here init is 7:00 a.m. hong kong. i am yvonne man. welcome to "daybreak asia." stocks rebound along with treasury yields as investors reassess the reaction to gridlock in italy. set toacific markets extend wall street's advance. all signaling gains. global bloomberg's headquarters, i am ramy inocencio in new york. wilbur ross attacks what he calls slow and rigid institutions. he says the wto causes the u.s. great concern. beijing trade flows with washington, saying their

flip-flops are hurting credibility. some breaking eco-data crossing the bloomberg. we are looking at south korea and its industrial production numbers. the actual number that came out, better than expected, 3.4%. the survey we told -- took for bloomberg was 0.9%. this was against the prior month, -2.5%. the fifth out of six down months on a year on year basis. in theseeing a good clip positive relative to the past half year. industrial production year on year came in better than expected, 0.9%. -0.4%.vey was

better numbers after the seasonal distortions, the lunar new year. export growth was strong in south korea. could be good news for the be ok. -- bok. talking about diplomatic ties. to be a positive signal for the korean markets today. a quick reminder, this is the big interview of the day. you did not want to miss this one, morgan stanley ceo james korman joining us for an exclusive chat out of their conference in china. all of this turmoil in italy, will this derail the fed rate hiking path? and also, jamie dimon calling for a return to the 4% yield. are these claims overstated?

a lot of questions for james gorman in the next hour. 8:00 p.m. eastern if you're watching out of new york. ramy: we are taking a look at the markets. it was almost as if what happened yesterday on the market was basically erased on the markets today. you can see the green on the board. .3%.500 up 1 these numbers you could say were read yesterday. you can see what a difference a day makes. there is an unwinding in terms of the haven demand. happen to the bloomberg terminal. i want to show you what is happening with the yield on the 10 year treasury. dry your eyes to the yellow line. yesterday we saw yields fall the most since june 2016. take a look at the blue bubble, we see it recoup that loss, up

about seven bits. performance upst to december or so of 2017. the unwinding of those haven assets and investors pushing into risk assets. yvonne: still far away from the ago, we saw a few weeks but we are seeing sentiment improving. could be good for equities, given the mirror image we saw in the wall street session the last few days. take a look at new zealand, up 0.25%. sydney futures pointing to positive gains. oil taking a breather from selloffs. china pmi numbers coming through. nikkei futures, signaling a 1% bounce back from what we saw yesterday, according to chicago futures and seoul futures positive, up 0.75%. still a risk off deal when it comes to dollar-yen. but we are still hovering around

108.82. euro also bouncing back around 116. political easing surrounding italy. easing after the hawkish hold on the bank of canada. as remy mentioned -- ramy mentioned, the u.s. 10 year, a similar uptick when it comes to the aussie. bund yields up 11 basis points. jumping --ear yield actually dropping 107 basis points. both five and 10 year sales were over prescribed. a bit of relief to these choppy markets. let's get you caught up with first word news. courtney? tariffs on to lower

a wide range of consumer goods from july 3, including duties on shoes, washing machines and beauty products. trump'slows president announcements that he will proceed with measures against chinese imports. the u.s. commerce secretary says washington is concerned the wto and other international institutions are too rigid and slow to adapt to change. administrationmp would not embrace multilateral bodies if it felt disputes would move faster. he spoke days before the president is supposed to hit europe with new tariffs. >> i have yet to see an agenda for the multinational organizations that said, here is a list of 10 things we must do right away. that kind of approach, as

opposed to interminable study groups proliferating more study groups, is the kind of thing which gives us very great concern. >> china is accusing the trump administration of damaging its credibility by flip-flopping on policy, and reaffirmed it will fight back if washington imposes tariffs. beijing complained it intradicts an agreement mid-may and is settling that dispute. they declined to comment on wilbur ross's plans to visit beijing saturday for more talks. >> when it comes to the international relationship, every flip-flop and you turn of the country will be floundering its own credibility. we urge the u.s. to honor its commitment and work with china. a italy remains without government after the president waits to hear from the populist

as enemy ofcing him democracy. wants to see if the five-star will revive their coalition. several parties are calling for a new election, possibly as soon as july. bloomberg sources say warren buffett proposes investing more than $3 billion in uber earlier this year, but fell apart over the terms of the deal. the now dead transaction was bid berkshire the hathaway made on morgan stanley during the crisis. it would have lent uber his reputation along with capital for good terms. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. yvonne: let's take a closer look

at rebounding u.s. stocks. let's bring in su keenan, joining us from new york. yesterday's sharp shell of when it came to italy was a little too extreme. su: we will typically see this fast and furious selloff. follow-up,e is no stocks will bounce back, which is what we saw. i should point out the strategist says we are probably not done for the short-term on these cycles of selloffs and rebounds. stocks reverse, the dollar dropped. king send energy companies surged. the s&p 500 came back almost as if they did not fall off. russell 2000 is the star, it hit a record, showing market caps are doing better than international stocks. you can see sizable gains. top, industries are at the

