♪ >> asia-pacific stocks set to rise as a stellar corridor comes to an end. wall street added to its sixth street -- straight quarterly gains. >> the economy chasing a record for a recession. >> a former leader now arrested for corruption. park geun-hye might destroy evidence. the right note, the growing popularity of apple and

a spotify help the music industry. have world coverage on bloomberg daybreak: asia live in tokyo to talk about the upcoming inflation numbers out of japan. a wrapup of beijing's earnings. >> a lot to cover. here in new york we will be joined by an expert in the u.s. retailing world. he will be in the studio with me in 30 minutes talking about retail in general. companies butese fast retailing here and how difficult it is. this is daybreak asia live from bloomberg u.s. and asian headquarters. i am betty liu in new york after 7:00 p.m. after 7:00 p.m. in hong kong, ime yvonne man. quite call the end to this recession. betty: not at all. it was interesting because

watching central banks we started to see the divergence be created. you saw that very starkly today with bill dudley and the new york fed saying we will see the upside in terms of economic growth. the ecb seeing inflation in germany decelerating. divergence is coming back to the spotlight. that is how it was in equities. take a look at the equities, a 10 year yield climb above 2.4%. we will see how that plays out in asia. here is how things are looking this friday morning. a looking, when you take at new zealand of stocks, flat. the kiwi below that 70 send handle. australia, we are looking very they ensure that much closer, 110 points away from 59

00 from the asx. resilient atill .7644. jobless rate inflation and production, we see the dollar-yen 111.79. a little strength of this morning but stocks nevertheless are going to be quite strong in tokyo today. that is a look at what to expect in the region this morning. we have been talking about this debate between the hard data and soft data in the u.s. we got those u.s. gdp inflation and consumption numbers. came back andals helped lead the way in the equity markets here. let's hold the boards real quick. you can see we ended right at the high of the session. we will get to that in a moment. i know you have

the rest on the south korean former president. story, that is our top south korea's former president park geun-hye has been arrested. her detention is the latest chapter in a corruption scandal involving big business and millions of dollars. let's get to stephen. it was a surprise. we saw what happened with samsung and jay y. lee, several tries. are intertwined. president park was impeached, she was ousted, no longer has immunity. the prosecutors have won the arrest unit -- warrant. she is in the same detention center as well as jay y. lee and her old friends, the confidants thosed to have accepted bribes from business leaders in exchange for political favors, choi soon-sil. they are being held at the seoul detention center. messaget said in a text

after it was granted and she was placed into custody, major allegations were explained and approved and approved in there were concerns over evidence destruction. that was the main reason they remanded her to custody, they were worried she might destroy some of the evidence. yvonne: we are taking a look at live pictures from the detention center. central district court was worried she could potentially destroy evidence. former president park has denied wrongdoing. now prosecutors have a days, just under three weeks, to decide to file a formal indictment. betty: this is not unprecedented, right? south korea has a history of leaders investigated and arrested. >> absolutely. this is not unprecedented, if you want to use the double negative there. you look back into the 1980's when there was a military leadership, there was the former army general.

he was found guilty of a number of different crimes, was sentenced to death for his involvement in a massacre in the 1980's. another received a 22.5 year prison sentence after he was found guilty of creating slush funds and inciting a coup. both were later pardoned. father was park's assassinated in 1979, nearly every president or family member of a president and south korea has either been charged with graft or under investigation of some sort. suicide, heitted left off a cliff behind is, after prosecutors started a bribery probe. dare i say 30r chapter in the political history of south korea. idea: we have a better about who may win the

presidential election, now slated for may 9? of the left-leaning candidates are leading in the polls right now. not too much time before that election on may 9. in fact, the leading candidate park's main candidate that park defeated in the election in 2012. that could be the next president. betty: thank you so much. i know you were keeping your eye on this developing story. let's get the first word news with courtney collins. first up, the south african rand is extending its losses. the president having fired his finance minister after meeting key figures in pretoria. this comes after an increasingly stormy relationship between the two. zuma accused gordon of undermining his authority and ordered him to go home from

investor road in both the u.k. and u.s. replaced in an wider reshuffle of ministry. the singapore stock exchange may be looking for foreign tieups despite the global crackdown on consolidations. sources say they have exploratory talks with the nasdaq and others on a range of options including possible stake sales or a full merger. scrutiny,intense there was a lockup -- block on wednesday. william dudley has a warning about the risk of the government losing stimulus, saying inflation in the u.s. is already nearing the official target. dudley says he expects fiscal policy to remain accommodative but pointed out threats to growth. he says the economy continues to grow modestly. japanese prime minister shinzo

abe has a long struggle with reflation, but may be offered encouragement when the latest data is released shortly. cpiomists we surveyed say for fresh foods rose 0.2% in february, the biggest gain in almost two years. price pressures are rising in japan and the effect of a weak yen ripple through the economy. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am courtney collins, this is bloomberg. yvonne: courtney, thank you. stocks have that sixth straight quarterly gain, the dollar rising. we have more on the u.s. markets and how they fared. they are still at their all-time highs. the dow andoint, s&p 500 back on march 1. major averages up 3/10 of 1%.

the nasdaq did put in an all-time high, led by tech. a divergence between the s&p 500, doubt, and nasdaq. let's happen to the bloomberg and look at this. this chart illustrates the divergence. up top come of the white and purple are the nasdaq and nasdaq 100 with all-time highs. the nasdaq 100 put in an all-time high yesterday. at the bottom we have the dow in yellow, up 5%. the s&p 500 in aqua up. solid gains for the year, but lagging. today were aasdaq lot of tech stocks that hit record highs of their own. microsoft, western digital, netflix. we also had apple early in the session finishing lower, putting in another intraday high. some big technology names. betty: we had a record highs,

maybe not for apple but tech in general? them because they are not tech heavy. >> it comes down to banks, yield, and oils. up including bank of america, jpmorgan, citigroup, wells fargo. lots of gains there. behind that, yields rising backing up on the day. fed speak propelling yields higher in a recovery. when we cut back to the bloomberg, this chart shows us what is going on. we have the 10 year yield in blue, the s&p 500 bank index. they are pretty correlated. there are some areas of the divergence. in whites, the 10 year yield moving up and taking the rank index higher. energyinterestingly, finished down but oil was up a third day in a row, on pace for

its best a all year. extend oil production cuts into the second half. bullish tailwinds for stocks. betty: ending the quarter on a good note. thank you, joining us live from new york. fast retailing warning they may pull out of the u.s. of donald trump demands local production. more on that with joe. plus, an investment strategist who says do not be fooled. ♪

