♪ >> stock futures signaling gains in the asia-pacific. japan in the spotlight after shinzo abe's tokyo drubbing. winning, thee worst ever performance for the ruling party in the capital. >> china's latest hong kong connect starts today, new access to its $10 trillion debt market. what is next for the fed? inflation

means a fed hike moving to the back burner. we have the numbers from the latest hong kong survey and discuss the implications of tokyo's election results. >> a terrible outcome for the prime minister. tensions in north asia as north korea continues to worry leaders around the world. we will get an update from beijing on the latest. this is "bloomberg markets: asia." i am betty liu here in new york. >> it is just after 7:00 a.m. in hong kong. busy monday in asia with president xi jinping delivering that 20th anniversary gift hong kong, right? the bond connects set to launch this morning. we are expecting a ceremony at 9:00 in hong kong.

also, japan as well, a major setback for prime minister shinzo of days party -- shinzo abe's party. >> we are looking at manufacturing a sectors and how' they fared. the manufacturing sector has probably done pretty well in japan. exceptingght, msci china a-shares, and now the bond things, so it looks like are on fire there in china. >> we will see how things go. setting up asia is this monday morning as we look ahead to the second half. low volume in new zealand so far. trading slightly .1% higher. the kiwi dollar seeing a bomb with this -- bump with this weaker dollar story.

to australia, expecting the caixin manufacturing numbers out of china, forecasting a rebound, signaling gains of .4% with the aussie at 76.91. as you mentioned, that survey showing gains across the board, stronger exports, planned capital expenditure as well. the dollar-yen 112.34, taking a dip in the wake of that shocking loss in the tokyo assembly election. euro-yen, that should be a good signal, but looks like modest gains on the nikkei 225 this morning after that drawdown of .9% on friday. how does this set up for wall street this week? at what take a look

happened on friday. we still managed some gains, the dow up 63 points, s&p trading flat, but you had to look at the inter-day chart to see the real story, that was the fall off in tech shares in the last hour, the last half-hour, a trade when ch the loft, dragging down all indexes. the nasdaq falling into the red, so we look further into what is driving the market this week, but for now, first word news. a new poll puts the japanese cabinet approval rating for 30%, coming as shinzo a defeated,g party was winning the fewest seeds.

ldp executives have called an executive emergency meeting this monday morning. president trump is to call beaters in china and japan to address north korea's nuclear ambitions. he will speak to president xi jinping and shinzo abe ahead of the g-20 and hamburg. angela merkel has called on she 20 partners to put policy divisions aside and seek win-win solutions instead. she says there is a platform for nations to air interests and introduce policies to benefit a global economy. india has experienced a weekend or confusion and uncertainty has businesses and consumers attempt to navigate the new national sales tax. it unites 29 states and 1.3

billion people in a single market for the first time. on day one, many shops were closed and shoppers deterred by potential price changes and uncertainty over how the tax will work. the u.s. navy has sent a guided missile destroyer to the south china sea in what some see as an indication of washington's displeasure at beijing's failure to rein in north korea. the ship passed within 20 .ilometers of the island it may sour the atmosphere with trump meeting president xi jinping this week at the g-20 in hamburg. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> monday does mark the lift off , the long gift awaited hong kong-china bond connect program. kong caps off its weekend

commemoration, the 20th anniversary of the handover. this is what we were expecting from the president. the significance of this? a leverage a time of crackdown in china, so this could diversify funding into the chinese economy urgent by too much debt. it could ultimately help improve corporate governance. there are still challenges and hurdles to get institutional to trust andtors have confidence, assessing the risks in bond ratings. china is the number three biggest bond market, overtaking u.k., then japan, and the united states much larger, but less

than 2% of that corporate debt is in the hands of foreign investors, so it will be baby steps to start. goldman sachs estimates that more than $1 trillion worth of additional global fixed income result fromcould chinese bonds over the next decade. 9:00 a.m., we have the launch ceremony with dignitaries and will get the first issuances by chinese policy banks, agricultural development bank and china development bank, today and tomorrow respectively, offering bonds to foreign investors. >> hong kong has a new chief executive, and some stern words from president xi jinping. how would you sum up what he said and what that meant for the handover commemoration? boss.is the

that is basically it. the last time such a senior leader was here, it was much more muted, but things are different. xi jinping uses that velvet glove and the iron fist on the andr to show he is the boss that there is a redline. they will not tolerate any kind of challenge to beijing's role of hong kong. clear message to those who did take to the streets over the weekend, mostly after he left on saturday, to voice their displeasure. hong kong has the widest wealth gap in asia, property prices are through the roof at record highs. the young people of hong kong don't feel their interests are being taken into account. property developers and mainland interests are dominating. this is not a happy city, and xi jinping had to be careful to strike an even tone, but send a message, don't challenge us.

there is a redline after all, and we are the landlords. >> indeed. engle on the commemorations over the weekend, but also the bond connect. we won't have more analysis a little bit later on bloomberg. find bridge investments head of fixed income for asia outside of japan will be weighing in in the next hour at 8:10 in hong kong. on, 9:40 am hong kong , ubs senior china economist joins us. >> let's see what we can expect this week with remy inocencio. >> it is already july. it has gone by. even though it is a shortened week, a lot of things on the radar. first, equities. some of the information

technology stocks, particularly facebook. a drop in the s&p 500, information technology, but there could be news for facebook because they got a patent granted in australia aligned for p or two. --an's to take place australia, allowing for pure two eer to peer payment to take place on messenger. to some ofahead these gambling stocks, it turns out that revenue coming out of macau is the best since 2014. hop into the bloomberg terminal, #7382. that is the gaming revenue

macau got in the past month, but that was worse than estimated. it was supposed to be up by 30%. is at its that it best since 2014, so people are optimistic. finally, the box office, the weekend box office, despicable me three, the third installment, number one in the box office, $71.4 million in canada and the u.s., but missed estimates. internationally. disney has well, pirates of the its sixth week and has now passed the $700 million mark. was $230ction budget million, so they are finally taking their money back. >> so many.

