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tv   Bloomberg Daybreak Australia  Bloomberg  July 22, 2019 6:00pm-7:00pm EDT

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paul: welcome to daybreak australia. i'm paul allen. shery: i'm shery ahn in new york. sophie: i'm sophie kamaruddin in hong kong. we are counting down to asia's major market open. ♪ paul: here are the top stories we are covering. doing a deal, president trump says there is an agreement on the debt limit. it may push the u.s. deficit over $1 trillion. the bank of japan governor addresses the imf in washington. he says he is watching global developments closely.
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silicon valley chiefs head to the white house for talks that may lead to the easing of the sales blockade on huawei. shery: we will have more on that big tech meeting in washington and what this could mean for the huawei been later on bloomberg technology global link. first, that get you started with a quick check of how the markets closed the market session. a positive session for u.s. stocks. we saw the s&p 500 gain ground, up 3/10 of 1%. a couple of analysts calls, including one on apple, with morgan stanley boosting its price target. that actually made apple rally and the biggest winner on the nasdaq. micron finishing more than 3% higher after goldman sachs listed it to buy from neutral. we also have some positive news on the u.s.-china trade front. there could be talk about a potential deal in congress on raising the debt limit, that came after the market closed with president trump saying a deal had been reached.
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we will have more details later in the show. meantime, u.s. ventures -- futures not doing much. we saw energy move with wti jumping the most in more than a week on iran-u.s. tensions continuing to rise. let's see how things are shaping up for asia. sophie: this tuesday, future supporting higher after monday's declines led by china and hong kong. watching tech shares in the region on the back of some analyst optimism for apple and chipmakers like micron. also a dow jones story that apple is in talks to buy intel's smartphone modem chip business. vale's iron ore output missed estimates but the company is betting big on nickel. citi is forecasting a drop in iron ore prices through the fourth quarter. now checking in on the aussie dollar. rba dues this week. the aussie edged closer, a four-month level against the kiwi as investors assess if a third breakout is in the cards this year for australia.
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penciling in that for november. paul: thanks very much. let's get the first word news with ritika gupta. ritika: reports from beijing suggest face-to-face trade talks may resume in the coming days, after what state leaders described as goodwill gesture from china. mainland companies have taunted u.s. exporters -- contacted u.s. exporters about agricultural products. the south china morning post says a u.s. trade team will fly to china next week. a new report from london says the u.k.'s stumble towards brexit may have triggered a technical recession. the national institute of economic and social research says even if there is a split, the u.k. economy will only grow by 1% this year and next. the think tank says there was about a one in four chance the economy is already in reserve.
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the governor of the bank of japan says he and his team are keeping a close eye on the threat to global growth. the policy of powerful easing to lift inflation to the 10% target. kuroda told the imf in washington that the bank is monitoring global risk to assess the effect of any new policy moves. >> uncertainty regarding the global economy has been heightened. noviceness has been seen in global financial markets. the bank needs to pay close attention to these develop its on japan's economic activity. ritika: global news 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts. i'm ritika gupta. this is bloomberg. shery: thank you. president trump says congress has reached a deal on suspending the debt limit and raising
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government spending for two years. for more, let's bring in bloomberg washington correspondent kevin cirilli. house speaker pelosi speaking right now, saying the house will move faster vote on the deal. we are running out of time. kevin: vacation or get a deal? it looks like they are going to get that deal. this despite some cries from ultraconservative members of the house of representatives. it will be interesting to watch the next 24 hours to see what the tally is on republicans who decide to vote against this white house. bottom line, in what can only be described as the most heated political rhetoric in the first term of this white house, i'm alluding to president trump's attacks against the four freshman congresswomen, speaker nancy pelosi and president trump were able to get a two-year deal on the debt ceiling with no poison pills, according to the president. earlier today, i spoke with
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kellyanne conway. i asked her about whether or not the president could commit to a deal. she said at that time, they were unable to commit. they had concerns about veterans, but clearly the president getting those deals hammered out. as we move forward, this is no small feat. this deal, should ultimately be signed by president trump, we won't have a debt ceiling until after, after the next presidential election. paul: it was a classic compromise in many ways. everybody walked away a little unhappy. did not have to give up a lot. kevin: i totally agree with that. if you talk to republicans, they will say that they wanted more savings, that they only got half of the savings they would have liked to have seen in terms of government -- in terms of coding government spent -- cutting government spending. democrats will say there was not enough spending. ultimately, $17 billion worth of additional defense spending
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allocated for the next calendar year and -- compared with 2019 levels. there is a little bit for everybody and also a little bit for everybody to be unhappy about. but they got a deal and it is a two-year deal. that means if all goes according to plan, which we all know anything could happen at any second or any tweet, but if all goes according to august recess. paul: bloomberg washington correspondent kevin cirilli, thank you for joining us. tension remains high in the gulf with iran saying it will execute a group of alleged cia trained spies.
