♪ >> it is 7:00 a.m. in hong kong and we are live from bloomberg's asian headquarters. i am david ingles. welcome to "daybreak asia." the travel ban is back, the supreme court rules it can take effect during these challenges and a landmark victory for the president. in europe, no brexit breakthrough in brussels. negotiations stumble on borders with the northern irish party holding the aces. betty: from bloomberg's global headquarters, i am betty liu in new york, where it is after 6:00 p.m. this monday evening. chipmakers taking a hit on wall street, they moved to more tax cut-friendly stocks. 2017 leaders are rather unloved.

progressiverudeau's mission stalled in beijing, with sticking points on all sides. ♪ betty: david, good to be with you from hong kong there. favor,stocks today in those that will benefit from tax reform. but don't pull out the party have yet. i want to pull out this chart, g #btv 339. it is according to vanguard, the index fund company that manages almost $5 trillion has drivenot of what the markets, the low volatility, the record runs in stocks, the

record stimulus, the low wages, no inflation, that is about to end in 2018. tax reform or no tax reform. they see more volatility to come, which means they see lower returns. do not expect of those nice, juicy returns of the last few years any longer. david: absolutely. it is almost impossible to , the conducive assumptions and realities we had in 2017 continue well into 2018. it is almost like mother's womb. it is a perfect environment, but do you get it in this harsh world, it which is what 2018 seems to be like. analogy, we have been drunk on easy money, that punch bowl, for almost 10 years. it is all about to end. there could be crying into their

soup. [laughter] betty: we are using lots of different metaphors. david: markets in the u.s. started higher, ending a little lower, i believe. betty: let's check where the markets ended. you sawtek shares taking a big hit on the back of tax reform. some expectations it is going to hit some of the chipmakers. nasdaq closing lower by 1%. the dow a little higher. the s&p unchanged. it is not getting much momentum in asia. david: not at all, a good example is new zealand. they're market has been flat for three days, nothing happening with the kiwi dollar. have a look at the market open in sydney. the rba very much in focus. it is not about what they do, but how they say -- what they say and how they say it.

we are also counting down to the markets in japan and korea. i checked, when we do the math, we're looking at the kleins. japan down. a lot of it comes back to currencies, have a look at the sterling, the euro, the loonie in the mix here. may was at lunch with juncker. canada coming out with a that failure with trade talks with china. interesting to see how this session will be shaping up. the bloomberg dollar index after all these swings midsession monday into where we are at the moment, essentially looking at about the midpoint. to give you an update right here, there are lines that of bmw, gunning for a 50% increase in electric vehicles. next year, bmw in talks to add one more carmakers to an autonomous car alliance. they will talked with -- they

will talk with uber and lyft and technology.nomous in the meantime, your first word news. u.s. supreme court has ruled of the trump travel ban can take full effect while illegal challenges continue. it does not address the merits of the ban, but is a key victory for the president, they will ultimately uphold the restrictions. he can bar people from six mostly muslim nations, even if they do have a relationship with a u.s. person or institution. brexit talks failed to materialize in brussels, as a tentative agreement was delayed by the irish border. aeresa may has been given monday deadline to discuss her plan for post-brexit border. shortly afterward she and jean-claude juncker announced a no deal. plans to launch free trade talks

between china and canada have failed, with the two sides abruptly canceling a tech conference, but agreeing to keep negotiating. justin trudeau indicated one sticking point, canada wanting more progressive pacts. but the two sides are in a golden the stage in their relationship. bitcoin may face the big short. group and the nasdaq will make it easier to bet on the decline. hedge funds have largely stayed away. but we are's -- told they are waiting for them cme futures to bet against. bitcoin has rocketed, and the investment of one dollar will be worth almost 1.5 million. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am -- this is bloomberg. david: thank you. let's look at the dramatic reversal on wall street. the s&p 500 ending the day in the red.

keenan has more. su: horizon volatility. microsoft dropped almost 4%. take a look at the benchmark. brussels, an index that turned around in the final hour. the s&p also dramatic turnaround, a lot of this having to do with tax reform. the senate voting on the tax measure. the passage of the legislation early focus is away from the investigation between president ides and russia. let's get to the big movers. tech was big on the screen. but also media stocks. take a look at disney and comcast. stocks tend to favor disney as a buyer for their studio. the murdochs believe it is a greater strategic fit.

microsoft again, one of the big tex tech stocks that dropped the most 4% before the close. , the go to g #btv 56 elephant in the room is a big story. vix optionhart of volumes. friday, more than 3 million options on the vix were bought and sold. and that is a record. what the elephant is, when you have large bearish and bullish options rolling over, we need very good players expend -- extending bets. that means more volatility ahead. david: you mentioned microsoft. talk about the broader sector. tech shares, a five-week low. momentum -- there theeen a lot of pressure on

bitcoin activity and machinery. -- advancede micro. micro. if we go into the semiconductor index, you can see how it has come down in the last five out of six days. back in the bloomberg, trump trades, winners and losers. this is a dramatic depiction of financial gains. chipmakers tumbling. the white line is the financials. it is shooting higher. and the blue, the chips shooting lower, as we get close to this tax overhaul. a dramatic bifurcation in those two sectors. a lot of money changing hands. dramaticch a difference. let's get quickly to oil. it was another down day for oil futures. su: a veteran in the oil industry, if you take a look at

this chart, you will see we came back up a bit on this opec extension. it was down on the day by 2%. it has a lot to do with the fact gettingn though we are a steady climb on the production fact -- we u.s., the see a deal unraveling because of the way it is promoting shale output. the idea is to bring output down. see how interesting to it plays out. it is a complicated picture. betty: thank you so much, su keenan. the u.s. up ruling the trump travel ban can take full effect while illegal challenges continue. it came late in the day. it uphold restrictions on people from six mainly muslim

countries. here to help us break it down is joe sobczyk in washington. what does this mean, that the court has ruled in favor of president trump and his travel ban? joe: it is a technical win, but a political win. it is something he has hammered on to his supporters and others, that the courts are wrong, his travel ban was legal, and it was a big campaign promise of his. victory hem another can tout, along with the house bill in the house and senate. presumably that will go through, as well. maybe a few more shoes to drop on this. some legal challenges remain. something the president can probably proclaim. he is going ahead with what he promised. betty: a technical victory, still a victory for him.

let's talk about tax reform. that looks closer and closer to victory after the senate passed their reform bill on early saturday. who are going to be the key players to watch for as they get this committee together to gel the senate and house version together? joe: there are several players in this. the house will be appointing its conference committee tonight, and the senate may do so later on. mostly these will be the heads of the committees that had a big hand in developing the plan. you could see kevin brady and --in hatch, senator tom soon tom thune. he has been a big player in this. this will be worked out among the leadership. it is not an open, democratic process, where a number of men and women sit around the table hout their differences.