ais week, we talked about shortened week in the u.s., looking ahead to the july 4 holiday, a fair amount of eco-data on the radar. big win,bs report is a but also pmi on monday, expected to stay the same as make, 52.1. let's walk through a quick timeline. on monday.i july 4, stock markets closed, the july 5, we look at the fomc minutes, the debate on whether to raise rates, how much, and went to raise rates again, depending on the wording. claims, expected to be 1000 less than the week prior. july 7, june jobs.

we have been talking about with a wage growth will rise. the expectation is it will rise somewhat with the unemployment staying steady at 4.3%, the lowest in 16 years. >> thank you. a look ahead to wall street this week. the japanese prime minister gets a drubbing in the assembly election. what does it all mean for abenomics? up forlobal leaders gear the g-20 in germany, how china wants to shape its role. this is bloomberg. ♪

towe are counting you down asia's major market open, futures positive this monday morning, gains of 60 points

according to nikkei futures. this is "bloomberg markets: asia." well, after commemorating the 20th anniversary of hong kong's handover to china, president she xi jinping will behead it to hamburg, germany to join other g-20 leaders. angela merkel calling for policy coordination amid an increasingly protectionist towards united states, and china's pivot towards russia and europe. joining us now is the senior research fellow at the east asian institute in singapore. first, before we get to xi jinping and how he will do at the g-20, let's talk about the handover commemorations in hong kong. how do you think he did, and what do you make of his comments to people in hong kong? xi's visit this

year, the 20th anniversary of the handover, showcases his power consolidation first. second, also consolidate beijing's control over hong kong. if we look at the past 20 years, beijing's relationship with hong kong has not been so smooth. there are a lot of problems at the moment. for example, the pro-independence and pro-democracy sentiment in hong kong, and also the inflow of huge amounts of money from the mainland to push up the property prices there, so all these have china's problems facing one country, two systems. >> we know that. my question is heady think he performed? ok fromnk he performed the domestic political

perspective because the domestic audience wants a very strong and also tough leader facing the hong kong local people, so actually his performance should be viewed from two perspectives. if we look at it from the hong kong local perspective, a little bit too harsh, because he talked about the sovereignty, no compromises come all this, yeah. >> right, so depending on where you are, certainly a little bit of a different look at xi's performance. now he's going to take that on the road to germany, where angela merkel will try to make these with all of the g-20 leaders, and in particular president trump here. s messagesu think xi' going to be at the g-20? 's message first of all is

about the continuation of globalization and the freight trade and further opening up of the markets. last year, china was the host for the g-20 summit. xi wants to see to what extent the consensus and agreements reached last year could be implemented by this year, so it also shows china's growing leadership over the global as thence issues as well economic agendas. values a lotxi this kind of g-20 mechanism is an international platform to voice china's concerns over governance issues and also china's growing influence on the international affairs. hiccupsve seen some when it comes to the u.s. and china relationship, right?

mar-a-lagoke this meeting was ages ago when we talked about this good relationship, and now you have trump's recent tweet on north korea saying you tried, but it was not enough. now there is this arms deal with taiwan that the u.s. is proposing, putting tariffs on steel. do you believe the honeymoon and trump isn xi over now? >> i don't think so. cardnk xi was to play the of other big powers to offset some u.s. growing pressure over china. announced was just the arms sales for taiwan, so ,hina wants to have more room yeah, to play, in terms of the car relationships. for example, they want to use germany and russia as leverage over the u.s., but this does not mean that china is over.

eye tore do they see i to eye? can they still work out corporation to rein in north korea? >> yeah, north korea will probably be the number one event forhis g-20 summit, because big powers, this kind of security and geopolitical issue is the top concern of these countries, especially for china. north korea has been testing the nuclear just near its border was so that's why president xi jinping would take this very seriously. go, i know we are talking about it like it is another preview, but i suspect this will be one of the most intense g-20 meetings, on the back after president trump has decided to leave the paris climate accord, the missiles

launched by north korea, i mean this is going to be a tense g-20 meaning, is it not? >> sure, this will be the first g-20 summit in trumps time, so for all of the other leaders from big powers, they have to face a new united states led by donald trump. i think this will be the new normal for most countries, especially china, so how to deal with for example the climate change issue, the financial , i thinke trade issue for all the leaders that this will be a new challenge for them. >> thank you for your analysis. we look ahead to that summit in hamburg, germany. you can get a roundup the story to get your they going. on yourdayb terminal for bloomberg subscribers.

setback in the assembly election for shinzo abe's ldp party. your settingsize and get information on the news and assets that you care about. this is bloomberg. ♪

>> this is "bloomberg markets: asia." hasustralia's fairfax media process examining a sale after tpg capital said it was withdrawing its offer, leaving a u.s. private equity firm as the sole bidder. fairfax will into the process and proceed with its own strategy. the company was by as much as $2.2 billion. >> toshiba raising money by

listing a nuclear unit. it said the first step towards an ipo may be made this week, although toshiba is still discussing whether a straight sale would be preferential. hong kong's richest men betting on a commodity that has been on the skids for five years. doubling a stake in canadian uranium exploration next gin energy. shares rose after the announcement of the investment. deal means li ka-shing and his son can appoint one of the next board members. >> up next, the luxury shoemaker once more customers in china.

the ceo tells us the steps he is taking to get there. this is bloomberg. ♪ these days families want to be connected 24/7. that's why at comcast we're continuing to make our services more reliable than ever. like technology that can update itself. an advanced fiber-network infrustructure. new, more reliable equipment for your home. and a new culture built around customer service.

