♪ >> looks like a cautious session in the asia-pacific after a late slide on wall street. the yen strengthening for a fifth day. >> china soared after hours. pizza hut earnings beat expectations of last quarter. show supportnutes for shrinking the balance sheet. >> tough talks ahead. currencies and trade is said to dominate as the two presidents had to florida. onhave world coverage

daybreak asia. we step the beijing to talk about challenges facing president xi jinping when he visited -- visits the u.s. in new york we will talk about the minutes in the latest said meeting where policymakers agree to shrink their supersized balance sheet. this is daybreak asia live are from u.s. and asian headquarters. i am betty liu in new york, where it is just after 7:00 p.m. and it is just after 7:00 a.m. in hong kong. the fed seriously taking this topic into a question about reducing the balance sheet. we will see if it has lasting impact in asia. betty: it was interesting, even though it has people wondering when the fed will raise rates, it did not move the markets in terms of where they see. rate hikes

they seem unconvinced we will see more than one this year. we will dive deeper into that. it did cause turbulence in the equity markets. we saw that nosedive before. how is that setting us up for asia? seems that things, sentiment-wise, our firm after president xi and trump are meeting. let's check new zealand. down 1/5in equities, of 1%. the kiwi dollar at 6977. open,counting down to the in sydney, tokyo and seoul. 200. for the asx 7521 for the aussie right now. quite a move when it comes to the dollar-yen. .52.-- 110

slow for chicago today. that was a look at what to expect in the region this morning. it was not just the fed minutes that moved markets. house speaker paul ryan talking about how we could see more delays and tax reform. betty: that uncertainty is never great for the markets, especially not for the bulls. we are two days away from the jobs report. a that can be another big testing point for the market. let's get more and dig in on the psyche here today with oliver renick. digest all of this. >> there is a lot to digest. it seems like it would be quiet. we saw markets turn back after the fed minutes were released. there was discussion not just about the unwinding of the balance sheet and rate hikes passed in general, but there is a comment in there about

valuations and how higher stock prices have contributed to the easing of financial conditions. how by most metrics, stocks are valued pretty highly. that is true. there is not getting around that. the day, there was more discussion from washington in terms of figuring out whether tax reform would happen with paul ryan. betty: it seems that way. there were some sectors that gains, real estate, utilities, what happened there? oliver: it was a classic play. i think it is an important topic to keep looking at. these sectors are wrapped up in rates and trump. contingent on higher rates and the expectation for financial reform. speaking of rates come i have a chart i want to look at. this is about dividends. if we dive into the terminal,

the dividend payout ratio, dividend over household months as a percentage of earnings. we see a high level, that is the top panel in the white line. sorry about that. what you are looking at with dividend payoff is a high payout ratio. the high is 2009. you have to think about whether companies can pay off dividends. on the bottom is the ratio of the dividend. the past month there has been a takedown since mid-2016. that has happened since rates move higher. investors are questioning whether they need to be in dividend-focused sectors like real estate. yvonne: we have been seeing dividends play out more in china than the u.s. what about earnings growth? oliver: it is pretty quiet.

we had bed bath & beyond, which did good in terms of beating expectations. the story with earnings is important because there are a lot of expectations based on what is happening in the market. if you look at this, it shows you the earnings for the next year are expected to grow 19% by the end of 2017. that is quite a bit of growth. that is 18, down from 22, where it is now. going forward, it can keep that without getting more than it already is. yvonne: thank you, joining us live from new york. let's get the first word news with courtney collins. first step, the minutes of last month said meeting show most officials support a policy change that would begin at shrinking the bank's balance sheet. the minutes say most of the fomc

will continue gradual rate hikes in the months to come. in what they call a passive and predictable manner. the minutes show a split over the prospect of inflation, moving above their 2% goal. the department of homeland security will continue searching mobile phones and other devices of travelers entering the u.s. as lawmakers on both sides question whether the policies are lawful and inclusive. john kelly told the senate committee of helps keep terrorists out of the country and affects only a fraction of the millions of people flying to the u.s. every day. president trump has reiterated his discussed at the gas attack in syria, saying the perpetrator had crossed a line. dozens of people were killed and tuesday's attack in idlib province. he says using them a goal weapons against civilians will mean consequences. he said the obama administration failed to take action in syria but he now carries the

responsibility. president trump: it cost a lot of lies. for me, when you kill innocent children, innocent babies, babies, little babies, with a chemical gas that is so lethal -- people were shocked to hear what gas it was. it crosses many lines, many lines, beyond of the red line. president trump has shaken up his national security council, removing chief strategist steve bannon. the charges increase the influence of national security whoser h.r. mcmaster public views were sometimes at odds with those of the bannon. 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.

let's get more on president trump and all the issues surrounding him these days, including the removal of the chief strategist, stephen bannon, from the national security council. the shuffling we have been hearing about within his inner circle. bob is joining me, he is the former chairman and ceo of chrysler and home depot. bob, so great to see you. bob: great to be here. betty: we talked about this so many times, with trump here in office, finally a ceo here running the white house, how do you think he has done so far? bob: to be candid, he has mixed reviews. there are things i think he is doing extremely well. the fact that he does of a business orientation and he has reached out and met with union leaders, auto industry,

technology, health care etc. is a positive and good thing. we had eight years -- betty: but? bob: i will get to that. that we have had eight years of low, slow growth and almost the heisman against business from the previous administration. reaching out has graded positive attitude among the ceos. we are seeing some of that optimism, relative to job creation, relative to a willingness to invest. some of that is reflected in the market. maybe more than should be. maybe a little overstated. i think we have to be very careful. -- if we dome out not see a good corporate tax, if we do not see the repatriation of funds, and if we do not address the small business person, they need to participate in allowing them to get a more

competitive playing field also. we may see a further pullback midyear. it has to be retroactive, has to be implemented. betty: you have to deliver on policy promises. another ceo who seems less optimistic, the way i read it, with jamie dimon's annual shareholder letter, he talked about -- one quote that stuck out, i know you read through his letter, he said it is clear that something is wrong here in the u.s., and it is holding us back. he went on to say the lack of economic growth and opportunity have led to deep and understandable frustrations among so many americans. bob: jamie dimon has done a fabulous job maneuvering the bank through some pretty tough times. he is one of the exceptional ceos and leaders in business

today. i think he is spot on with the level of unrest. i have been around a long time, also. dysfunctionality that i see in both parties and washington -- what is outrageous to me is when i heard a representative of the senate say, i have been here two decades and they just do not understand how washington works. as i said before, washington is operating in an analog period and we are in a digital year. they have to get caught up. they cannot pull progress back, they have to get caught up read i do not care if you have been their two decades, you have not delivered the goods. if you are trying to run a like a business, and it should be, you have to deliver. we have not seen for some time. president trump is breaking some glass, meeting with his chin. people who do things make mistakes.