they beat by a wide margin. jpmorgan coming back strong, pacing the gains we saw in banks. we also see transocean drilling company along with other energy companies rising as the price of oil also bounced back. let's talk about pain trade. gtv is where you can find the charts in our library of charts. this is the 10 year treasury futures board at a low before the rally, which was setting off before the fed minutes. italian turmoil caused a rally in bonds and yields to fall. this was down on most 4% tuesday, bounced back by at least half in this latest session. let's go to another chart. investors rushing to trade the largest financials etf. look at the spike. -- that traded

tuesday, the most since february, almost double the average. that has a lot to do with money flowing to the financials. it is basically reversing course. ramy: a lot of tension we are talking about. donald saying he will put do tariffs onnew canada, mexico and the e.u. talk about the weight in terms of the markets. su: there has been harsh criticism of the flip-flop of the trump administration. let's take a look at steel stocks. they rallied strongly, given the latest developments. concern is that this u.s.-china concern is going to affect the shangri-la talks coming up and bleed into other issues.

right now, these stocks rising with the tide. ramy: moving ahead, su keenan, thank you very much. let's dive deeper into those markets with ed. of cross winds happening. we just got the lines about the trade tariffs. at whatlso looking happened with the u.s. and china, the g7, as well as what is happening with italy. what are you looking at first? what is the number one priority for you? ed: i think the thing to keep in mind as we look at the volatility across markets, is come of the banks fed and the ecb are on a well determined path. the fed is comfortable in its outlook in terms of growth and inflation. it is set to raise rates in june.

it is likely going to raise rates three or four times this year. the question will become a what is the neutral rate and what do we do when we get to neutral? that is the question they are trying to answer. with the ecb it is similar. they are confident in their outlook for inflation. data from germany and spain today support their outlook for inflation, and inflation hitting their forecast for 2018. they are proceeding with ending qe purchases by the end of the year and focus on forward guidance in terms of where they will hike next. the volatility in terms of hiking for the euro, italian sovereign risk, oil prices, these will not impact the paths the central banks are on. we need to see much higher dislocation before that threshold is meant. ramy: i am getting a sense of a bit of stability. i want to ask how anxious you are -- i want to hop into the bloomberg terminal and show you this gtv chart.

this is called, stress likely on the way. this is the bank of america merrill lynch global risk index. on the right-hand side of your screen it has jumped below the flatline, 0.12%. you can see the past tension levels, the 2008 financial crisis, the 2011 possible global rift, as well as what is happening in 2016. where are you in terms of anxiousness? ed: you can compliment -- complement this with interest-rate volatility in the u.s., which has been unusually low, coming down the better part of the year and a half. it leaves us susceptible to spikes. what we saw with price action yesterday and today, standard deviation moves, that is not something we like to see. that movement can be disruptive to portfolios.

that is something to keep an eye on. -- i think volatility has a higher probability of going up rather than down. we are excited about treasuries. treasuries provide stability and buffer against what is happening. i know we saw a little bounce back when it comes to treasury yields, but we are exactly where we were three years ago. it still seems like a faraway target. fed funds futures not exactly bouncing back. there is still political risk things are foggy out there. is the path of least resistance still for yields to go higher? what levels should be looking at now? ed: i think we are fairly valued. there is room for yields to move lower. this is why -- if you look at how markets have priced the total rate, where the fed will take of cause, the fomc is

coalescing around a real rate of 1%. to one point -- to we will be there by the middle of next year. markets have priced that well. that threshold for rates moving higher will not only see and overshoot in terms of inflation, we also need to see upside surprises in growth. i do not see that soon. if anything, yields will move lower. yvonne: take a look at the europe situation with italy. we have not heard a lot of developments. this could be prolong to the summer come are lee 2019. what will be driving the euro, if you put your fx cap on now? do you focus on italian bonds are the data? ed: you have to look at the signal the ecb will give us, especially with the timing of the first rate hike.

that hike at the beginning of the year, we were quite bullish. we had 40 basis points of tightening raised in. that is below 10 basis points at the moment. that pricing, along with more pessimism around the european growth story, that was negative for the euro and sparked it hope -- it lower. i think the threshold for the euro to resume strengthening is quite high. we will need to see political risk getting priced out and more uncertainty in the italian election. more certainty from the ecb in terms of how they will proceed with qe and the first hike. yvonne: d.c. that this italy do youon could derail -- see that this italy situation could derail purchases? ed: i will say not yet. in part, the asset purchase

program is not the right tool to deal with the situation. the ecb could pull out extraordinary measures, something called the omt program. the threshold for that is quite high. we need to see a higher degree of dislocation and markets and we need to see agreement between the sitting government in italy to move that forward. it has a relatively low impact on the market, $30 billion a month. phasing that down to zero will not be material, in my mind. what is important is that first hike. as that first hike comes onto the horizon, we will see repricing and that is what we are looking for. yvonne: we will leave it there, ed, joining us from new york this morning. how a company plans to keep shareholders smiling. first, new infighting

at the white house over whether the china trade war is on hold or not. we get the latest from washington. this is bloomberg. ♪ loomberg. ♪

ramy: welcome back, this is "daybreak asia." i am remy innocence you in new york. in hongi am yvonne man kong. president trump to announce sweeping tariffs on steel and from canada, mexico, the e.u. far from a trade truce. the odds of a trade war, what are we looking at now? >> this is an interesting announcement. the temporary extensions trump ranted earlier in the month were set to expire on friday. as of yet we have not heard any progress towards reaching an agreement to continue those exemptions.