the republicans have a much thinner margin. david: the third item on the agenda this week are these budget talks. talk about progress in hammering out the differences. tell us what that looks like. joe: on the budget, december 8 is the deadline for the funding to run out for the government. and it seems likely to go through. it the house and senate will clean, continuing resolution. it will continue government funding for a few weeks, no extraneous issues. nothing to do with immigration or obamacare. then it will come out and try to work out a deal on a few other things they want to take care of. democrats are pressing for an agreement on the so-called dreamers, the people brought to ,he u.s. as children illegally

and were given protection against deportation during the obama and -- administration. they want to deal with that before the end of the year. part of the tax bill, susan allins among others, wanted passage of a law to stabilize the obamacare markets. there are a bunch of things wrapped up in that. we are at going right up to christmas, december 22. republicans would like to do another extension, getting them into january, so they can go in and have an entire month to negotiate these efforts on these other issues. but it is unclear whether democrats to have a little leverage in the senate, whether they will go along. sobczyk, thank you.

the conversation continues around taxes, the budget, the debt dealing. advisor to a former imf and another for his take on the divisions between house and senate republicans. david: later, trade talks between china and canada. we will find out what is next for justin trudeau in beijing. this is bloomberg. ♪

♪ are counting down to the open of the markets in tokyo, futures indicating a decline at the open of about 0.33%. on the lower end of the past 24 hours range. we won't getions, the risk back on. you are watching "daybreak asia ."

i am david inglis, here in hong kong. betty: the republican tax plan that passed through the senate late last week is getting positive reviews. jeremy siegel told bloomberg the corporate tax cut is a big deal. >> i think what we have now is a positive reaction to the tax cut. it is a big deal. the corporate tax cut is a very good thing, positive. i think the news is out. no one wanted to sell before the tax cut got through. betty: with us to discuss this is university of california berkeley professor, who has a book titled "how global currencies work." thank you for joining us this morning. do you agree the corporate tax cuts are a big deal? deal, but ia big think they are a bad deal.

time, the worst possible time, to be cutting taxes and stimulating an economy that is already at full employment and growing at capacity. i think volatility will remain the same. the markets will get a sugar high in the short run and then realize we're blowing up the trade deficit. they will get back what they got. betty: how soon could that reckoning come? barry: we saw within the day the markets are of two minds. investors cannot figure out whether the positive implications for profits or negative implications for economy, that we won't be able to cut taxes in a recession, because we have already done that. we have already been there. the federal be hiking interest rates faster. a bigger deficit will feed president trump's protectionist

instincts. all of those things will be bad for the economy coming forward. betty: getting back to corporate tax cuts, will they be stimulative to the economy? will they take the money they are getting from lower taxes and putting it back into the economy? barry: i do agree that some of it will be transferred into investment. but there is not a lot of spare capacity to produce investment goods. the additional spending will come from foreign sources, which means imports. that will not be great for the u.s. economy in the short run. and it will antagonize the president, who sees the trade deficit as the indicator of how well or poorly we are doing. david: that takes me to the core of the issue. betty was talking a little about it.

there is never a perfect time to ease the tax burden, unless it unlocks something that is not there in the economy. is that what is happening here? should we hope that eventually growth will outpace the debt? barry: that is the idea. got waslem is, what we a tax overhaul and not a tax reform. we did not simplify the tax code. we have those complicated pass through divisions, among other tongs, which are not going lead to a more efficient allocation of resources. if there is additional spending in the u.s., i do not think it will unlock anything. us banks and analysts tell 0.2% for the next couple years. i do not think that will make a first order difference.

what will is the impact on inequality. we know how that shows up in the polls. david: a lot of these discussions surrounding the need to change the tax regime -- when you look at the cash corporate were holding on-site, does this raise the incentive to repatriate that outside and decide what to do with it, when you bring it back in? barry: one thing this tax overhaul will do is cause it repatriation of broad, which firms will use for firm buybacks. good for the stock market, but not the economy. interest rates are low, firms are already swimming in cash. it is hard for me to see how there would be a big impact on investment. betty: i want to talk about the currency market. you have written extensively about the dollar and the

interconnectedness of the currency markets. i want you to weigh in on the bitcoin debate going on right now, and whether you think all these calls about the demise of the dollar, is that related to the rise of bitcoin? barry: no, i do not think it is about bitcoin. it is more about rivals to the dollar like the euro and the renminbi. bitcoin can go up, but it can also come down. i think your earlier segment was on the money. now there will be good ways to sort bitcoin. in terms of bitcoin volatility, yet.n't seen nothing david: assuming you are correct, we are in for a wild ride. betty: fasten your seatbelts. [laughter] david: i am fastened right now.

be sure to check out his new book, "how global currencies work." and don't forget our interactive tv function, tv . you can watch us live or watch past interviews. dive into any securities we bring up here on the show. you can hear conversations, send us instant messages doing -- during our show. this is bloomberg. ♪

♪ check let's get a quick of your latest business flash headlines. china's hna group under investigation in germany, whether it accurately reported its holdings in deutsche bank. in switzerland, they were judged to have given false details. hna says it swiss and german laws are fundamentally

different. -- alleging look the casino operator failed to make disclosures about the risks of doing business in china. it relates to a sharp drop in the price last year, after employees were detained in the country and accused of illegally promoting gambling. they say they will vigorously defend themselves. said to be planning an ipo with the market valuation of at least $50 billion. bloomberg is told the new deal will come in the new year with hong kong as the most likely post. xiaomi was once seen as the most valuable startup in the world. they are unsure if they can hit the $50 billion target. after its astonishing rise,

bitcoin now more valuable than the economies of new zealand and romania. short sellers may soon be circling, if not already. this is bloomberg. ♪

david: it is half past 7:00 in the morning. tokyo and seoul. we did manage to snap the five-day decline on monday. you look at the futures on tuesday, 111 points on hang seng futures. let's see how everything comes together when everything opens up in hong kong, give or take about two hours from now. anchor: a short respite from the selling. 6:30 p.m. monday here in new york, and markets did close generally lower to mixed, i would say. a lot of the tech shares got hit on the back of, interestingly

enough, tax reform, and that is what really drives the market's down. i am betty liu in new york. david: and i am david ingles in hong kong. an update of the first word news. >> america's newest warplane as exercise inbiggest south korea. the f-35 is part of the vigilant drills which last until friday. two dozen self jets are taking part along with 12,000 troops. north korea threatens serious action in response. germany is closer to a new coalition with the social democrats approving talks on whether the party can support chancellor merkel. spd leader martin schulz says the talks will be open and are expected in the coming days. the move needs the endorsement of the party bank and file -- rank and file. philippines may regulate

initial coin offerings. tertral bank governors nes speaking with ipo's. the use of cryptocurrencies is rising for remittances. the sector is now worth about $6 million per month. three times the level of last year. aviation, has been accused at an extradition hearing of project funding his formula one team. the loans were linked to his defunct airlines. he borrowed money to the sailing carrier under false pretenses and used it to prop up his racing team. 24 hours a day, powered by more than 2700 journalists and analysts in more than 100 20 countries. this is bloomberg. david: thank you for the update. we are counting down to the open.

