♪ haidi: president trump picking up the heat on china, talking of tariffs in two weeks time. haidi: italy in july, the president will meet again on wednesday after failing to agree to a cabinet. u.s. stocks slumping the most in a month, joining the uncertainty in rome. oil rallied. betty: the psychological 640

level. concern of further depreciation to come. hello from hong kong. this is daybreak australia. we are two hours away from the open of asia's first major markets. haidi: it is just past 8 a.m. in sydney. i'm haidi lun. with the existential crisis, it seems like things worsened significany overnight the the italian asset selloff, the two-year falling the most. you are starting to see this contagion spread globally. yvonne: right. seeing the likes of what we are seeing in the bond market when it comes to italy, spain, portugal. we are seeing the rush to havens such as treasuries as well. classic risk off. take a look how we fared in the u.s. after that memorial day holiday. we did see that risk off session. risk sentiment improved a little

bit towards the end of the close. the dow closing more than 1.5%. down. the 10 year yields is what we are watching as well. take a look at what we are seeing from the bond market. there is that rush to the u.s. dollar as well as treasury yields. u.s. 10 year. we have not seen a move like that since the likes of the brexit vote. the euro dollar also at 1.15 now. the italian two-year yield, the from anything we have seen over 20 years. 186 basis points at 2.77. just a couple of weeks ago, 15 days ago, these yields were in negative186 basis points at ter. haidi: a huge jump there. not to forget that corporate italy also bearing the brunt of this selloff as well. you are seeing the corporate bond space for italian lenders

that has made progress over the last few years has been unwound. some of the worst performers in the european bond space overnight. we are just getting some here. case in point in terms of the global impact, a response from the u.s. treasury say it is better that italy resolves its issues within the euro area, speaking to reporters. there is no systemic italian impact on the u.s. yet. yet, the key point. lots of questions if you take a look at the futures on to whether this unwinds expectations for a rate hike from the fed this year. taking a look at the dollar-yen situation. it was a classic risk off safe haven play. the last of which we have not seen for quite some time. the dollar-yen trading at 108. 60. the euroyen continuing to seek selloff. gold getting a little bit of a pickup.

crude going towards its longest losing streak with these expectations of rebalancing with more output coming through from opec. it will really create jitters to the market. take a look at where we are setting up in asia. it is pointing negatively downward. new zealand down 3/10 of 1%. waiting for that rba financial stability report. .6899.llar, these risk commodities currencies getting hit by risk assets and oil selloff story as well. taking a look at sydney's futures, not looking like a pretty session as we get underway in australia. let's get underway with the first word news. jessica summers. jessica: china says it is surprised president trump decision to push away with tariffs. the u.s. will impose $50 billion worth of imports from china. it will also curb investment in sensitive technology.

that is just days before the commerce secretary is due in beijing for more talks. the white house has a final list of targeted imports which will be released by june 15. soros says the rising dollar in capital flights may trigger another financial crisis. he says the insurgency around the iran nuclear deal and the weakening of the u.s.-europe economy could block its very existence. at thewarning comes italian bond yields goes to a multiyear high from political gridlock in rome. is noexistential crisis longer a figure of speech, but a harsh reality. europe needs to do something it.tic to escape it needs to reinvent itself. jessica: authorities in belgium say terrorism is the suspected

motive for the killing of two police officers and a civilian. an attacker stabbed two female officers, shot them dead and killed a passing driver before dying in a police shootout. he was a belgian national in his 30's with a history of petty crime. he was on day release from a prison sentence for theft. israel has released pictures of airstrikes from gaza, following a barrage of mortar shells fired over the border. the military says the bombing of -- gaza was the heaviest since the war of 2014. israel says no one was hurt and most of the borders were intercepted. tensions are high following the more than 100 palestinians in anti-israel protests. powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. this is bloomberg.