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yvonne: 7:30 a.m. monday in hong kong. we wrapped up the anniversary celebrations, the marking of it. harbour.he victoria kind of a bleak day. betty: some allergies still. it is 7:30 p.m. in new york. .nd dependence day is coming up the market did close higher, but considerably down after the sharp tech selloff, i am betty liu in new york. yvonne: i yvonne man in hong kong. you are watching daybreak asia.

first word news with rosalind chin. markets well as the government said it would not accept the demand under the saudi led oscillation -- isolation. they had 13 demands including cutting ties with iran and closing al jazeera tv network. qatar is not afraid of the consequences. will sign a deal monday to develop the biggest gas field in collaboration with two other people. liquorll control the 1% while the other group will have a biggest gas deposit which it says with qatar. -- it shares with qatar. the trump administration wants to separate repeal and replace components of abolishing

obamacare. they said the president wants to pass the bill soon and is working to convince republican critics. the majority leader mitch mcconnell hold the health care bill consideration, facing opposition from goods and services and moderate republicans. macau miss estimates last month as concerns grow about regulations. an 11th straight month of 26% to $2.5lmost billion. economists' median estimate was for a second rise. the stocks rallied 30% this year through friday. has lifted the u.s. band of laptops flying to america from abu dhabi. themessage comes from department of homeland security making ground measures. people must pass through

immigration and customs at a special preclearance section in terminal three. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ we are counting down to the major market open in the asia-pacific. let's go to the market editor adam haigh joining us from sydney. multiple lose we have seen, the euro and yen, the dollar yen. what does this mean for investors and the overall japanese growth story? good morning. clearly in tokyo the result is from -- if puts shinzo abe in more of a bind. there was already talk of him needing to make a cabinet onhuffle, which some people teams have said will be coming

in august if not september. so this and to his -- adds to abe's problems, a very heavy defeat for his party. we did see additional strength in the yen dollar, back to levels from trading. clearly the currency market investors are back on some of that, looking through this. but it adds to the overwhelming feeling that shinzo abe showing his support has waned somewhat. abe's closeo one of advisers who has made comments in the last 24 hours, saying he serve kuroda should not out the end of his term the bank of japan. forith it in a tough place the japanese story is a difficult place at the moment.

much, and we are awaiting the tankan survery coming out. adam haigh with the set up for what to look out for in asia. we are at the start of the second half of the year. in case you had not noticed, there are certain assets done well, others not done well is the dollar. the dollar has the worst start to the year. since 2006, the first half of not get over for the dollar bulls. it could get worse. i want to pull up a chart, btv 561. pulling up the currency, has done better than the dollar, the mexican peso, remember the wall? also the euro here has outperformed the greenback. the real reasons for this. you can imagine what they are.

the unraveling of trump trade and the fed rate hike story. looking at the bloomberg function showing a very small chance we will see another rate hike in the next meeting. and it seems like other central banks are hiking rates. that is calling the dollar to weaken. it may not be a second half at all for the bulls. yvonne: and especially for the euro bulls, we will see if there is upside. lifted -- people might have misinterpreted that move. he talked of fx and bonds as concernsuse of all the in the earlier part of the year about how we turn into a bear market, it has not exactly happened just yet. here is my chart, btv 480.

the u.s. 10-year gilts, we have 2.30%,g a little bit, but we have seen it go up at the end of 2016. that was 2.45% for the last part of 2016. we are posting it to 3% right now -- 2.3% right now. despite what we heard from jeff earlier, it has not translated. so far you mentioned the trump trade has deflated. the other inflation has not happened. that is -- the market is doubting the fed's hawkishness. they are trying to reduce the debt. you see the blue line, quarter four, we arehat -- qu

down to 3.4%. say some ofn, they the officers are saying, you will see 2% or 1.5% before you see 3%. and jeff was speaking over the weekend saying the 10 year yield will be at 2.3%. if we break through any downtrend line, we will watch that close to it. brands andore about luxury. they are unveiling plans. the owner plans to spend it off. we got the plans from bloomberg's tom mackenzie, asking about the timeline. there is much more interest we expected from all over the world, and by october, november,

this will take off. they need to concentrate, even though the asset management is going up by four in four years. andre taking the decision giving it to the hands of someone who is missing on -- tom: what is your strategy for china. e-commerce, how do you plan to move things forward? frederic: we did a silent launch of the e-commerce platform last month. we want to make sure we are in control of our own destiny. these people are way beyond and above expectations, which led us to really think of investigating further. tom: you were brought on as ceo bally ofalley -- vision. how are we to completing the turnaround? frederic: exclusivity,

sophistication -- no, we want to be more friendly, inclusive, with the right prices. we saw a different appreciation and approach to the chinese market for the first was really the massive capital prices you would see between mainland china prices and the rest of europe. ande had to come to reality respect of the chinese, digital today, everything transparent. all of us need to reduce prices on china and europe. tom: what is your revenue target? frederic: we don't discuss that, andeven if we are 30% women the other men, we will soon be 50-50 percent between men and women, which will bring the brand in the direction of $1 billion. tom: how are they improving the

european fundamental? positive it is very from that you see the first quarter of this year plus 28% growth of chinese consumers in europe. you see the tourism coming back, you see the strong dollar inviting the u.s., the americans to shop in europe. you see russians coming back after the weak ruble. attackhas been under with tourism, and these elements, london has been , europe hasharris been under attack. in the long-term future, the mindset of the people is kind of moody and concerned by what is happening. su: that was the -- betty: talking to tom mackenzie about potential. ruling party with a

major blow. looking at the ramifications. this is bloomberg. ♪

♪ asia. this is daybreak i am betty liu. yvonne: i-95 man. as we mentioned earlier, japanese politics is something of a shakeup with tokyo failing to counter the new party. taking 60landslide, seats in the 127 strong city assembly here that keeps pressure on shinzo abe and his mp's. with other worst performance in tokyo. talking more about this thing, this was a historic defeat. how serious is this really? does that spell trouble? is a fantastic result.