they never make the biggest mistake of all, doing nothing. but i think jamie is right. i hate to see the protests, the violence that is out there. betty: which is from frustration. unsettling and creating more social unrest and getting in the way of progress. in washington and across our country area -- country. yvonne: i want to welcome you to the show. we talk about internal turmoil within the trump administration after michael flynn stepping down with russia troubles, health care legislation -- will this be a trump administration that can garner and get that bipartisan support in congress? optimistice to be that it will and he will. otherwise, we will be right back in the trenches here, not

getting the kind of growth everyone is anticipating we will get, which will then allow for job creation, allow for infrastructure, and a lot of investments in our military and health care. we have to bring this thing together. we have to figure out how to be much more bipartisan and find areas of cooperation as opposed to areas we cannot agree on. let's get those off the table, that is the art of negotiation. you will not get everything you want. can for thist we country. we made a pledge to the middle class we would lift them up and give them an opportunity to benefit in the growth of our country financially, from a aspirational standpoint, to get jobs. we have to honor those commitments. yvonne: stay with us. founder joining us for the rest of the hour. said minutes suggest changes to

the balance sheet later this year. we look at arguments and implications. ♪ betty: the agenda for the president's meeting. ♪ ♪

this is daybreak asia, i am betty liu in new york. yvonne: i am yvonne man in hong kong. labeling china's the current seem and if you later is likely to come up when he meets the chinese president in florida. , kenzie watching this for us in beijing. the president did not quite come through to did announce china on day one in the oval office. is it still in the cards? they expect the treasury to label china a currency manipulator when they published

their report later this month. that is despite the fact that most economists on china watch say china is not manipulating the yuan. they are doing the opposite, using fx reserve to support the yuan. renminbi asdes, the a strengthened, around 17%, since the -- compared to the u.s. dollar. there is in balance in terms of trade and investment in china needs to do more to open its markets to foreign investment. we spoke to a former commerce secretary about this issue. he said china had heavy lifting to do. >> the chinese government have a huge job on our hands in terms of reform, opening up markets, allowing competition from the west to provide more services and benefits to chinese consumers. how the chinese government operates in their ability to implement some of these reforms are all question marks.

>> china is the second most restrictive country when it comes to foreign investment. many in the u.s. senate you chambers of commerce would like washington to focus on that issue and pressure china on that issue rather than the currency and its label is currency manipulator. betty: tom, stay with us. we want to go further into this issue. ceo bob.ack xlr-8 in your years of running everything from ge to home depot to chrysler, you have done a lot of business in china. is it fair to label them a manipulator? bob: i do not want to focus on the manipulation. i hate to label it that way. betty: is it about politics? labelt does no good to someone like that and create negativity and potential

friction from a session we are trying to become more harmonious in our discussion. to your point betty, i have been blessed over 45 years. i have done a lot of business in china. i remember going there when they were still in the mao uniforms and now they are in armani. they were on bicycles and now they are driving mercedes. i have never had a pure outsourcing strategy ge, home depot, chrysler. over the past decades we have developed a global supply chain. part of that is because as ceo's who have a fiduciary responsibility to shareholders, customers, communities, we have to be competitive. you go where you can get global competitive spirit it is not china's fault of they do not have the tax structure we have, not their fault they do not have the government restrictions that

choke us from doing business, not their fault they are hungry and want to compete in a global market. what's on said is true, there is a quid pro quo. if it is fair for them it has to be fair for us. at the time, we had one of the first auto plants in china with the jeep. that did not go so well. i remember shipping the first 300 locomotives ever into china to build power turbines. asis not as easy or open other countries are with us in dealing with international trade. whether they steal our technology or not, we should be smarter than that. the h-1b is an indictment of our educational system. people are complaining about that and we use it as a crutch. tohink we use it as a crutch

get talent because we have not invested ourselves. if you look at what randall is doing at at&t, he has made a major step forward in training and reinvesting in his couple hundred thousand employees. that is leadership. what he is doing his leadership at at&t. yvonne: bob, it is interesting. tom: i am wondering -- yvonne: go ahead, tom. are i wonder if there certain sectors you can point to in china where the chinese could make an effort to open up? is the auto sector one of those? traditionally, they have tried --had joint dentures because joint ventures. many would say it is time to open up. is the auto industry one they could focus on? bob: yes, general motors is pleased with their ability to produce in china.

they are producing as many cars in china as in the u.s. that is an area we could become more global and balanced in our trade. agricultural might be an area we could have better balance. but younot like it, admire when china says they will get into a business, they get into it. i saw them get into the aerospace business. when they set their mind to get business,dustrial they pool all their resources, get the leverage they can, and become a global competitor. we should not be surprise that when they say they will do something, they do. they have government support, government control. we may not like it and think there are restrictions for work and environmental policies that are not globally responsive, but they are globally competitive and hungry. think about europe as the industrial leader, the u.s. had their shot at it, and now asia

is certainly competing to gain a global, dominant leader in the supply chain and the markets we are trying to fiercely compete in today. is right, putting pressure and blame on china is one thing. but how will this benefit you as workers? jobs inmanufacturing america there to fill the gap? donald trump is trying to make everything in america. bob: what is he done recently? standard back a cathay that i do not want to say ridiculous, but was stifling an unattainable with technology. you will have to produce more small cars than consumers want to make that restriction. he is pulling that back. if you look at what he has done relative to being energy independent, we were almost there. then we went from over 1000 rigs to under 300.