yvonne: thank you. taking a closer look at the u.s. close. banks leds the way. strategists point to woes in italy as the catalyst. there was a bigger wall of worry at work. su keenan has the details. su: very difficult time for u.s. traders in the interest rate market because it raises questions about whether our own u.s. fed will slow down. let's go right to the markets snapshot. you have a play for state haven. the dow down 1.5%. let's go to the active. goldman sachs drops. more on the banking battering ram. general electric also taking a hit on concerns they will have to cut their dividends. hewlett-packard taking a hit. let's go into the bloomberg. here is the story. the s&p being pushed outside its

range by the european risk. there is a concern that this is bleeding into the eurozone. and rekindling fears from about one year ago.one strategist said the fact this could cause her own fed to slow down -- our fed to slow down really hits the banks hard because that has been a financial pillar. that will create profits for the banks. yvonne: talk more about the banks here. take a look at not just goldman sachs. morgan stanley following 6%. they are calling it the italian bond quake, wreaking havoc on the fact we have seen treasury year plunging. su: let's go back into the bloomberg on this italian bond point. it is almost unprecedented the move we have seen in the italian two-year surging. if you look at it graphically, it is pretty dramatic. the ripple effect throughout europe, as well as here, has been dramatic as well.

we really saw the selloff in the u.s. pick up as the european markets closed. let's go into morgan stanley because you also have a layer on effect. morgan stanley not only falling with the rest of the banks, its charted today performance, it really had a dramatic drop. you also have the wealth management unit, seeing some slowdowns there. biggest drop in two years for morgan stanley. let's go to some of the other majors. citigroup, jpmorgan, chase. the size of the drop is significant here. these are in the middle of the interest rate play and it is a very dramatic day for all of those in the bullseye, as the banks are. dramatic decline in oil continues as well. the longest run since february. su: we have a one-two punch of charts. oil had been heading well into the 70's, predictions of 80 and

$100 oil. you can see it has fallen off dramatically in the past week. you are really going to see the one-day move because we are just starting overnight. di andn see the sau russian talks about possibly increasing output has possibly popped the oil bubble. it has come down in a big way. haidi: su, thank you so much for that. a very negative open with more volatility to come in the asia session. let's get more on this story. the volatility start by italy and the eurozone. our latest guest writes in his opinion column, they are trapped which denie italian citizens a voice in running their own country and ruling out sensible compromises in trying to reserve european orthodoxy, they may have unleashed destructive forces that they cannot control.

ashoka is the author of a new book called euro tragedy. he joins us now. this is a familiar refrain. i feel that we heard this when we were talking about european sovereign debt crisis in relation to greece. do you think this existential crisis on whether italy belongs in the eurozone is a good debate to be having now? ashoka: italy is much bigger than -- its debt is a times that of greece. the banks are six or seven times that of greece. this is a much more fearsome possibility. it is not yet a crisis, it is a possibility. crisis,forms into a transforms into a crisis, it will be much more fearsome. there is a lot of talk election this happening earlier than we were

thinking yesterday, july 29. is this really going to invigorate the populace even more> ? the likely outcome here? ashoka: the history on this is very clear. the history is every time there is an impression given that italian democracy, or democracy anywhere in the world, especially in the eurozone in the last seven years, whenever there is an impression that democracy has been supported, people have come out to vote for those very parties that have been denied access to governing. in 2013.ened governmentwas a between 2011 and 2013. it became a very important movement. between 2013 and 2018. again, the so-called mainstream parties, the democratic party, did not deliver. now you have these protest parties. now that there is another round

of impression they are being denied their rights for authority at this point given the legitimacy they have. i cannot see why this won't repeat itself. yvonne: it will repeat itself possibly, but it seems like the dynamics have changed since the elections in march. that election was more about different parties and different issues. are we heading into a possible referendum now on july 29 on whether italy will be leaving the euro or not? ashoka: i am not sure they would necessarily be a referendum on the euro. i think there would be a bigger referendum onashoka: democracy n italy. the question is not just whether it is the euro that is the problem, but whether there is a broader undermining of democracy. remember, this is coming at a very difficult moment in global history -- recent history. world trade is slowing down.