what we have just had here is a smack upside the head for the prime minister and saying, get some points on the board. until we would have strong rumors of the election of the end of the year, they will have an election, you will do almost nothing. nothing is controversial ahead of that. what people want is more money in their pockets, get the economy going, get corporate profits up. as for the stock market is concerned, this is great news. betty: is his job in jeopardy? i think what we have is the children's crusade. we have koike who is good at presentation, but not managed to establish a lot. she has the market. the results from the olympics, resilience.feel

a lot of people that have never been in politics before and not the best for tokyo, but what they can say it stop fussing around with the constitution, find something to do with it, but get the economics going. the guide said it is 49%. but polls include koike, some have her in single digits. people are prepared to have exotic characters in the exotic -- the local elections, but nationally, is who puts money in their pockets, that is shinzo abe. he is pretty strong in the -- you don't have that in the u.k. hearing some comments from the premier himself, shinzo abe apologizing from the setback in the tokyo election, saying i

must accept the results and continue forward. what is the damage control for him? we are expecting this to play for national elections next year. we get a boost from fiscal spending? what are we expecting? i think those are great questions. instead of december, the elections are pushed out to december 18, and then the week tally to you have been talking about how been putting real points on the board. they have a shakeup, no question about that. cabinet, more for the fiscal stimulus which it does seem the economy needs, and it will have to take a risk doing things that are not immediately popular but that will improve

the economy. i have talking about labor. -- i am talking about labor. yvonne: what does this mean for governor kuroda? we did hear kuroda should not seek another term, saying he does not have fresh ideas. they could continue pressure with the boj. any of that affecting the face of the governor? nicholas: when you say he does not have any fresh ideas, bank of japan is doing the maximum anyone could do for supplying liquidity to the economy. so if you were to get a second term, he would not do much, but not doing any more than he is at the moment. i don't think it is the best thing at the country. what we need is a combination of fiscal and monetary, so not only print the money but also spend it. don't continue on forever.

you spend in the dips and cut in the peak, but at the moment it is a bit apart. betty: we will get more with you, the strategist at japan. we are expecting the second quarter tonkin index numbers in a moment. this is bloomberg. ♪ -- we will see how the currency reacts. ♪

♪ the second quarter tonkin numbers are up for manufacturing and nonmanufacturing. look at these. kathleen: if as an importantkathleen: survey put together by the bank of japan. it means 2.5 weeks from now. largenteresting that the manufacturing index, looking at

current business conditions improving more than forecasting. they are coming in at 17. the outlook for large manufacturers, also a nice improvement. services, nonmanufacturing is their call. versus improvement, 23% 20% in the first quarter. the outlook for services 18%anies is improving to from 16%. the survey had it as 21%. we have got weaker yen, better exports. we have fiscal stimulus in place, bank of japan being very accommodative. this is helping the actual business, business is in japan. they are getting better at it.

does not about inflation, but very important. [speaking simultaneously] kathleen: and how they are feeling about it. betty: i want to look at my bloomberg. the yen is strengthening after the essentially by proxy of the defeat for the tokyo assembly. yen weakenedhe ahead of the numbers. now you are seeing just a slight strengthening after those numbers. stay with us for a moment because i want to bring back nicholas. we just heard kathleen with the numbers here this is quite important to get real-time business sentiment, how japanese companies think about the economy. what do you think really it means, off the back we saw of the defeat of prime minister abe's party?

what does that tell you about were the economy is going and that all-important number, inflation? nicholas: what you just talked about tells me nothing. what you are talking about is proxy and the stock market sentiment, probably not the most important thing. the sentiment you talked about his basically history less noise. we are looking at the future, not backwards. what we really care about, what is good in the tankan survery, there is a wealth of information, but it is nothing like how to operate at capacity, make labor supply. they are not telling you things like unemployment rate. yvonne: let me jump in. i would like to share in another number. 2018 is tocrease for rise some 8%.

your point is taken, the labor market is kind with jobs to applicants ratio now the highest since 1974. this leaves the bank of japan where it started? nicholas: i don't think it does. ultimately you you get to a point where you have an unstable disequilibrium. you only place to get the incremental employee is from your competitor. there is not a lot of job hopping, but it is unprecedented levels. we will get the cracks will widen. you will see more job hopping. we will have a lot more replacing people with machines, which is why i recommend certain companies. it as anw do you play investor? the pressure is needed to enhance productivity.

who stands to benefit or lose out? i think that it takes a while for the kind of tightness we have got to work through. japan has not had a history of job hopping. oto, we are seeing is yam which does distribution for amazon, tried to hike prices to cover wage increases. they are giving it to another company. i got a delivery the other day, and they were saying, where do you live, which is something we never got from hamilton. of 2007, there were 3 million undelivered parcels when they did this last. what we will have is you just have to take the wage increases, which will get the companies to concentrate using people. yvonne: good to have here.

joining us from tokyo. tokyo open,the trying to see if there are reactions for the numbers. what are you watching? >> looking at gains in the markets. factory readings out in a half hour. quite a bit for traders in japan to chew on today. we have shinzo abe's party getting crushed in the tokyo election, it sent the yen higher . there could be room for more yen tokness should abe opt provide economic stimulus to gain report. at reducing the dollar yen 108.01. we are keeping an eye on toshiba . looking at the ipo.

watching fairfax media. it is no longer for sale. that is a look. trading gets underway in australia and japan soon. this is bloomberg. ♪