sophie is here with us to give us a sense of which direction we are headed at the open. mean, are we going to see more selling here in asia? >> it might be one direction. tuesday. a terrible tech stocks falling over 1%, tracking the drop we saw for i.t. shares on wall street. there is a dollar to contend with. futures in tokyo and seoul pointing lower. when it comes to what we have in asia for a catalyst, potentially, the latest services pmi, which is expected to continue showing moderating , so notnto the year much in the way of catalyst, perhaps, here. showing you themes we are watching in japan, these include defense related ways. the country is boosting its missile defense to face north korean risk. theh energy stocks as nikkei reports the four oil majors are on track.

toyota sees u.s. sales fall into 2014 levels. posted a monthly record high in sales. david: amazon officially -- betty: amazon tapping the growing online retail market. how are retail stocks faring the week of amazon? sophie: they are not taking it very well. consumer stocks are under pressure. this has the prospect of a shift towards online shopping. we have seen this lead to analysts cutting profit fo. this move is advantageous for retailers that can leverage the film and platform. checking on the board to see how retailers are failing today, you have party norman -- harvey norman falling. they seem to be the most exposed to amazon's entry while players like woolworths, kohl's, are expected expected to have less of a material impact.

waiting on october retail sales for australia, so that will keep them on the radar today. betty: we will be keeping our eye on australia retailers as you mentioned the data coming up your nose or tipping as a free lunch took on a horny meaning in brussels as the breakthrough stumbles on what to do with the irish border. theresa may interrupted lunch with jean-claude juncker to call the northern irish party supports her before announcing no deal. our global economics and policy editor kathleen hays with more. so close, but no cigar. but not there yet. it was pretty surprising because one of the reasons that theresa may, prime minister of the u.k., thejean-claude juncker, commission president, made this lunch is because she was so sure, they were so sure, they would be a look to have this lunch. it is there bit deal. the biggest sticking point now is ireland, because if the u.k.

leaves the e.u., well, then, you end up with northern ireland leaving, and the rest of ireland staying, and no one in ireland wants a hard border. this is what theresa may is trying to hammer out. apparently, she thought she had a deal hammered out as recently somehow, morning, but it unraveled by lunchtime. here is what is very disappointed jean-claude juncker said after that. efforts andur best significant progress, we and our teams have made over the past days issues. it was not possible to reach a complete agreement today. barry: as you may recall, -- kathleen: as you may recall, theresa may lost so much power noing to form a coalition, longer majority/minority etc., etc.. opposeocratic unionists

a plan that would give special treatment to northern ireland, allowing them to keep a trade agreement with the e.u. that others cannot. that is still in the works, jean-claude juncker is confident that you can reach an agreement by mid-december. we will see again how this more irish question plays out. the european court of justice is also an issue because the e.u. wants to make sure the specifics in the u.k. will be governed by the u.k. court of justice. that.k. governing group are not so much in favor of this, so of course, this whole question of serenity and who is going to be in charge. that is an issue. is more little funny thing that now that theresa may is trying to find a special deal for ireland and northern ireland, all of a sudden, a top scottish official and the mayor of london rain that there is a

special kind of trade deal status for northern ireland that keeps things fluid with e.u.. how about for scotland and london? you can only hope that if you are an optimist, it is going to get worked out. this is what is stalling. and of course, younger and -- ju nker and the e.u. may have it informally. thiset 1.5 weeks to figure out, theresa may, and maybe the irish are going to help. david: kathleen, it is so complicated. come out and about four hours. they are not expected to do anything, so i am guessing it is intty much what my ex colleges to say. it is not what you say, it's how you say it. sathleen: we have all had exe in college. rba on world. 15 straight meetings. i would say, in some sense, maybe this is a sign of his

successful central bank, able to stick with it. ,o maybe oversimplify a bit they are facing a country that , all has high household debt stronger labor market, and yes, some signs of home prices slowing down, but inflation is falling, so they can't exactly be hiking rates. they are watching the aussie dollar as well. something a look at that might help us think about it. #btv 8743. what you see is going nowhere. referring to wage growth. that is this white line. here is your year-over-year aussie inflation. it is stalled, and it is down below at 1.8%, below 2%. that is this kind of weakness the rba is looking at. here is their cash rate. andny rate, we want to hear policy statement any comments made after the meeting.

yes, a rate hike will be the next move of the reserve bank of australia. not be coming for a a while. betty, we shall see. -- i guess it is not suspenseful. it could surprise us. you never know. it makes it highly unlikely. betty: thank you so much, kathleen hays. let's stay on the subject that has a lot of economists scratching their head. bitcoin remaining above 11 point $5,000 after yet another day of big swings. marketic surge means a cap has surpassed the annual gdp. number of countries, companies, and also the really rich for all of that. ramy inocencio at the wall with the bloomberg charts on the bitcoin. my: if you take a look at the market value of the coin, it

comes in at this. if it were a country, this is how it would stack up here. this is g #btv 301. the market value of bitcoin is in purple. 188.9 billion. all the countries, these are the gdp is on the left-hand side. bitcoin is beating them. just having beat them recently. in yellow, that is the remaining gdp for our audiences. blue will be interesting to you because blue here is the whole, entire new zealand gdp. also looking ahead to the right side of this bar chart, what would be of interest to our asian audiences is the blue bar because that's is the gdp of vietnam. so you can see that if the coin does continue to rise, and we have analysts saying it will hit $1500 in the next six month or so, we will see these countries beat and we will see a whole new raft of countries that we are going to be talking about possibly very soon. companies. btv 330.

190oin is in the middle, billion dollars. these five companies have just been beaten by bitcoin in market cap. pepsico market cap. 167. boeing's market cap is 165. we are talking about storied companies looking at applico and boeing. 170thcelebrating its anniversary. around just eight years ago. we are seeing this huge disruption in the past couple of years when it comes to this market cap. coca-cola and verizon in bitcoin sites if it does continue pace. at my lasta look bloomberg terminal chart comparing bitcoin to the richest people in the world. .is rich g jeff bezos, the world's richest person. can he afford all the

bitcoin in the world. bill gates can't do it. both of the two richest men combined, 96 billion dollars plus 90,000,000,100 86 billion, they cannot buy all the bitcoin in the world. those are your three bloomberg terminal charts as you continue our conversation about the coin, whether it will go up, down, or both. david: we are talking justin trudeau with free trade talks between canada and china, adding to the canadian prime minister's troubles when it comes to trade. we are in toronto, just ahead. this is bloomberg. ♪