you have an emerging market crisis. and you have a situation in which the ecb has run out of ammunition to support italy. the combination of the political factors, the economic factors, makes this a very troubling moment. yvonne: it is interesting, with ber the likes of an ec member, we will see what happens. this does not sound like the central bank is willing to come to the rescue for italy at the moment. are we likely to see the likes of mario draghi intervene? ashoka: the statement that you just read out is exactly the wrong statement to make. it is the kind of statement that will be perceived in italy as dictation of policies from the outside. there is no call for such a statement. draghi making,

coming to italy's rescue, i think he has run out of ammunition at this point. the ecb already owns something like a quarter of the italian government debt. there is a limit. limit, bu financial a politil limit. the political limit is exercised by germany and the other northern countries will rightly rry that if the european central bank continues to buy italian debt, what will happen if one day not so far from now the italian making, coming to italy's rescue, i think he has run out of ammunition at default on that debt? who is going to bear that cost? the problem, the central problem is the construction of the euro. the construction of the euro does not allow a risk sharing amongst nations. there is this constant concern, who is going to pay for the bills that italy might generate? you have a political limit on what draghi can do. i think he has run out of steam. i think at this point, the ecb is not in the position to do anything meaningful. haidi: do you believe the single

currency project is fundamentally flawed? ashoka: yes, this ago currency project is unfortunately fundamentally flawed. that is the basis of my book. i say the euro could never do any good and it was noted could do a lot of harm. groupthink developed it could groupthink developed it could somehow have a political willingness of the europeans to come together. that was always a dream. it was a destructive dream. it was clear that if the euro cannot unify countries economically, it is actually going to cause divergence and that will deepen the political warnings werese repeatedly sounded and this is exactly what has happened. that is why it is a tragedy. haidi: great to have your views, ashoka, of princeton university. a bloomberg opinion writer. coming up, president trump raises the stakes in the warnine

tradeedly dispute with china as he comes under pressure to follow through on tough talk. we will take a closer look at what his plans are. yvonne: just ahead, italy's troubles with the return of market volatility. this is bloomberg. ♪

yvonne: i'm yvonne man in hong kong. haidi: i'm haidi line in sydney. political turmoil in italy has sparked a global move of risk of investors fleeing european and particularly italian assets. payment spreading to wallpaymenl street. what a return from the memorial day long weekend. the 10 year treasury yield sink below 2.8%. let's get insight on what comes next, how long this continues. george, the founder and managing partner.

great to have you. i want to throw up a quick chart that gives you one prism through which we can look at this dramatic overnight for italy. this is the two-year italian. you saw this widespread across the italian, the corporate bond sector as well. the two-year jumping the most since the euro, january 1, 1999. is this -- do you see any opportunities in europe right now? george: i think investors should steer clear of european exposure right now. clearly, there has been a big selloff and it is likely to continue for several days. we will see how the situation resolved itself in the days and months going forward. election in a new september. if not then, then maybe early next year there may be a new election. we are facing a potential, i say referendum.alexit

i think an important election in september. if not then, then maybe early opportunity right now is as investors flee europe and look for a haven asset, particularly u.s. treasury's, what you see is that phenomenon is driving down the cost for many good u.s. companies. this is a buying opportunity in our view, but you have to be careful in terms of what companies you select and what market you are focused on. haidi: how great is the fear of contagion, particularly how this narrative is not just about italy, we are concerned about contagion to other european countrie selloff in emerging markets that has been ongoing for a few weeks now. the oil selloff. how bad do things look on the global scale and how do investors navigate that? george: things actually look pretty good. the u.s. economy is expanding. most economies are expanding. even italy's economy is expanding. the problem with italy is you are facing very high

unemployment at over 11% which is concerning. on employment at that level -- unemployment at that level tends to create political stability and that is what we are seeing now. if there is a problem like this with italy, the next obvious threat is what happens with spain? we have seen what happened after brexit in june of 2016. the markets recovered subsequent to that. italy is a little bit bigger than the u.k.. it is the third-largest economy in the eurozone. the u.k. was the fourth-largest contributor to the eurozone. when greece defaulted a couple of years ago, everybody was talking about that. now everything is coming back to fruition. whether the eurozone in general will stay together. here is significant risk that you will have a

disaggregation of the eurozone with maybe spain following. we will see if there is an italex here that you will have a it referendum, whatever it is called. there is a flight to low risk asset and that creates a buying opportunity. yvonne: what does that mean for the banks? i want to fill the chart and highlight what youyvonne: menti, the rush to safety when it comes to the 10 year. given the plunge in yields, about 16 basis points. we have not seen movement since brexit which is quite remarkable. visit the buying opportunity for the banks now on what we saw on the overnight session or a choppiness now? will these falling yield continued to weigh on the banks? george: i think it is a buying opportunity, but you have to be careful what banks you select. banks have rally over the last few years because of net income margins. as the u.s. federal reserve raised interest rates, banks were able to make more money lending that a higher rate of interest than what they have paid for the cost of their funds which is -- that spread has been

