♪ betty: north korea raising the stakes, confirming the lot -- missile launch was indeed an icbm. tonne: pyongyang said it was america on independence day and that there will be more to come. back, washington firing ordering joint ballistic missile drills. yvonne: while russia and china city will collaborate on the crisis, -- ,"tty: this is "daybreak asia

i am betty liu in new york. it is just after 7:00 p.m. yvonne: it is just after 7:00 a.m. here in hong kong. i am yvonne man. on southeaking news korea, their current account balance for the month of may, coming and higher than what it was previously, at $5.9 billion. that is quite arise from the month before, $3.9 billion. going to help in terms of economic relations between south korea and the u.s.? it is continuing to be a rising account surplus, a thorn in the which has caused to say that the south koreans are manipulating their currency, suckingexports out, that out of the united states, so to speak.

inse numbers, not goods terms of economic relations between south korea and the u.s. we have seen with headlines and north korea, they will have to work closer to contain what seems to be enough collating crisis in north korea. korea --t seems south i guess they have to deal with much more now, geopolitically, then politically. comments from kim jong-un, saying an icbm capable of reaching the u.s. by this year. market jitters that we saw as soon as they got the news late yesterday in the afternoon. looks like we are set for another jittery session in asia. let's take a look at how new zealand is trading so far. slow going when it comes to that nz. australia, we did see that asx 200 bounceback, today slump,

probably the only market that was rising yesterday, up 1.75%. oil up for a 90 day. 08 for the aussie. also, the aussie yen had a pretty good run. that rba decision. we did not hear hawkish comments, as expected. that is seeing weakness there. pointing toes, losses here. slight gains, we are seeing futures down 0.7%. 113.11 for the dollar-yen. escalating tensions in north asia with the latest developments coming out of north korea. also, bank of thailand decision later. the hong kong open is one to watch every to the hang seng now

1.5% from yesterday. tencent.y in betty: certainly an interesting op-ed they came out on tencent. we will dig further to that story. our top story, the stakes have been raised dramatically in korea, with the u.s. confirming the north the did indeed test an intercontinental ballistic missile on the fourth of july. rex tillerson tsonga represents a new escalation of the threat to the united states, our allies, and partners in the region, and the world. he said the u.s. "will never accept a nuclear armed north intends to hold them accountable." korea's news agency says the u.s. will not like its gift on independence day. he intends to create an icbm

capable of reaching the u.s. this year. let's bring in our seoul bureau reporter. it is moving quite quickly. how will seoul respond to this? peter: moon has announced there anti-ballistic missile test drills with the u.s.. they have considered other options, including increasing sanctions. asterday, they convened national security council, likely to have another meeting today, considering the missile has been confirmed as an icbm by the u.s. a lot of reaction happening today. we expect the markets to move on this news. whenrday in the afternoon north korea said they had , thessfully tested in icbm

korean stock market declines. we expect that to happen today, as well. betty: we did see the korean stock market, the kospi, fall a little over 0.5%. is it surprising it did not fall further, given the pretty significant change in events here, peter? initially, most folks probably thought it was in intermediate missile test. that has happened friesen -- frequently. markets have not reacted to those because they have often happened, they have been frequent. later in the afternoon yesterday, when news broke out this was likely an icbm, a significant step forward for north korea, that is on the market reacted. but it was late in the afternoon. we will probably see the residual affected that today continue.

anticipate some market movements in about an hour. yvonne: we continue to see the yuan weakening this morning. thank you so much. north korea will surely dominate pings as president xi jin meets leaders in hamburg for them g20. vladimir putin, as well. we are following those developments. steve, what do you make of it so far? especially the timing, where we are supposed to see so many leaders meet with president xi, putin, and trump? steve: forget the north korea stuff right now, china is russia's biggest trading partner. they signed a number of agreements for oil and gas distribution, as well as height the rail. -- high-speed rail.

