♪ haidi: u.s. stocks decline after optimism over trade talks in north korea. president trump says the kim talks may not happen. betty: treasuries were steady and crude fell to a loss after going to advise level since late 2014. haidi: china lowers import tariffs. european and asian brands could benefit the most. betty: mark zuckerberg apologizes yet again, but it is what he did not say is what annoyed lawmakers in brussels.

haidi: hello, i'm haidi lun. this is daybreak australia. we are two hours away from the open of asian major markets. wety: over the next hour, will look at how all the action on wall street is going to play into the asia-pacific trading day. it was this on again, off again interpretation of the upcoming north korean summit that kind of spooked the market. let's show you how we close the trade today. pretty much ran across the board. a very different book then yesterday. the dow down almost 200 points. the s&p and nasdaq also losing ground. again, if it is not u.s.-china trade we are talking about, it is the u.s.-north korean summit that is fixating the market. haidi: just a reminder, there is uncertainty. president trump is not really seemed convinced. seoul seems more optimistic

it is going to happen. consider the volatility when it comes to north korea's behavior. take a look at how trading is looking in asia and new zealand where we are seeing action trending a little bit to the downside. heading over to futures are shaping up in the open in sydney, we did have a u.s. dollar index falling a little overnight. we will see a little alleviation when it comes to the emerging market currencies as well. sydney futures a little lower, the aussie dollar at .7577. that is how the aussie-kiwi is trading. let's get a first look at alisa parenti. alisa: facebook boss mark zuckerberg took questions of the european parliament but left lawmakers irritated by what he avoided. he repeated that facebook did not take enough responsibility for user data, fake news and

foreign interference, and he apologized. however, he batted away many questions including if facebook is a monopoly that should be broken up. mark: i can commit to you here today that we have never and will not make decisions about or howntent is allowed we do or how we do ranking on the basis of a political orientation. alisa: venezuela has expelled the top two u.s. diplomats in the country after washington imposed new sanctions following the weekend's disputed elections. maduro declared persona non grata, saying they must leave the country maduro w8 hours. they have long accused the u.s. of trying to undermine its socialist regime. the bank of england governor said brexit left british households the equivalent of $4000 worse off. mark carney said compared to the

forecast made before the referendum, you can output is 1% below expectations. that makes the economy about 2% worse off, or $1200. spacex has carried out an intense mission of the year so far, launching satellites for long time flying. the falcon 9 rocket took off base,andenberg air force carrying five satellite into orbit. the shares soared more than 7%. the satellite will monitor changes in the earth's ice sheet. global news 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts. this is bloomberg. betty: thank you so much. let's take a closer look at the u.s. market. getting back to early gains, accelerating losses after president from cast doubt on the possible summit with north

korea. and evenr, gold, crude oil turning lower. risk gone yesterday, risk on today. su: no sooner do we have trade around borders -- he's not really happy with how the trade talks have gone. he has cap did some doubt on north korea. meeting at the summit. you have a risk off environment, particularly late in the day. the dollar is weaker. we saw gold which is usually a safe haven lower. oil, which actually had a very strong day, hitting close to 73, closing a bit lower. a bit weak after hours. let's go into the stock because the size of some of the moves is showing jcpenney lose its ceo. an embattled retailer in the midst of a turnaround. that is a big blow. micron getting a big boost theer as the ceo declares

biggest maker of memory chips in the u.s. he says they will have a $10 billion stock buyback. great photo confidence -- vote of confidence. you also have american equity talk of being for sale. facebook, it did not really move much despite zuckerberg being on the hot seat once again. that's the service -- that speaks to the stability. coming in slightly above estimates. this stock has gained 20% year to date, only gaining a little bit on this news. let's go into the bloomberg. about theen talking s&p sort of sliding sideways as of late and the focus being on the russell 2000. this is what about the benefits from the u.s. dollar, and that they are

home, they'll have to translate like the internationals. haidi: we spoke earlier about wti trading close to $73, the highest since 2014. that is creating a huge jet fuel expense for airlines. what is their hedging plans looking like? su: they are kind of in a gym because they have not been hedging. you can see the rising oil. close to $73. almost 20% gain year to date, but let's go into the bloomberg because for the jet fuel, it has been almost that 50% increase since the start of the year. look at this. jet fuel prices at the highest since 2014. if we go into the airline stocks, they are under pressure. there is concern as we start into the long holiday weekend. the good news for american travelers is the fares are fairly low. they have not really been priced in, but you don't have a lot of ways for the airlines to go other than raise prices.