growing. when there is a flight equality, interest rates drop and people anticipate the opposite effect. that is one impact on bank. the bigger impact and the one you should really be concerned about is whether your banks have exposure to italian ass that need to be marked down. i would say most major money center banks don't have that much exposure or have manageable exposure. yvonne: rip quickly, what does this mean for the ecb and the fed? does this mean this rate hike passes, it is pretty much in question now? george: i think the fed might be more cautious, but i don't anticipate a major change in its direction. which is generally raising interest rates. 2016.pened six time since they are engaging in monthly rounds of quantitative tightening. this creates a new incentive for the fed to more rapidly unwind its balance sheet because there is so much demand for treasuries and for the risks or perceived

low risk asset. this is a good opportunity for the fed keep doing what it was previously doing. the question and what might cause it to change course is if this becomes more systemic, and thereby, causes maybe the threat of a recession in the united states which i don't think we will see. yvonne: a little bit of silver lining for the fed given what we have seen. schultze joining us from new york. you can interact with the chart shown. you can browse recent charge featured on bloomberg television and catch up on key analysis. save those charts for future reference. this is bloomberg. ♪ bloomberg. ♪

haidi: let's take a look at how the markets are trading in the asian open. we are seeing risk off to saty, a classic play. .07%.0 year yields at

seeing lots of losses across risk currencies and the euro-dollar continues to see some decline. thatrticular, seeing safety benefiting the likes.

haidi: it is 8:30 a.m. in sydney. markets open and 90 minute time. what a holdover from risk asset getting pummeled. italian bonds falling off a cliff. we are seeing risk off going into the asian session. sydney futures lower by 3/10 of 1%. i'm haidi lun in sydney. yvonne: i'm yvonne man in hong kong. you are watching daybreak australia. let's get the first word news with jessica summers. jessica: thanks. italy may face new elections as soon as july. that is after the prime minister left a meeting with the

president without agreement on a cabinet. on a government could force the president to call elections within 60 days. most partisan up calling for a new vote as soon as possible. felt beyond an. key psychological level, fueling concern about the depreciation. it weaken to 6.42 in shanghai while the offshore yuan twitter that 6.22. it is a key resistance level for the exchange rate. the yuan is headed for its biggest monthly drop since november 2016 in both domestic and overseas markets. air felt beyond a key psychological asia boss tons under investigation in india for allegedly paying bribes. the central bureau of investigation has been him and other officials from air asia as well as his indian unit in the inquiry. the charges says he and others

paid official through middlemen to grow influence. air india denies any wrongdoing and says it is cooperating with authorities. ey's abc has canceled its hit reboot of roseanne after a racist tweet from its star. roseanne barr attacked a former obama advisor with words a be says were of poor, repugnant and inconsistent with his values. barr is a trump supporter both on and off screen, and the show was welcomed from some for its countries into political debate. bob iger tweeted that canceling was the right thing to do. global news 24 hours a day, on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. haidi: thank you for that. let's get a quick update on your markets. setting up long risk, long

equity -- you are looking at a painful session potentially going into the asia open. new zealand, some moderate losses for the kiwi stocks. trading is underway. rba financial stability report suggesting the central bank continuing to be concerned about runaway home prices. sydney futures looking pretty negative going into the open. a double when he, not just - - whammy, not just risk selloff but the oil selling is weighing on the session. 75.06 one of the losers in the overnight session. taking a look at what we are seeing in terms of dollar-yen. seeing gains for dollar-yen as the safe haven plan continues to be in place. the euro continuing to take that nosedive. you are seeing the safe haven play evidence in gold futures as well as new york route. seeing a little bit of a bounce back but still heading for its longest losing streak since february. yvonne: you have italy, oil.

