he company becoming at risk each affiliate in samsung going its own direction. the big challenge is keeping this empire of almost $60 billion together, coordinated, working as the samsung company, and that is the big thing that family played a role in doing, so as long as those companies are working on their own or completely separate then we might see some sort of lack of long-term vision in the future. rishaad: that is it, isn't it? we have that situation where an activist investor would go in and and say why don't you spin off the different silos of the company? and that may be the pressure coming to bear. what do you know about that, and is the pressure not to do it? >> shareholders, minority shareholders, have in pressuring samsung to invert its structure into a holding company, something many south korean groups have been doing in recent years, and it is something that would give a firmer more answerable structure to the company. every top official with have a role on the board or a clear legal delineated role, where as in the past, the chairman never showed up to shareholder meetings for instance. having a holding company will give it a more direct line of leadership and will not have to go through this web of cross shareholding which is not a clear who is often making the decisions, and this company owns a piece of that, and that company owns a piece of that, so samsung has pushed back on the holding company proposal and it is not clear they would do it now because of the recent trial ofnd the current jay y. lee, but it is something minority shareholders do believe the company will pursue in the future and that they do want in the end, so in essence we can be optimistic. rishaad: great talking to you. an upcoming book on samsung joining us from chang mai, tallinn. news, the bank of japan does more to manipulate the yield curve, trying to steepen it. it is a situation where they are buying unlimited amounts of fixed rate bonds, ¥800 billion on 25 year plus government debt, ¥200 billion on 10-25 your notes , and 500 billion yen on shorter dated notes here. the yield on the 10 year dropping a little bit. where are we now? .095% on the 10 year jgb. fosun in theine is wake of a sudden route. we look ahead to the trading day from hong kong. this is bloomberg. ♪ down to thenting start of the trading day right here in hong kong, pre-market auction period down .3% falling on the heels of new york, the s&p had a rough time of it. china's biggest by market value trading was shares in hong kong of an fifth in the wake $8 billion acquisition the firm had announced to buy assets of an international trust. anke told the hong kong exchange in the shares were suspended. it will resume h-share trading at 9:00 a.m. today, and we don't have a price as of yet. by $.50.ly, up this is after that suspension of its hong kong shares on july 5. there we go, up 2.1%. that is what is going on. haidi: i'm watching fosun international, the chinese owning clublomerate med, european soccer clubs, insurance companies. we had a selloff on what the company calls false rumors about the whereabouts of its cofounder and chairman. he says he is fine and reassuring investors, come to us if you have questions. in 2015, is disappearance sparked panic amongst investors and later turned out he had been assisting authorities with an investigation, but certainly prompting questions over succession and how reactive investors are to the political environment and these crackdowns. we had that selloff in fosun and other conglomerates a couple of weeks ago on account of this investigation by a authorities. apple's bruised relationship with qualcomm. the latest on that. this is bloomberg. ♪ rishaad: 9:29 and here in hong kong as weak count you down to the start of the session, looking like a down day you and what happened on the dow and s&p , asian-pacific stocks under pressure, one eye on what happens later today, that all jobs report from the u.s., the most important data point of the year, 175,000 jobs expected to be created in june and the american economy. haidi: we want to see jobs growth, but also wage growth. arguably unless we get a really ugly print on that nonfarm payrolls number, it will not make it difference in terms of this tantrum over global sovereign bond markets continuing into the asian session. china and hong kong markets opening. willow bay add joy to a session that has been down for asia so far. joy to be had when it comes to the trading session in china and hong kong. the csi 200 falling a third of a percent after the shanghai composite hit a three month high on the back of the advance we saw on thursday. today, on the back foot, the hang seng falling .4%. the bojw following stepping into the beat of its own drum moving to contain yields and will buy an unlimited amount of debt and a fixed rate operation, so japanese stocks paring its earlier drop, now down .2% compared to .7% earlier. the yen deepening its decline, down .3% at 113.51. this action by the doj has sent the 10 year yield back below that .1% after climbing above that level for the first time since february given that backdrop of global bond yields rising. i want to check in on some stocks. trade,anke resuming unchanged for now, but take a shares after the group said operations are normal following a drop of 4.5% on thursday. fosun shares continuing thursday's decline, and china vanke now down 2%. rishaad: back to sydney and paul allen for first word news. thanks. japan and the eu have endorsed a preliminary free-trade pact in a rejection of president trump's attraction this leadings. donald tusk and jean-claude and shinzo big gave their blessing to an accord that would eliminate 99% of tariffs between the two partners, following more than four years of talks. the eu's top brands of negotiators that even a partial withdrawal will have consequences for the uk's ability to interact. a frictionless trade relationship is not feasible. that is a blow to members of theresa may's conservative party who are distancing themselves from her hard line stance and want to retain close eu ties. and former u.s. officials have told bloomberg that hackers working for a foreign government breached at least a dozen american power utilities. nuclearincluded a facility in kansas, with russian hackers the chief suspects. ye sosecurity from fire there's no evidence to tie the attacks to a particular group. the new french government will in the sale of gasoline and diesel powered cars by 2040. to seizeso once coal-based power production by 2022 with half the energy to come from nuclear by 2025. he told a news conference in paris that the targets are tough if france wants to become the number one green economy in the world. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. haidi: a mysterious rush of liquidity into china's financial system is giving bond investors up leveragetchet once again, but many analysts don't think it is the best idea. tom mackenzie joins us for more. what is going on now? this has left a lot of analysts and traders scratching their heads. we have seen this pick up of liquidity into the financial system. this chart illustrates repo rate , and that is 2.7% despite 11 straight days of the pboc standing on the sidelines and not injecting new liquidity into the system, so where is this coming from? one idea is it could be seasonal , typically you get a pickup in liquidity toward the end of june, early july. another idea is you have corporate and china that on the back of a stronger yuan are selling down fx reserves and ising up yuan and that causing a pickup in liquidity. the other one is that the banks that are under pressure to reduce new loan is yuan's -- issuance. sayingact is that it is a rally in bonds towards the end , and that is concerning and follows three consecutive quarters of losses for china's bond market. so you seen this pick up in the bond market. the analysts are saying that is full hearty because the pboc is still present deleveraging and that he's reduced rates in the money markets are likely to concern the pboc and it will not move off its path. one analyst who said, frankly what we are seeing in terms of the pickup and .orporate bonds is crazy they expect that to be reversed sometime soon. rishaad: you have to ask why these analysts are so convinced that buying into chinese ons at this stage are a bad idea. they willother saying be narrowing the spread with u.s. government debt and would involved in becoming more expensive perhaps. >> that's right. is consensus from analysts that we will see a selloff in the corporate and government bonds in the near future, and there are a few reasons they point to for that. one is the pboc is likely to want to see these money market rates being pushed up, and we've seen of 11 straight days were they have not injected new funding into the market. another area slightly overlooked are the smaller banks in china that use these deposit credits, a method of short-term borrowing, and those rates have picked up as well, and that is something of a canary in the cold mine for the broader benchmark rates, so suggesting those might take up as well. is a widerhere environment of central banks across the world, the fed, the ecb, talking up the idea of a more hawkish stance and tighter liquidity and the pboc may have to follow that path as well to some degree, so all those factors leading analysts to say now is not the time to be getting into china's on the market. very muchhank you indeed. tom mackenzie in beijing. apple-qualcomm legal spat is turning increasingly sour, the chipmaker asking to ban the import of iphones in the latest move in an increasingly bitter fight over patents and technology. let's get back to basics. what is qualcomm seeking in this lawsuit? case, its particular is claiming patent infringement and trying to stop the import of iphones into the u.s. it is an increasingly bitter spat. asa gray apple thinks it is paying too much for qualcomm patents, and qualcomm once apple to pay up, so that is the heart of the dispute. rishaad: you have the international trade commission. what can it do? >> it can't force apple to a up, but can stop iphones at the border. to the ipc of going is that the process takes up to courtshs, whereas in the it could be in legal wrangle's for years. haidi: what is apple's position on this? they have already filed an antitrust case. >> apple's position is similar to that of quite of few other players in the industry, which is that qualcomm is asking too much for the patents it controls that essentially underpin wireless technology today, so apple for instance has to pay phone, as every smart indeed every smartphone brand has to pay a patent royalty to qualcomm regardless of whether they use qualcomm's chips or not , so apple is saying this is unfair and they need to renegotiate a proper level for the rokita payments. this has been going on for a long time. i suppose what is really at stake is qualcomm's very business model, right? >> that's right. the majority of qualcomm's profit comes from such royalty payments. right, ok, well, we will continue to monitor that. it has been dragging on for a long time, still digging their heels in. coming up, the prospects for an orderly brexit? g-20,l discuss that, the much more with the former eu commissioner peter mandelson. this is bloomberg. ♪ withad: you are back "daybreak asia". i am rishaad salamat in hong kong. haidi: warren buffett said to be trying for a utility takeover in taxes -- texas. nearing says it is cor, makinge of on berkshire the third company facing regulators. rishaad: united health group and this that equity partners attempting to acquire an advisory board, saying united health would acquire advisory boards health care division and education business. advisory board is based in washington. them jumping on her report, closing at the highest level since december of 2015. 40% ofsoundcloud cutting its staff and a cost-cutting move that will help it compete with spotify and apple. the digital service warned it was at risk of running out of money and is now being -- willng staff that they close offices in san francisco and london with operations consolidated in berlin and new york. soundcloud claims about 170 million regular listeners. for what somerg are saying could be one of the most contentious if not the contentious g-20 meeting ever held. divisions on climate change, antipathy violent among protesters on the streets. peter mandelson. thank you for joining us. >> pleasure to be here. >> this free trade agreement between the european union and japan going into this g-20, it has been described as a huge deal. is it? >> it is hugely significant, but has real substance. rishaad: you are trade commissioner after all. >> i was trade commissioner and did make the first moves when i was trade commissioner in negotiating this agreement between the european union and japan, just as i did between eu asean as well.nd rishaad: what is substandard about this -- substantially about this? >> it will open areas of europe's and japan's economy that have in closed to outsiders. it can unlock a great deal of not simply a diversion of trade, and provides a platform both for japan and europe to do more in their trade in the future, but also offers a template for others who should be seeking similar major trade deals in the future. talking aboute britain and will come to that in