♪ betty: this is daybreak asia, i am betty liu in new york area yvonne: i am yvonne man in hong kong. china's biggest oil and gas producer plans to raise spending for the first time in five years

after posting its lowest ever profit. 11% toll boost spending $28 billion in 2017 after net income fell for a third year, down 78%. they planothers say to boost expenditure after posting lower profits last year. betty: facebook says the founder of oculus has left. he was the face of the virtual-reality unit since it was bought by facebook. the company distancing itself he hadm after reports financed anti-hillary clinton means ahead of the election. in january, facebook lost a court case accusing oculus of stealing from a media group. yvonne: started repaying its debt and business started trading again. they were suspended two years ago after a plunge in their stock price wiped out their

value. accused of manipulating the stock, he says he will not contest efforts to disqualify him from having a role in future management. betty: our next guest says we should not be full by the softer dollar and low bond yields. this is the founder, ceo, chief strategist at capital management. let's start with bonds. you're saying sell treasuries. why? >> if we look at where we have believe theelds, we 35 year secular bull market bonds ended last july. we are now entering -- betty: it ended last july. >> that is when they reached their lows. which weeen volatility expect. we have a fed president who was

talking about four rate hikes this year. we have a strengthening economy, some kind of reforms coming that will be progrowth. rates are going higher and when rates go higher, bond prices go lower. betty: where do you see the 10 year by the end of the year? 242, iit is right now at would say close to 3%. we talking about a move over eat -- over years. yvonne: we have seen a modest rotation of a cyclicals into the defensive. financials and energy losing momentum. tech and utilities rallied in march. it was an interesting combination. how sustainable and durable do you think these are tatian's are and which sectors will outperform? david: we saw another rotation today.

we had the reflation trade right at the election in november and december. in the first quarter we saw that reflation trade subside. it came back in a big way today at least the rotation back into it as evidenced by financials and what bond yields have done. we will see that at the end flow, we will see -- that ebb and flow. we want a growth-biased portfolio at this point. once we see these fed rate hikes, i am curious to get your take on one that will pinch stocks in this part of the world. we are seeing outperformance in em asia, most of the region health. when will we start to hurt? after the second or third rate hike? inid: we had a great hike september and march. an incredible quarter for

diversified and emerging-market in asia. there is a school of thought that with rising rates we hurt emerging markets because of the competition for yield beause of what it does for capital flows and so forth. the rate hikes we are getting are in combination with an expanding u.s. economy, which is good for the emerging markets that export here. as long as rate hikes come slowly and not quickly, just like for our market here, emerging markets can continue to do well. betty: i want to bring up this chart that shows the valuation of emerging markets. the gap between valuations for the s&p and emerging markets, the companies on both of those indexes. as these rise, the valuation gap gets bigger and bigger. it is making the case for you that emerging-market stocks are cheap.

you mentioned some macro factors. david: we look at fundamentals, this is an excellent chart. when we look at priced earning in thees, we are at 18 u.s., much lower than in many emerging markets. we look at this ratio, we are at 29.5 for the s&p 500, 12.5 for diversified emerging markets. as you can see in the chart, this is the spread or difference between evaluations and the to emerginguations markets. it shows the relative valuation of emerging markets and why investors should be diversified in emerging markets at this time. betty: there is also oil prices. we have heard bullish comments today about oil. you do not think that is true, you think we will stay lower for longer? david: i think we will stay

lower for longer. we have seen volatility in oil prices, moving above 50. opec and non-opec prices, it did not move up. shale oil producers -- betty: what if they keep those cuts going for a longer period of time? david: i just do not think they can control oil prices like they did once upon a time. if you look at the production cap a the in -- capital in the u.s., we do not see oil moving out of the 50's on the upside. it has been hard to be a dollar bowl these days. we could see a resurrection in the dollar? david: the dollar remains strong throughout this year. if we look at it relative to the euro we see a slight gain in the euro versus the u.s. dollar. we do not see a strengthening a lot from here. yvonne: david, great to have

you, founder, it ceo, chief investment strategist at mainstay capital management. we will look at the fx winners and losers. ♪ betty: this is daybreak asia, i

am betty liu in new york. yvonne: i am yvonne man in hong kong. let's look at the top performing currencies in advanced economies this time around. jumping into the bloomberg, take a look at the function. the aussie dollar and the yen -- no, let's go back. list let's gethe the full report from our reporter joining us here in hong kong. david, i want to welcome you to hong kong. let's look at the aussie.

it usually traps the iron or prices. we have not quiteit that number people were calling for this year. index the whole commodity , we go straight to differentials. dollar strength is late in the last two to three days. between the two is a factor, but not the only factor the end of the day. betty: david, i want to talk a little more about the dollar-yen. let's pull up that chart that shows how range-bound it is. is all the influence of trump trade [no audio] david: it was one of the final plays for trump trade. to shortvery quickly

yen. it did not play out. they tried re-instigated trade but did not work because it has been fleshed out time after time. this market is looking for the trade. develop andit will what trump will come up with our to be debated. they're looking to add to the short-term said we need a dollar initiative. betty: speaking of politics influencing currency markets, in the last hour we saw breaking news from south africa where jacob zuma fired his financial minister. you saw the rand take a hit. what do we expect as the markets digested this? even more plunges are declines for the south african currency? david: it is certainly vulnerable. uncertainty.t like

for the moment, let's see how it plays out. we will see if there is any feedback from that. uncertainty is not good. the markets tend to judge information quite quickly. we will see how it develops over the next 24 hours. yvonne: what are you looking out for the next quarter? can this rally continue in the g10 states? david: i think the korean yuan is an interesting 1, 1 of the good performers of the year. --sident trump potentially the dollar yuan is going nowhere. that currency depreciates. those are the main ones the markets are looking at and what i am watching. yvonne: coming up next, the challenges facing u.s. retailers.