a triple whammy maybe what is going on in the trade front with the president slapping those tariffs of $50 billion on investment curbing when it comes to sensitive technology coming from china. that is going to weigh on china during the session. traders unwind bets on four rate hikes this year as bond markets on full boil around the world. let's go to kathleen hays in new york with more. we have seen these bond markets basically have blown up from europe to the u.s. are these market moves justified or the investment fact of the fy leaving the eu overdone at this point? kathleen: sometimes you sell first and ask those questions leader. we don't call it a technology but the fact the u.s. markets were closed for three days, so much happened over the weekend crumbling ofhe

what admitted a coalition. all these markets were hit very hard. i want to start crumbling of what admitted a coalition. with one of our bloomberg library chart, which looks at the 3% yield. i love the title. story.a big the end of the bull market in bonds. the end of the bull market in bonds. all it takes is a little bit of a heating up of italy's deepening political crisis. yields got as low as 2.77% on the benchmark 10 year yield. the other thing that happened was the way italian bonds blew up. the italian-german benchmark bond spread just blew up like crazy. it actually echoes that very famous two-year yield, italian yield, i should see. this is italy's yield spread over germany. the other thing thatit was downs points, already a big move up since late april. this is what happened since friday.

that widening out. you can see we saw similar moves with the european debt crisis was just getting into full swing. in fact, all of this, many people now are saying, gee, this feels a bit like that crisis. when greece was being blown out, when there was also concern about the euro area, the euro currency staying together. the same kind of questions are being raised now. haidi: it feels like we have been here before. it is interesting, we had this reassuring statements, i guess, from the treasury officials say it really not have an impact on the u.s. economy right now. but what are the implications for the fed? you look at the options for the euro-dollar features. suggesting they might have to be a bit more dovish for the rest of the year. whether they need to be or not, i think that is definitely the question. let's remember that the question

now about how whether they needo volatility in the euro area, in these global markets is going to affect the fed calls up what happened at the end of 2015 going into 2016 when the fed thought it was going to raise three times. volatility in the we are not there yet. look what is happening to confidence in four rate hikes. this chart tells a very big story as well. you can see the upper right-hand corner, there was at one time this expectation the might be even be four rate hikes. look at how a drop. the fed minutes also added to this. with this happening, people are beginning to price out more and more. jim bullard spoke in tokyo hours ago. he did not talk about this crisis. he was talking about fed policy generally and the need to get the market on board with the fed. and the need for the fed to not hike rates and keep -- depressing inflation expectations then he gave his warning about the yield curve

flattening again. let's listen to what bowlers said -- bullard said. jim: in my view, i don't think the fed has to be so aggressive as the get to in inverted yield curve. if inflation is higher than it is today and we were worried about inflation getting away from us then maybe i would go along with it. kathleen: the european central bank is the central bank watching over europe, that might be called upon to take action. that is what everyone is wondering as well. everyone harkening back to 2012 when mario draghi said he would do whatever it takes to support the euro area, keep it together. the really interesting point is if an italian government wants to be bailed out for big bond purchases, they will ask for that. if there is a eurosceptic government in place, i think people are wondering if they would take that step. the situation is equally as complicated for the fed. haidi: thank you so much for

that, kathleen hays, global economic and policy editor. let's get more with david. dave, we are watching the fallout from the italian volatility, very much a risk obsession expected. we do have a rate decision for zulily -- presumably from this emergency meeting. what are we expecting? david: that is right.i think there would be white a bit of attention on that meeting. it is the first central bank chief. it has been called earlier than expected. that is really aimed at allowing indonesia to preempt the u.s. fed's own decision next month. if we pull up a chartexpected. , if we look at the library, we can see some of what is going to be dealt with. indonesia, one of the hardest hit in asia from the emerging markets. we have seen they lost about 5%

against the dollar since late january. we have seen bond yields surge, equities slump. it is also a politically sensitive time. it is also a politically sensitive time. elections on the rise in 2018. he has been test with stabilizing the currency and helping support growth in what is in a lackluster economy. plenty on his plate and economists surveyed by bloomberg are expecting a hike, 25 basis point hike, 4.75%. that would be the second hike in about two. yvonne: i think there has been quite a bit of move. indonesian assets have benefited from these lack of moves from the new governor. let's bring it back to your bread and butter which is the mining. the report being that china is considering a plan to buy more american coal. i understand this is a way to shrink that trade deficit with the u.s. this is at a time that the