let me talk about some of the things they are likely to conclude before the joint statement on north korea. they will likely set up another big fund, a development fund, of $10 billion for joint projects. that is on top of another fund they previously set up with of the sovereign wealth fund of china. that is the china russia investment fund. they will be doing a number of other things, including space exploration, exploration of the moon, but it is all secondary. it is way down the list, compared to what is happening with north korea. -- did a joint statement, saying kim must halt missile launches and military exercises. theia and china saying, statement, the claims of violate unn icbm security council resolutions. a call from the u.s. ambassador of the united

nations, nikki haley, for a closed-door session of the security council. russia and china are permanent members on the security council. two of five. have veto rights and sway in resolutions. they are major participants in the previous six party talks for north korea. key players, vladimir putin and xi jinping. tell me how north korea is going to be in the backdrop or hanging over many of those discussions? stephen: it is going to be hanging there, sticking out like a sore thumb. betty: the elephant in the room. stephen: absolutely. xi jinping is the man right now. he is having talks with vladimir putin, as we speak. he will be speaking with angela merkel, part of his pivot to europe. if the u.s. is indeed retreating as its role as a global leader, identifiedhas

germany and and angela merkel as a similar voice for globalization. ater in the week for them g20, xi and trump will me, as well. trouble be talking about north korea. xi will be saying, we are doing our part. xi andcoming from beijing. trump said they have not done enough, and that is where the friction is line. the escalating tension between china and the united states, especially after the $1.3 billion arms sale trump announced with taiwan, will ruffle xi's feathers. so much geopolitics going on behind the scenes, and already tense trade ties between china and the united states. betty: i know you will stay on top of this. no shortage of tends topics for leaders when they meet. let's get to first word news of paul allen in sydney.

paul: russia is said to be pushing back at any proposal to widen oil production cuts and will oppose the idea of the opec meeting later this month. forking anonymously government officials, they told us further curbs would send the wrong message to the market and suggest the cartel and russia, they are not sure the current agreement will work. russia plans to host opec ministers and nonmembers on july 24. russia and china used president xi jinping's trip to moscow to discuss a yuan-dominated investment fund, worth $10 billion. they cited the kremlin-backed investment fund. the new arrangement intended for joint projects in the china development bank would represent beijing's interest. to -- doah --d doha had demand for kuwait.

they wanted to and ties with iran and close out to zero -- al-jazeera. they said the doha could not be expected to back down. >> we discuss the crisis in detail and i want to reiterate, that when there is one side it leveling accusations against another, that side cannot say, yes, i accept everything you say. qatar is fighting hard to keep its crown as a leading lng producers. they see australia eventually becoming number one. qatar is expected to keep the title for at least seven years after they said it would raise output by 30%. that tops australia's plans and reinforces qatar's role as a major global supplier.

bank's next ceo, incoming chairman mark tucker, considering candidates to lead operations. they have contacted him. before the appointment of all of hsbc had chosen its leaders from its own ranks, for 150 years. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. we will have much more ahead on bloomberg television. i so much, paul. geopolitical futures found her and chairman george friedman joining us from austin. just after midday if you are watching in sydney. yvonne: we'll continue our discussion on north korea with jasper kim. this is bloomberg. ♪

♪ yvonne: we are counting you down to asia's first major market open. japan futures heading higher, but dollar-yen sees its strength with more comments out of north korea. a threatening independence day gift to the u.s. 13. dollar-yen at 112. betty: yen and gold writing on these tensions. i am betty liu here in new york. we did get new headlines a few moments ago on this north korean icbm that was fired yesterday in asia. the stakes have risen dramatically, the u.s. confirming this missile test was missile,ontinental

which escalates the long-running crisis. we want to discuss this with an expert on conflict management. let's cut right to it. want?oes kim jong-un jasper: kim jong-un sees all of this as just a negotiation game. he wants to sit in a room, face-to-face, alpha male to alpha male, with donald trump. all this flamboyance, military technology displaying to the world during the holiday is just a negotiation game. he sees it as just a bargaining chip. heard by the way, we have president trump entertainment possibility of a face-to-face meeting with the leader. once he gets that, if he gets that, what does he want after

that? he wants a meeting, but ultimately, what does he want? jasper: trump and kim jong-un want the same thing -- they want to display power and create a legacy. they want to be distinguishable from those leaders before them. kim jong-un and father, and president trump and obama. they want to package a deal were both go down in history books together. self interests are shared. what i envision, if i had to advise donald trump is that, please package this in a trade agreement framework between the u.s. and north korea, or just korea, north and south. within this, you can talk about security issues. that would be the strategic approach. betty: let's dig further into that. what do you mean package this into a trade package? what are we talking about? jasper: in terms of u.s. foreign-policy, it has been hesitant in terms of dealing directly with people like kim desperate -- despots.