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president trump says the news from tehran is totally false and the iranian regime was failing. we get a closer look at this with a national security team, bill. what is the latest here? bill: it is hard to believe a week ago we were talking about the possibility of some kind of diplomatic breakthrough between the u.s. and iran with both sides feeling their way towards potential compromise. that has gone down the tubes in the last four to five days now. you have the iranians announcing this apparent death sentence on 17 people it says were involved in a cia spy ring. you have u.k.'s national security cabinet meeting to debate the latest about that british tanker that was seized on friday. we've gone from a very cautious optimism, about a week or 10 wherego, to this period it seems like every 24 to 36 hours, there is a new ratcheting up of tensions. things really at this point do not look very positive. we do know that iran's deputy prime minister is heading to france on what seems to be some sort of diplomatic mission, so we will look for any developments that might help ease tensions in the coming day or so. shery: at least when it comes to tensions between the u.s. and china, they seem to be dying down.
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so much so that the president seems to be happy with the way xi jinping handled hong kong. bill: that was very interesting and unexpected comments today. the president said, he committed hasident xi for how he managed the hong kong crisis. that is something a lot of people in hong kong may feel differently about given what we have seen the last 24 hours. he is really looking at the possibility of some kind of trade talks restarting, perhaps as early as next week. we know there was a meeting at the white house with some of the tech companies today. the huawei than -- ban was believed to be part of that agenda. the president may have a bigger picture in terms would his relations with china, thinking about how to get trade talks that have been stalled since may back on track. paul: in terms of huawei, president trump says he is waiting and watching on huawei's north korea role.
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huawei says it has no presence in north korea. clear this up for us. bill: that was a report that came out this morning that huawei was involved in helping build a 3g network in north korea. immediately raising questions in the united states about whether doing so would have violated a lot of export restrictions the u.s. has, given that much of the huawei equipment comes with technology developed by bus companies -- by u.s. companies. that is going to be another issue for the white house and the state department and treasury and everyone involved in looking at huawei's future in the u.s. to try to sort out, at very critical time where trade talks are set to possibly resume. paul: national security team leader bill faries. still to come, we will run through the agenda of japan talks trade with the u.s. amid a tech spat. shery: the market is at odds
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over what is next for the fed. we will assess the options and look for the best opportunities. this is bloomberg. ♪
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paul: i am paul allen in sydney. shery: i'm shery ahn in new york. tech was the big theme in u.s. stock trading during the regular session, as well as after hours. su keenan joins us with the latest. we had a couple of calls making a difference in today's session. su: that was the big driver particularly the call on the big chip shot. one of the things you will notice is the stocks of semiconductor chip index is the big gainer, up from 2%, even though the market gains across the board were not that great. if we go on the bloomberg gtv, this is called the chips fairly
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valued. against the s&p 500. it is near a five-year high. there have been many calls of concern that perhaps these stocks are getting overvalued let's go into the big movers. goldman sachs came out and said they believe several of these stocks were worth putting from neutral to buying. they included lam research with applied materials among the others. intel, which continues to rally into its earnings when you get some of the after hours news as well. halliburton, a big mover in that it blew out earnings. it also announced a new strategy and how it is dealing with the way its customer base has changed. it is cutting a percent of its north american jobs. we cannot leave out apple. one analyst upgraded, morgan stanley now puts apples price target at the third-highest. the second analyst upgraded for
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apple in a week. so many would say it has come up the bottom in that regard. paul: we did see some very big movers after hours. can you tell us more about those? su: the wall street journal broke at first. according to people close to the matter, apple with advanced talks with intel and take a look at how the stocks are moving after hours. advanced talks with intel about its smartphone mobile chip business. this is a big move strategically more so than monetarily. qualcomm taking a big tip on this. close to thepeople matter, these talks are fairly advanced. there could be a deal as early next week valued at $1 billion or more. a deal that could include a portfolio of patents and staff that have to do with the smartphone shift modem business and that could be very important strategically for apple going forward. shery: su keenan, thank you.