why aren't we exporting more natural gas? you saw the article about ethanol exports. why aren't we exporting more oil? we pulled it back because of regulations and restrictions. doing,look at what he is the pipeline, other things and executive orders he is putting in place, they will create jobs. we will gain more global competitiveness by lifting some of those restrictions and allowing people back to work, whether it is large corporations are small companies that it compete on a global basis. this tax thing will be important. betty: i wish i had this chart, -- i will have to be the counterpoint here, that when obama was elected, that is and claimsbless rate started to fall. lows,e at multi-decade

created millions of jobs in the obama administration. can trump beat that record? again, it is great you have a different point of view. you are talking about unemployment versus underemployment. betty: and you think trump is speaking to the underemployed? a total ofooking at all people not working, whether they do not have a job or a become so disenfranchised and discourage they are not looking for a job. we have to get everyone back to work in the country. betty: there you go, that is the chart. on the right-hand side it shows that steep fall. i hear you are saying. look at what goes in and out, we have to make sure the chart is measuring job creation. we have to look at net jobs, how many did we lose versus gain. underemployed,e the number looks better than if

you put everyone into the pot. tom: automation is a huge challenge as well, isn't that the main reason we have seen jobs dropping off in the manufacturing sector? isn't it about automation rather than the fact that jobs are moved to china? bob: again, we can point to automation is something negative. i look at it and think it is extremely positive because it allows us to compete on a global basis. let's look at what the auto industry is doing on incentives. cost,two times the labor two times what it cost to build a vehicle. they are putting up to $8,000 on the hood, 72 months, 0% financing. it has nothing to do with productivity. i think productivity through automation will increase, not decrease. i have seen examples where through robots, we will do accounts receivable.

it will continue and we better get used to doing that. betty: bob, we will have much more.

yvonne: 7:30 on a murky thursday morning in hong kong. 30 minutes away from asia's major market open. murky indeed. it is similar, 7:30 p.m. wednesday in new york. a foggy skyline here. i am betty liu in new york. man in hong yvonne kong, you are watching daybreak asia. let's get first word news with courtney collins. jinping's president xi a lot -- arrives for meetings with president trump at mar-a-lago in florida.

trade and foreign exchange are likely to be on the table, along with north korea's nuclear activities. trump has her peter the accused china of currency manipulation, stealing american jobs, and failing to rein in kim jong-nam -- kim jong un. the largest stretch since the pboc began operations at the beginning of last year. they said they decided not to liquidity inverall the banking system is relatively high. the seven-day repurchase rate to a second day after climbing to it near two-year high last week. strategists are scrambling to raise their forecast for the indian rupee after its biggest quarterly gain in more than four years. at least eight banks have upgraded their estimates in the past three weeks. month,ee jump to 3% last

thanks to a surge in foreign inflows. yum china started late trading at its pizza hut chain and beat estimates. pizza hut beat store sales. analysts had expected growth to be flat. it signaled a strong start at the company after a spin off from yum brands. later today we are joined byyum at 10:40 p.m. here in new york. 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. betty: the minutes of the last said meeting shows most officials for two rate hikes and a reduction in the balance sheet. bloomberg policy editor kathleen hays is here with more.

bob nardelli staying with us through the hour. let's talk about the fed being more definite about the balance sheet. it is been said for many years the fed is commented on this or made statements about it officially. when normalization is well , thatay in terms of rates is when they would look at reducing the balance sheet. let's look at a key phrase from the fed minutes. anticipatedpants that the reduction would continue. changed the reinvestment policy, would likely be appropriate. what are they saying? they are saying we will phase out. they will not talk about selling off on, but phase out the balance sheet by reinvesting proceeds. you have a bunch of five-year notes in your portfolio and they

mature, you have money that comes back. you get the money on the bond. we have been putting that back into bonds to hold the balance sheet steady. at some point they will gradually reverse this policy and stop reinvesting proceeds. let's look at a chart for a sense of what this might mean. this shows you the blue line, the 10 year. the yellow line when up, yields went down. that was a bullish thing. the fed was buying bonds and that pushed down the yield. if they are moving toward balance sheet reduction in that portfolio will shrink, will it be a tightening step? people are wondering if they are doing a new phase out policy on the balance sheet, will they do fewer rate hikes? that is where the debate is going now. betty: absolutely. i am curious bob, you're seeing what the minutes showed today

and what we have heard from fed speakers. do you think there is more upside risk in the u.s. economy? where do you think rates are going to go? bob: she has done a very responsible job, been measured, not to overcorrected have to go in and undo what she may have done. there are things you may have liked to see her and the fed do differently but overall, i would say she and the fed have been measured. the quarter-point we just saw was anticipated. i do not see any issue with that. ony will keep a close eye inflation. whether you're looking at adjusted inflation or the. inflation rate as to whether the fed is going to do something or not. athink the market at least, least the ceos i have talked to, they are not concerned about the rate increase. i think you make an excellent point on whether they pull back on the bonds and stop

reinvesting and what happens to the bond market, and as that have an application for one or two coup rate increases? yvonne: can the fed still become triple? aboutve been talking shrinking the balance sheet when there is so much uncertainty about fiscal stimulus. we heard several members thought -- thisul fiscal this goal would not come until 2018. bob: that is an excellent point. if is so much optimism right now, but it is teetering. we need true positive examples of where the administration is doing what they said they would factored into the optimism that i mentioned earlier in the segment, that we have seen in the equities market. if those do not happen relatively quickly, i mean by the middle of the year, if we do not see those stimuluses from this administration, we might

see further disruption, pullback, and concern. we are getting ready for the first quarter, the earnings will be up, we saw the dividend chart. things are still humming along. i was disappointed to see ford pullback on their forecast. that is not a good sign because the auto industry has been the brightest spot over the last several years. yvonne: the markets do not see the fed doing three rate hikes this year. if we pull up this chart on the bloomberg, you see that the odds for a hike in june are about 60%. you look at all the other contracts and months, there is no month for a second hike where it is close to even 50%. speaking to this question of how the fed and how you are assessing the economy, we have a great adp jobs report, up the fourth month in a row. consensus on payroll, at least

180,000. but the gdp tracker is tracking the first quarter at just 1.2%. the first quarter was not robust. bob: it was not that robust. the first quarter reports focused mainly on retail. it was one of the softest segments we saw out there. the consumer has a more watchful eye than the ceos and large industrials. we saw a real pops relative to contract placement from some of the defense companies in the past couple days. when you say we need to deliverables by the middle of this year, that is only a few months away. you know how washington works. bob: i do, unfortunately. betty: are we really going to see any deliverables and what

could they possibly be? we might be seeing signs of willingness to reach across the aisle, number one. number two coup -- two, if you are reaching out, someone must reach back. we cannot have entrenchment. it is unconscionable what is being said and done in washington. if they were a company, they would be bankrupt, right? betty: a few times over. bob: and you would see a lot of the leadership change out, just like you see people who are not performing change out. unfortunately we do not have that opportunity with members of the government, house and senate. they got to do something. benefit both parties' to get the economy going.