brooksman that led brothers will be here. ♪ ♪

>> taking a live look out it tokyo this morning. we have breaking news from japan. jobless rates coming in lower than expected at 2.8%. labor market getting tighter and tighter. there was a goal of a 3% gain. with overall household spending, this will hurt, dropping 3.8% for the month of february. the estimate was for 1.7%. we continue to see a conservative japanese spender. take a look at inflation numbers.

core cpi at 0.2%. that was in line with estimates. betty: the japanese economy did not get much help at all from a weaker yen. david has more reaction on these numbers. absolutely, i am trying to flesh a lot of the reaction here. 2.8%, yvonne made a very good point. it is getting tighter and tighter. looking at the chart it takes you back 10, 15 years. there is also the demographic factor involved. the dollar-yen, 1174. let me get you a three-day chart and put this into perspective. there we go, let me bring that up. we have a three-day chart. we are weaker compared to yesterday. when you look at futures we are

pushing higher in the nikkei 225, 7/10 of 1%. that is your close. you get an essential, rough mispricing. the other markets we are following is australia, the asx 200 not bad. 4%, year to date. a bit of a flat star, downside momentum, 10 point. we look across the sector groups, health care on the way up. bigger fact -- sectors like financials, energy stocks are in between. a flat session but that means have a look at this. msci poised for the best quarter in seven years. at 4 --oughly trading 482. if we go below for the 78 that takes us back four years. do we have it?

we will get that to you later on. , that takeslow 478 us back four years. we see ybe a 1% decline that still should be ok. moment, not bad at all. yvonne: still looking pretty good to read it lets get the first word news with courtney collins. korean president park geun-hye has been arrested on suspicion of corruption. court granted a warrant after prosecutors say there is a concern park might destroy evidence. toy pressured big business give millions of dollars to a friend in exchange for government favors. park was taken to a detention center where her friend choi soon-sil and samsung's jay y. lee are being held. higher consumer spending meant

the u.s. economy grew at a faster pace in the fourth quarter than previously thought. gdp rose, up from 1.9%. reinforce the underlying story of the economy, that the seven-year expansion continues to be led by consumers, cushions by a rising labor market and growing confidence. the trump administration has invited lawmakers to review surveillance documents it says raises questions about whether government spy agencies improperly monitored the president's campaign officials during the election. this is after the new york times reported two white house officials provided devin nunes with of the report. mexico's central bank has hiked rates for the fifth consecutive time with inflation hitting its highest level since the 2009 recession. slightly,low the pace .25% too raise rates by

6.5%. the peso strengthened after the decision which left further hikes on the table. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am courtney collins, this is bloomberg. owner fastlo retailing considering its future in the united states. a lot of that is down to donald trump's demands that more products be produced locally or face a hefty border adjustment tax. a lot aboutat knows the retail industry and how tough it can be here, we have the former ceo of tumi among other companies. now in the studio. joe, so good to see you again. do you believe the ceo of fast retailing when he says i want to , or ist because of trump

it because he is having a hard time here? joe: he said if he was forced to manufacture in the united states. i do not think anyone will influence that decision. trump is talking about a border tax. he would like to see people here produce in the united states. thelikelihood of that in apparel and footwear and accessory industry is not likely. is having a tough time in the u.s.. joe: what do they do well? they are very innovative in their products. technology is in there, i love some of the things they do. they keep tech products keep you warm. they have something that has wicking. their brand awareness is quite low. they are not that well known. betty: why is that? joe: they only had 45 stores in the united states, it is a relatively small footprint.

located in the north east and west coast and in the heartland, they are not out there. very small penetration. their marketing, kind of slim. their social media is almost nonexistent. so they have to do sit -- some things to hype the brand. yvonne: does it speak to the wider sector? they did not have a decent quarter during the holiday season? we heard urban outfitters has likened the retail bubble to the housing crisis. is the market getting too oversaturated? joe: the retail environment is quite difficult. that is part of uniqlo's problem right now. they expanded beyond the footprint of the high streets. they are in urban areas they do fairly well in but then they opened up in malden mauled traffic is down.

their stores are large, they have a big footprint. they need lots of traffic to drive their business. they get it on the 5th avenue and in soho, but when you take it to new jersey, the garden state's malls, it is different. they just announce they are closing five stores in malls in this area. something tells me they will continue to do this but look for opportunities on high street and the major urban areas and the united date. -- states. yvonne: in terms of retail space we have talked about this, it seems like per capita it is much bigger than europe as well as asia. you see these brand shifting their focus and present to this part of the world? that is the biggest opportunity for uniqlo. asia is where they are putting their emphasis. they talked about opening up 100 stores a year. a couple businesses i am

involved with, they are having a great time in both europe and asia. they continue to expand in those areas. they are cutting back in the united states. is doing, other american apparel and accessory brands are doing. mentioned the high-tech aspects of their clothing. i am looking at their website. for a high-tech company it seems like a low-tech website. you notice to that, too. they're chairman stated publicly just yesterday that the e-commerce business is very important to them, they are investing in technology to support that. they have a ways to go. great retailers today are running over 20% of their business from e-commerce and growing at 15%, 20% annually. i believe these folks are well

behind the curve. betty: i am curious, i like viewing things from other perspectives. what is it about this site you did not like? joe: first of all, you want to have an experience. you do not want to come and look it up products at price that looks like it is on sale. you want to walk into the experience of uniqlo. what is it, what is it about? it is not just about an item and a price. part of their product strategy is to be a dominant provider of basic products to the consumer. great value, good quality, good prices. he also said he was focused on zara and their success. focuses on fashion, to provide what is next to the consumer. when you do that, you do not need to worry about price. to buy a newu want parish shoes, you want the shoe.

you do not need a pair of shoes. something you saw, you wanted. that is the difference between these two companies. yvonne: joe, you can never have too many shoes. joe: lots in my wife's closet, as well. yvonne: amazon is behind a lot of that success. but what about alibaba? he wants to bring one million jobs in the next five years to the u.s. can it succeed in similar fashion in the u.s.? joe: the competition is heavier in the united states than in china right now. arican brands are trying to partner and get onto the vehicle. all companies feel like it is a great company over there. why not try it? -- veryvaried different different business model. amazon is purchasing,

replenishing, shipping to consumers. malls are doing it very differently. he is a cloud, if you will. if he comes over here, it might work. joe, great to have your perspective on the retail sector. coming up, trade will be top of the list at mar-a-lago. we look at the likely agenda for the higher foundation, stephen also was on the u.s. negotiating team. ♪ ♪

this is daybreak asia, i am yvonne man in hong kong. betty: i am betty liu in new york. the chinese smartphone maker once compared to apple is growing again and says global revenues should top $15 billion this year. they invested $5 million in india since 2015.