a minute, but don't forget the noise going into the american election and perhaps the subsequent noise coming out in , etc., etc.,witter and america is looking more inward, so it would seem. is the rest of the world flinging their arms together almost in response? >> i think people are disappointed in a sense that the two main countries who were most instrumental in the postwar era in creating the multilateral international trading system, the whole global liberal economic order, i which i mean the united states of america and great britain, are both countries stepping back from that very system that they did so much to create in the post-war era, and i regret that. i think the response of the rest of the world should not need to follow that stepping away, but to step up instead, and i think of europe and japan, by the way, alongside china and other key players in the global economy have got to do more to sustain the international trading system , the principles of multilateralism, as well as doing more bilaterally together in their trade and investment relations. we saw this at davos with that remarkable speech from xi jinping. is this another occasion that the chinese leader can push that narrative of china as ever ready to step in as the new leader of the liberal world order, if you will? want to dochina will that, but in doing so it has to do so in the interest of all the world's trade and economic lands and not just on its own terms. president xi has been saying in the commitment to the international trading system and the wto. conviction,rry china has to do more to open up its own markets and liberalize example,conomy, so for one belt, one road is not a one-way street to benefit china, but is a genuine highway on which there can be traffic moving in both directions between china and the rest of the world and its main trading partners. reading through your notes, you mentioned rarely will there be as many bad relationships in one room. what does that portend for global trade? rish was alluding to the special relationships between china and germany becoming stronger as others laps. the g-20 is usually a global showcase for international don't think wei can expect that to be quite so on this occasion. never have there been probably so many fractures, personalities, and big egos contained in one g-20 meeting as we are seeing today in germany. havenk angela merkel will a role as foes to encourage good discussion and dialogue and agreement, but the rest of the world is looking to her to express what is frankly and anti-trump sentiment on international trade, climate change, and on migration, so i think the communiqués were not as you would hope for, but important nonetheless the meetings are taking place. rishaad: you intended the summits. speak candidly. people do talk to each other properly there and you get a healthy debate, perhaps even fiery arguments taking place, but at the end of it, that communicate will be a in all one, right? so what will be discussed and what will the tensions be like behind closed doors? is thatis important people talk with each other rather than past each other, however much that is reflected in the final communiqué, but at the same time, we have two relies each of the main leaders will be having an eye on their domestic audience. angela merkel has elections in germany and september, president trump will be mindful of the rush investigations that are going on at home, president xi jinping has his own 19th party congress to look forward to some he has to command real chain in china -- change in china going forward. they are talking with each other, but also with a keen eye domestic audiences back home. rishaad: thank you. stick around with us. we will talk it is politics, brexit, the implications, the rise of, should i say the comeback kid, jeremy corbyn. this is bloomberg. ♪ rishaad: let's continue our conversation with the former eu trade commissioner peter mandelson. we talked about g-20, but let's talk >> it and british politics. you were saying this deal the eu has signed with japan, the free trade agreement, took years and coming, and other deals as well. how do theresa may and company hoped to get the trade deals lined up >> it does take place in two years. have you been tapped for a job? >> not yet. and i don't know who is going to negotiate these great free trade deals, partly because we can't begin to negotiate until we are out of the european union to . free trade agreements are not like fruit waiting to be plucked from low hanging branches around the world. they are tough things to negotiate, and there have to be real advantages and benefits on both sides. you are sounding pretty bearish in terms of the optimism there, peter. >> i am being realistic. when i was trade commissioner, i came in in 2004. within 18 months of my arrival, i lifted the moratorium on negotiation of bilateral trade agreements between the european union and the rest of the world. we are now over a decade later and we are only now beginning to see those agreements completed. i launched the trade negotiation between europe and korea. that was the fastest negotiation i have ever started. it was eventually concluded for-five years later after i left my post. on these things, you have to be realistic about them. not only do have to have a substantial to negotiate about and a willingness on both sides to reduce trade protection and open up, but there have to be real areas of the economy, genuine sectors in the which are going to produce returns for both sides, then you have the argument -- about pain, sacrifice, and so on. it takes a long time, and my fear is the british government is unrealistic about the willingness and preparedness of others around the world to negotiate directly with britain, because there won't be as much in it with them as say negotiating with the european union as a whole, and then how much real new trade will be created as a result of this negotiation in which i say will be agreements which will be years in the making? i want to get, your views on whether theresa may can keep her job, the debacle of the election outcome, and jeremy corbyn, can he be the next leader? one expects theresa may to be leading her party into the next election. she called it. she did not need to. she chose to do so. in the eyes of the british public, having called it, she did not turn up for it. she barely debated with anybody. she did so because she wanted a stable and strong mandate for a hard brexit, and that she did not get. rishaad: thank you so much for that good former eu trade commissioner and secretary of state for northern ireland. this is bloomberg. ♪

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