he is a business to go sheeter. why not package this within the framework of a trade agreement between the u.s. and north korea? that would go down in the history books and be something that would follow donald trump past 2016 or 2020. yvonne: what do you think china's response to that would be? we are seeing reluctance when it comes to reining in north korea. what are they willing to do at this moment? jasper: xi jinping of china, their approach has been the calm and steady approach. they want to deescalate the situation. they do not want it to spiral out of control. they want de-escalation, which is not too different from the u.s. but how to reach that is a huge difference between the prc and

them. they will have -- they will need a competence of solution during this g20 meeting. my prediction is that it will be more of the same. both sides need to because is, moving forward. do you thinkt these relations and what we're seeing, that he is dictating the terms of the relationship between the u.s. and china? jasper: donald trump should know was a negotiator, there is nothing of the oil as two parties together in a negotiating process. as someone could have the upper hand, but that is not the point. the point is, can both get what they want? a situation, if negotiated strategically, about the donald trump and kim jong-un can both get what they want. it does not mean one is delegitimizing the other, but if it is pivoted and calibrated in a way that both see some upside

in it. betty: jasper, do you think the north korean leader, kim jong-un , is serious about hitting the u.s. with a missile, much less a nuclear-armed missile? jasper: i think he is serious about the perception of that potential. betty: that is not the same thing. is he serious about actually getting continental united states? jasper: i do not think so. unknowns,some unknown things would have to spiral out of control. that is an unknown unknown variable. what he wants right now, in my view, the perception of being on the brink of war on the korean peninsula. that will translate into getting things you want. so far, it has worked exceptionally well. meeting they should be talking about stability in

that sense, he did. betty: this is why i am still puzzled. i hear you saying, that he wants legitimacy and that would be sitting there in a state meeting, face-to-face with the president. they are already getting aid from china. what could the u.s. give to him that he actually desperately needs? or, are you saying that he just wants that legitimacy, and if he gets that, then he will stop these missile test? jasper: i think he will stop, if he gets what he wants. the question is, what does he want? deconstructing kim jong-un is a rubik's cubes endeavor. short, i think he would stop if he gets security from his vantage point, trade and aid,

from his vantage point. the question is, what is the quid pro quo for the u.s.? yvonne: what options does donald trump have at the moment? is it just threats through tweets? is that what it has come down to? we have been talking about the redlined u.s. might have, now that we have confirmed they did some type of icbm. has the redlined been crossed? will this force donald trump to rethink his approach? jasper: you raise an excellent point. there is no pure red line. that is the problem. north korea has done all kinds of provocative acts, leading to the death of civilians. and there has not been a backlash from the u.s. or south korea. perspective,-un's you're thinking, how far can a push the envelope? the answer is, i do not know. but i will keep trying until i get pushed back.

but that pushback to be harder and more severe and unexpected than anyone would expect. with emotion, patriotism, emotional and rational factors. a canhey come into play, be cool and collected or chaotic at the same time. yvonne: jasper, great to get your perspective on all this. the director for conflict management joining us from seoul . you can get a roundup of stories from daybreak. subscribers, go to dayb on your terminal. settings,stomize your get news and industries and assets you care about. this is bloomberg. ♪

♪ yvonne: a quick check of the business flash headlines.

the writer says the u.s. government is getting involved in apple dispute with the e.u. an anonymous sources said washington has found applications with the e.u. general court over the retroactive application of state rules to apple. last year, the european commission ordered ireland to recoup money in unpaid taxes from the company. plans to sellgen cars in iran for the first time in 17 years, taking advantage of easing sanctions. they signed a contract to offer compact suvs and the passat, mainly in the tehran area. they are struggling to rebuild operations in the u.s. after the diesel cheating scandal. yvonne: more airlines expect the u.s. ban of laptops on flights to america could be lifted. turkish expects and announcement wednesday. it could be rescinded on dubai soon.

middle eastern and african airports are affected by the ban. they are talking to washington about introducing stronger security arrangements.