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there is a $13 trillion blackhole at the heart of global financial markets. negative yielding debt, bonds worth less. so where do we feeind yield? let's bring in winnie caesar. great to have you with us. the fed expected to cut rates this end of the month. actually, two weeks. where is capital expected to go after this fed rate cut and fixed income? winnie: we really think that the market is getting a little bit ahead of itself in terms of anticipating what the fed is going to do. our wells fargo economics team sinks -- thinks there will be a single 25 basis point rate cut in july, next week. we have gotten there so quickly. our bias is to expect more of the same in terms of deploying capital across corporate credit.
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we are tactically overweight because we think cash is most likely to flow into the ig universe with a bit of a defensive bias given that is a lot of global uncertainty regarding the real fundamentals of growth. shery: despite the fact we are expecting a fed rate cut, we continue to see some raw economic data out of the u.s.. this chart on the bloomberg showing how the jobless rate, we had a very strong june labor numbers. this showing the economy still in a good place. low unemployment which is rising a bit slowly. what does that mean for the yield curve and what can it do in terms of deepening the curve and total returns in the market? winnie: one of the things that i mentioned is we think the market has gotten a bit ahead of us -- itself in terms of pricing in more aggressively easy policy rather than what we think the fed is going to do.
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when we look back historically, the amount that the intermediate part of the curve yields have fallen in easing cycles. it is pre-much on pace with where we are now. the fed has not even started to ease yet. the combination of a fed rate cut which would theoretically continue to spur some incremental spending and growth in the u.s. also, the fact that consumer really does remain on very solid ground in the u.s., even though we did see some kind of choppy numbers earlier in this year in terms of retail sales. it seems like things have stabilized quite nicely into the summer months. our expectation is we could actually see the intermediate part of the curve yield rise a bit. see a steeper 2/10th curve by years end. we have concerns about total return, particularly in the intermediate part of the curve. total returns in investment grade are at 9.9%. that is a very strong start to the year. we do recommend that some
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insulation against the types of potentially yield increases is merited at this point. paul: winnie, i want to return to a point that shery made about the amount of negative yield in the world. we have a chart on the bloomberg terminal that illustrates that as well. investment-grade debt now pays no interest. do you see this trend continuing or do you think it has bottomed out? is that line going to get as high as it is going to get? winnie: it really depends on what central banks do from here on out and whether incremental policy easing gets the economy kind of jumpstarted from a global perspective again. there is clearly a pretty significant dislocation between the industrial economy and the consumer economy and also the global economy and the u.s. domestic economy. the big question will be whether other central banks follow the fed in terms of incrementally easing. thing all eyes will be on the
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ecb this week and whether there is a shift in policy messaging in terms of additional expectations they were going to hold rates steady through 2020. now, i think there is much more of an expectation there might actually be a rate cut. in which case, we are going to continue to see this low yield environment. that really forces capital into these low consecutive yields, particularly when you do have a currency market that if investors had to hedge their exposure to currencies, it frequently makes more sense to actually stay in your home currency despite the fact that you are having a very low or negative yield in some cases. shery: we are going to see what the verdict is for the ecb this week. will they act before or after the fed? winnie: that is a great question. our economics team does not actually think that they are going to act before the fed. however, they have caveated
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that they might try to get ahead of the fed. wells fargo econ team expects the messaging in the upcoming meeting this week will shift to a bit more of a dovish outlook. and we will see a rate cut in september by the ecb. but, that is kind of a big wildcard for the markets this week. shery: thank you so much, great having you with us. wells fargo securities head of credit strategy in charlotte. we can get a roundup of the stories need to know to get your day going in today's edition of daybreak. bloomberg subscribers, go to your terminal. it is also available on mobile on the bloomberg anywhere app. you can customize your settings so you only get the news and industries you care about. this is bloomberg. ♪
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paul: this is bloomberg technology global link. i'm paul allen, alongside shery
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ahn and bloomberg technology anchor emily chang. let's take a look at the top global tech stories of the day. emily: apple is an advanced talks by intel smartphone modem chip business. the report says a deal would cover a portfolio of patents and staff valued at $1 billion and a deal could be reached in the next week. it would jumpstart apple's push to have more control over developing critical components. microsoft is investing $1 billion in a partnership with the research group open ai. it was cofounded by elon musk and other silicon valley entrepreneurs, and will now use microsoft's azure cloud services. they jointly developed supercomputing technology and work together. phillips is re-digging his global production in a bid to reduce exposure to tariffs.