and similar investments in the years to come. amo --xiaomi looks toward india. yvonne: apple looking to build the iphone se in india. production will begin in june at a factory in bangalore. apple could make other iphones right taxiven the breaks. the government is considering apple's request. apple had a win against australia's banks in a dispute about global payments. pledging to roll out the service in exchange for access to the iphone's near sealed communication antenna. apple restricted to its own up as a security measure. they dismissed the claims, saying in negotiating block

would reduce competition. china has finally concerned that president xi jinping will meet his counterpart in florida. a critical first encounter as the two sides seek common ground on a trade and north korea. , steven u.s. negotiator olson joining me from the heinrich foundation. great to have you here in hong kong. whole tradee relationship the u.s. has with the rest of the world, a brighter it is, the more trade we do see. is burning quite bright at the moment. give me your take on what you think about this meeting. you say it will not be that significant. is it because their policies on china from the trump administration have not been framed? we do not have a full team? can president xi get much out of

him? >> thank you, it is a pleasure to be here. typically when we see a first meeting between a president of the united states and his chinese counterpart the emphasis is on relationship building and beginning the process of ,stablishing personal rapport much more so than looking for major policy pronouncements or outcomes from a meeting like this. the location see can be moved out of washington to a different location that is more relaxed, more casual, more denote the context of the meeting. for instance, barack obama's first meeting with xi jinping took at a resort in california, the so-called shirtsleeve summit. next week, the meeting with president trump will take place in palm beach, florida. a location both in terms of geography and atmosphere is far removed. yvonne: it is interesting, i

spoke with eurasia group's the u.s.plan, he said withdrawing from tpp was a big gift to china. it was not about increasing military presence in the south china sea, it was all about trade. when do the gloves fall off? to have it is important a clear understanding about what the u.s. dropping out of tpp means and what it does not mean. just because the u.s. has withdrawn from tpp, the united states is not going to disappear from east asia. placet, the u.s. is in with most of the large tpp partner countries already. it has been an important player in the region and that will not change. large countries in that region -- it was the

less important part of that agreement. what was more important, was for tryingst time, we were to extend trade disciplines into areas we had not touched satisfactorily. areas like digital commerce, state-owned enterprises. one thing i will say with the u.s. dropping out of tpp, it means the leadership portrayed globalization, the baton has been passed to china, because it is pursuing its regional economic partnership. the key thing to keep in mind is that it is significantly less ambitious than the transpacific partnership. they: shortly after announcement was made about this meeting between the two presidents, trump tweeted out on his own page, the meeting next week, you can take my terminal here, and meeting next week with

china will be a difficult one and that we can no longer have massive trade deficits and job losses. american companies must be prepared to look at other alternatives. other alternatives -- what do you think he means by that? i think he is clearly signaling what we can expect to see, a fundamental tenet of trade policy under the trump administration. which is, trade relations will be based not so much on geostrategic or foreign-policy considerations, but on economic interests of the united states. in fact, the three criteria you will see the trump administration use in conducting its trade policies will be whether it increases it u.s. growth rates, whether it decreases the u.s. trade deficit, and whether it strengthens the u.s. manufacturing base. and i think you're seeing a little bit of signaling on that. on one moment, we are getting breaking news out of japan.

the preliminary numbers for february industrial production. the actual number coming at 2%, an increase of 2%, better than the economists. they thought they were be a growth of 1.2% month on month. versusowth year on year 3.9% economists had estimated. better numbers on factory output versus what we saw with overall household spending's that had declined a much bigger 3.8%. fite japanese numbers may right into this next chart i wanted to show you, which compares the u.s. trade deficit with china, versus with the japanese. this yellow bar represents the u.s.-china trade deficit, which has grown considerably since the early 2000's, with japan steady there.

do you think trump will try to leverage that between the two countries to his great benefit? i think certainly there will be a much more aggressive push back on the part of the trump administration to take concrete actions to try to reduce deficits with a number of the larger economies. i think it is pretty clear china is probably number one on that list. yvonne: one last chart here. when it comes to nafta, we have seen the u.s. deficit -- canada has a shrunk, with mexico on the blue bar. what do you make of these recent comments from the trump administration? they are making modest changes. what happened to it being the worst trade deal in the country? stephen: it is an interesting point. renegotiationhe of nafta was fundamentally misunderstood from the onset. i do not know if it was a belligerent act or signaled a confrontation between these three countries.

let's face the simple facts, the agreement is 23 years old. when i was a negotiator on nafta, the primary means by which i stated touch with my colleagues was a facts machine, an entirely different world. it makes sense they would evaluate what has worked well and see if there are reasonable updates or modifications that can be made. that is a sign of a healthy relationship and i think the outcomes could be quite positive. yvonne: we're going to get this when it report on fx comes to currency manipulation next month. are you expecting any asian currencies that could make it on that list? stephen: it is or is a question of the precise definition you use for currency manipulation. the currency issue for china is more a political issue. president trump has boxed in and with his strong pronouncement on

the campaign trail about designated china -- designating china a currency manipulator, despite the fact economists believe china is no longer manipulating its currency. yvonne: great to have you. let's get a roundup of the stories you need to know to get your day going with today's edition of daybreak. for bloomberg said prior -- subscribers go to dayb . ♪ ♪

industry ismusic whistling a happy tune after years of sales falling flat. used -- u.s. music revenue rallied the most in 20 years. ramy inocencio has a notes on the story. >> the music industry fell now because of the internet that now it is picking itself backup because of the internet. mp3s with a digital side of things but now with the cloud,

streaming services are the way of the future in terms of pulling themselves back up. do you use spotify? yvonne: i use pandora and spotify. >> you are contributing to the resurgence of the music industry, myself included. pretty much everyone is doing it. look at the revenue, you can see the big pop for 2016, up 11%. that is its biggest jump since 1998. 19 years there. take a look at the number of the streaming subscription set of been happening. they have more than doubled between 2015 and 2016. 22.6 million subscribers. nine dollarsying 99 cents a month for a spotify subscription, you're helping them come back. look at this pie chart. the first time ever majority revenue has come from streaming. 51% there. a digital balance of 24%.

there is a resurgence in vinyl records. that is really old school, up 4%. i am thinking about buying a record myself. betty: that is very retro.