-- at onestill at a point, 1.5, that is not enough. we are in more mired washington, doesn't that this in, i want to put the global arena. ec china rising up, japan rising up. yes we have europe and brexit, but it diminishes -- does it become in the next four years or so, our role becomes more and more diminished? bob: if we do not understand the changes the only constant in the productivity and technology are really the fuel in the tank, then we are going to get left behind. there has to be a realization among both parties that they have to come together and do what is right for the citizens of this country, and that we have to get stimulus back into

the workforce, back into technology, growth. we do need leveling of the playing field as we said earlier in the segment, on a global basis. and not through subsidies. and are we subsidizing where we subsidizing some of the things that bring products in from the very countries the administration is criticizing? like solar panels. yvonne: it is interesting when you say if america turns inward, where does that leave china? can they step into the global scene and fill the void? bob: china is hungry. they are very adaptive. they are very focused. when they become determined they are going to do something, get into an industry, technology, getting into the auto industry, we have seen that.

we have seen the power of their abilities to marshall capital, resources, labor, technology, and compete on a global scale. betty: i am curious on the subject of china, you having met with so many of these leaders, how do you think chinese president xi jinping has done so far? bob: he has done very good and he has had some stumbles. he shut down the open market, he forced a pullback in investments abroad, controlled what is going on in the country, we would be critical of that. he has not been perfect, but if you look at the south china sea, that is a problem we have to address. him not having a better relationship with us on north korea is a problem. he has done some things very good and has some areas where

hopefully through this meeting, both of these presidents will come together in a more unifying way. aonne: we are talking about diminished future for the u.s. and china filling the void, what about the simple things donald trump is proposing to revive people's hope? spirits,eir own animal the hopes of others? he is talking about corporate tax cuts. productivity will take a while, but in 2017 and 2018, can those boost investment and the economy? bob: those are real, tangible, proof positive examples. if you reduce corporate tax to the degree he is talking about, it has phenomenon global competitiveness. if you talk about having a plan on repatriation of offshore dollars, 25% of what you bring back those to infrastructure funds backed by a corporate government bond.

you bring the ceos in and save let's look at your capital expenditures and if you spend 25% of your repatriated dollars on jobs creations, research and development, training, that is a good thing. you do not want that coming back in stocks. people perceive that is putting that into the ceo's caucus because they get the options, the price goes up and they can pocket the money. we have be thoughtful and deliberate on how we handle. i'm not saying mine is perfect, they are just ideas. we have to give the ceo's, great men and women -- it is corporate america. they employ americans. and we have to make sure we are treating them in a fair and equitable way from the largest corporation to the private -- smallest private family-owned business. they are unbelievably entrepreneurial, competitive,

and they are looking to take money off the table for family planning for trust funds, and that is why we are stepping in with private equity. betty: bob, stay with us. we will get final thoughts. kathleen, thank you for joining us. we will also be joined by trey parker, with his stake -- his take on the credit market. ♪ ♪

yvonne: we are counting you down to asia's first major market open. japan's futures lower this morning, we saw strengthen the japanese currency, the yen 110.ng at 111 -- betty: we have the first u.s.

job numbers since the fed a hike last month. hard data to test whether current market levels are sustainable. trade parker from thailand capital joining us now. also bob nardelli, the xlr-8 founder and ceo. , we were talking with bob at the break about the auto loans market. some people look at that after the data we have seen a few days ago. maybe it is a part of the market we should be worried about, perhaps as much as the home loan market. are you seeing stress? trey: the auto market has shown weakness with numbers weaker than the market expected. the automakers are using incentives as a significant driving factor behind maintaining that demands. we are starting to see chinks in

the armor, rates are picking up. bob: are we seeing a drop in residual rates in the used car market? plummeted,ompanies there was a tremendous push to move the vehicles into enterprise, hertz, and so forth. we will see a bigger number in the used market and we are seeing residuals go down. the index has come up significantly. gave leasing companies comfort to buy into residuals. as that pulled back and incremental supply comes back, the used car space we have not seen a raising of the excess. that will be a weight. back, dohat pulls think the housing market will pick up the slack? trey: the rising rate environment is slowing down

mortgage apps. we saw numbers down. part of that is refinancing. advantage ofaking lower rates to refinance their homes. ,he potential alternatives are rising rates may bring people off the sidelines. there is been a lower number of household formations because people expected rates in the market space to be lower for so long. it could encourage people to come in and buy a home. bob: i love your opinion. what i saw at home depot, as the rates go up, people come off the sidelines. but because the market has been tight, the inventory is unbelievably small. seller is at an advantage because of a low inventory, higher prices. is that what you are seeing? trey: the affordability index is still manageable as a percentage of income for the consumer, with

rates at current levels. existing inventories are very light. 3.5 months currently. construction is going to be the next beneficiary of that. the challenge new construction has is permits and land availability. that takes time to come into the market. it will be a supply constrained market. bob: a few more months. yvonne: i wanted to get your take on these fomc minutes. there is been talk about tricking the balance sheet and we thought reaction when it comes to the yield curve. it steepened on that news. if you take a look at the terminal, you can see that take up higher between the five-year and 30 year spread. this has been a flattening curve story the past three years. is this a significant, long-lasting move? depends on theit follow-through actions of the

fed. today they reiterated two additional hikes this year and shrinking of the balance sheet on a measured basis later in the year. they need to see follow-through in the economy. feeley do that, they will comfortable the economy can withstand rising interest rates. their comments on the equity markets are that they are concerned about overheating. that is why they put multiple tools on the table. bob was talking about policy promises to be delivered. to to be delivered soon ignite this animal spirit in the economy. we are seeing trump do some things on the energy side. we know he will be moving on regulations and taxes. where is the opportunity in the credit market? the nearest term

opportunity is in the financial sector, deregulation is something he can do unilaterally as the president, he does not need congress to get in line and behave, if you will. health care now is on ice. the republican party has not been able to follow through on the repeal and replace. next on the list is tax reform. paul ryan's comments do not give confidence that that is easily achievable in the near term, either. there is a lot of hope and expectation the market. but we have been focused on the hard data. that pmi and soft data has continued to turn up and stay elevated. we need to see follow-through in investment. businesses do not grow on a real basis unless they invest in productive assets, and that is what we have been missing. you think with the change of administration, on