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it will now spread the manufacturing of products around the world rather than focusing everything in one market. it recorded the second quarter profits that beat estimates but bracing in more than $20 million in cost when it makes batch of expected tariffs comes. those of the top global tech stories we are watching. shery: executives from some of the biggest tech companies in the u.s. have left the white house following a meeting with senior officials over a topic crucial to their bottom line. the and administration can ease it's been on chinese tech firm huawei. tom gieles joins us from san francisco. tom, this was a key issue at the g20. president trump promised to get some relief to huawei. what have we seen on the ground? what was really discussed in this meeting? tom: that is right. big meeting in d.c. the trump administration wanted to hear from big tech executives on this -- on the ban and the
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loosening of the ban. the message that the big tech companies wanted to bring, particularly semiconductors, was that this blanket ban puts us at risk of missing out on our biggest market outside the u.s. it portrays us as unreliable partners. huawei can get this equipment elsewhere, though not as good presumably as if they bought it from the u.s. chipmakers and other manufacturers. really, this limits our ability to invest. this is a national security issue. keeping u.s. semiconductors and other equipment maker's at the forefront of the industry is really a big, a bigger national security issue than penalizing huawei. that is generally the argument that the chipmakers are making. emily: are these tech ceos asking for the ban to be lifted on all products, that the u.s.
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sends to huawei, or only particular supplies? i understand there has been differentiation between consumer products like computers and smartphones, and products that would be used to make huawei's 5g the quit. -- equipment. tom: the trump administration has made this delineation between products that it continues -- considers a national security threat compared with products that aren't in that category. we haven't heard from the semiconductor industry, exactly how they are making that distinction. the sense is they want to have a great deal of freedom and what they sell to huawei. they are saying a lot of what they do does not cause it to a national security threat. paul: bloomberg technology executive editor tom giles, thank you for joining us. that is bloomberg technology
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global link. don't miss bloomberg technology at 7 a.m. in sydney, 5 a.m. in hong kong, and 5 p.m. in new york. coming up, bank of japan governor kuroda says he is keeping close tabs on global uncertainties. ♪
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shery: welcome back. let's get the first word news. ritika: president trump says congress has reached a deal on suspending the debt limit for raising government spending for two years. the agreement would offset the $75 billion expenditure that would give the administration and the republicans about half the savings they are seeking. the new spending and limited savings would likely push the budget deficit over $1 trillion next year. british airways is facing a pilot striking for decades. action was backed by none 3% majority. then union says there is no date for a walk out and negotiations
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are on hold while the airline seeks a high court injunction to halt any strike. the pilots demand relate to pay and profit-sharing, and come after aycock pick -- cockpit pay. took lesser he was key to the iran nuclear deal and died unexpected late. he was a veteran in nonproliferation and has led the iaea since 2009. he was involved in a deal that saw iran halt its nuclear ambitions. his death comes months after president trump unilaterally abandoned the accord. india's space program back on track with a successful launch of an unmanned market heading to the dark side of a move. launchafter the initial over the last minute. the mission is aiming to land a oleer at the lunar south pul
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to explore water deposits. they plan a manned mission by 2022. global news 24 hours a day, on the air and on tictoc on twitter, powered by more than 2700 journalists and analysts. this is bloomberg. shery: thank you. the global march towards lower rates continues, so who will be next among central banks to move? our global economics and policy editor kathleen hays is here with a preview of the big 3 -- the fed, the bank of japan and ecb. governor kuroda had been speaking at the imf in washington. what was his message ahead of their policy meeting? kathleen: his message has not wavered. the bank of japan is ready to maintain monetary policy easing, no letting up. like many central bankers around the world, he is focusing on global uncertainty, trade war impact.
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let's listen to what he have to say at the imf today. >> uncertainties regarding the global economy have been heightened. some nervousness has been seen in global financial markets. the bank needs the peg what -- pay attention to the economic activity. kathleen: this is in keeping with what the bank of japan has been looking at for some time now. keep that monetary policy easing, very powerful, in place. keep inflation moving towards the 2% target. this is why they will probably have a lot of conversation about the potential of a fed rate cut. the dollar weakens. stronger yen makes it tougher for japanese exporters to sell their goods overseas. by the way, in terms of prices, a stronger yen is going to make import prices weaker and that is not going to help inflation.