♪ yvonne: mixed messages from japan. output arend factory rising but household spending is down across the board. south korea's former leader arrested for corruption. prosecutors say park geun-hye might destroy evidence. asia-pacific stocks are set to rise as a stellar quarter comes to an end. australia poised to make history. a high.s looking at

this is the second hour of daybreak asia coming to you live from bloomberg asia headquarters. i am the yvonne man and it is morning here in hong kong. betty: we have had quite a bit of news in the last 24 hours that has propelled equity markets in the u.s. higher carrying over into asia. we just have that breaking news out of japan. the jobless rate, household spending looking much weaker but then factory output and industrial production coming and quite strong. managing editor for japan joining us here in tokyo. what kind of pitcher does this give us about japan. i think we got it right at the start of this segment. mixed messages is exactly what it is. the numbers are germanic and

they highlight the split between external demand and domestic demand. external demand, we have seen export growth accelerating led by a rise in shipments into china and the eu especially. that having herds factories to you there -- to keep their capacity utilization rates high. that leads to growth in industrial output. the domestic side is not looking good. household spending is very weak. we had retail sales data last week looking sluggish. how is this possible when the labor market is as tight as it is? yvonne: speaking of how tight it is, does that mean we will finally see wages rise if he gets any more tight? kuroda wouldnor like to see exactly that. the jobless rate is at a 22 year low.

yet we have not seen it happen so far -- have not seen it feed into wage growth. so far we think rage growth -- wage growth will be higher than it was last year -- lower than it was last year and this points to companies being conservative with what they think is happening globally and domestically. manufacturers are still concerned about demographics in japan and the trade outlook with the new administration in the u.s. yvonne: i want to ask about the boj and if there is any implications on policies as we heard from the deputy governor saying they think yield curve control is serving to be more effective in reaching that 2% inflation goal then qe itself. are there any implications there? things we aree thinking about this year is when we might seeing signs of taper ing at the boj.

and we could see it in the form of reduced asset purchases are reducing that target for the yield on the 10 year. i think after governor kuroda's comments on march 16, they were dovish so we pushed the timeline for when we expect to see some of this going through. a picture from the data today is that the economy is growing steady and it is still above its potential growth rate. it is nothing spectacular that it is pretty solid. if the dollar-yen stays where it is and external demand remains pretty solid, i think you will see the boj start to taper towards the fourth quarter of this year. yvonne: thank you. let's see if there was any market reaction to that slew of japan data. let's get to the market open. they are: not really.

-- david: not really. japan, it is an aging population. --a lot of ways not a more in a lot of ways nominal or potential growth not bad where we are. 1991, it is the first time we are below 3% and that has come down. --e would say some people it's a bad demographic problem. rate,the participation you would expect it to keep falling because people are getting older, they're getting into retirement but look at this. abenis 2001, 2017, here is omics. people are getting back into the workforce and at the same time

you are seeing the jobless rate go down. the labor market is getting tight but not as tight since people are going back into the workforce. have a look at equity markets. pretty much wakes -- makes weaker yen higher, nikkei 225 19.61. we're not getting a lot. australia is down about a 10th of 1%. the property sector, it is fairly uneventful but if things stay the way they are, we're going to see the best quarter in seven years. at the commodities space, watch this. a lot of these contracts in shanghai has done very well this week. have a look at the bond space. we are getting a retracement back up for our yields and let me just shift things and have a look at where we are. on the euro we had a gap below steady 107 amid some dovish comments and that inflation out

of germany. it was expected to slow but not this much. euro-dollar, 107. certainly watching the yen and the japanese market. let's get to the first word news with paul. paul: former south korean president park geun-hye has been arrested on suspicion of corruption. court granted the warrant after prosecutors argued there is concern that park may destroy evidence. she is accused of paying big business in return for government favors. they sound ever can ran -- the south african rand is extending its losses after the finance minister was fired. his dismissal comes amid the

increasingly storming relationship. the men had accused him of destroying his authority. is -- gordhan has been replaced. scotland's minister nicola sturgeon has signed a request to the u.k. government for a second goddess referendum. new impotenceen to scott's seeking splits from the eu and has shaken the speed settlement in northern island. spacex has reached a significant milestone. read firing a rocket that had already been into space for the first time ever. off fromt blasted florida with a communications satellite onboard and landed on a floating barge in the atlantic. move forimportant spacex and elon musk who wants to bring the cost of spaceflight

to down. global news 24 hours a day powered by over 2600 journalists and analysts in over 120 countries. this is bloomberg. betty: thank you so much. staying with a elon musk, is at the tesla market in hong kong about to be unplugged? the end of a tax exemption has of the electric carmaker predicting the city will move backwards as a result. straight ahead. of next week will continue our look at the end of the first order, turning our focus to japan. who won and lost at the start of the year? this is bloomberg. ♪

♪ is "daybreak asia." check of the latest business flash headlines. holdings fellnce

after bloomberg published a story about the stoxx mysterious wide best rise. winds is the best performer on the index in the last 12 months. the company said it had no idea what drove it shock -- stock to surge. a chinese solar company says it to started repaying in a bid start trading again. hanergy was suspended for manipulating the stock. fighto says he will not efforts to disqualify him and having a role in future management. heldes say at the gx has oratory talks with the nasdaq, cme group's on a range of options on a possible merger. cross-border deals face intense

scrutiny. takeover onion wednesday. this is the end of the first quarter. time to take a look at the biggest winners and losers among japanese stock. we are joined by nicholas smith from cls a. great to have you here. make a pretty much flat when it comes to japanese equities which could be a good thing because given the yen strength we are up 5.4% over the next year. let me draw up a chart and let viewers see the correlation between dollar-yen as well as stocks because we have seen that negative correlation breakdown of late. if you look at the blue bars there, once we hit a the extreme levels in dollar-yen like behind of 120 are the lows of 100, that is the only time we see the correlation between stocks and the currency to be quite strong.