white house is planning to slap tariffs on imports, $50 billion worth. david: sure, i guess the key question is can coal help diffuse that trade war. what people familiar with china says there is a proposal in the consideration. china has pledged to boost theurces, aimed at reducing $375 billion trade deficit. one option under consideration is the booth imports of u.s. coal, particularly from west virginia. that is something that could help address some of those questions. we did see china raise its coal imports in 2017. u.s. exports accounted for only a small proportion of that, $395 million in value last year. the majority of that is for methodological coal to make

steel in china. that is one option on the table. quite fascinating with is the relevance earlier today. yvonne: david stringer, thank quiteyou, joining us from melbourne.don't forget to check our charts that david just showed. gtb go on your bloomberg terminal. we will talk about those trade discussions. china tariffs are officially pushing through. it cut asia by surprise. we will have more from washington next. this is bloomberg. ♪

yvonne: i'm yvonne man in hong kong. haidi: i'm haidi lun in sydney. president trump is planning up a hit on china again, saying he's

going ahead with tariffs of $50 billion in imports. a final list will be released on june 15 as the administration makes its most specific threat so far. greg sullivan, is this more posturing? it is interesting with a couple of days ahead of another round of trade negotiations. about thelso talking sensitive tech investment as well. greg: this is definitely the most specific step we have seen on the tariffs. about the sensitive techthe is been talk g tariffs on china but now they have laid out a specific timeline. we know on june 15, we should goods thatal list of will be subject to tariffs, which will be then imposed shortly thereafter. like you said, we also saw the trump administration is moving forward with curbing investments, chinese investments into certain tech sectors. the chinese commerce

administration said they were surprised by the decision but remained confident they can protect their interests. a big move here from trump on the terror of front -- tariff f ront. yvonne: what can we make of the timing these oppose -- supposed tariffs will be imposed? the list will be released june 15 which is days after this potential summit in singapore. is this all linked to the geopolitics? greg: it is interesting for the timing. north korea summit is coming up quickly. trump has often tied trade and north korea together when he approaches china. we also have commerce secretary wilbur ross heading to china continue negotiations over trade, but it is also important to remember trump has long been critical of china and is feeling a lot of pressure from lawmakers and supporters to produce on getting tough with china. lawmakers were concerned about him potentially easing penalties

on zte. this could be a way he is demonstrating the toughness he has long promised on china in the realm of trade. a few factors to potentially be in play here. yvonne: we continue to watch this on-again, off-again rhetoric from the trump administration. it seems like this summit with kim jong-un is on. how confident are week this could actually happen or could things easily backfire as well? greg: the administration seems like they are in full planning mode. a flurry of activity. there is a u.s. delegation currently meeting in north korea, singapore to start arrangements. the administration has said they are planning it has they expect it to go forward. all signs look like it could be a go, but on-again, off-again -- remains to be seen. an official from the north korean envoy also going to d.c.

thank you, greg sullivan. joining us now for more is stanford university professor, joining us in hong kong. good to see you. let's start with the trade front. it seemsjoining us now for moret offguard even for china. is this just another art of the deal threat or is the u.s. serious? guest: i think this is a little more serious than before because the president is feeling a lot of pressure domestically to follow through on some of the promises he made in trade. there is a perception in the market that the president may not be winning that trade war with china the way he has sort of presented in the past. i think part of this is really in effort, yes, to follow through, but' himself vis-a-vis china. as the reporter indicated, the north korea piece is part of this discussion as well. it is like this three-dimensional game of chess. yvonne: it sounds complicated enough. how do you think this is going to -- in terms of the rhetoric,

is the president really playing the long game when it comes to dealing with frictions between the china and u.s. trade relationships about structural issues like trade deficit, or even about made in china 2025? or is this more of a short-term win leading up to the midterm? lanhee: i think the short-term wind is important, but the positioning of the latest activity on trade, all the rhetoric from the white house is trying to position this as part of the bigger piece. how you counteract the alleged intellectual property piracy of the chinese. how you conjured the made in china 2025 effort. rather than ceding it in just a question of how to reduce the trade deficit, which a lot of economists believe is not productive, what i think you are seeing the administration do is how to figure this out, the longer run, systemic challenges china poses. i'm curious how you view