they cannot really add seats and they have not done the hedging they used to do back in 2014 because the price of oil has been so low. rude awakening. betty: in the. su keenan there. congress has approved a sweeping overhaul of u.s. bank relations. that is the most significant change to oversight since dodd-frank in 2012. i want to cross over to washington with mike. tell us the significance of this rollback here. mike: as you just mentioned, it is the biggest change in financial regulatory laws since 2010. unlike 2010, it is a significant role back that you can attribute to having a president like donald trump who has said he will sign this legislation and really all that is standing between the legislation now and it taking effect is the president's signature. this will do some things like whate a key threshold for

bank too big to fail might be from $50 billion to $250 billion in assets. that has significant for ke banks in america and likely forcing regional banks to merge. marketse saw the rattled again by geopolitics overnight. there seems to be a great deal of uncertainty whether this july 12 summit will actually happen. mike: you saw a striking change in tone from the president today, both on the north korea summit and the china trade talks. in the case of the north korea summit, there is always been some doubt. there has been some sticking points, but the president has been very optimistic in his public comments. he has tended to put a very favorable public face on it. today, he was saying it might not happen. happens, it might not

happen on the june 12 schedule day. there has been some things that led up to this. for instance, the kim regime talking about making a demand before south korean summit that u.s. troops not continuing with the exercise. that led people at the white house to scratch their heads a bit. there has been sticking points between the u.s. and north korea that everyone could see coming on what do you mean by denuclearization? how would you go about that? the north koreans would probably want something phased, where they get some relief along the way. the americans would want a complete and verifiable elimination of nuclear weapons before you get any easing. a lot of key sticking points but a big change in tone today. haidi: thank you so much for that, mike dorning in washington. no certainty until we actually get there. let's get a little bit more on this.

melissa joining us now. great to have you on. is this kind of a lesson given that we have had swings and roundabouts when it comes to the rhetoric from pyongyang even in the last couple of weeks or so? is a full list for the markets to peg their hopes on this summit happening or not happening? melissa: yeah, i think that this is probably one step in a very long process and we won't see any real movement on the substance of the matter for weeks, months, if at all. currently, we are all waiting to see if a group of international will make it to the nuclear test site to see the explosion of the tunnels there. it sounds like their trip has already been delayed. at this point, we're kind of doing train watch to see if they will even make it to the site where they plan on starting the dismantlement of the nuclear test site. isdi: do you feel like there

sincerity or good faith this time around? if you are going to be cynical, and i think most are, the point to many in history where we had the same set up and circumstances and that no result. -- then no result. melissa: i don't want to be cynical about it, but we should probably be realistic about the possible outcomes. kim jong-un has acquired nuclear weapons after his father and grandfather tried. it took him decades to get here. he is not interested in a negotiation that will completely remove his nuclear weapons or him -- for him. he is pretty far apart from the trump administration's position. it will likely take a long time for the two groups to come together. trump and moon's statements earlier today indicated that trump was not even certain the june 12 summit will happen at all. betty: there was some uncertainty around that.

so, the north koreans, how do you think they do fine the nuclear his asian -- denuclearization? melissa: when the u.s. talks about it, they need unilaterally removing the and nuclear weapons in a saint for some benefit. for north korea, they think about it as a peninsula wide process. they want to remove the nuclear threat themselves. there is no easy way to do that because there is such a strong u.s. presence in the region. the u.s. with through its tactical nuclear weapons from the south korean border more than a decade ago. feelsorth korea still threatened by u.s. nuclear weapons. so when kim jong-un talks about denuclearization, he means it in the greater world kind of contact. -- context. betty: it seems that way.