♪ >> stock futures signal gains for the asia-pacific, japan in the spotlight after shinzo abe's tokyo drubbing. landslide, the ldp's worst ever performance in the capital. >> china's latest hong kong connect started, giving investors access to a $10 trillion debt market. squabbling siblings in

singapore, the prime minister's family feud is damaging the city standing. the second hour of "daybreak asia" coming to live from bloomberg's asia and u.s. headquarters. important have that ,urvey showing what we expected andyen helping exports manufacturers in japan, but key ,uestions remain unanswered where is the wage pressure? and just isn't evident yet it still leaving the boj at status quo right now. >> some improvement across the board from the survey, which could be relief for shinzo abe after that setback in the tokyo assembly election, where his ldp cut in half..b.p. ar

let's get the market implications of this. a little reaction and strength in the yen, but really had as election results. let's get the latest from sophie kamaruddin. .2%ie: the nikkei 225 up after falling nearly 1% on friday. data could be a boon for the party. giving that drubbing for the ldp, spelling trouble for the election next year. as yen a stronger

speculation over the future of the boj could be a potential catalyst for dollar-yen. and dollareakness could provide support for the yen, the greenback could be and more paint since the worst start since 2006. the aussie dollar study have -- steady after rising last week. holds its policy meeting tuesday and is forecast to stand pat and expected to add to the hawkish rhetoric from central banks, sending aussie bond yields higher and prompting hedge funds to pile into aussie options, pushing implied volatility for one week options higher. sinceked to the highest may 5 on friday. volatility is picking up around the central bank meetings. traders will be getting a meeting of the ecb and fed to

chew on later this week. the views on inflation will be significantly important. other asset classes, new york extending the5%, longest rally. base metals on the rise. bank of america has cut its targets for all industrial metals except for led given the rising headwinds. the launch of the china hong kong bond connect, more than symbolic, and pmi readings from china, india, south korea, and we will get the latest manufacturing report out of japan at the bottom of the hour. you so much. sophie kamaruddin they're looking at the markets. let's get first word news. the saudi news channel system deadline to comply with its demands to end diplomatic isolations has been extended by

48 hours for qatar. monday was set to be the day of compliance to meet demands. as qatar stock market fell the government said it would not comply. connect kong china bond begins operating monday, giving investors a way to access the 10 train dollar debt market. joint confirmed in a statement of the pboc and hong kong monetary authority. it is the latest step in china's efforts to open up and integrate into the world financial system. we will discuss the new bond in 10t with arthur lau minutes time. president trump is to call leaders in china and japan to address north korea's nuclear ambitions. president xi to jinping and prime minister shinzo abe ahead of this week's g-20 and hamburg.

-- in hamburg. chancellor angela merkel has called on leaders and g-20 partners to put policy divisions aside and see win-win solutions instead she says the summer summit offers a platform that benefit the global economy. she also warned that one-sided goals could lead to in reconcilable conflicts. confusionexperienced and uncertainty as businesses and consumers attempt to navigate the new national sales tax. it unites 29 states in 1.3 billion people innocent go market for the first time rid hyundai one, many shops were closed and many shoppers stayed away, seemingly deterred by potential price changes and uncertainty over how the tax will work here it the u.s. navy has sent a guided missile

destroyed to a disputed island in the south china sea and what see as washington's displeasure at beijing's failure to rein in north korea. it passed with in any kilometers . themission may sour atmosphere when president trump beats xi jinping at the g-20 this week and hamburg. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> thank you. moodund that improving among manufacturing's. kathleen hays has been digging into these numbers. more.e >> the charts are great. the tankan survey shows improvement manufactures,

non-manufactures, exports weaker, and fiscal stimulus, now the upset for shinzo abe in this election, but interesting japanese stocks moving ahead. the forces will not be reverse easily. #7374, and what you can see in is thenel right here large manufactures index in white. it moved up from 17 to 12, a nice gain there. the outlook, not just the second quarter, but the third quarter had a nice improvement, moving to 15 from 11 comes the things look brighter. the yellow line is the big services companies, business conditions index 23 from 20. the outlook from these companies 16, alld up to 18 from

systems go, everything looking better. interesting that the outlook for the yen in the tankan is 108.31 by the end of the year, and this is all in the context of the boj meeting july 19 and 20. it is the boj survey and they use this as they look at the economy and decide what they want to signal at that meeting which is now two and a half weeks away. andusiness conditions corporate optimism are improving in japan, but prices are stagnating. that does back the question, where does that leave the boj? >> on hold. yield curve control, keep the 10 year yield near zero, by as many bonds as you need to. still, interesting last week that the jobs to applicants ratio and japan is the highest since february 1974, but the tight labor market is not boosting inflation in japan.

7942, a classic. the white line is year over year , the overall inflation figure. the one that matters the most is the yellow -- excuse me, the white one is the matters the most because that takes up fresh prices, 0.4. nikkei news reporting this weekend that with the boj may do is lower its inflation outlook for 2017 and 2018, and also for itsack a bit inflation target. an interesting story on bloomberg, principal global investors, they are arguing that , boj mayd of the year have to start talking about its

eggs that path. --is getting more global exit past. it is getting more global. the boj may have to start spelling it out. >> of potential sea change in terms of communication from the central banks, any chance a drop in inflation will leave the fed to rethink? >> three months and approved, inflation has dropped on a year-over-year basis, and the latest was personal income and spending report on friday. 2985, you aret, # looking at another classic. the turquoise line is the pce deflator. the main number of here comes 2.1, first time in five years it top to the feds target of 2%, now down to 1.5, the core is

1.4, clearly heading in the wrong direction, so that is the big question now. a 16% chance of a fed rate hike in september. maybe they will start reducing their balance sheet and december, maybe hold off into a rate hike in december, but as inflation continues to fall, that will be tough. things on theof calendar, the rba meeting on tuesday is important. hike rates,y will but if everyone is turning more hawkish and the fed is leading the way, will be rba indicate that it too is moving in that direction mark fomc minutes, looking inside the fed and whether thinking about the n ext rate hike. then we get the u.s. jobs report out on friday, not just jobs, but wages.