why do you think we are seeing this decoupling in japan? >> because you are looking at the wrong thing. what moves the japanese profits is not the yen, is the highly with the u.s. 10 year. global trade is the play on global growth. there is a strong correlation that the moment between those two. beenof the 30 years i have in japan, the yen used to get stronger when global growth picked up and that relationship broke down around the time that the quake take out japan's nuclear power plants and him out the yen tends to weaken when global growth picks up. and now the yen tends to weaken when global growth picks up. for now you have a weak global

-- japanese market. look at the correlations again. to incredibly high correlation between the stock market over last year and u.s. 10 year yields which is over a 90% are squared and the correlation with the yen is half of that. betty: you had the now on the head. the assumption was that japan could ride the wave on this trump reflation and we have seen given these external certainties coming from the trump administration. are we in for further upset for japanese equities in the second quarter? >> what you have to concentrate on is it is not all about trump. it never was all about trump. the u.s. tenure bottoms at the beginning of july. global pmi, the purchasing managers index actually bottoms in february of next year.

you could make a really good cases that said actually the election of trump held of the recovery in stock markets. the numbers suggest shouldn't, much earlier. if we are talking about global growth, the driver at the moment is europe. i'm not saying europe is brilliant but it is getting less bad very fast. in europe for the flash numbers last week, they were at 71-month highs. global growth was getting better and better. you don't need to be biting your nails about this. yvonne: even though we had just just had brexit triggered this week, he still think that will be a driver here? we knew about brexit before and now we had a certain amount of certainty on it. there are a lot of things that could go wrong this year. that is why the economic policy uncertainty index is at an all-time high. that is high which would be a

problem if more problems were with global growth but the economic surprise index has been surging recently. this pmi's are looking really good, numbers generally are looking good across the board in europe and the u.s. and japan and china. yvonne: let me take you back to japan for a moment. look at the return on equity for japan versus other indexes. let's bring up this chart on the terminal. what it is showing is how we have seen for many, many years japanesewe know that companies have lagged behind their peers in the u.s. and europe in terms of returns on equity but it seems like as of this chart is showing, it seems like things are starting to creep a little bit higher. japanese companies are coming to terms with the fact that they need to's are deploying their cash. -- and they need to start

deploying their cash. that is a chart i had been using myself about a month back. what i was saying was essentially japanese companies are a line is set by -- the way they use that balance sheet has been incredibly ineffective and what they have is a balance sheet absolutely covered in excess cash, equity of other companies and in land. they would find it relatively better shape up and get returns were as for the rest of the world they have much leaner balance sheet and they are having a tougher time getting back. what he could do is get those kinds of things off the ballot sheet. that is the kind of thing you can do before brexit risk getting profits up is tougher. betty: 40 think you might start to see that more. who would you target as companies are right for an overhaul -- ripe for an

overhaul? >> where have companies gotten more equities of other companies. if they have more equity on their balance sheet, the value of it is higher than their market cap. you see that particularly in trading companies. the pressure is really on them from the financial services -- to startstop getting rid of the equity. no one wants to sell the things when the prices down. we did see the domestic bedrock as you mentioned has been a little more encouraging. a monetary official policy happening at the same time in japan which could be a big support for equities. could 2017 be the year we see structural reform, talking about taxation and the labor market? >> i think what we are going to see during the year is a lot of

.iscal hurt and fiscal stimulus they thinking on that has changed quite a lot and i think of the government and the ministry of finance understand the main thing is you get some growth. monetary, there is no chance that they are going to slow down on monetary. i've heard a number of people suggested they're going to slow down there. it would be tantamount for the bank of japan saying we have two -- we have inflation nowhere close to 2%. it is pretty much on zero. they're not going to say terribly sorry about the tree trillion dollars we just rented but we changed our minds. there is no chance on them slowing down and on monetary -- slowing down on monetary. abe has done a lot more than people like obama and merkel. a of resistance to

getting labor reforms the done buzz is aunately the there's going to be an election at the end of the year. it is unlikely that they are going to do something that is so divisive ahead of that election. it is really frustrating but i don't see it happening this year. shinzo abe hoping to of -- retain that political stability. thank you for joining us live from tokyo. yvonne: we are taking this as an opportunity to look at what we are expecting for the remainder of the year. on "bloomberg markets" we focus on chinese and hong kong equities and later on we turn our position to southeast asian stocks. we'll be taking an in-depth look at the indian economy. stay tuned for all of that coming up. they: up next the latest on

arrest and detention of south korea's former president. this happened earlier today. this is over. ♪

."tty: this is "daybreak asia yvonne: south korea's former president has been arrested. her detention, the last chapter -- of the latest chapter in a corruption scandal involving big business and millions of dollars. another example of a leader in south korea under investigation and perhaps facing trial, perhaps facing down the road again -- possibly a prison sentence. of course if these allegations are found to be true and she gets indicted and goes to trial, we are going further down the road but we know she is impeached, removed from office

and we basically removed her from what -- from impunity from prosecution. now she has been detained in the eoul detention center as jay y. lee, the air to samsung -- this is yet another example of this cozy relationship between business and politics is that the south korean pollock -- public is getting tired of. the courts in justifying remanding her to custody said major allegations were explained and proved and there were concerned over evidence destruction. that is why they did remain her into custody. prosecutors have about 19 days to decide and get together their

a petitionar -- file for formal indictment. betty: this has happened before in south korea? correspondent: the unfortunate history of the leadership in south korea, nearly every president since park's father was assassinated in 1979, all the presidents have been investigated or arrested for some sort of crime. them are the former army general back in the 1970's and 80's, he was actually sentenced to death for his role in the jut to massacre -- guan master. and then another political figure committed suicide after prosecutors came up with some bribery charges.

of facing that shame he left off a cliff behind his home. and that was before he left to the presidential office. yvonne: who is the candidate that could replace? >> the left-leaning candidate expected to be the candidate on may 9. yvonne: steve engle joining us on the latest. of next, the diverging policies at the world central bank. what this means for markets and the global recovery. it has been a kind of a big share. some saying we could possibly see two more hikes and others saying we could before for 2017. when we geting view

with the ecb as well. more to come on bloomberg. stay with us. ♪

8:30 in singapore. just an hour from opening. this morning trade helping the stocks on course to the best quarterly gain is seen in five years. how longe question is will that reflation trade stay with us. you are watching "daybreak asia. " let's get to the first word news. correspondent: japan has registered its first back-to-back inflation rise for more than a year. rose onuded fresh food the year. see an inflation of