dodd-frank, is there latitude in interpretation on dodd-frank regulations like the cap on banks at $50 billion? cannot be interpreted to a higher number, or will that require an executive order or legislative change? trey: there is a pure benefit from no longer being in the magnifying glass from a regulatory perspective. not having the regulators in your office daily, scrutinizing your every activity will allow for a greater level of interpretation. also the budgetary ability for the ministration to not put the dollars in place to regulate so heavily, that will be in advantage. the full repeal of dodd-frank will be more challenging. you're right, there will be less physical oversight, which will allow the banks to incur less cost to manage that oversight. it could be favorable. interestingis an

point. without anyone breathing down their backs with regulations, they will become more open to interpretation. bob, i am curious in the little time we have, you are traveling around the world and looking at investment, talking to different companies. they are looking to attract you into their firms. ,hat are you seeing right now what is attractive to you? bob: the multiples are very high. there is a time of cash out there that has been invested in hedge funds, private equity funds, that has to go to work. people are willing to pay a higher multiple. my experience is if you have a strategic buyer, they have earnings. they have not been able to develop those. they have run out of gas so they have to get earnings.

i certainly like pharmaceutical, real estate is as hot as it can be right now on the commercial side. you can see what blackstone is doing. there are a lot of sectors again. housing, i would be guarded on the commercial side. we have overbuilt. i would be interested in your opinion on what focus -- on what sectors you are focused on. trey: on multiples we agree with you. the open financing markets have created the ability for sponsors to pay up for acquisitions and they are finding that the only way this late in the cycle to grow earnings, in terms of sectors we like, we are constructive on housing. we see the repair and remodel sector particularly attractive

going forward. bob: my experience at home depot, you have to go mentalities, a maintenance mode where you do not invest unless it is broken, and the investment mode, or people are doing bathrooms, kitchens, increasing curb appeal because they will start flipping. if you look at those industries where you can do remodeling, you will see that stock take a pop. trade parker and bob nardelli, thank you so much. a great conversation there. up, countingcoming down to the asia open. ♪

betty: the yen strengthens for a fit day. set for a cautious session after a late light on wall street. betty: yum china, and after hours winner. show a the fed minutes

split on inflation. betty: japan now invest more in southeast asia been china and hong kong. we are live in the philippines. yvonne: this is the second hour of daybreak asia. i am yvonne man in hong kong, just after 8:00 a.m. after 8:00s just p.m. in new york. it was kind of an odd day in the markets, setting out for declines, it seems like. some wondering maybe if we have peaked in the markets here. yvonne: talking about house speaker paul ryan adding fuel to the fire, how tax reform could be a little delayed here. an interesting take.

let's look at the market open with sophie kamaruddin. sophie: what paul ryan had to say, perhaps being limited. we are looking at a risk obsession session. a major pull back your after markets closed higher on wednesday. take a look at what is going on with the cosby here. did see more forward outflows on wednesday, albeit at a slower pace. we do have the special prosecutor's office said to question the president. nikkei.n, we get a both leaders agreed that north korea's missile launch this weekend is productive. in sydney, falling after adding one third of a percent on wednesday. capital outflows going forward

likely to slow. wellington are falling for an eighth straight day. we did get data out of new day, a larger than forecasted forecast. taking a look at other the yuans, we do have falling. aussie holding just above averages. taking a look at commodities, if we could. we did have the commodity index rising. for a newund optimism economic zone.

rating around 54 bucks there. offset concerns for rising u.s.. i want to take a look at a chart here that shows you the dollar-yen move so far. something to latch onto. this is according to a strategist. something to keep an eye on. it posted a record on wednesday. here in red. it is the highest over three years. striking a cautious tone, saying is also ons growth

the agenda this wednesday. yvonne: thank you so much. sophie kamaruddin on the markets. now let's get to first would news with paul allen. the minutes of last month's fed meeting show most fed officials will begin to shrink the balance sheet this year. hikes in the rate months to come. overed shows a split inflation. president trump has shaken off his national security council advisor at steve bannon. the chancesincrease of h.r. mcmaster who has views

at odds with bannon. from japan put the finger on the amount of money toshiba will pay. more than $9 billion for the westinghouse bankruptcy. has had tricky reports. investors feeling good about global growth. told bloomberg that in many ways, global markets are good. >> they feel good. notwithstanding political influences, clients are voting.

in the middle east, europe, and around asia, in the last two months, all the clients i have seen in over 20 countries have said, i'm very confident in global growth, i feel better than i have about the u.s. recovery, about the returns in europe, and definitely about the yen. days global news, 24 hour -- global news, 24 hours a day, powered by more than 2600 journalists in more than 120 countries. this is bloomberg. yvonne: thank you. yum china soared in late training -- trading after better than expected results. they have exclusive rights to brands taco bell, pizza hut. this was really driven by pizza, it seems. yes.ind: people have developed a taste for pizza, but also k. both of those brands did better in the first quarter.

increasingad sales 2%. that was against forecast that it would be flat. reaching 1% of sales, when it was forecasted to decline. all of that contribute into profit. of course, this has helped to contribute to a rise in the atce, action, up about 10% last check. let's take a look at the bloomberg. 73% highse there, against 20% lows. average price. 32.82. it did rise in trading.