we want movement there, but we are not seeing it there either. >> thank you. let's bring it back to japan, that new poll putting the japanese cabinet approval rating at 38%. the survey comes as prime minister shinzo abe's ruling party was well beaten and a local election in tokyo. from theeard comments prime minister saying he will try to move forward as the ldp is projected to win the fewest seats and the capital. ms. bring in our japan and government reporter from tokyo, isabel reynolds. what went wrong here? visit come down to domestic politics with this national security bill which has been controversial, favoritism scandals, or is it telling us something more in terms of the economy? this is, i don't think about the economy at all. tokyo's economy is doing pretty

well. there are two jobs for every applicant in tokyo, so the but theis not a factor, ,hing that shocked both sides the ldp did not expect to be beaten so badly, one factor is the power she has built up in the capital over the year that she has been governor, and the other one is the ldp, abe, and the cabinet shooting themselves in the foot. the way they have dealt with the scandals is seen as arrogant by the population. they felt they had not been investigated sufficiently and so they are expressing their anger at the ballot box. >> what does this really mean for abe himself? is his job on the line? what about abenomics and his ability to carry it through? >> this will be a warning sign to shift his focus back

to abenomics. herwill probably stay in job as tokyo governor at least herl 2020, which is when term is up, so she does not present any immediate danger to abe himself, but it will be harder to push his policies through if they are unpopular with his own party, which he has been able to do in the past. next year, we will see a strong candidate running against him for leadership in the ldp. thirdly, we will have a national general election next year that will probably weigh on the results of that election. >> thank you so much on the fallout from those tokyo elections. still ahead, the chief investment strategist says the market has the ecb all wrong. he will tell us why the central bank is a lot more cautious than commonly thought. >> up next, the china-hong kong bond connect kicks off today.

we ask find bridge what is new for investors. this is bloomberg. ♪

>> this is "bloomberg markets: asia." today sees the start of china's new bond connect program with hong kong which will give offshore investors away to access the $10 trillion debt market. let's discuss all of that with arthur lau at pine bridge investments. i'v a big day for hong kong, but is there a need for a bond connect when they have access to the interbank market. do you see this as a game changer? >> the bond connect is the enhanced version of all these measures at the moment.

i the bond connect will allow international investors who are not involved in the onshore market to have editor and easier access, but the question is whether they do it now or later. infrastructure, this is getting easy for people to invest. forhina may be the answer investors looking for some type of yield. #496, it to see these higher those --ck and then beckoning for those willing to venture. they are far outperforming when it comes to the u.s. and blue yields%, and the german in japan pretty much close to zero. stillreign ownership is less than 2% even after they opened up earlier this year, so do you expect foreign investors to jump in on day one, or will

they be treading cautiously? rising because of the tightening measures at the moment and concern about the rising delinquency and bankruptcy on shore. >> have we got past that yet? >> i don't think so. we should expect more to come given the deleveraging policies the government is aiming at. some margin, international investors would probably be more cautious. investing onshore take some time and you have to figure out how .o hedge the currency risks the absolute yield is higher, but on a neutralized basis, it may not. there are other considerations like that. >> given some of those numbers and the hesitation you are

seeing from foreign investors with existing channels, do you think officials have rolled this out too early? should they have her dressed some of these questions before rolling this out? thing is that it shows the commitment of the fishing government to open its onshore capital market. the chinese onshore market is one of the markets that is too big to ignore, and they are opening up. it does suggest about the delinquency and the currencies, i think people will take a medium to long-term view depending on which sector they want to go into. go to treasuries instead of the bond, and that's why we don't think it is time for us to invest. >> the president is saying this .s a gift to hong kong

there is some anticipation that some of the banks participating in this might see some higher income. are they going to write off the bat? will this be lucrative for some of those banks in hong kong? offshorecan invest in and have other options. if you are investing in the offshore government bond versus the sovereign income bond, you gain because kerry is higher, but basically neutral in terms of fx, so it depends on what kind of investor you are. because of this bond connect and further opening up potentially the bond index wider will improve those onshore bonds and , just whatond index the msci has done for equities, so that is the second wave of demand. >> in terms of the makeup of some of these foreign investors

we have seen so far, what do you make of the quality of some of these foreign investors and the them?ity among is there a not diverse money going into the chinese market? previousbm in the scheme was limited to five types of institutional investor. connect is open to all investors, including retail investors, so the quality of the investor will bury. thaniew may be different the institutional investor, but you certainly have a broader base of investor. >> we talked about the concerns among the foreign investor community, capital controls, lack of liquidity, ratings from mainland credit agencies, skepticism of ratings. this chart is the yield curve for the china sovereign curve since the last midyear itm.

some inversion and this curve, some say this is a lack of liquidity, and some people have concerns. with this be a hiccup for foreign investors? >> that is one of the concerns for an national -- for international investors like us. the chinese sovereign bond toket, it is difficult increase liquidity even though the market is big. at some of the data, they are adjusting for the foreign investor. >> great to have you. coming up, plenty more to come. this is bloomberg. ♪

>> let's get a quick check of the business flash headlines.

fairfax media has pulled out of talks with tpg capital after neither group submitted a binding offer. the company says it is proceeding with its own strategy. reported pulmonary full-year earnings of $205 million, in line with estimates. >> toshiba preparing to raise money by this thing it switzerland-based energy unit. the first steps towards an ipo and's or arc may be made this week, although tissue that is still discussing whether a sale may be preferable. andis advising toshiba talks have been held with several potential buyers, including goldman sachs and on next corp. between the u.s. and china as the u.s. sends a warship to the south china sea. a lot to look ahead to with the

g-20 summit in hamburg, germany this week. a potential meeting between xi and putin, as well as trump and president xi jinping. this is bloomberg. ♪

>> a dark, gloomy look to the lion city this morning. you "daybreak asia" are watching "daybreak asia". let's get to first word news now. willind: philip hammond say later the government is changing its tune on brexit and use a speech to business leaders are adopting as realistic tone following the snap elections. splitns about an abrupt from europe were not be discussed.