1% but that was the only half of the bank of japan target. other data out shortly in the next hour or so. the china pmi, bloomberg intelligence has this going higher at march. point 7,ast is for 51 2200 expansion. march is often a little skewed because of the after effects of the lunar new year. asia says it will release of the body of the half-brother of kim jong un. the incident backed -- traded a diplomatic standoff between the two countries. barred fromho were leaving north korea have been allowed to return home. he is calledmp -- for the freedom caucus to get in line saying they will bring down

the entire republican agenda if they don't. he said the republican group helped to derail the repeal of the obama health care act. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. how thecome to see asian markets are shaping up on this friday morning. here is david. looks to be a happy friday, david? david: yes, here in tokyo. as you mentioned it is the best quarter in these five years for asian equities and we are starting to the a lot of popular data come through. look at this one, this is a the jobs data out of japan. looking at it in a different way. unemployment rate is at the top panel, he goes all the way back

to when i was in high school in 2004. around 3% for the first time since 1994. is an looking back, there aging population but look at the participation rate. people have been coming back into the workforce so it might -- in mike have to fall a little bit further to get way to inflation. have a look at markets right now. 6/10 of 1% in japan. the last time -- i can't remember, when we had consistent data. things that meandered up after the monday big drop. it has been a good week. a look at australia, 6/10 of 1% load. upt market has been substantially.

the taiwan dollar, want to the taiwan market open up later on. it is poised for its best quarter in about 10 years. if that gives you an indication of what the outflows are coming this way. africanfees, south rand, before markets opened, did firehat david zuma his finance minister. a big week for the south african current. we were trading close to 1250 a few days ago and now we are pushing close to 1350. we are in a down channel and this takes it back to the u.s. election. here is the dollar strength coming through. very quickly back to equity toshiba for obviously kansas electric, -- kan

sai electric up. korean air of. -- up. betty: thank you so much. some of these stocks to watch around asia. continuing toers drive that consensus of you for rate hikes. we can inflation in germany, silent ecb hawks calling for less stimulus. kathleen hays here for more on this divergence. it is back again. correspondent: it certainly is. if you're looking at the u.s. versus europe or the u.s. versus japan, it is getting all the stronger divergence. economists have this hawkish message coming from the federal reserve. we had two more speakers today. the president of the dow said he did not change his tune but he

made it pretty clear that three rate hikes are based -- baked in the cake and he said if the economy is stronger, we could do more. the summary of economic a medianns showed estimate by all of us sitting around the table of about three rate increases for 2017. we have already had one in march and i think that number three for me is a good baseline -- base case for fed policy this year. heard from the cleveland fed president. she can sit be on the hawkish side. she said if you want to hike 3, 4 times in this year you are arguing that and and stained -- that a sustained expansion will continue. if unemployment is falling and inflation is rising been inflation could overshoot. to avoid a series of rapid rate

hikes and she said it rate hikes will not slow the economy. if you're hiking rates, you are trying to slow things down that she will be talking more about that. is president of the new york saying fiscal stimulus could tilt the balance more towards the rate hike side but he said to the punch bowl yet. he said we have not done that much yet so it is not something that is going to derail the economy. jim speaking tomorrow at an event in new york and the question i think is is he ready to fly with the hawks. he is very dovish. he will be speaking -- i will be sitting down and interfering him at the quinnipiac university student investment conference. and michael p will be speaking with us on friday. he is leaning towards more rate hikes. two different kinds of approaches. there has been a very

different policy dynamic for the ecb particularly after we saw those a german inflation numbers. correspondent: the german inflation numbers have spiked up, you see the german newspaper saying we need to hike rates in europe. mario draghi predicted a lot of that is the due to german inflation coming down. what you are looking at here is a line that shows you -- i have to bring it closely, the white line issue area of inflation and it is just about at target of 2%. let's look at what happened to the blue line. german inflation at 2.2, it is back to 1.5. /inflation -- spanish inflation is that 2.3. your area inflation is going to ease off. you saw to the ecb officials

suggesting it is not time to make a big change. they are going to start tapering and that is going to be the .tart of this shift this inflation never takes the pressure off of the ecb to fight back against of those who think they should be raising rates now. you have the bank of mexico, the most expensive rate hike are out of the 35 central banks tracked by bloomberg. correspondent: it is really something because they haven't been hit by 70 things and that is why they raised their key rate for the fifth time in a row by a quarter-point to 6.5%. we had four consecutive 50 basis point hikes through february. for meetings in a row. there cpi has gone up so much. in march.-over-year this has a lot to do with the paces plunge. but the peso has been recovering a lot in january and that is one

reason why people are hopeful this inflation push from that will subside. in fact in the bank of mexico's policy statement, they say they will be watching inflation. people think the door is still open but maybe this will settle down. is ahe focus on nafta, donald trump going to push for a negotiation, is he going to pull back? butation, bank of mexico when it comes to hiking rates, they do not mess around, yavonne. yvonne: thank you. as cap we mentioned, just a quick reminder. later today on bloomberg television we will be picking specifically with a couple of big name fed uighurs -- speakers. you can catch of that interview at 9:00 this evening hong kong time. it will be followed by the st. louis fed president. make sure you don't miss of those.

and he yvonne we are getting some headlines coming out from the japanese finance or. betty: he is actually commenting on toshiba saying that he does not think toshiba is going to go bankrupt anytime soon. it needs to sort itself out as well also saying he cannot see who is actually in charge at the company so he cannot see who is a charge -- in charge at toshiba. the westinghouse nuclear unit throwing -- filing for bankruptcy. again saying that toshiba has improve its finances over the long-term but not likely to go bankrupt anytime soon. we will be watching toshiba shares of about 3%. in a moment, the bad loan challenge for china's they may be using -- bank may be using. easing. this is bloomberg.