just before we go, how might -- i know the north koreans have found the libyan model as offensive, but is there some possibility that will serve or could serve as the model for the nuclear rising north korea -- denuclearizing north korea? melissa: he thinks of qaddafi's violent death and things about it in the context that libya gave up the nuclear weapons. there were many useful prophecies that happened before that happened to qaddafi. there are some important lessons we can take away from libya, but i think john bolton made it in a way to antagonize kim jong-un. that is what caused kim jong-un to fire back through north korean press. haidi: thank you so much for that, melissa hanham. great deal of uncertainty when

it comes to this meeting and denuclearization. coming up, after a long start, it is finally ready to exit the world's second-biggest copper mine for a price. betty: president trump now says he is not happy with the way those trade talks are going with china. we will get more of an update next. this is bloomberg. ♪etty: ♪

haidi: i am haidi lun in sydney. betty: i'm betty liu in new york. after a backlash from some of his reporters, president trump says he is not happy with the results of the u.s.-china trade talk so far. kathleen hays here with more. let's start with the latest on the trump's team change of heat on zte. kathleen: this is one of the reasons why donald trump is saying he is not pleased with

what has happened. there has been pushed back on moving away from tariffs. it is not surprising because we know after this latest meeting between the u.s. and china trade teams, this seems to be enough progress made. let's put the tariffs off to one side for a while. china is announcing the cutting of tariffs on u.s. cars. this is all positive. the next thing we learned from donald trump is ys, he is reconsidering the u.s. penalties from the commerce department that has basically shut down telecom giant zte core business as a favor to xi jinping. he said he asked me to look into this. he says he knows these penalties are hurting u.s. companies. they cannot sell their components to zte for seven years. zte needs this to make telecom equipment. trump also says we also put stiff demands on zte. a whole new board of directors, a very large line of up to $1.3 billion.

republicans and democrats in congress have been critical of this softening stance of donald trump on trade. marco rubio tweeted out earlier today, in response to a wall street journal story, suggesting shift was coming. if this is true, the administration surrendered to china on zte, won't stop them shift wasfrom stealing from us. this is too important to be over. we will be working on bw congressional action. steve mnuchin testified to the appropriations committee in the senate today. he denied that trump was offering zte relief to get trade concessions. mnuchin: i can assure you the national security issues are being addressed. that is of paramount importance to the president. this is not quid pro quo or anything else. this was merely that president xi asked president trump to look into this which he has done. kathleen: he said the commerce department's review of zte

will consider threats to u.s. national security. zte violated those sanctions. he says this is still on the table as well. threadso many different on the trade story. one day after we heard that we have a truce when it comes to tariffs. still staying on the table. leen: the chief economic to donald trump saying tariffs are not over. donald trump did not set a deadline up to $150 billion on tariffs. the public comment period ending today. steve mnuchin was asked about this today. here is how he responded. mr. mnuchin: as it relates to china, the steel and aluminum tariffs will remain in force. we were merely focused on the proposed -- those are not being touched. betty: with the south korean

president, donald trump said i am not really pleased with the china trade talks. steve bannon still a trump loyalist, says he is criticizing donald trump from retreating from the threat of tariffs but blames steve mnuchin. white house officials are blaming warring factions within the trump economic team for this retreat. they cannot quite get it together on how they want to proceed. nevertheless, wilbur ross is proceeding, the head of the commerce department, his team confirms that an early chinese team is heading over to work out the details. you can see how politicized this continues to be. updi: another episode coming in this drama. thank you so much for that, kathleen hays. itna has made a big cut when comes to import duties on passenger cars. another concession to the u.s. on trade. let's bring in more. auto import restrictions have

been a major target for washington in these trade talks. so, what are the details of beijing's latest offerings? >> that is right. beijing said it will be cutting the import tariffs from 25% to 15% july 1. these terrorists have been in place for over a decade. as you say, they have been an annoyance at the very least for policymakers in the u.s. and u.s. automakers for a number of years. those grievances have only been underlined and accelerated under president trump. this is something of a -- to the trump administration and it follows beijing's decision to ease up ownership restrictions to the auto space. we know by 2022, automakers will be able to own their own operations out right. they will not have to enter into point -- joint

ventures. at the end of this year, electric vehicle makers can fully own their operations here. a positive for point -- tesla. those announcements made earlier this year, follows on that. the border trade context to step away from a probe into imports from the u.s. around and anti-dumping review they had. they will be restarting this review of telecom's potential deal for nxp. that is in the broader trade context. in terms of the indirect impact, we see a tick up in the share prices of the likes of bmw yesterday. it is worth digging into the details. when you do that, you realize of all the cars sold in china, 4.2% of them were imported vehicles. betty: which companies are likely to benefit from this? tom: it is largely going to be the german companies and the japanese companies. we have a terminal chart that illustrates sales from about