yvonne: 7:30 a.m. here and when -- in hong kong on wednesday. minutes away from that market open. betty: it is 7:30 p.m. tuesday. we are getting ready from fireworks in new york. not far from the offices, 10 blocks away. some markets have closed for the july 4 holiday. i am betty liu in new york. yvonne: i am yvonne man in hong kong. now, first word news with paul allen in sydney. paul: secretary of state rex tillerson says north korea did test an intercontinental ballistic missile, describing it

as a new escalation of the threat. he says the u.s. will never accept a nuclear armed north korea and intends to take stronger measures to hold accountable. south korean president moon jae-in has ordered joint ballistic missile drills with the u.s. in response. we agreed to develop our initiatives based on russia's step-by-step plan for a settlement in korea. as well as ideas from china. at the same time, freezing the nuclear capabilities from north korea on the military exercises by the united states and south korea. paul: french prime minister edward philippe says the country must break its addiction to public spending and made a speech promising government spending would fall by three percentage points of gdp through to 2022, along with $23 billion of tax cuts.

france underperformed in the eurozone, with unemployment -- the world oldest bank has one e.u. backing for a bailout. the european commission clear the preliminary recapitalization hi, whichf monte pasc means government support to survive. is struggling to fix the crisis-era legacy of $350 billion of stalled loans. >> we intended to the bank back on track. the market evaluation, which we do not fear, but believe will be positive. it will be the bank's aim to maximize its value, and the stakeholders. this is a goal that will be rapidly pursued. paul: new zealand's soaring property market posted its lowest prices in two years.

they rose 8.1% year on year, the slowest increase since march 2015. rose at theues slowest rate since november 2012. that average home price is an average of $466,000. 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 some of the major market opens in the asia-pacific. they are responding to provocations, new ones, from north korea. adam haigh is in sydney. what are we watching out for -- will be see a bigger fallout here in the market from these renewed tensions in north korea? at the moment, we not seeing a huge move in the markets. we are seeing geopolitical tensions escalate and there has

been some move of money toward safer havens. the yen and older marginally stronger this morning. but they are not huge moves. we must run a that context amongst what is happening here. developments are keeping up and happening quickly. interesting to know, the south korean market itself, tensions on the korean peninsula, muted. i love this terminal chart. extent of the south korean kospi index and how it has outperformed this year, which is an interesting thing to remember. escalations are something that foreign investors and south korea are very used to. theythe course of time, have been prepared to look through these mild bouts of risk aversion that happen from time to time, as things do escalate. the yellow line on the bottom

panel shows us, foreign investors are putting more money into south korea. they are prepared to be basing bets on buybacks and corporate fundamentals and improving earnings growth. earnings continue to be strong and it is widening out in the sectors in the south korean economy and stock market. that is the context for equity investors. it looks like we might have a fairly muted open across asia as we start the day. but it does not look like pronounced selling at this point. yvonne: interesting to see that dynamic between the kospi and the yuan. usually they move in tandem, but now it is not, given that yuan weakness. this is dominated investor's attention. goldman sachs weighed in and said it will take a war or recession to break this mold of low volatility? adam: the folks that goldman

sachs have looked over history, they have tracked the data as far back as 1928. what they say is, that historically, these periods of low volatility we have been witnessing for many months in equities and bond markets -- if you think about them vix being it multiyear lows, and market volatility, at or near multi-year lows. this is something that history shows you need big triggers to change. they spotted 14 similar occasions in that historical period, going back to 1928. of volatility tend to last two or three years. it takes big triggers to get it out, such as a recession or war or escalation in foreign policy.