betty: this is "daybreak asia." i am betty liu in new york. i am david ingles in hong kong. sg holdings is set to complete japan's biggest ipo this year

after writing the listening at the top end of the range based 1620. ipo price of they will raise more than $1.1 billion from the offering with the shares to debut trading in tokyo on december 13. the analysts say the stock could rise 30% within a month of listing. wanda hotel paired some gains. a billionaire is to buy 65%. were whenwhere shares the announcement was made. the move separates the wanda theps hotel business from main operations. they have been under official scrutiny after a string of foreign acquisitions. david: now listen closely. sellingnfrey is a majority stake for $70 million. she will remain chief executive and will extend her commitment

to it in 2025. it is the first time she has sold stocks since it launched. of a discovery lineup that includes animal planet. attempts to forge free trade talks between china and canada fell apart in beijing with sticking points on all sides. justin trudeau indicated that one was canada's preference for sprawling so-called progressive tax, and that the two sides would only enter formal talks if they are confident a deal could be reached. joins us from toronto. are those the real reasons why those talks just are not working? i think we should clarify that exploratory talks on a free-trade deal between canada and china continue to go on, but there was definitely an optics

problem today, and it appears the canadians and chinese had their wires crossed for prime minister trudeau's plane landed in beijing. what you ended up having was a situation, you know, where the chinese abruptly canceled a joint news conference that had .een land for justin trudeau you had them giving separate statements, not taking questions. so, what you end up with is a situation where there was a bit lost on both sides. but having said that, exploratory talks continue. they have already had four rounds in both beijing and ottawa. i think what they are trying to project is that that is ongoing. there is still a chance that formal free-trade talks continue at some point or injured into it at some point. betty: that press conference, ,either of them

particularly trudeau, announced any deals that are usually the habit during these meetings. why make this trip if there are not any deals? lily: that is a great question. i mean, i think that what trudeau is trying to do is look around for a plan b as nafta talks ostensibly stall. they are not going as well. they have been more contentious than many were anticipating going into those talks. coming online a free-trade deal with europe, but asia presents a tremendous opportunity. what you have is two possible paths forward. one is formal free-trade talks with china. of tpper is a revival now that trump and the u.s. have opted out of tpp. japan is very keen on having canada pursue that option, and

it did come up. trudeau was in asia. i think that trudeau upset the japanese by not moving forward, but it does not mean it is off the table. i think what he is doing is looking around and trying to figure out what options he had and try to buy some time as we learn more about what these nafta talks will ultimately yield for canada. issue, thecore bigger question, i mean, is canada simply looking for ways to fill the void now that the u.s. appears to be looking inward? well, i mean, canada is a trading nation by a cherry nature. gdp depends on international trade. one in six drops depends on exports. so trade is not something that canada can even pretend to shy away from. it cannot even entertain,

perhaps, as the u.s. might, the inward, anding taking a protectionist stance. trade is an economic imperative here it was the u.s. opting out of tpp, canada and perhaps other nations like japan see an opportunity to play a bigger role on the world stage. the global order on trade is shifting, so he acknowledged canada has got to address that. david: and lily, do us a favor and don't be that there were of bad news -- the bearer of bad news. what is next for trudeau in beijing? lily: a couple of things. much smaller items in relative terms. today or yesterday, so it is still a monday here in canadianwe learned beef and poultry and pork producers are going to have greater access to the chinese

market, so there is that. statementlso a joint that came out to greater cooperation on climate change and clean energy. in fact, canada's environment and climate change minister, if that is her actual title, she is traveling with trudeau this week. another thing that is on trudeau's mind is tourism. canada/chinaa, the year of tourism. there is a lot of developments bubbling up around that, trying to create a cross-cultural tohange, encourage tourists visit one another's countries. so a smattering of smaller issues the canadians are hoping will distract from what might be perceived as a blunder on the trade front. let's keep our fingers crossed and follow that story closely as we move in the days

ahead. lily, thank you so much for joining us out of toronto. coming up, amazon is flipping the switch to open its store. we are looking at the challenges facing the online retail giant, next. this is bloomberg. ♪

betty: this is "daybreak asia." i'm betty liu in new york. david: i'm david ingles and hong kong. amazon is launching its australian retail site. up't get your hopes everywhere. however, there are challenges ahead, not just for rivals, but also for the company itself. the managing editor for australia and new zealand. ed johnson joins us from sydney. talk to us broadly about how this may shake up the australian retail space. ed: good morning, david.

you're right. that long-awaited debut for inzon has finally come australia. very exciting use for online shopaholics. millions of products across 20 categories including consumer sporting goods, clothing, makeup, etc.. and promising one day delivery in selected areas. now that, of course, will be one of amazon's big challenges going forward in australia. it is a vast country down here. of the major population centers separated by as many as 4000 kilometers. so that will be one of the amazon will face. the vast distances that it will have to challenge, have to travel, and the same populations as well. it is a nation of only 24 million people. betty: that's a lot of ground to

cover for amazon. what about the local retailers? how have they reacted so far, ed? has been mutedn today. the resale is the likes of jb hi-fi. i have been tracking down and underperforming the benchmark stock index since amazon's plans started to be played out in the local media since the start of the year. retail analysts are saying that amazon's arrival will shake up the online retail space, but importantly, it will grow that space as well and force it to become more innovative. the central message is it will become a bigger cake. to the local retailers to innovate and determine how much of that cake they will get. betty: it is a big cake to bite. sydney on the entrance of amazon. much more ahead on the next hour of "daybreak asia." nomura joins us to discuss

brexit, the tax plan, and how it will affect the near term aspect of currencies like the dollar. and also go over the day's top market news. this is bloomberg. ♪

david: it is 8:00 a.m. in hong kong and we are live from bloomberg's asian headquarters. i am david ingles. tech raising for tuesday here. the selloff on wall street spreads to asia. spreads are rather lee low. -- are rather low. a northern irish party holding the aces. betty: that's right. and from bloomberg's global headquarters, i am betty liu in new york, where it is after 7:00 p.m. on this monday evening. the travel ban is back. the supreme court ruling it will take effect during challenges. a landmark victory for the president.