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bottom line -- here is what the boj governor kuroda said today, they will be watching and debating. >> we will carefully examine risk factors, in addition to development in economic activity and prices, as well as financial conditions. the benefits and costs of the policy effects. kathleen: given where the japanese economy is now, the global economy, the bank of japan is not excited to do anything more on rates. there were talks a couple of month ago about possibly cutting the key rate which was a little negative, making it more negative. at this point unless something drastic happens, i think the boj -- some people say it will have it in october after the consumption tax hike. shery: another halloween treat like last year, remember? obviously, everyone else is watching with the fed will do. it seems to be a question of will that be 25, 50 basis
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points? kathleen: at this point, great story by our bloomberg news team in washington today, looking at the fed laid by jay powell, will probably do 25 basis point cut. when i was at the university meeting on friday, jim bullard, we spoke to him after his panel. i estimate question about this whole 25 versus 50. he said i would like to see 25 basis points. let's look at the chart on the bloomberg library which shows you how the next rotations about the 50 basis point cut have changed because they were very strong. they really spiked when john williams last week gave a speech about monetary policy history. funny, at a certain time when you need to move more aggressive. did make people think he was going to push for 50 basis points. the new york fed walked that back. now we have jim bullard on friday talking 25 basis points. not so much in the markets.
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bloomberg had a great story today how you can buy and sell your dollar futures as a way to bet on the fed. if you are buying them, that is assigned you think rates are going lower. what is happening right now is between speculators and asset managers -- speculators are betting on more aggressive fed rate cuts so they are boosting their net euro-dollar positions. asset managers are increasing their short positions. i think they are the highest short since 2018. eric rosenkrantz, a voter this year of the boston fed, he said last week he figures no rate cut at all. today, trump's nominee for the fed board of governors judy shelton said if she were at the fed, she would do a 50 basis point cut, for what is that worth. i think it is on the fed for 25 basis points but it is understandable why traders and investors are split. shery: it gets trickier for the ecb because they have to decide
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this week before the fed. what are we expecting? kathleen: not just before the fed, because now people are saying mario draghi is on a tight rope. they know they probably have to cut that negative rate probably even more negative. he knows they probably have to buy more bonds. their manufacturing gauges are getting weaker. their inflation gauges getting further away from target. but that maybe want to wait until september and get more data on the economy. another great story out from bloomberg today -- mario draghi facing three shocks of the economy slows -- the brexit shock, u.s. brexit shocks, china slowdown if the economy continues to slow. i think the bottom line is they are going to talk about cutting rates. they will talk about restarting the bond purchases but they will not be able to do it until later. we will see. really concerned about what is happening with the global economy right now.
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maybe he says we cannot wait and move now. i think the expectation it could happen and it would not shock the markets too much, but it shows how concerned he is about growth and inflation. shery: kathleen hays, thank you so much. our global economics and policy editor. let's shift the focus to central banks in australia and how that is affecting the market. here is sophie. sophie: i want to focus on the australian dollar which remains tapped by the 200 day moving average. extended downtrend for the fourth time in december. stalling after being pushed higher by some bright spots showing up in last week's australian jobs data. pulling back on those bets were a brexit fed easing while speculation continues on as to whether the rba will pull the trigger for the first time this year. i 70% chance in november as well as december so aussie dollar will look to the rba governor's speech on thursday for some cues where he might discuss challenges in of the cash rate
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were to be cut. shery? shery: thank you so much. let's now turn to the u.k. because former bank of england governor mervyn king says the u.k. has space for policy if needed and brexit is not the only problem pressuring the british economy. he spoke to bloomberg in london about what needs to be done to smooth out the divorce process. mr. king: i think the complexity of a transition to say a no deal exit is more about the administrative arrangements would would be required to make that work. we have a highly professional sever service. a belief that they cannot cope with issues like that. you cannot do it in a week or month. it takes some time. i don't know how far down the road they are in terms of preparations. they ought to be a long way down the road. a long way down the road to
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being ready to have it all prepared. in terms of the macro economic response, if their were weakening of the u.k. economy -- i think it is important to make clear that what is happening to the u.k. economy is not entirely driven by brexit. one of the great mistakes of the past three years amongst many commentators is just to assume that everything that is happening in britain as a result of brexit. it isn't. we are part of a bigger world economy which itself is slowing in other parts of the world. europe, the u.s. thinking about how much policy space they have. i think we have quite a lot. if it were thought to be appropriate to ease either monetary or fiscal policy, but that is a judgment to be made by the respective authorities down the road. it is there if we need it. the big challenge is actually for parliament to come to a view as to what we are going to do. so far, the thing that matters more than anything else is parliament has voted for nothing.