2009. the largest importer of cars is bmw. that is the blue line you can see. the yellow line you can see in the chart. the blue line is toyota, second-largest importer of cars into the chinese market. then there is the white line. fordook at the likes of and lincoln, they exported about 70,000 cars into the chinese market in 2017. didand so go t -- toyota about three times that amount. it is the german cars and japanese automakers that will really benefit. the likes of tesla, all of their cars are imported, but they have longer-term plans to set up their own factories here and even ford with its lincoln brand. ceo who to the said they are planning to build a factory here. the longer-term impacts may be less than the headlines suggest. 50% is the obviously a fairly

significant -- 15% is obviously a fairly significant tariff. betty: tom mackenzie, thank you. for breaking news wherever you are, we have teamed up with twitter to launch tic-toc, the first global news network for social media. offering hourly updated top news reports verified by us. if you are on twitter, follow tictoc by bloomberg. this is bloomberg. ♪

betty: a quick check of the headlines. rejecting what is said to be a final offer for harbor energy, saying it is too low and risky. producere oil and gas says nearly $11 billion bid does not reflect the full value of company and it is overly

complex. haidi: a unit of apple suppliers aims to raise at least $4 billion in the largest company y complex. haidi: a unit of apple mainland china ipo since the 2015 market crash. it will offer 2 billion shares in shanghai, valid and the company at $43 billion. coming up next, many unanswered questions after zuckerberg's grilling. ♪

haidi: markets open in 90 minutes time. futures are looking like a lackluster session in asia being set up after u.s. stocks declining. the focus negatively turning from improving trade tensions, but trade relationship to uncertainty over north korea. whether we will get this leadership summit after all. softer.a little a beautiful day in sydney. that is the sydney opera house. betty: it looks gorgeous. i'm betty liu in new york. you are watching daybreak australia. let's get the first word news with alisa parenti. alisa: president trump has poured cold water on rising

trade optimism, saying he's not really pleased with the way talks are going with china. the administration held off on billions of dollars worth of tariffs with reports of white house discord over the tragedy -- over the strategy. rossrce secretary wilbur plans to visit china early next month to continue trade talks. the president's also cast doubt on his plan summit with kim jong-un. speaking after talks with the south korean leader, he said there was very substantial chance it will work out. the president added that does not mean a meeting won't happen at some point. the white house has acknowledged uncertainty around talks, but still preparing for singapore on june 12. congress has approved a sweeping overhaul of u.s. bank regulations, sending president trump's legislation that is the most significant change to oversight since dodd-frank. it gives smaller lenders relief from postcrisis rules.

by raising the threshold for stricter fed oversight from $50 billion to $250 billion in assets. foreign automakers like bmw and toyota are benefiting from china's decision to lower tariffs on imported cars. beijing lowered from 25% to 15%. that is effective the beginning of july, further opening of a market that has been an issue in the u.s.-china trade spat. gain inest intraday more than a month. the race to be italy's next prime minister is in disarray over doubts of the suitability of the candidate agreed on by the main populist party. the law professor is no longer serving of endorsement after questioned claims in his cv. the five-star movement says that puts the other leader back in the running to be pm. the president may make a

decision as soon as wednesday. owered by more than 2700 journalists and analysts in more than 120 countries. i'm alisa parenti and this is bloomberg. haidi: thank you so much for that. let's get a quick update on the markets as we get into the asian trading day. waiting the fed meeting minutes. any narrative on inflation, as well as the trade situation be a key. looking for testimony out of the boe later on this week. in new zealand, we are seeing the futures decline as we get trading underway. sydney futures looking pretty lackluster. the aussie dollar trading at .7975. seeing some of the downward momentum pressure coming off the aussie as the trade situation improves between the u.s. and china. the aussie-kiwi at 1.0924.