said to be planning an ipo in hong kong. the smartphone maker will struggle to reach its target. david: and betty, we are waiting to see how asian markets really react, of course. we did see an initial sort of guess, in a lot of ways, equity investors would perhaps trade this tax rotation out of things like tech into things like -- i want to see a function to check how these flows cross etf. it has a look at it. it essentially does, all asset classes across all markets right there. you get a sense of which with the markets where the money is flowing. out of certain markets come out of japan, for example, monday, it looks to be the same case

today. several sectors in the united states. worth following in the days ahead. course in the of banking whether or not we will see that, sort of flow through into the chipmakers and a lot of the tech plays in the asia-pacific. david: i think you hit the nail on the head, some optimism on the back of tax reform. finally getting through. we are not quite there yet, but we seem to be in the final stretch, and that is attracting some of the investors back in the u.s. and possibly lifting the dollar that has been really donald as of late -- really dogged as of late. the u.s. supreme court has ruled the trump travel ban to legalull effect while challenges continue. the ruling does not directly address the merits of the ban, but it is a key victory for the president and suggests a divided court may uphold the restriction. even if they have a relationship with the u.s.-based person or

institution. the much anticipated brexit breakthrough failed to materialize. it was derailed by the irish border. theresa may has been given a monday deadline. she interrupted lunch to call the leader of the northern irish party that props up her government. jean-claude juncker announced mobile. germany is closer to a knee coalition with the social democrats of proving talks on whether the party can support chancellor merkel p or at marshall says those talks will be constructed and open and are expected in the coming days. . they need the endorsement of the party rank and fire. -- rank and file. plans to launch free trade talks between china and canada have failed with the two sides abruptly canceling a planned press conference but agreeing instead to keep negotiating. prime minister justin trudeau indicated one sticking point is canada's preference for wider progressive tax.

there were differences, but said the two sides are in a golden age in their relationship. day,l missouri 24 hours a powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. you.: thank markets in south korea, japan, getting underway right now. checking shares of samsung. look at that. 1.7% declines. through in theng asia-pacific. sophie kamaruddin is standing by with a look at that. sophie: not looking like it is slowing. samsung fighting at the open in seoul. we have the kospi resuming losses after monday's game, led by consumer stocks, but not enough to boost sentiment today. shares in tokyo are extending monday's declines. our retailers on amazon's entry are down under. dollar, on the aussie trading above the 76 handle ahead of the rba decision.

report on private china's services sector. iron ore entering a bull market is not enough to boost sentiment for the aussie. the dollar losing a little bit of ground. the yen is on the back foot, .52.ing at 112 it has been at around these levels for the last two weeks or so. taking a look at the tech-heavy kospi, losing 1.6% as samsung and sk hynix drag the most. chipmakers very much in focus after the sector fell for a six th session. this shows you that us trends change, positioning is coming undone and the pain is continuing. betty: thank you so much, sophie kamaruddin with an early look at the market. tax cuts and brexit have their

say on the dollar, pound, the euro. there was some optimism about the republican bill. the failure to find a breakthrough in brussels hurt sterling and the common currency . let's take a closer look at all , g10is with peter strategist at nomura. first to the dollar, though. how dollar positive do you think tax reform is going to be? we think it could give the dollar a bit of a hit into the next couple of weeks as markets kind of a just their outlook for growth in the u.s. the year, potentially lift fed rate hike expectations, but ultimately, we are not expecting this to be a game changer that sees the dollar downtrend or the structural downtrend reverse course. betty: why? peter: if you look at fed expectations over the last 12 months, the fed has raise rates

a number of times. they announced balance sheet reduction. yet, the dollar still weekend. it is a story to the rest of the world playing catch-up with the u.s.. europe is looking much healthier. the ecb is still on track to normalize its policy stance. other central banks are looking to raise rates and tighten policy, so it is not a story of the u.s. just standing out anymore. it is around those relativity is, kind of nevenarrowing. betty where do you stand on tightening, peter? the market consensus as well for the three hikes in 2018? peter: yeah. at nomura, we have a rate hike this month, and then we have got three more from the fed next year and one final one in the early stages of 2019, so we still see a few more in the pipeline, but again, it is more the kind of impulse we are

getting from other central banks. if you look back at even the dollar trend, it really started when the fed kind of had a toime shift and shifted tapering its asset purchases. not necessarily the rate hike. we are expecting that kind of dynamic to continue to come through in the euro and also even in sterling. we have got a couple more boe and in canada, we have some more. it is a story of the rest of the world playing catch-up story with the u.s. as you go forward to 2018. david: i was about to ask you on your call on cable, it is understandable. you see 135 with the euro. $.83 on the aussie dollar. 145 on cable. help us understand the conditions that need to be in place for the bank of england to follow up with a lot of people for the dovish rate hike. it really will come down

to brexit and negotiations, particularly around the transition deal. we had a bit of a stumble overnight, obviously, but i think it is more of a path rather than a breakdown in the talks. if you look at some of the commentary, even from the e.u. stillyou know, there is relatively upbeat. i have given the u.k. a bit more time. we think that's still more likely, we do see sufficient progress being labeled at the e.u. summit in a couple of weeks. and that should, again, lay a platform from a transition deal. it, the boe isat the best case scenario in therefore cap, expecting a transition deal to come through. and if, obviously, it does crystallize, they have given the domestic situation in the u.k. inflation is well above target. i was expecting to bring more boe rate hikes. the market is not really priced

for that. a lot of it is to do with the brexit uncertainty. if we get over this hurdle, we will see a pretty sharp repricing in rate expectations in the u.k., and that will be another support for sterling. david: i would imagine the bears on gilts will suddenly come out of the woodwork here. broadly, apart from, say, the policy divergence relationship, do i just give up any hope that the divergence becomes more pronounced elsewhere and 2018? but you get a so, time in kind of issue as well, say, for example, in australia. we are checking the rba to continue to lag. new zealand, likewise. it is more 2019 story. should see kind of that policy divergence and shift in the rate spreads to continue to come through.

backltimately, as we look to kind of the way the markets have been trading over the last few years, when the market gets clear signal from the central bank that it is about to change tax, the currency appreciates before the facts. for the aussie, we have got it lagging, as i said. as we get closer to the first rate hike, we think aussie appreciation can come through. that is more of a story for later in the year rather than earlier. david: on that know, we have yet to discuss the rba which is out with this decision this morning. he is staying with us here on the program. we will talk the aussie dollar. that has the rba's decision on track for its longest stretch of essentially doing nothing. betty: that's right. staying on positive or later, xiaomi doing something, looks to a potential valuation in ipo.

is it dialing off the wrong numbers? this is bloomberg. ♪

david: this is "daybreak asia." betty: i am betty liu in new york. the reserve bank of australia, as we talked about, is going to make its latest policy decision in just a few hours. kathleen hays here with a preview. kathleen, it seems like it will continue to be this long stretch of doing nothing at the rba. kathleen: the reserve bank of australia, that is what they are becoming very much known for. in a row.s they have done this three times in the past, going back to 2002. #btv 6084, and what you can see, they call it lazy days. maybe they get their policy right and communicate the right things to markets, etc.. here is a long stretch on world back in 2003.