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and it has voted against everything. it has voted against a different varieties of brexit. against a no deal brexit. it has not voted for anything and that is the source of the deadlock in which we find ourselves. paul: that is former bank of england governor mervyn king speaking to bloomberg. a quick check on the markets right now. futures for the region pointing mostly higher, but only reading modestly so. we take a look at new zealand right now. that is pretty much flat in australia. we are checking to see again of 1/10 of 1%. pretty quiet recently. volumes have been below the 30 day average for the msci asian. it is pretty quiet out there. we get more on what we should be watching as trading gets underway in asia with andreea. one market that investors will watching closely today will be
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china's no look nasdaq -- new look nasdaq. some eye-popping gains. andreea: it definitely had. i think with markets awaiting the fed, u.s. earnings, trade talks stalemate, geopolitical tensions -- investors will be focusing on that chinese market. just to recap quickly, we had 25 stocks on this new index market. all pushed higher by an average of 140%. at one point, one company was up more than 500% and another was valued at 730 yitimes earnings. really eye-popping valuations. now the questions for investors is will this continue? is this sustainable? we have average multiples of 53 times. these are companies that have yet to make a profit. the general view that it is probably unsustainable that we will see some kind of a fallback.
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analysts that bloomberg spoke to generally feel that the valuations are impressively locked in. that will keep institutional investors at bay. they will wait for some of these prices to correct. china's stock market is largely dominated by retailer investors and speculative. average of 18,000 times. it will be interesting to see whether these -- how these stocks will trade today and whether we will see a repeat of these mind-boggling numbers we saw yesterday. will be moreit levelheaded trade in this new nasdaq style market in china. shery: very different environment to indonesia where stocks are really lacking despite the fact there is plenty of room for the bank indonesia to cut interest rates. what is going on there? andreea: hi. that is right. the jakarta index has been a
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laggard. in fact, it looks like it will continue to be. it is up only about 4% this year, about half of the msci asia-pacific index. as you said, that is despite the fact bank and the has cut interest rates, but interest rates among the highest in the world so there is room to do more. also, you have a very pro-business president with a fresh mandate. there are a couple of reasons why we are seeing the indonesian market being a laggard. growth has not reached the 7% that president targeted when he was elected in 2014. in fact, the central banks say that growth will be less than 5.2% this year. at the same time, you have consumer sentiment weighing on some of those consumer stocks indonesia. these things are conspiring to keep that market, to reign in gains in the market despite an
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overall positive backdrop. right, bloombergs global market editor. you can check out our library for some of the charts we have been talking about. that is on the bloomberg terminal. coming up next, we will be speaking to brookings center, as japan talks trade with the u.s. and deals with korea. this is bloomberg. ♪
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shery: i am shery ahn to new york. paul: i'm paul allen in sydney. you are watching daybreak australia. the tech dispute between japan and south korea is heading to the wto. they will present their arguments in geneva later on tuesday. for a closer look at this, we have the director of the
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brookings center for east asia policy and studies. thank you for joining us. this dispute to and argue the export restrictions from japan are in violation of wto rules. does korea have a case here? guest: both sides have grievances and i think it is important to look at the broader context of these conflicts. i think we are potentially at a turning point in the japan-south korea relationship. japan has made the case this is imposing restrictions on exports of this chemical. south korea is not keeping up enough control. these are substances that can have dual use and japan is saying south korea is not careful enough and it could then take this action based on its export control measures. as i was saying, there is a broader context. koreact is japan-south ration ship has been deteriorating the past few months.