you look at the chart in the chinaerg as well, yum increasing to date. compared to other brands, just about 1% to date. betty: what are they doing differently that is helping sales? >> yum china was spun off from brands.nt, yum! the idea was that yum china could focus more on domestic markets. so far, it seems to have worked. a see they have introduced simpler menu, faster service, technology for faster payments, and also delivery options. thevery to 12% of sales in first quarter. they also opened the first taco bell in shanghai in december. own other they also

brands in china. the first quarter the open 33 new restaurants. 760,000has more than outlets. the aim, they said, last year, was to have around 22,000. tripling the number of stores, basically. take it from about five stores per million people to about 15 stores per million people. a huge jump. coming back to the u.s., the u.s. is about 27 stores per million. capitalizing on the growth of china's middle class. a few will be a form -- more details coming out. pizza watching all the five by, making me hungry there. we will talk more about yum china later with the ceo of the company. mickey pant will join us on

bloomberg markets. lots more coming up on "daybreak: asia." for anyone looking to get into chinese equities, we will be joined by an equities manager. yvonne: up next, looking at investment opportunities with the chairman of numerous -- n omura asset management. this is bloomberg. ♪

betty: this is daybreak asia. i'm betty liu in york. yvonne: i'm yvonne man in hong kong. a quick check of the latest business/headlines. china southern plans to help minimize the effect of a weakening bid on costs. the carrier will also expand its fleet to more than 1000 by 2020. china southern chairman says

that the recent deal with american evidence -- american airlines will help the growth plans of both carriers. >> this is a good example of cooperation between china and the u.s.. this agreement will have and hold -- an impact on the whole industry. it will enhance the diversification of the shareholder structure and speed -- and cater to an improving relationship between china and the united states. betty: another step closer to eu year after thea u.s. did the same. they say it allows regulators to clear the deal. the company is expected to close the deal in june although it still needs approval from china. yvonne: gopro is planning to sell $150 of convertible bonds

to buy back stock. it also has access to $150 million in credit which it has not tapped as of last year. gopro has gone from a high flyer with the digital media potential to of blowback. slashing jobs in order -- in an effort to turn a profit. betty: the last fed meeting showing most on board for the two track and bouncing -- shrinking the balance sheet. more talk about the balance sheet that we have heard in recent past. >> as early as january, this adjusted this was something they would be looking that, depending on how the economy plays out. the economy discussing this with us on bloomberg television. yes, they see more rate hikes this year. they start taking some steps at

some point to reduce the balance sheet. here is what they said. most participants anticipate that a gradual increase would that ae, and judge change to the committee's reinvestment policy would be appropriate later this year. think of the balance sheet. it has over $4 trillion of bonds. when they mature come you get the value of the bond back. you also get the interest that it pays. the fed has been reinvesting it. it means it will gradually get smaller. what you will see on the bloomberg and on the screen is the blue line, the 10 year note yield. the yellow line is the balance sheet. as the balance sheet got bigger and bigger, don't you see yields going down. it pushes the price is up and the yield down. beenhe balance sheet has steady. it will get smaller. that puts upward pressure on the

10 year note for example. now the fed is tightening by this step. it is getting a little more complex now. betty: we kind of heard that from the the, if we continue trying to pull back on these balance sheet reductions, there could be upon his on rate hikes. do other members siding with that? said last week that not investing the proceeds would not have a big impact on the economy. i think jim is kind of dumpling that -- downplaying that. the reasons for the rate hike, let's look at them. most of the members agreed that the economy is near full employment. after all, it is down 4.7%. they are somewhat split over

inflation risk. some were seeing that it could exceed. i think that adds to urgency for people like the boston fed who sees for rate hikes this year. some saw stock valuations quick high. maybe they see the frothiness in the stock market. let's take a look at world interest-rate projections and see what the market is looking for. the market is not convinced, saying that we look at another hike in june. if you look out over the rest of the year, you don't see any bet at 50% or more for a second rate hike which would total three. one more thing to be cognizant of, private industry jobs. a report without out on wednesday. it showed a gain of 263,000 jobs. that is the fourth month in row, the best since 2014. 180,000.shot of

of the economyde equation, the atlanta fed's gdp tractor is tracking first quarter gdp at just 1.2%. the fed is going to stop reinvesting, a little tightening that way. maybe if we see the consumer tightening a bit, the fed would have to do three rate hikes. yvonne: coming up, investment opportunities in asean. this is bloomberg. ♪

:etty: this is "daybreak asia appear go i am betty liu in your. yvonne: i am yvonne man in hong kong. theseto the shop and

interesting, asean. the n among is covering asean. haslinda: three and a half trillion in combined gbp -- gdp. it is a huge market. we have an agent relation. the question really is whether it is sustainable going forward. let's speak to our guests to today.- good to have you with us. if the investment given by japan to southeast asia sustainable given policy and -- policies tan and onon -- o restrictions on labor and so for

chuckle -- so forth? >> currently i think globalization is being halted. it looks like. regionalism is really strengthening, especially in southeast asia. i think the risk creates a significant opportunity for japanese businesses. as you mention, there are .tructural problems the working publisher's decline in japan. japanese companies cannot just stay at home not doing anything. rather, they have to go offshore. the fundamentals are very strong. the publishing impairment, or so-called publishing dividend, which japanese experience right after world war ii. haslinda: what kind of pace of

growth can be anticipated going forward? the size of the money is sustainable. last year alone, the japanese m&a itself already reached over, i think, 100 trillion japanese -- i'm sorry. a certificate size. i think that has continued. the japanese balance sheet is very strong. also, there is huge liquidity in encourage that really corporatism to invest offshore. haslinda: it is not just .apanese if you look at equities, for instance, we have a bloomberg chart showing how

money is going into the likes of thailand, indonesia. time and looking at about $20 billion. is this sustainable going forward given expectations of further rate hikes chuckle -- hikes? >> i think the rate hike has an impact on some capital flow. there are rate hikes in the u.s., somewhat more predictive, and not making any major surprises or impacts, under that scenario, i think it is really attracted to the growth. then, this region action provides the growth. the capital it is -- flow will continue. short-term, there are ups and obviously -- s

it's not something we have to face. in the long-term, yes, i think it is sustainable. what is happening right now is a weak dollar. the dollar is expected to rise. in fact, it is expected to accelerate 4% your and. onl that way on -- weigh investments? >> yes, i think that dollar appreciation will have an impact. as long as there are returns we marketm the local equity really surpassed the currency weakness, i think the capital is there for investment. are pretty upbeat. what would you say is the biggest risk for the market right now? >> the biggest risk? haslinda: it is not by say,

trump -- brexit, trump? >> 10 years since we have the global financial crisis, there is some sort of a systemic risk make up. i mean, there -- might be some risk. i am more of the day, cautiously optimistic for the time being. i do not think there is any significant risk ahead of us. haslinda: china versus india southeast asia. which would you pick? >> i would choose india first asia.ed by southeast we are trying to find out how economic integration is going or strengthening forward. that creates opportunities for

business. haslinda: thank you for your insights. great excitement here at the meeting of asean ministers. 600 million population. 2.5 trillion dollars in combined gdp. a lot of opportunities in the region. betty: indeed. assetchairman ofomura management in singapore. we will be back on daybreak asia. ♪