another one of these long stretches to 2013 to the end of 2014. and here we are now. 15 minutes, meetings in a row. you ask yourself, is the reserve bank of australia on indefinite now? let's look at the crosscurrents of what it is the rba is dealing with, and what's keeping it on hold now. let's call up that list. as you know, australia is facing very high household debt. that would be one reason you would not want to raise rates. you don't want to make it more expensive for people to pay off that debt. the labor market a stronger. that might be reason to say, well, why not? you have got a stronger labor market, but wages are stagnating. not to raiseson it, i guess, and inflation below target. that takes us to another

terminal function. let's take a look at #btv 8743. and again, i just love this chart because you can see, and again, we talked earlier about whether or not this is a global function, a global problem, where you have a tired labor market but wages that are not going anywhere. here is the cash rate not going anywhere. here is cpi. 2% to 3%. is down to 1.8%. you can understand perfectly of they the governor reserve bank of australia is showing such caution. as we all know, after the last meeting, he said very clearly the next move will be a rate some oft he outlined the reasons why the rba was not hiking then, so this is the kind inthing that is holding them place while they wait to see if things break in one way or the other, david. david: they have done nothing at all so far. we are waiting for the rba governor.

kathleen: i think he is going to repeat what he said. he is going to highlight what shifted. the housing market seems to maybe have started to cool off a little bit. especially the most overheated markets. continue to hold out. -- not thinking of cutting rates. maybe ofll thinking raising them eventually. you don't want your aussie dollar to strong. are saying that if you look at all these conditions, at what is happening globally, he is on the right track. let's listen to what one of our guests said earlier. >> we are lagging the recovery we are seeing in the u.s., europe, and japan. it is therefore correct that the rba does not race to raise rates , and it allows other central banks to raise rates. put downward pressure on the

australian dollar. give us more of a competitive advantage internationally, help out trading goods industries so we can stabilize our own recovery. kathleen: makes sense to me. sounds like it is a big pat on the back. next meeting is in early february. even though we pretty much know what to do, there is a lot of focus on this meeting to hear what they say about what is going on. david: absolutely. in justtion comes out over three hours from now. kathleen, thank you for outlining that for us. that's get more thoughts. the g10 strategist at number of lingers at these levels before we move up to $.83. i want to bring up a fairly straightforward chart here. g #btv 40 for our viewers. it is your typical spread. aussie over the u.s. 10 year. bips at the moment. you don't see this falling. you see this widening. overtime, but you can

make this same argument. it is that story around the rba just lagging, the domestic economy still not robust enough, particularly inflation, not really showing any signs of life to justify a rate hike. we do think that narrative can play out a bit longer, but then, in terms of the aussie dollar, it's not just a spread story. you need to look at the terms of trade. last time the spreads were this compressed, the trade is 50% higher. of suggestingd the aussie has a higher level. back then, the aussie was closer to $.50. now, it is closer to 75 cents, given the terms of trade mix. what this does mean is that with

biaserms of trade having a to continue to drift lower and the rate spread pretty narrow for a bit longer. it just means the case for aussie to bounceback is going to take some time. that is why we are expecting it to be more of a story for later in 2018. betty: maybe sideways for a while, peter. i want to bring it back to more immediate. minutes or so, we are going to get some economic data out of australia, in particular, retail sales. i'm curious what your expectations are and how that might have an impact on the rba come on future movement in the dollar? from the rba perspective, they have flagged the uncertainty around household consumption because of higher debt levels. obviously, pretty flat real wage growth. we have had to bring or three week retail sales. is it the cautious consumer

coming out? if we get another negative print or softer print today, i think that is going to generate more of a reaction in the aussie than a bounceback. typically, when we have a couple of negative prints, you get a reverting rebound in the data. if we don't get that today, that will be three or four pretty subdued prints. that will feed into that narrative around what that means for the consumer. gdp makeup,at the household consumption is the biggest part of the economy. that is kind of showing a slowdown in momentum. that is going to obviously feed into the expectation that the rba will have no urgency to kind of raise rates over the next couple of quarters. ,etty: thank you so much, peter the g10 forex strategist at nomura. you can always find in-depth analysis on the day's big news

anchors on bloomberg radio. tune into the bloomberg daybreak . you can download the app, bloomberg radio plus, or access it via bloomberg radio.com. this is bloomberg. ♪

asia."this is "daybreak i'm betty liu in new york. david: and i'm david ingles in hong kong. rio tinto says it can do in china, forecasting for aluminum thanks to the switch from bottles to cancer things like booze and other fizzy drinks. david, obviously, they see a difference with the switch. how much of a difference do they think this will cause? and what other drivers are we talking here? guest: that's right, david. i think rio tinto is raising a glass to china's beer drinkers and soft drink. rio tinto sees aluminum demand

growing for the next five years. it has identified two bankia factors for that growth. one is in china's packaging sector, and that is soft drinks and beer, switching from glass to aluminum cans. the other key factor is the automotive sector. it is the carmakers increasingly turning to aluminum. withcularly to comply emissions standards. those are the two bankia drivers a sea pushing aluminum demand further over the next couple of years. david: you touched a little bit on this already through the rise for electric vehicles, is there itumber that rio has given sees as an increment two final demand there? peter: what they say --guest: what they say is that is not yet factored into their forecast. they are not yet clear, not really having a handle on where the company thinks that demand is going to sit.

obviously, there is a whole range of focus. what they know is that aluminum is required in much larger companies. be an additional demand driver over and above what they already are seeing for the next few years. betty: what about supply? is china going to continue to dominate this market? rio says they still do not know at this point. they expect that were previously china had been seeing the net exporter of aluminum, that will no longer be the case. working toings control capacity. that is likely to be something of a game changer. they are preparing for a world where everywhere outside of china is going to need to be self-sufficient. capacity, we might need aluminum prices to rise further to incentivize new

production capacity in the western world. all right, david. thank you so much, david stringer, commodities reporter from melbourne. let's check in on how some of the currencies are trading in the region right now. you can see the yen just slightly weaker against the with dollar strength based on tax reform or the movement intention from taking a closer step to finalization. we are watching the aussie dollar not doing a whole lot right now ahead of the rba expected in a few hours. a few moments from now, we are going to be getting australian current account balance numbers as well as retail sales to see how the domestic consumer is doing in australia. it has been a massive year for some of china's big internet names, but will slowing user growth hit 2018? our look at the year ahead is

next. this is bloomberg. ♪

david: it is half past 10:00 in the morning in sydney and we are wait awaiting the current accout data. i am david ingles in hong kong. liu in new betty york. you are watching "daybreak asia." we are getting the numbers on retail sales, month on month, a little bit better than what estimated.had economists expected a rise in retail sales. .3% pure no change in the prior months. this is a bit of an improvement. while going to change the

outlook for the rba, which is meeting right now. they are announcing their decision in a few hours. david: three hours from now, there is the element of the current account balance out here in line with expectations. we are looking at a deficit. 9.1 billion aussie dollars. 7619. interesting to see how this all plays out. it does seem that the aussie is moving more because of that better than expected retail sales number, which did come out a few moments ago. for a broader read across markets, let's get over to sophie. sophie: we are getting a pop in the aussie, up .3%, joining the kiwi higher in the g10 it when it comes to the outlook, it may come down to the narrowing aussie-u.s. yield spread. we had nomura saying the domestic economy for australia is not robust enough to justify