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the south korean supreme court recently had a really that it sided with a claim for forced labor compensation. some assets were seized from japanese companies. japan has called for an arbitration as part of the 1965 treaty and south korea has not been forthcoming. there is no wto case because it is part of the export control mechanism. south korea will say this is retaliation and discrimination against us. we will see where this goes. paul: yeah, it is important point you make because you really cannot separate the two. how difficult is it to bremen i -- remedy that underlying issue of japan's behavior in colonial times in korea? mireya: it is very difficult. talking about a fraught relationship. japan and south korea have never really put behind history. at the other level, there was a substantive relationship. the economic sides have
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developed to be to you can look at economic independence that has held these two countries with together. with the latest dispute, we are seeing the questioning of that. really worried about the fact you have two countries that are market economies, democracies that are allies of the u.s. and objectively, all elements would point to a shared endeavor to think about joint opportunities. it seems like those two countries are wanting to have as much distance as they can from each other. that distrust will prevail. in japan, people talk about korea fatigue. also in south korea with a boycott of japanese goods. we are looking at the possibility for these two countries thinking that their futures are separate. what that means for the united states is -- serious consideration. shery: let's talk about the u.s.
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because traditionally united states has played a mediating role. what president trump was asked by, according to him, president moon jae-in of south korea, to help mediate, he responded how many things will have to get involved in? he was not happy about having to help. can this dispute be solved without washington? mireya: um, i don't know. it is going to be very difficult. i think in the past, we have seen the u.s. administrations ta ke animosity and the potential of distrust very seriously. this was actually one element behind the 2016 agreement between japan and south korea. the united states put a lot of effort in order to have these two parties reach a compromise. now, the south korean government basically did away with the agreement. the united states does not have a lot of, has not become very involved. slow-moving.
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therefore, this creates a real vacuum and it is unclear if they are left to their own devices that japan and south korea can find a compromise. we don't see quick action from the u.s. administration to get involved here. shery: we have not really heard anything when it comes to the japan-u.s. negotiations. how close or how far are those sides when it comes to trade? mireya: that is a very important element for u.s.-japan relationships going forward. i think there is a lot of quiet disagreement. there is a lot of concern on both sides. the united states is on a rush to get an agreement with japan because once it left the transpacific partnership agreement, the deal has now gone japan has given substantial trade preferences to the parties to maybe agreement.
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americans are not seeing the position in the lucrative market. the united states would like an agriculture focused deal. want to talk about many concessions japan would like to see happen to make this a win-win negotiation. japan says, fine, if you want to revive the tpp concessions we give to other countries and extend them to american producers, we expect the concessions americans have given to japan in the automobile sector. i don't think from my conversations in tokyo with officials, i don't think they have yet gotten a clear sense there was going to be that element of reciprocity. it's politically impossible for the prime minister of japan to go back to the public and say we -waygoing to engage in one concessions with the u.s. this must also be sold domestically and that will be for the country. paul: all right, thank you very much, mireya solis. director of the brookings center
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for east asia policy studies. you can watch us live and see our past interviews under interactive tv function, tv < go>. you can dive into of the securities and functions we talk about, and become part of the conversation by sending us is the messages during our show. you can check it out on tv . this is bloomberg. ♪
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paul: let's get a quick check of the latest business flash headlines. warning boeing that the credit rating is at risk. the grouting of the 737 max drags into a fifth month. the a-rating, but cut the outlook to negative on what it calls the growing the difficult challenge of getting grounded planes back in the air. it also raises concerns over long-term effect on the boeing brent and the ongoing pressure to offer concessions to airlines. shery: vale shares fell after
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output missed analyst estimates by more than 10 million metric tons. concernsadds to supply that last week sent iron ore prices to their highest and more than five years. second quarter production fell to 64 million tons, down 12% from the previous period. vale has to scrap a quarter of its target outlook following a deadly collapse in january. paul: unicredit is weighing the loss of thousands of jobs as part of its latest turnaround plan to be announced in december. it may eliminate 10,000 positions and slash operating costs, although the final numbers have not been determined. dismissals will affect staff in italy and elsewhere. expected to bring extend at your down by 10%. plenty more still ahead coming up in the next hour. we will be speaking with rob munford, investment portfolio manager of emerging markets equities. we will have that and a check of
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the markets and all the news of the day, coming up next. that is it from daybreak australia. all the action daybreak: asia next. this is bloomberg. ♪
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paul: good morning. i am paul allen in sydney. we are under one hour with from the australian market open. shery: i am shery ahn. sophie: i am sophie kamaruddin in hong kong. welcome to "daybreak asia." paul: our top stories this tuesday, policy under pressure. the fed looks set for a quarter-point cut next week as its global peers lineup to join the march to ease. silicon valley chief had

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