it does take big triggers to get it out. this is been a big discussion point, investors grappling what it means, whether we should be worried, whether it signals investors are too complacent with stock markets that record high and volatility very, very low. for the folks that goldman sachs, looking over history, it does take the triggers to get it out of these periods. yvonne: the dog days of summer. let's focus on tencent, they have come under fire from beijing. this game was singled out by criticism from china's leading government-controlled newspaper. that led to a drop in the stocks, 4%. china getting scrutinized when it comes to mobile games and addiction. what led them to criticize tencent this time around? >> if you look at tencent in general, one of their key

businesses is gaming. said, itetty harsh, it harms children. it spread negative energy and has led to deaths. and they said it worked traditional social values. honor -- honour of kings is a similar to league of legends. they contribute more than 50% of tencent's revenue, so it is important to them. areas, they are scrutinizing closely social media. areas for the government is watching closely, gaming is to deteriorate

traditional values. ,t is being widely reported stories about people who died after gaming sessions in gaming centers. this is something the government is quite critical of. than 5%own more yesterday, and closed yesterday 4% lower. it affected tech stocks in hong kong. another fell, as well. in the long-term, probably not that bad for tencent. but some affects, immediately. it has put some caps on gaming for under 18. we saw the knock on effect in tencent, the second-most heavily weighted stock in the hang seng index. we saw that knock on effect right there. rosalind: we saw a big selloff

yesterday in hong kong in the hang seng. you look at this chart, you see that the correlation between tencent and hang seng is close. 2016 getting closer. the green a section shows the correlation between the two. the blue line is of course, tencent. this is the biggest drop since november. time, that drop was triggered by president trump winning the election in the west, and concerns about his trade policies and what it would mean for companies like tencent. they were one of the best performance in the first five months of the year. but they have struggled to stay above the 26,000 level in the past month. we will see what the rest of the month holds for them. betty: we will continue to see the fallout from the criticism of tencent. rosalind chin there on tencent. back to russia, deeper oil

restrictions. brent down this year. moscow had a meeting with opec and it allies earlier this month. remy inocencio explains the rationale of russia's saying, no more cuts. >> the reason for that, whether or not you might say, cuts may be are needed in order to support the price, is that the optics would not be good for what has been happening of the past few months or so. look at the timeline. in november, opec that the custom place. in may, they prolonged those through the first quarter. looking ahead to july, if they say, let's do more cuts, what will that signal to the market? some say it might signal a lack of confidence or put a sense of fear in their. they do not want to translate in the markets just yet. hop in the bloomberg terminal, i want to show you a bit in terms of where we are in russia's cuts.

take a look at the red line. whensince november 2016, those cuts were first made, the russian oil supply fell from 11.2 million barrels to less than 11 million. we would expect the price of oil would rise. you can see that it did. but since then, it has been down, down, down. we have given up most of our gains, your today, since then. i will switch up the terminal. this has not been good for russian energy stocks, ever since the start of this year. the blue line is the msci emerging market index. the white line is the russian index on the msci. it is the biggest player in terms of waiting on the index -- g on the index.

some people might say, since russian energy stocks have been her, maybe they do need to make adjustments, or not yet. or, not until later on. ahead towe are looking july 24, when russia in st. petersburg hosts opec and non-opec oil ministries. yvonne: the other factor is, the u.s.. they're continuing to see more doubts on whether the opec cuts will work, given the resurgence in u.s. shale. ramy: as these cuts have been taking effect, u.s. shale has been seeing this as an opportunity to take market share. hop into the bloomberg terminal one more time. take a look at the white line. the white line is the active u.s. a rigged count, rising since the middle part of 2016. we stand at 756, as of the last weekly count.

look at what is been happening with a wti and brent, falling ever since your to date. -- year to date. it is an advantage for u.s. shale. according to citigroup, this is the sweet spot, in between the red lines, the $50 to $70 mark. we see that because wti and brent have fallen below this. we see active oil recounts falling. it will be interesting to see where this goes as the price rises or falls. looking ahead to july 24, just 20 days left. yvonne: a little bit of a turn in fundamentals. coming up, japanese re-sailors relieve earnings this week. we look at the consumer sector. this is bloomberg. ♪

betty: this is "daybreak asia,"

i am betty liu in new york. yvonne: i am yvonne in hong kong. japan retailers kicking off the earnings season. spending, check out the bloomberg terminal. it continues to be quite muted. wheree 15 straight months we had negative numbers for household spending. weight is continue to stagnate, leaving inflation well below the target.bank's joining us to discuss the mood of the japanese consumer is the chief economist at japan macro advisors, joining us live from tokyo this morning. great to see you. we are expecting a jump in sales for the japanese retailers. how can we understand in terms of the state of play and the help -- health of the japanese consumer at the moment? >> the direction of earnings