a rate hike, so that narrative around the narrowing spread could go on for a longer period. december has put in much been a rough month for the aussie in the past. it has fallen for four out of the five last december's with an average decline of 1.6%. we are seeing a little bit of pop here. bounceto highlight the we are seeing in the kiwi. governor saying the central bank is becoming a more flexible inflation target or. let's take a closer look at what is moving the dial in sydney. norman and harvey myers gaining over 1% on the back of the retail sales data coming in better than forecast. shaking off the earlier blumenthal for the stocks on amazon's entry. benefitinglers not as much. we are seeing stocks fall .1%. we have utility stocks gaining

hile they are the biggest drag in sydney. rise.apping a two day pulling up the board, we have lithium minors falling in sydney. the growth pipeline is already fully valued, so that stock is dropping over 3%. chinas something after reserve energy with through its takeover bid. it is on the rise. the minor has lowered its sustaining expectations. some ofn is retracing its 23% decline on monday. the stock was reinstated with a hold. it is a down day for aussie shares so far today. betty: thank you so much, sophie kamaruddin. first word news with kaylee. >> bitcoin may be about to face the big short. group and theme nasdaq will make it easier to bet on a decline. hedge funds have largely stayed

away, but we are told the cme futures will open for a chance to bet against the cryptocurrency. bitcoin has rocketed since 2010 an investment of one dollar worth 1.5 million. the philippines may regulate initial coin offerings. central bank governor talking to the sbc over overseeing ipo's. cryptocurrencies is rising for remittances. then the central -- banco centrale estimates more per month. a tighter than has been accused that his london expedition hearing of fraudulently funding his formula one team. he is accused of defaulting on $1 billion of loans linked to his debunking fisher airlines. he borrowed money for the failing carrier under false pretenses and used it to prop up team.rced into everything

china's appetite for everything from iron or to electronic baby formula means the world's biggest exporter will be the leading importer as well. the transition to a consumer led economy suggest it will limit more retailing goods than industrial materials. china has -- in terms of consumer goods, it is still behind the u.s.. news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am kaylee. this is bloomberg. betty: as we mentioned before, xiaomi is said to be planning this ipo with a market value of at least $50 billion. bloomberg has been told the offer may come in the new year with hong kong as the most likely post exchange. peter ostrom, tell us about xiaomi and how it stacks up against leaders like apple and samsung. is this valuation actually a disappointment? peter: xiaomi got its start back

in 2010. it is relatively new compared to the leaders in this market. apple and samsung in particular. it really made its name at online flash sales, where it would use social media to promote its new phone's impact with new features and had pretty cool design through the founder of the company is an entrepreneur. he tended to wear black wasleneck sweatshirts and compared to steve jobs. it hit its peak in 2014. there he high valuation of 45 -- valuation of $46 million and then it ran into troubles after that. more domestic competition, not bid down to fifth place in the local chinese market. it struggled to diversify to other areas, but now, it is on a bit of a comeback and has got some momentum. banks tohe talks with

see whether they are able to go public at something close to this valuation, which would be quite obviously $50 billion, a pretty high valuation. betty: how realistic is that valuation, peter? peter: well, that is a good question. we obviously had seen a big run-up in tech stocks in general , particularly tech stocks with ties to the china economy and chinese consumers, so there is a strong desire for this. the hardware business has been rough. .iaomi has some momentum particularly in india, it invested heavily in the india market. we did an interview earlier this year where we talked about doubling the investment. they have come up all the way to the point where they are essentially neck-and-neck with caps on. xiaomi has been building retail stores, which gives it kind of the opportunity to sell its products the way apple does, not just the smartphones, but also everything from purifiers to

suitcases. range of products they try to sell through those stores. betty: in terms of capital, how might they use the new capital they are going to get? peter: they plan to use it for expansion. inked about trying to expand a number of geographic areas, including the u.s., which would be pretty controversial and quite competitive for them, but they also want to expand your product lines. they have the opportunity to move in a few different directions. they can make investments and try to gain some ground. they talk about wanting to build the xiaomi ecosystem, where they have a suite of products that consumers in many markets around the world are able to tap into. betty: peter, thank you so much. martha, after this. peter alstom for us. andd: let us pivot here have a look at samsung.

talked a little bit about it. samsung does stand in between where you are with hardware and where we are with software chipmakers. it quick chart on your bloomberg. the stock has been under pressure again. it is below the 100 day moving average. it has only dipped below that twice this year on the way back into 2016. let's see if we managed to that resistance level. that being said, a lot of this comes down to what happens in the year ahead. we start looking at 2018. our analyst at bloomberg intelligence have published their outlook for next year. is with us in the studio. chinese internet user growth has been slowing recently. in particular, internet penetration. what does this mean then for baidu, tencent, and alibaba? >> if you look at the growth of the companies over the last

couple of years, it is phenomenal, given by penetration, and that has really come at 96%. looking at the year ahead, a lot of drivers of growth. if you went and look at a lot of companies, they go aggressively go global through acquisitions. secondly, they would look at growing into the offline market domestically. we have seen companies like alibaba and jd talking about integrating offline and online threats. we think they are going to mind their existing users through perhaps subscription or monetization. in aly, they can invest lot of new technologies. ai is the focus. that being said, i would a imagine alibaba -- it isou look at we chat, still quite big in china, not so much elsewhere.

you mentioned acquisitions abroad. we have seen that massively this year. what kind of companies are these people looking at? it is a logical mid step. alibaba focusing on southeast asia with the acquisition. we have seen tencent by huge companies in the forms of super cells. acquisition is a way to accelerate their growth overseas, but there are adapting to the culture, regulations, language, and most importantly, it actually brings the chinese internet companies into direct conflict with global western counterparts like facebook, amazon, which are very strong. said heomething jack ma did not want any part of. but of course, when you look elsewhere, these are things that are domestic, the domestic business. increasingly, you look at the assets the companies have. they are increasingly

sort ofing on other markets. how does that change the strategy? >> you look at the acquisitions they made, they bought offline assets in the last years. it is coined by alibaba and really means expanding the consumptiond the online, 18% of overall consumption today, so that is potentially a growth driver. the other thing which i think will really take off next year is subscription monetization. withve seen tencent ipo chinese literature, which is primarily based on subscriptions. david: is that going to work than? people use things when they are free. when you make them pay for it, they might change their mind. thenstorically in china, don't want to pay things up front.

the copper environment is improving. we are dealing with a new generation of internet users who consume a lot more online and are more willing to pay for content. finally, i think the proliferation of devices, we have talked about, they really facilitate consumption of digital content anytime, anywhere. that helps with subscription revenue growth. david: when it comes to the overall perception of chinese internet companies, i'm sure a lot of the executives would disagree, but they are known outside to be copycats. has that changed, and is it a valid reason for that perception? >> increasingly, we are seeing innovation come out of these companies in the west, for example. functionalities are essentially was monetization features. i think, going forward, we should see a lot more innovation come out of china. it is the domestic market and the awards that await.