annne: we are now just half hour away from the opening of trading in singapore. i am yvonne man in hong kong. betty: looks like a bit of a gloomy day there. in new york.u you are watching daybreak asia. we are getting some breaking news now from the white house. more on this conversation between president trump and the japanese prime minister in this phone call where they discussed

the north korea missile launch. trump says that the u.s. stance with japan and south korea and the u.s. will defend itself with the full range of its military capabilities following, of course, these comments that trump made to the financial times that they will go it alone on north korea if they need to. yvonne: the timing is very crucial here. this is just before when they meet in mar-a-lago. aw does china respond to statement like that. first, let's get the first word news. yen china soared in late trading after a turnaround as it pizza hut chain helped the estimates. analysts had expected growth to be flat. the results suggest a strong

start to the spinoff from yum! brands last year. u.s. crude stockpiles with rising refinery demand. most in weekly data going back to 1982. however, refineries were at 90% capacity, up from a week earlier. u.s. refineries increase processing this time of the year ahead of the summer driving season. the department of homeland security will continue searching mobile phones and other devices of travelers entering the u.s., as lawmakers on both sides of the aisle question whether the policies are unlawful and intrusive. john kelly told a senate committee that the searches help to keep terrorists out of the country and affect only a thetion of those flying to u.s. every day. president trump has reiterated his disgust of the gas attack in syria saying that perpetrators

crossed the line. dozens of people were killed on .he tuesday's attack president trump said using chemical weapons against civilians will mean consequences. he also said that the obama ministrations failed to take action in syria, but he now carries the responsibility probably. president trump: a cost a lot of lines for me. when you kill innocent children, little babies. with the chemical gas that is so lethal, people were shocked to hear what gas it was. that crosses many, many lines. beyond the red line. paul: global news, 24 hours a day, powered by more than 2600 journalists in more than 120 countries. i am paul allen. this is bloomberg. yvonne: thank you. time to see how the asian markets are shaping up so far this morning. it seems that the minutes are seeing a bit of a shock this morning. sophie: we could be seeing a

knee-jerk reaction here. over 400 stocks in the bread over the regional bookmark. at 2/10 of andex percent. suggest thatts hong kong and others could get harder than anyone else. thatis interesting given china's retaliation against south korea, the me sell -- missile steam to impact chinese tourists. of.fense stock of course we have had north korea testing missiles. what a look at what ever -- other numbers are in sight. i want to show you what is going on with we made entertainment

and cut cow. -- are seeking bhp on the downside after rising about 3.5%, falling after a declared force measure on the coal mines industry given that cyclone debbie did halt rail lines going to australian courts. betty: thank you so much. a recap of what is going on right now and what to watch for in the next few hours as the markets open up. this week's discussion between president trump and she jb -- likely include a number of tough topics. our next guest is author of "fortune makers."

it sheds light on how business leaders have had to invent their weight forward. he is professor at the birthday pennsylvania. also, our chinese correspondent in beijing, who has been of course following this visit to as well.is joining us professor, let's start with you. i'm kind of curious if we can take what you have written in your book and applied to the fresheners we got today which is si leaving to meet with president trump. what message and goes to think they have for him? >> chinese private companies are on a roll. they are selling automobiles around the world. chinese privately owned aircraft are coming to world markets. i think the message is going to

us sellup the west, let and compete. so far the record is quiet remarkable. owned enterprises. our focus is privately owned and prices. they have proven that they can compete very well. think about home appliances, they can compete very well. i think the message will be open up the west for further chinese private investment and direct engagement in manufacturing. yvonne: it is interesting, professor, in your book, you seem to highlight one of the key differences between u.s. and chinese companies is the fact that there are internal complaint -- controls in western companies. more bureaucracy involved. the chinese way is something the o familiart to

with. can you highlight what that is. can it change? >> maybe two or three qualities are really critical here in appreciating how the privately owned chinese companies to make enormous headway. not only in china, but elsewhere. they are great at learning. they operate locally. amber two, they also have boss model. they went out in the west a while ago. many chinese company's that are very large still have a very large top person and they are able to act quickly. the third element is summed up in one word, agility. a lot of them are really good at turning on a dime. if they are not selling product

a, they are very gifted at getting into product b. that will make at least the privately owned companies, very agile, very fast moving in western markets. watch out. >> professor, you highlighted some of the success stories there. there have also been some struggles. and thinking of tech company echo with their car business in america. you also have companies like alibaba. i'm wondering what is holding those companies back. what is putting a wall up to them as they try to expand abroad? >> i think it is the classic problem of moving from country aid to country b. most firms have flocked in china. uber, as we know flopped in china. they were defeated. they tried to get a foothold but they were pushed out.

as same problem comes alibaba comes to the u.s.. i think it gives the chinese some, veryall, but quick to learn. i think it is systematic of the fact that it is a somewhat different model. somewhat of a western model. distinctive features. i think the model will give many japanesecompanies and companies a run for their markets. pull up aant to chart. you will not be able to see it there, but our viewers will. companiesow chinese if you look at the

index, beat emerging markets index. index.he india the shareholders are doing quiet well. they are getting paid for investing in these leaders. i'm curious. we just had bob on in the last hour who said there is great innovation going on in china. that is at least the impression for u.s. companies that they cannot compete on a level playing field. also, the perception they get some advantage. >> absolutely. i think this issue of state sponsorship is unfair. it is not a level playing field. we all objected that for good

reasons. it is not have the free market works. if there is a state subsidy, short-term, sure, some gain. long-term, we all lose. the companies are state own. there's no surprise that they get quiet a bit of support from the home managers, so to speak. they repeatedly said that in the early years, they often turned .o the government for subsidy in the years since the early days, at least the private sector companies we spent a good bit of time with, they say, at this point, we have to be very careful. we want the government at arms length. after all, when they offer a -- that us, they also

also comes at a price. they are increasingly very aggressive, kind of free market operators. i think the government peace and the subsidy will subside into the past. they will be on their own without government backing. saw record deal flows into china last year. did you get a sense from the corporate leaders that you spoke to how concerned they might be that the dealmaking is becoming more difficult given capital controls in china? >> it is such a good point there. really going back now 10-12 years. maybe the most famous for doing this is lenovo. the novo, back before they acquired the idea had about 25%