would differ, depending on the countries. japanese consumption as a whole should be on the uptick. risen, buthave not it is at a 20 years low. people are no longer losing jobs, the nikkei has recovered 20,000. when you look at the fundamentals, it is not too bright. but things are getting better for japanese households. looking aings are little better, given we have seen five straight quarters of growth for japan. see when we look under the head of these retailers, they're looking for growth a broad, expanding overseas dramatically and significantly. you hear the likes of e.on sayingthey are -- eon they are cutting prices from

milk to laundry detergent. right -- saless are continuing to fall. the question is, how much more can they continue to slash prices? the promise on reflation will rise. some retail sector companies believe in it, they switched their strategy to more premium, high yield riced brands. some of the managers said, it was may be too early in a recession. prices, i think it is corporate managers adjusting to the reality. headacheow big of a could that be for the boj when it comes to inflation dynamics? in the u.s., there is a debate

recently about this amazon-whole foods joining and how it leads to deflationary pressures. inside japan, the growth has to be low. trying to believe in reflation may be too much to hope for for japanese retailers. as i said earlier, going overseas is one concrete strategy they can take on. and i look at industries convenience stores, they are doing well on that strategy. the worst fronts are the department stores. you can see that in numbers. glad you mentioned convenience stores. we have a chart that shows the growth of convenience stores over the department and grocery stores as more traditional, larger ones. it has been interesting over the last several years, the gap has widened considerably as shoppers

in japan are going to these convenience stores for things like their milk and cold drinks, laundry. that variety of products being offered is just widening. why is thisthis is, phenomenon happening? takuji: i think convenience for the changing demographics of japan. they are adjusting to a single household they do not have to cook, so they buy precooked meals at the convenience stores. on the other hand, department stores -- i think the business model is still going to the old, traditional japan, like a four or five person household, buying presents for the families. but these times are gone. what we are seeing, they are

adjusting to new realities. is it making gains? they are going overseas. of the japanese are just dying down. betty: should we be careful to mistake the rising convenience store sales, not to misinterpret that as demand coming back in those areas? it is really just taking market share from the old thinking or old model companies and bringing it to the new ones, is that right? i must say, that is correct. as i said, japanese corporations are shrinking. there is only so much each individual can spend. as you said earlier, wages are not rising. it is a zero-sum game right now. betty: thank you so much for joining us, chief economist at japan macro advisors on the

japanese consumer. one feature on the bloomberg we would like to bring to your attention is our interactive tv function. to can find it at tv watch us live in see previous interviews, and dive into any securities of bloomberg functions we talked about, become part of the conversation by sending us instant messages during our shows. this is for subscribers only. this is bloomberg. ♪

♪ a quick check of the latest business flash headlines. the shanghai units of shenhua group said their parent companies are discussing restructuring with a large, state-owned energy firm. however, they stop short of confirming a merger. bloomberg reported last month

the coal sector companies were in talks to create a mining and power giant with assets around $268 billion. china'sinsurance is biggest sure. is swelled to $6.9 billion in june, the biggest short interest in hong kong. top ranked fund managers and analysts disagreed, based on low valuation and the government spotlight, could extend the rally. betty: in a fund led by greystar real estate, a deal valued at $3 billion. they own apartment developments in the u.s., mainly on coastal regions. stockholders were receive $12 per share in cash. plenty more still to come, asia's first major market open, moments away. jitters on the horizon over

north korea. yvonne: that is right, let's bring in sophie kamaruddin, watching the opens. >> it looks like those jitters may -- the safe haven plays continues. gold on the rise. we're looking at losses in the open in tokyo. slight gains when it comes to sydney and seoul. other items on the agenda. china's pmi services update and later tonight, the fed's minutes. north korea will be of great interest. we are of course watching south korean defense stocks, which 1.2% tuesday. we are keeping an ion softbank in tokyo. they have rejected a takeover offer. they are kicking off of their earnings season this week. ryohin company among them.

trading getsas underway in australia, japan, and korea moments from now. this is bloomberg. ♪

>> ladies in german, please welcome members of the band and tony award-winning performer brian stokes mitchell. [applause] >> ♪ o beautiful for spacious skies .or amber waves of grain fo