is aicial intelligence top-down focus by the government. we should see more of that. if you look at the private venture capital being invested in companies, for example, china started off five years after the u.s., but now, the level of investment has really caught up with the u.s.. we should see some good things come out of china in the coming year or years. david: especially when beijing back to you. thank you so much for that. that was our bloomberg asia internet analysts here. we will tell you what we can experts in 2018 during our special coverage of the year ahead. wednesday, here on bloomberg television, betty. betty: that's right. up next, is the republican tax plan merely a break for private jet owners? our guest gives us his take on this, next. this is bloomberg. ♪

betty: this is "daybreak asia." i'm betty liu in new york. and i am david ingles in hong kong. we talked about samsung earlier, chipmakers, and these tech stocks. is, seen asindustry more likely to benefit from these republican tax cuts looming. of theselook at some names, we won't go through them, but dropping more than 5%. two of the major semiconductor indices seeing quite a bit of pain as well. i mentioned samsung and the asian pacific. let us bring in michael. here.t's get started i mean, there is a more direct correlation when you live in the u.s.. doesthat make rotation -- it make sense that it happens here in asia? michael: rotation into stocks? david: from the tech stocks into the banks, for example.

michael: when we talk about chips, i am not only talking microchips, but things the put into your mouth. theink, generally speaking, tax cuts, if they don't go through in the current scheme of things that we are seeing so far, they will push up the market in general in the u.s., even further from the already very high heights we are at. they can probably ride the coattails and move up. david: why the love for financials? is this a plea because they benefit from tax cuts? you get growth pick up, as you mentioned? and hopefully, the yield curve has a bit of curve? michael: if the excitement is built on assumptions we are going to get a curve in the curve and better growth, i think they are very misplaced. i don't expect that to happen in the slightest. if it is moronic partition of the five yard going to get more share buybacks, i can imagine that is why it is going to happen. david: so you are seeing the needle being moved when it comes

to all the money sitting outside , ringing the tax rates down, and a lot of these corporate keeping tax?in the u.s. in 2005, that is what happened, and you saw the equity prices being pushed higher. what you did not see was any actual recovery in the economy. you did not see anything extra happening in the labor market or anything happening in growth. it was good for the stock market, and hooray for that. betty: i was reading one of these reports. it said to me that you have written where you kind of compared what we are seeing with tax reform and other headlines around the world. it sounded like a very high but bad meal you had in shanghai. basically empty calories, i guess. are you saying the markets are juiced on empty calories? >> if they are looking at this tax plan, i think they are.

it will be different markets. let's make that absolutely clear. there is a big difference between the economy and markets. let's take one hypothetical, shall we? let's say we only had one stock, company x, in the company passes a new law which says everyone has to give company x $5,000 out of their own pocket. everyone else is worse off and the economy goes into the toilet. there is no correlation between the two. it's an interesting analogy. we asked an earlier guest about the reckoning for this, because he himself is a professor of economics at the university of california. he says there is going to be a reckoning. you saw that in the stock markets where they went up, but were also kind of confused as well. some sectors had gone down. confused about tax reform. says we are going to wake up to the giant deficits we are creating. when you think that will come? michael: i am usually a bit early in my bearishness. i think 2018 is looking like a possible target. the fed is going to have to be more hawkish. if you have a u.s. economy

growing over 3%, you have what the fed is is full employment, and suddenly, another one point $4 trillion into the economy, even if it is mainly into asset prices. they are going to have to be more hawkish. the flat oru get inverted curve and a stronger dollar and everything starts to fall over. betty: how do you get higher rates when it still seems like know where can we find wage pressure, whether we are talking about the u.s. or in japan, australia? it is nowhere to be found. in the u.s., how do you see a more hawkish fed? we don't have any more trace of that? michael: i have been are doing the same thing for years. i don't think they will come back. the fed is raising rates anyway, and i think they keep thinking that wages or come back because they are using the wrong model of how the economy works, so they will keep thinking that any minute now, the wages will come back. we have two front run that incident being behind the curve. look at the stock market. we are worried about that even

if we will not address it publicly. let's keep tightening our monetary policy. ut gaps areoutp closing. the key risk for markets is when inflation suddenly comes back in a very big way. do we see that coming? or did it totally come back? michael: i think this is a binary trade. you are either of the view that we suppressed it, and we have finally got to the point where we are turning the corner and it will come back. and that will mean something for markets if that is true. or we are at a structural normal. even if we do get headline inflation, we still don't get wage growth, in which case everyone is worth all -- wors off. david: i want to ask you about china. let us bring in bearishness. they are more serious about the issue this time around. attacked the problem really

from different directions here. the question is how bad does it get, and does beijing allow it to get that bad? serious,if they are 2018 is going to be a rough year and look more like 2015, when everyone was gloomy and saying "goodness me, china is really struggling." if they are serious. i question that. we have been asking all of our guests about this hot topic. bitcoin. give me your take on bitcoin. michael: well, it is either the best thing since sliced bread or it is just a huge bubble. effectively, it seems to be a very effective mechanism for drug dealers. techse it has got a nice sheen to it, everyone thinks it is sexy and new. dream. criminal's wet i am staggered regulators have not that in earlier than they have. betty: on that note, we are going to leave it there.

a coin never fails to bring out the best in our guest. head of asia-pacific financial markets research. still, more ahead on daybreak asia. this is bloomberg. ♪

david: across the region --

let's have a look at markets trading across the region right now. tokyo is the scene. we have not seen risk appetite come back and a big way. dollar-yen on the stronger side of that over the last 24 hours or so, betty. betty: over in sydney, we are watching the asx 200, just down about .1%, and we saw the retail sales numbers coming in a bit better than what economists had from october..5% we are watching the rba decision in a few hours. no expectation there, david, on any movement in rates for the rba. looks at seoul, what is happening is sam some on the way down. that is pulling everything down with it. down as much as 1.8%. we are coming off lows. a lot of pressure on the south korean market. asia, a look at

what is coming up. bloomberg markets and rish is here with what we are watching. rishaad: brexit, last-minute fall part of those talks taking place, this affects northern ireland and the border they have with the republic, partly refundable. markets, a late cyclical stage in the rally. we are seeing some of this now where we see growth stocks being overshadowed by value stocks. money going towards those value sides of the market. we are going to discuss charter. looking at beijing's moves at the moment to try and curb some of these default risks growing. at the u.s. as the largest importer within five years. that is all on the way. ♪ retail.

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>> technology leading asia down as chipmakers taking a dive and doors open in australia and set challenges as a major factor here. a valuation here in hong kong. is the phone maker dialing a wrong number? this is bloomberg.