of the market in china. because these companies are given above all growth, one of the remarkable differences is they have a growth agenda. to this day, i don't understand why growth is so vital. in contrast to european companies, for chinese cubbies, it really is growth. with that being said, they are determined to expand their footprint out of china. hit setbacks. several companies struggled back in the 2000. many of them higher. geely, chinese aircraft, chinese to make is setbacks,at with some a little bit in, they are coming back in because the world has

become just like american enterprise and western enterprise 40 years ago, the world has become their oyster. professor, real quickly here, if you look at all the countries in china, who do you think will be the next standout? it is a good- question to ask -- the companies that do exactly well helping in many others. there held up as a model for people in business, and will be on. huawei.t for watch out. they are coming. some of the mobile phone makers are on a roll. there is a commercial aircraft maker that is going to begin manufacturing the equipment of a 737. i think they are coming as well. company that is

of howether, symptomatic -- to succeed, keep your i on lenovo. yvonne: all right. lenovo. we will watch that one. thank you so much, the author of "fortune makers." we want to thank tom mackenzie from beijing as well. company's value contains to grow. this is bloomberg. ♪

yvonne: this is "daybreak: asia." i am yvonne man in hong kong. in hong am betty lou kong.

peter ahlstrom joining us now from tokyo. a pretty big milestone here. what does this mean? .eter: it has been significant i think we speak frequently about the big internet giants of china. there is tencent, alibaba, and baidu. tencent is now jumping ahead. there market value surpassing wells fargo, as you mentioned, joining the top 10. alibaba, a little bit behind that. baidu has now fallen substantially behind. tencent is less well understood that alibaba. alibaba is a straightforward model. tencent is much more complicated. they make their income from the we chat messaging services. they are able to market their games that way. they are a dominant games provider in china. they also sell advertising alongside that. they have been able to benefit

in the number of areas. so far business has been very strong for them. it is interesting. you heard this identity crisis that we were talking about yesterday. i guess you could ask the same question when it comes to tencent. things, in all sorts of cloud, we chat, cars now. how do you value a company like tencent? peter: it is interesting. they took a stake in tesla. partly because they are able to open doors in china that almost no other company can do it. in contrast, i think tencent knows exactly what they want to be. the messaging services are there is strong. ,t is not just we chat, but qq qs virtually by everyone in china. residef apps actually within the messaging service that you open them up with an we chat. there is advertising alongside

of it. there are a lot of ways that they benefit financially. they have been able to market games also. they are able to market things through the messaging service and help it become more financially successful. they're working in a number of areas. they have a pretty clear strategy. so far it seems to be working well. the shares are up 20% this year. yvonne: peter ahlstrom, thank you. rivera, guest, patricia vice president at american century investment. theicia manages emerging-market fund. china is the largest position. great to have you. you have a 29 in china. within that, you have a 5% holding in tencent. tell us why it is part of this fund. is it really the fact that it is

part of so many assets of the tech industry, the auto industry, that makes this company see so much potential? patricia: absolutely. tencent has been holding in the portfolio for a while. its ability to continue to grow and also take advantage of monetization. there are two really strong platforms. one is the gaming site. -- side. they have been really good at growing that. the other is social networking with we chat, as you mentioned before. going networking also fast in china. their ability to increase the number of users and then monetize on it. we had seen -- we have seen how it has grown in the past three years.

we do expect it to continue to grow as well. yvonne: it seems tencent is a must-have in a lot of these funds that you do have. in fact, one of your own that you manage. will that continue to support the tencent price been? >> i believe so. their ability to keep the growth they have showed over the past two years. i think people will definitely be withholding the stock as it has been a good story. ,etty: it is interesting looking at here in the u.s., how investors are looking at not just chinese stocks, but emerging-market stocks in general. i want to pull up a chart here that shows what investor is like. like -- it shows that in the first quarter, investors bailed out of stocks in the russell 2000. they went straight into emerging markets. i'm not sure if it was a one-for-one trade-off, but it shows the divergence here

between the blue and white line. what does that tell you? where does the investor appetite come from? patricia: i think what we have seen for the past three years at least, or four years, emerging markets are out of favor. we were seeing trends on the downside and quiet a few of the economies in the emerging markets. that was not as exciting. actually slowly been changing. on top of that, also, we had the commodity phase as well. economies haveng benefited from that. i think that combination has actually gotten investors more interested in the emerging phase. yvonne: where do you think are the biggest opportunities? patricia: in terms of countries? china, a big one. also, we have increased exports in brazil.

the trend has improved significantly there. that has been a good one as well. to be honest, we look across emerging markets, we are a very diversified portfolio. there are opportunities in just about every country. the way we invest is looking for stocks showing and earning acceleration so we can find those stocks in different market caps as well, regardless of the market and environment that is operating. emerging markets are there. the trend is very positive. we find names that fit what we are but before. yvonne: we certainly have seen quiet around here, not just with chinese stocks, but aussie on n stocks we were talking about earlier. to find it is time to take a positive? a chart on my bloomberg shows that is the sentiment.

economic surprise headed lower. also, another good indicator is the chinese monetary index. a bit ofensing exhaustion in the rallies now? patricia: i don't. we are just about to see first quarter earnings come through. quarteris that first earnings will be very positive in emerging markets. it could be many different the markets have actually moved very quickly in the first quarter. a positive commodities in general could be giving a positive emerging markets. the fundamentals are strong. the trend has been positive. i think we will continue to see that this year. the other thing we have been talking about as well is the surprised dividend play in china as well. what are some of the areas you are focusing on in particular in the china market?

patricia: we obviously have been looking at aligning with where the government has been focusing. what we see is the government has been very interested in focusing on infrastructure investing in china. more specifically, focused on areas that have to do with pollution. we have exposure to water treatment. china gas, which is a shift from gas-based to actually , and distribution there. to leave itre going there. & we ran out of time. us on daybreak asia. ♪

♪ david: you started out, your father was a stockbroker. had you ever considered go into banking? jamie: i knew more what i didn't want to do. i did not want to be a doctor or a lawyer. david: you chose to go work for sandy -- jamie: it was a -- of a run. he fired me. david: you had a lot of jobs, offered the ceo of home depot. jamie: i am not a hired gun. david: do you think the country is better off for having dodd-frank? jamie: the system has completely recovered. part of that is dodd-frank. david: you would never consider running for office, would you? [laughter] >> would you fix your tie, please? david: well, people wouldn't recognize me if my tie was