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."onne: this is "daybreak asia betty: a quick check of the latest business flash headlines. china's biggest oil and gas producer plans to raise spending are the first time in five years after posting its lowest ever profit. spendinga will boost 11% after next income dropped for a third year down 78%. their rival says they intend to boost capital expenditure after posting lower profit last year. china's top three airlines posted their biggest combined profit in three years despite currency losses from the weakening yuan -- yen. -- . .

it is the eighth consecutive annual profit after mainland characters embrace cheaper fares. net income rose slightly to $40.4 billion in 26 team from 40.2 billion a year earlier. a bloomberg survey had predicted a production -- a reduction. icbc rivals posted better than expected rivals. they could china reports later on friday. now is andrew, the managing director of orient capital research on the banking interest. tell me, what is the biggest concern for you at chinese banks right now? >> well, i have a couple of large concerns. essentially there are a lot of things on the bank balance sheet on the chinese banks whose risks

are not being adequately calculated by investors. funnywould include these equity swaps of that are going to reach $1 trillion which are the banks taking stakes in theseg companies and mythical wealth management products which are anything that the banks can sell to consumers. that is reaching almost 3 trillion u.s. dollars on the chinese bank balance sheet. both of those are huge risks for the medium and long-term. yvonne: enough to call the banking system in china a house of cards? well because of the banks are owned by the government or at least most of them are, it is hard to predict the collapse of the banks because that means the collapse of the government in beijing which i'll think is going to happen. the weaker banks or the rule banks, they are

getting squeezed. they're getting a lot of funding from selling to consumers for these wealth management products. ruralare some weak banks that may collapse or get acquired by other people. betty: you mentioned the 1.4 trillion, that is quite significant as well. this charge looked at the market cap for the big for chinese banks but also the biggest for chinese eggs, wells fargo, bank of america, jp morgan and citigroup. back in 2015, chinese banks hit that one trillion mark, now they are way below that as the u.s. banks had reached that level just recently. the shows you the story of banking world between these two countries. how do you think the chinese banks are going to be able to close that gap again? wentspondent: the u.s. through its crisis when there was a lot of liabilities during

the financial crisis and they got hit pretty badly. they kind of clean things up and moved forward. the chinese are not ready to do jobsso there is a lot of on their balance sheets that they refuse to acknowledge as onlly a bad debt -- junk their balance sheets are they refuse to knowledge as a really bad debt. and head of the party congress of this fall, there are not going to be any radical changes in the banks. i don't think we will see a real sense of where they stand and investors will not be comfortable for quite some time. -- it ise heard what is the surprise going to be for one of these banks for the quarter? he saw bad loan charges are trading lower, there are still some green shoots here, is there a chance we could see some sector re-rating? >> the two things you mentioned,

i don't put much faith in because i think they may be windowdressing the financials ahead of the party congress in the fall. what i found really intriguing was all the banks cut their of earning cost by a properly -- by approximately 10% or 12%. they are aggressively selling a lot of financial products. they need salespeople across all their branches. when hundred thousand branches out there. where are they getting cost cuts and can they maintain this for the rest of the year? that is a big question mark and i don't think the analyst have figure that out. betty: the pboc has begun some tightening in the open market operations. let's let our viewers see this chart. 30-to your bond spread has an ear bondng -- 32-y spread has been flattening.

--n it comes to the bbs see when it comes to the pboc, they may have to follow the fed with two more hikes. >> there is a lot of attention paid to the fed. i was talking to a bank regulator a few days ago he said at the fed policy will be quite important. a lot of the liquidity in china is not from fed policy or pboc policy. see tellave the cbr the banks you have to increase loans to property or decrease loans to property so the interbank liquidity and rate is important that not as important as it is in the united states. and a lot of the window guiding stuff we don't see. yvonne: always great to have you as always. joining us live from beijing. betty: we're getting some details for some breaking news at the foreign ministry in china. just getting some details between president xi and

president trump. the topsail includes bilateral regional issues. also saying that the meeting is a new starting point for ties between the two countries. cautious optimism coming out from the foreign ministry. out this trump tweeted is going to be a very tense meeting between these two countries. you can get a roundup of this story and many more you need to get your day going with today's edition of the daybreak. bloomberg subscribers go to daybgo on the terminal. you can also customize your setting so you only get news on the industries and assets that you care about. this is bloomberg. ♪

,"onne: this is "daybreak asia and i'm the yvonne man in hong kong. has been a kong haven for electric vehicle makers with companies like tesla dodging taxes. from april 1 electric cars are being taxed. let's bring in our reporter bruce. how devastating is this going to be for companies like tesla? >> it could be a big hit for them.

for over 20 years, electric cars have been a bit from what is called the first registration tax in hong kong. so starting tomorrow electric cars are going to be subject to that just like old-fashioned gasoline burning cars. yvonne: why this change? thehe government says that roads are too congested in hong kong which i think anybody who drives here can confirm. -- and there are are still other incentives in place of that the government has will make electric cars attractive as opposed to gasoline burning cars but the government has decided that having this exemption from first registration tax is no longer next ferry. -- no longer necessary. , ande: china numbers

marched nonmanufacturing pi coming in at 55.1. quite a kick up from what we saw in february, 54.2. let's get back to china now for tesla because we did get this $.10 with went to be a big shareholder in the company. china is promising for tesla. they have a small market share in terms of the overall market. there are a lot of chinese companies in this space. and qq up with tencent and wechat, they are everywhere. yvonne: what possible synergy ncent?you see with te

there are 8 -- you >> there are a lot of possibilities with electrics in part. tencent could help tesla with its marketing in china with the reach that they have. now being with the largest internet companies in the world that is so ubiquitous in china, it is going to open a lot of doors. see less of we will the teslas out on the road but i'm doubting that in hong kong. time for a quick look at what is coming up on bloomberg markets. talkedchina pmi and you us through the first part of the equation. numbers beating expectations, coming in very strongly and

ticking up from the previous month. this is the true gauge of the strength of the chinese economy given the distortions we get from that chinese new year period. guests, the air china cfo should be joining us. china's three airlines reporting a combined profit of the biggest in five years. china could be looking at overcapacity as they continue to do aggressively add capacity. i will also be taking a look at the quarter in when it comes to china and southeast asia. more to come with "bloomberg markets."

♪ haidi: it is 9:00 a.m. in hong kong, midday in sydney, 9:00 p.m. in new york. i'm haidi lun. rishaad: i am rishaad salamat. this is "bloomberg markets: asia." china manufacturing pmi from but weestimates 51.7, have a figure of 51.8, just at the margins. the nonmanufacturing pmi great