taking a look at the set up in tokyo. this is where we are seeing the yen at 1.1085. at 3.06% afterld hitting the high of over 3.1. we do have analysts saying, jpmorgan in particular saying increased long positions fitting this year's peak as those yields seem to rise. we have u.s. stocks falling overnight. that retreat coming on the back of the doubt cast of the trump-kim summit. let's get more with david streeter in melbourne. bank of korea is becoming less confident about another rate rise in the coming months. david: absolutely, that is right. we have seen analysts in australia, goldman sachs -- they have either withdrawn their calls for a rate hike this year,

or they have certainly pushed out the protected timing of that. if we dive into the terminal and can see --hart, you it will show one of the key reasons. it is all about tepid job growth. we saw the governor points of that as a key factor. we've also seen one of the president senior advisers saying they could be headed into a slump there. that has all been can see undery pretty weak export data in april. some signs of pessimism. what does it all mean? if the bok holds rates on thursday and the u.s. fed does what it is expected to do next month, it will widen the gap between the two countries benchmark rate to about 50 basis points. betty: u.s. minor freeport surged on a bloomberg news

reports that rio tinto is ready to accept the $3.5 billion to exit the coppermine in indonesia. what reaction could we have to that news in asia? david: long-running, lots of people have been waiting to see a resolution here. it involved rio tinto exiting from grasberg and would see a local companiesdavid indonesiane the majority. inended about 3% higher trading in the u.s.. in trading in the u.s.. rio tinto in london. what they have been doing recently is extending a program. they have been handing some of that cash back to shareholders. the prospect for another big development, $3.5 million, some of that will be returned to shareholders should see rio perform well. i'm sure people will be looking at trading once rio opens in

australia. betty: david, thank you. david stringer in melbourne. don't forget to check out our library for some of those charts you just saw. it is also on the bloomberg terminal. you can see at throughout the program. wti arecelebrate as sustaining levels last seen 3.5 years ago. both are up almost 20% this year. the data is why prices could rise even higher, despite the slight fall we saw today. ramy has this chart we need to know. sanctions on venezuela are clearly giving support to oil prices. ramy: that is right. if you take a look at my first bloomberg terminal chart, you can see where we are right now. 1.55 5 million barrels is the venezuela inom this past month for april. looking back one year, that would be right here. that is almost 2 million barrels. we are seeing a cut of about 500,000 barrels.

barclays is expecting this to fall even further than the next few months with those u.s. sanctions starting to take a little bit of a bigger bite. 1.5 million is where we are now. they are expecting us to hit maybe one million or so. adding to this is the words from the iaea executive director on bloomberg television. he was telling us that he is talking to other governments, other countries to try to find more supply out there. this is sort of a testament perhaps that he thinks this could be in it for the long haul. that is one thing. venezuela's will production. one other thing i will talk about is not venezuela. my next bloomberg terminal chart. this one is talking about the baker hughes rig count. rising this has been over the last several months, as

it has been following the price of oil. try to get the opportunity, the profit. look over here. rising over the last several844 is theo know because that is the number of rig counts for the week prior. the reason i point this out is this has now been stagnant. the fact there is not more oil potentially coming online is lending support. we have this coming out, and u.s. on wednesday. we are expecting u.s. stockpiles for last week to report a drawdown of 1.9, nearly 2 million barrels. this and then as well as supporting the price of oil. haidi: the data, the technical supporting the rise in prices. hedge funds cutting their net long positions. ramy: that is right. net positions getting cut for the fifth straight week in a row. the next bloomberg terminal chart. all the way to the right hand side, we can see for the past five weeks, boom, boom, boom. as that goes down, you can see the price of oil has been rising in tandem. looking ahead, this might continue because of the

continued rise in oil. one interesting thing is that macro risk advisors said that positioning going into the year was actually long and people may be taking profits here. we will want to be seeing where this goes over the next few months, especially with regards to venezuela and those u.s. stockpiles. there is always a but. the one i want to talk about is the contrarian point of view. that has to do with the relative strength index. let me bring up the board and i want to show you what that looks signalinguse this is that oil could be overbought if you follow technicals. the overbought level is in red. that is 70. you can see as we are approaching, as we have hit that, you can see that come off

a little bit. this is the synthesis of august support, as well as if you follow technicals, the possible top that we might be seeing, if you follow that. a lot of crosswinds as we had through this week. looking ahead to the u.s. stockpiles, and whether those sanctions from the u.s. on venezuela take a bite. approaching, as we have hit that, you canhaidi: not going o. thank you so much for that, ramy, in hong kong for us. facebook ceo mark zuckerberg facing another grilling of the user data scandal but leaving eu lawmakers frustrated by dodging some of their questions. >> would you allow users to escape targeted advertising? yes or no questions. i got not a single answer. you answered in this format for a reason. mark: i will make sure we follow up and get you answers to those. haidi: let's get to san francisco now with sarah frier who covers facebook. sarah, it seems zuck left a lot