iran will sign a deal on monday to develop the roads biggest gas field in collaboration with total and china international petroleum. 51.1%, whilentrol see in pc will also have an interest, and iran, 19.9%. the trump administration is considering separating the repeal and replace component of abolishing obamacare. white house says the president wants to pass the deal soon. toldweek, mitch mcconnell the senate health care bill from consideration, facing opposition . revenue in macau missed estimates last month's concerns grow about tighter gambling regulations. it follows an 11th straight month of increasing revenue.

wereer, median estimates for a 30% rise. almost 30%ks rallied this year through friday. the launch of the latest bess x mission has been aborted -- space x mission has been aborted. spacex says there will not be another attempt today. the next window is monday, tuesday morning and asia. tonch control has yet reveal what caused the delay. the u.s. has lifted its ban on laptops in the cabin of planes flying to america from apple dow dhabi.bu global news 24 hours a day powered by more than 2700 journalists and analysts in more

than 120 countries. this is bloomberg. >> asian markets are shaping up, sophie kamaruddin has more on the early going. in the early session, asian stocks edging higher with the exception of shares in sydney, down .1%, falling for a second day, but korean shares headed for a fresh high, the kospi up .2%. as traders digest the latest japan, the out of nikkei adding .8%, the yen fluctuating, paring earlier gains of .4%. rising,and with oil energy shares adding .8% in tokyo, and leading gainers when it comes to the breakdown by sector. taking a look at movers in

some, i want to point out sectors. have yamaha corp. rising to the highest in at least a year, the stock up 11% so far in 2017. one of japan's largest contractors gaining momentum this morning. they have hired nomura and mitsuko for a bond sale. taking a look at the laggards. clinical trials for a program did not meet the market.

toshiba falling for a 10th straight day amid low trading falla them, the stock down 6.4% today. 2.25%, tradingn volume quadrupling this monday. >> thank you. china has hit out at the u.s. after the trump administration sent a guided missile destroyer near a disputed island in the south china sea, another sign of renewed tensions between washington and beijing. we have not talked to much about the maritime tensions recently. it has been mostly north korea. is this the ending of the xi -trump honeymoon? a ship senthe miles of anutical island between the philippines and vietnam in the south china sea and claimed amongst others by china.

chinese state media and the government hit back, calling this trespassing by the americans, saying they dispatched their own ships and planes to monitor the u.s. ship as it passed through this area. this is in the context of other areas within the relationship thaten china and the u.s. are potentially putting tensions on this relationship, whether ort is the south china sea p do we had those sanctions on a chinese bank that had ties to north korea, and a couple of people linked to that bank as well. and then you have this proposed deal for $1.4 billion of arms to be sold to tie one -- taiwan. it is smaller than some other proposed packages, this arms deal, and does not include some equipment the taiwanese had hoped for, but the timing is of interest as well p or do have potential tariffs on chinese

steel. -- as well. we do have potential tariffs on chinese steel. this comes after this meeting and warmer relations and mar-a-lago, florida. >> speaking about meetings, heading toi is russia today, so tell us about the significance of this visit. significant in the trade context and the security context. 10 billion to ink dollars worth of deals, trade, media, education, energy also important. on june 29, we had a deal by a beijing group called the beijing gas group that bought a 20% stake in an oil and gas field

for $1.1 billion. the energy trade between russia and china is very important. tradeis russia's largest partner, looking at $200 billion by 2020. they will also be talking about security. they have signed a deal on mid military cooperation. the russians say they are drawing up their own plans for north korea and coordination with china comes a watch for details on that issue. there is the belt and road initiative, china's flagship project. they are hoping the court nate with russia as russia has its own eurasian union it is pushing, so potential friction, but potential for further partnership. that will be happening monday and tuesday, when president xi jinping will be in moscow, then germany and the g-20 meeting on

friday and saturday. >> lots of important meetings. he will be busy on the road. thank you so much. in singapore, the prime minister will be addressing the family dispute in parliament after that coral spilled into the public sphere. by his younger siblings of misusing his position to advance his personal agenda. chiefuth east asian international correspondent has been following this saugatuck -- saga. tell us what this is about. haslinda: at the heart is the estate of the founding father of modern singapore. will, he stipulated his how should be demolished after his death, but the current prime minister's elder son is accused by siblings of trying to block it to exploit their father's legacy for his own political gain.

he has denied all allegations. here is what he said. he apologized and said he deeply regretted this dispute issues with the singapore and reputation. he will address parliament today at 11:00 a.m. local time. once a full public airing to dispel any doubts. it all started a few weeks ago when his younger brother and sister took to facebook, saying they had lost confidence and trust in their brother and decided to leave singapore as a result. what is worth mentioning is that this family feud has taken singaporeans by surprise. there is great unease in the country. among the political elite are almost unheard of here. >> it is a rare type of family tot publicly displayed

everybody, but he think it has any market implications or it impacts singapore's benchmark at all? haslinda: the market has been unscathed, no reaction, no selloff. holds little threat to the country stability, even though it is unprecedented. political observers say confidence in the government and leadership is unlikely to be immediately affected by the spat. itsruling party retains grip on power and boosted its and secured more seats in parliament at the last elections. in the words of the prime minister, imagine the anguished this would have caused before prime minister if he was still alive. >> a look ahead to that address a little later on. coming up, the dollar kickoff 2017 with its worst start in a decade and some say things could be worse in the second half. we will ask why, coming up next.

this is bloomberg. ♪

>> this is "daybreak asia." >> were focusing on the second half and what it means for the fx market, the dollar facing a parentless start, friday brad bringing the latest payroll numbers. too manyt reacted positive surprises. #697, the worst start to the year for the dollar , finishing the first half on a four-month losing streak, wiping out all the gains since the election. , you look atr more

this economic surprise index quite a bit, and what does it tell you? what will be driving the dollar? willoughby of the washington, d.c. or hawkish comments from janet yellen? >> both. there has been expectation building up, and the trump agenda will not be in place anytime soon. of the reasons why the dollar rallied after the presidential elections. we have seen some comments from janet yellen. she has been referencing the expensive vibration in u.s. assets. this is all negative for the dollar. >> even if we get a shrinking of the balance sheet, it do you think that will have any kind of boost for the dollar? only if the ecd ratchets down its expectations.

my expectation is the ecb will become more dovish, but it will take time. until then, we will see pressure on the dollar. a on the back of that, that's great segue into this other chart on the different currencies. 5610 my terminal, you can see we need to see more dovish from the ecb because the euro has been on this strengthening trend, the dollar, the blue line here, weakening as that trump trade fizzles. the peso has risen and outperformed all of them. how does that make sense given rhetoric coming out from trump? what do you make of a chart like this? >> you are right. the peso has been an interesting dynamic.