this approach to the trump administration to china. is it reasonable response from the administration to the thievery of intellectual anperty or is more of ideological opposition to the china? i'm this ambition curtailing, if you will. lanhee: i think that is to be determined. i think to a certain degree, the hope is whatever the administration does will counteract a systemic way with the chinese are doing. which is to say i think there is still a hope. i don't know if anyone knows how effective this will be. but from the trump administration's perspective, they will argue that previous and ministrations have not done anything to counteract be systemic issues. at least, we, the trump administration, is getting to these concerns. we will ultimately see if this is part of a piece of a longer-term game the administration is trying to play. haidi: the talk about this being just one part of the puzzle these. broadly, we have put geopolitics

into this. how smart or how risky is this conflation of geopolitics and trade? in terms of he does not get a deal on june 12 or things fall apart along the way with north korea, how does that impact regional trade relationships in asia? lanhee: i think it is very challenging to go mingle the two. i think you saw the danger of comingling trade relations with the zte spat we saw a recently. the bigger question is how much president willing to conflate the two issues. is this just a negotiating technique? or is there an effort to mix the two? one of the challenges of the u.s. is we perceive the u.s.-china relationship is the degree to some of the geopolitical and strategic question, for president willingo example, the south

china sea, have fallen away to broker an agreement with north korea but to resolve systemic trade and the short run pressures the trade and the short run pressures the president faces politically leading into the midterm elections. yvonne: let's talk about that, november, because after we see potential tariffs in china, potentially the north korea summit happening, how do you think it will play out for republicans in november? is this wave of democratic wins going to see any fruition? lanhee: i think there is a little bit of overstatement and how likely it is the democrats are going to be able to capture the entirety of congress. the way the u.s. senate electoral map looks this november, it is highly unlikely the democrats will control the senate. the house is getting closer. there are some races people are following in california where a lot of democrats felt it was a great chance for democrats to pick up seats. now it is looking a little more dicey. a 50-50 likelihood on the house. the senate is ke remain hands.blican

this notion of a huge blue wave is somewhat overstated. if the president is able to pull this meeting hands. this off with kim jong-un in june 12 and able to look tough on china, i think electoral prospects could improve further for the republicans. yvonne: you are still seeing potential division in the control of congress, which could lead to more turbulence coming from the russian investigation, all these talks about trump, can he stay in office? lanhee: it will be gridlock. if the republicans controlled the senate and the democrats control the house, which is still the slightly more than less probable outcome here, it is going to be very difficult for the president to get anything done on his agenda the last two years of his term. politically, very difficult. i would anticipate it easy democrats in control of the house next year, it will be one investigation after another and they will push the president very hard. yvonne: we believe that there. lnahee chen joining us in hong kong. you can watch us live and see past interviews on the

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haidi: that is about it for daybreak are freely this morning. yvonne and dave coming up with daybreak asia. watching?at are we this fallout from italy, of course. yvonne: fallout from italy, a lot of questions about em and japan as well. we have a great guest. paul joining us from snp. economist,ourse, the one of the big global ones we have been talking to about what is to come when it comes to em,

also with what is going on in italy. he says it is actually quite significant and perhaps has a whif about we saw during the european sovereign also with what is going on in debt crisis in 2011 and 2012. dave, you're watching a lot about what is going on on the italy front. david: absolutely. we are in for a proper update for the markets in the asia-pacific. we will try to unpack the politics and see where we go from here. jeff joins us right at the top to talk about that. he essentially thinks elections might be about three to four months away and we might get -- will be in charge of the economy. we will see whether that is a good thing. and what would be a scenario wherein you have the two populist parties may be losing ground and perhaps alleviating the concern around the markets, right or wrong. a new conversation to have.

haidi: yeah. volatility with china. that has been steady as she goes. we will speak to the morgan stanley chief economist at the morgan stanley china summit. this is bloomberg. ♪

7:00 a.m. here in hong kong. i am yvonne man. >> i am david and less. geopolitics gripping stocks, down the most in months. oido, the yen rally. >> concerns in china, the onshore yuan slides with levels, fears of more depreciation to come. >> italy can be back at the polls in july, after failing to name a cabinet. >> president trump turns up the heat on china, upping the list on