to be desired in that hearing. why? sarah: well, it was partially the result of the format. we had about one hour of questions from european lawmakers and then zuckerberg only gave his responses for about 26 minutes after all of those questions have been asked. so, he was giving responses first of the questions he was most comfortable with. later, kind of glossing over or skipping some questions that he really decided there was not time for. in fact, they had run over on their time. he was the first to remind the parliament that they were running out of time. he wanted to be respectful. he was trying to end the hearing himself and was not a good look necessarily. haidi:he wanted to be respectfu. what is the new takeaway if we had anything we learned the hearing? sarah: i think the takeaway was more in the questions that were

asked. it is pretty clear the european lawmakers care deeply about this monopoly issue with facebook. they asked him several times about whether facebook as any true competitors, whether the company should what is the new d instagram broken off from the rest of the company. a lot of questions about facebook's mounting power and responsibility. also, about the ways in which people are tracked, that they simply can't agree to. facebook was asked a lot about nonusers, people who don't have facebook accounts who get tracked around the internet. as well as the ability of some people, if they wanted to, should they be able to opt out of targeting advertising. zuckerberg did not answer the questions very thoroughly. betty: just on another front, facebook is already facing the impact of gdpr, basically sweeping rules over privacy. what is the next true threat from the governing body? sarah: i think the next threat

-- they have those rules in place. the question is how intensely they police them, and how facebook really deals with the fallout of this. certainly, they have made an effort to try to change things in europe to serve those customers, but if they have aired -- erred in any way, that is number one. number two, are they actually going to have further investigation into this antitrust issue? is europe going to go after facebook the way they went after google years ago? that would be a very interesting period for facebook in the region. we will have to see of that goes anywhere. betty: thank you so much, sarah frier in san francisco. our bloomberg technology reporter. mark zuckerberg not impressing too much. just ahead, the case for foreign rate hikes thisour bloomberg tey year. we will discuss this next.

this is bloomberg. ♪ ♪

haidi: i am haidi lun in sydney. betty: i am betty lou in new york. u.s. stocks erasing earlier gains, optimism on improved trade relations with china gave way to reduce concerns about geopolitical tensions with north korea. joining us now is the chief for whittierficer trust. good to see you in the studio. guest: great to be here. betty: if it is not u.s.-china trade one-day, it is u.s.-north korea relations. what does that tell you about the psychology of the market? guest: that it is very fragile. that even these things that would normally be treated as noise seem to occupy prominent headlines. let me set it straight off the bat. geopolitical issues make for

great theater and drama but they have very little significant secular impact on fundamentals. look, what are we hoping for? the endgame is for north korea to be the secular impact on fundamentals. rise -- to denu clearize, but that is unlikely to happen because that is the only card they have that gives them leverage on the world stage. on some back-and-forth fashion, but we can hope to accomplish is some progress to give greater transparency, inspection of nuclear facilities. betty: that is a frame. sandip: this is just a back-and-forth. there will be more collaboration between north and south korea. enough has happened in recent weeks to suggest that tensions have de-escalated. to read into this more jockeying, more posturing -- weeks to suggest that tensions

have de-escalated. betty: i agree but what needs to happen to get the market participants to get back to fundamentals? you say a lot of this is theater. what does it take to get investors to focus back on earnings, economic data? what is it? sandip: we are making slow and steady progress. i think the offshoot of the u.s.-china trade discussion is we will avoid a global trade war. that seems to have all the makeups of a negotiating tactic. that bit of information is coming through into the markets. the markets have heaved a sigh of relief in the last few weeks. you have seen the markets go up as it has become to focus on the fact that second-quarter gdp growth will be nicely over 3%. the earnings season has been nothing short of spectacular. people suggest that it was all in the news, in the price expected. yet, we have had positive surprises. don't forget, the further we go