, and was a lot of rhetoric not a lot of it has come into play jet. yet.ay it has been trump shooting in different directions. we have not seen any reality on mexico coming through. do you think what is being priced in right now, putting aside the peso, but the other currencies, the canadian dollar, currencies where there is rising anticipation of rate hikes. there is anticipation and reality, do think central banks can deliver the rate hike these currency movements are indicating? >> i think we will have to differentiate it here. the bank of england and the bank of canada, there is a case for a rate hike, so it should be easy

to build that case. thecomplication start on fed and ecb because the fed is starting to talk about financial stability because inflation is weakening. and bankank of england of canada more confident they can deliver the hike. >> how about the fed? >> the balance sheet reduction with the rate hikes. we saw the recent numbers on corp. eci. don'tst they said they care about inflation, i think they will have to balance the situation carefully by normalizing the balance sheet and pulling back from the rate hike for now. >> leading up to this china bond connect in hong kong and couple of minutes, do you think that has any applications for the yuan and it will continue to strengthen? aret can help, but these structural developments as

chinese markets are opening up. foreign ownership of chinese 1.5% ifurities is low, you look at onshore markets, but it is a gradual development. with msci inclusion, there are baby steps for investors to come back. >> we are looking live at the exchange about 40 minutes away from that launch. in 10eremony begins minutes, china calling this a gift to hong kong. i want to mention what we have seen in the yuan recently. #9331, traders continue to push it below that fixing. during a certain time of the day and china, you see movement towards strength. pboc is watching and there is some intervention. do you see the central bank will continue to push and have an

influence on the fx market? >> certainly. undertones are ,oming from the dollar side because it has been under dollar pressure for some time. critical for us is the balancing of growth and financial stability in china itself. last year, there was quite a bit of stimulus put in place. after the national congress, we will have a clear idea of policy. >> finally one question on the yen, i was asking about central banks and rate hikes, if one central bank is not going anywhere, it is the boj. do you think they will be pushed by the tightening around the exit stimuluso this year? >> it is unlikely. inflation data in japan is nowhere near the target.

so far, the yield control is working well for them. they have been generally exiting at a slower pace. that may slow down a little bit. ultimately, i think they won't have to keep policy varied if they have any chance of hitting those inflation targets. >> thank you very much. you can get around of of the stories that you need to know including that one to get your day going in today's edition of daybreak. bloomberg subscribers can go to dayb on their terminals. also available on mobile and the bloomberg anywhere app. you can customize your settings so you only get the news on industries and assets that you care about. this is bloomberg. ♪

>> this is "daybreak asia" in hong kong. >> a quick check of the business flash headlines. financial review says facebook has been granted a patent to roll out peer-to-peer payments. the afr says facebook declined to comment about whether it intends to launch payments through messenger in australia. alphabets says the eu antitrust fine will cut profit

in the second quarter by $2.3 billion. analysts expect net income of $5.8 billion. the fine is not tax-deductible, so will reduce alphabets earnings by the full amount. pushing itsized for own shopping services ahead of its rivals. >> hong kong's richest man canadian uranium explorer next gen energy and toronto by because sharing, $110 million financing from cef holdings. the deal means ki and his son can appoint one of the next port numbers. >> three former senior executives of tokyo electric have treated not guilty to charges of negligence related to the 2011 fukushima disaster. to thener chairman and

vice presidents apologize for the disaster, but said they do not bear criminal responsibility as they could not have foreseen it. the trial is expected to last for more than a year. tepco has not been charged. >> the third installment and the despicable me series topped the box office, however it was an unimpressive win and a summer of duds from hollywood. had expected to take of $89 million. sony's baby driver was second with $21 million in ticket sales. >> that is almost it from us here on "daybreak asia." time for a quick look at what is coming up. athaad: we will be looking the china bond connect. the hope is we will see this huge market worth trillions of dollars opened up to the world, seeing how we might see the

compression between yields on the 10 year u.s. treasury and the china treasury bond, converging here, looking at that. in 24l have a gong minutes and a few speeches as we get this all underway for the china hong kong bond connect. >> looking ahead to that ceremony, but the tankan looked positive as well. rishaad: nonmanufacturing weaker than expected. there is a lot of pressure on shinzo abe. >> especially after the weekend. rishaad: big surprise for the party rung out to a by the tokyo mayor, a political fight. people talking about a fresh face needed at the boj, governor kuroda's job is not on the line, but should he be seeking another term? to caveat that by saying most economists say he should actually state put. the chief japan

economist from credit suisse joining us in 15 minutes or thereabouts. bondu're talking about the markets are well looking ahead to the china bond connect. do you think we will get much appetite? rishaad: that is the question. we are split on this. when we saw northbound on the stock connect, it took white a long time before people were actively using it. looking at the bond connect and the search for real yield with goldman sachs. counting down to that hong kong-china bond connector that is it for "daybreak asia." this is bloomberg. ♪

haidi: it is not :00 a.m. in hong kong. i am haidi lun. rishaad: i am rishaad salamat coming to from bloomberg's headquarters in asia. this is "bloomberg markets: asia." ♪ haidi: asia pacific markets edging higher as we start the second half. equities flirting with a record in seoul, korea. rishaad: confidence on the up