into 2018, there will be more focused on 2019 earnings. those are also expected to be higher. there is this interesting dilemma about whether we have hit so-calledp eak earnings -- so-called peak earnings. growth level may have peaked, but not the level of earnings. betty: i want to talk about bond market volatility and the contagion we have seen with stocks. looking at this chart, the most recent move up when it comes to the 10 year yield, it came with a lot less ability -- volatility than we saw in february. is that why we saw a less of a reaction? do you feel like the equity market or investors are slowly getting comfortable with the idea of three plus percent yield? sandip: inflation is taking up and rates have been moving higher, but most -- both of those things has been happening for a good reason which is

because growth is fairly strong. it really depends on this trajectory of interest rate hikes. we anticipate they will rise gradually. they will probably head up to maybe 4%. as long as that move is gradually, well behaved and not chaotic, it gives the equity market the sense this is driven by growth. growth for stocks means not just higher rates, but also higher cash flows and higher profits. there is that tug-of-war playing out in the marketplace. the equity markets have actually paid attention to the higher level of interest rates. so both the slowdown in earnings growth rates that we just spoke about an effect of the 10 year bond did go over 3%, has caused the pe multiple to compress. the equity markets have taken heed. from this point on, it is tug-of-war. rising interest rates which

causes the multiple to further compress. but rising earnings should push prices higher as well. haidi: we have never been here before in terms of winding back from the extraordinary position of monetary policy that we found ourselves in. is the threat of policy misstep a big risk here? sandip: it actually is. that is because the fed was perhaps a little late in beginning to normalize monetary policy. we know there has been an inflection point. we are no longer easing. the fed is in the early stages of a tightening cycle. they are starting to shrink the balance sheet as well. they are doing all of this at the same time that inflation is beginning to ratchet higher. misstep is far more likely here because it is so hard to calibrate the pace of this tightening. let me give you a couple of examples.

if the fed moves too fast, it chokes off the recovery. it moves too slowly, inlets inflation run away. it really has to thread this needle just right. betty: i think that is why so many people are hanging on every word of fed officials and watching this yield curve so closely. i want to quickly pull up this chart and get your reaction to it. --tb chart that shows you usually we talk about buying global stocks, but it seems like according to this index which measures the ratio between russell 2000 and that the vstoxx, they are going up. these small-cap stocks are increasingly outperforming large-cap stocks. what do you read into that? sandip: two things. a pronounced cycle of underperformance by small-cap stocks. maybe it is time for that to revert. fundamental,ms looking at a price chart.

more fundamentally, we are in the midst of fiscal stimulus from the tax cuts that were announced in december. those are far more likely to have an effect on those companies that are more domestically focused and more fundamentally, we are in theoriented. that is number one. there is another fundamental factor at play. the u.s. dollar has been strong. about 6% in the last few weeks. that is a development that can to large-cap stocks. about half of the revenues and earnings come from outside the u.s., and translate back to the u.s. dollar the stronger dollar makes those revenues and earnings smaller and weaker. small-capoblem that stocks do not have to contend with. betty: that makes sense. thank you so much for joining us, sandip. a programming reminder. this weekend, you can see our full interview with the man next in line to be malaysian prime

minister. the conversation airs first on friday at 7 p.m. hong kong time, 9 p.m. in sydney. this is bloomberg. ♪

haidi: that is almost a per day make australia this morning. yvonna and betty next with daybreak asia. taking a look at what is coming up in the next few hours. yvonne: still geopolitics coming from the president, casting doubt this singapore summit will happen. we are talking to a north korean researcher and talking more about what is to come. she says it is a long road ahead to june 12. there are still a lot of differences in the meeting between north korea and the u.s. she says the likelihood of talking down these nukes could be a tough sell when it comes to kim jong-un. betty: we will talk about that with michael, eurasia group asia director. he will be discussing u.s.-china trade talks. he says the u.s. demands are vague at best but believes the

deal will happen between the two. haidi: trade and geopolitics, two topics the markets continue to grapple with. all the news on bloomberg asia next. this is bloomberg. ♪

yvonne: it is 7:00 a.m. here in hong kong. we are live from bloomberg's asian headquarters. the top story this wednesday, asian-pacific markets had for a lower open after wall street fell on north korea. president trump says the kim summit may not happen. surging to the highest since late 2014. betty: from bloomberg's global headquarters i am betty liu in new york, where it is just after 7:00 p.m. tuesday. china lowers import tariffs. china, u.s., france may benefit the most.