washington post reports trump plans to reimpose those tariffs. it does seem to ratchet up tensions amid ongoing nafta negotiations. it also seems to parallel the surprise rhetoric and tariffs announcement for china yesterday. we see the rise of the hawkish approach to trade out of the white house right now. ramy: i am glad you brought up china because, in terms of what is happening with the u.s., e.u. , canada, mexico, how much for those complicate trade talks, when wilbur ross is expected to go to china in june 2 through june 4? peter navarrorom about a trade war, i do not think the comments themselves with derail wilbur ross' trip, but it does show the trump administration is pivoting toward a harder line, announcing

yesterday they were moving forward on the tariff plan. if trump plans to move ahead with tariffs on the e.u., canada and mexico, we are seeing a harder line. that means negotiations will become located. there are u.s. officials traveling to china to work out the broader strokes of what would be talked about during secretary ross' meeting. but the tariffs plan, they cannot reach an agreement on what is discussed, those can derail, according to reports. summithe north korean still appears to me moving forward. we have a former chief arriving today in washington for meetings. what do we expect to happen? greg: a very high-ranking highest official from north korea to be on american soil in 18 years. he is meeting with mike pompeo tonight. they are having dinner. the two have met before,

previously in north korea. we have been told he has a slate of meetings. the administration is staying tightlipped about all the details. wethese meetings happening can expect that they are discussing look at possibly be agreed upon for the summit. trying to trade what could happen june 12, if that does go ahead. greg sullivan, thank you. you can get a roundup of the stories you need to know to get your day going in today's edition of daybreak. subscribers can go to dayb on their terminal. it is also available on mobile in the bloomberg anywhere app. you can customize settings for the information you care about. this is bloomberg. ♪ bloomberg. ♪

ramy: a quick check of the

latest business flash headlines. bloomberg has been told google is working on an upgraded pixel smartphone including a model to edgeearly edge screen. they are seeking to boost revenue for a critically acclaimed phone that has yet to make an major sales impact. google shipped less than 4 million pixels. compare that to apples -- apple's 216 million iphones. yvonne: a software update improved braking distances. consumer reports declined to recommend the tesla model 3 after it took longer to stop than a ford f-150 pickup. how warren buffett attempted a $3 billion play in uber. why the deal fell apart. this is bloomberg. ♪ this is bloomberg. ♪

p.m. thursday. blue skies, wonderful sunlight here in hong kong. it is pretty hot. asia'snutes away from first major market open. ramy: 7:30 p.m. wednesday in new york, where markets closed 1.3% up, the s&p 500 recouping all of the losses we were reporting on a day ago. what a difference a day makes. you can see the cloudiness over the empire state building. yvonne: you are watching "daybreak asia." let's get the first word news. >> there are signs of more

discord at the white house. peter navarro has criticized treasury secretary stephen mnuchin for saying the u.s.-china trade war is on hold. navarro said the comment was "an unfortunate soundbite" and says washington is involved in a trade dispute with china, plain and simple. he went on to say the u.s. lost a trade war long ago when china joined the wto. >> that was an unfortunate soundbite for two reasons. number one, what we are having with china is a trade dispute, plain and simple. a $370 billion trade surplus with us, which cost us over one million factory jobs a year. union expecting trade broadside from washington, after reports that trump administration is poised to

impose tariffs on steel and 25% on imported steel and 10% for aluminum. leaders are still trying to find the solution. >> i am always very hopeful. some things depend on me, others don't. i do my best i can do. >> president trump has publicly expressed regret as appointing jeff sessions of attorney general. in a series of tweets he says there are lots of really good lawyers in the country, he could have picked somebody else. trump and i wish i did. trump's request about changing his mind about recusing himself from the russia investigation. wanting to roll back of the volcker rule.

to seek comments on proposed changes, kicking off an administrative process to reduce compliance costs for financial firms. they want to give banks more leeway to resume trades. the u.s. and north korea continue to prepare for next month's summit, now less than two weeks away. 's former chief in talks with mike pompeo. kim young chol is the highest-ranking north korean figure to visit the united states since 2000. he and pompeo met earlier this month in pyongyang and accompanied recently a meeting with the leaders of china and south korea. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am courtney collins, this is

bloomberg. we are counting down to major market opens in the asia-pacific. let's get to sophie kamaruddin. we are seeing the nerves of italy. trade tensions are back on the boiler. stocksite that, asian set to rebound. sometimes markets have woefully short attention spans. we have to hear confirmation possibly that trump may impose those tariffs on canada, the e.u. and mexico. the nikkei potentially flying back some of yesterday's losses to rise for the first day in three. we are seeing slight risk off moves in the canadian loonie and the mexican peso. let's check out the function on the terminal. fluid,cess remains

considering trump has been talked out of adding tariffs at the last minute before. the rebound in italian debt is sustaining its momentum. check out the euroyen, it rose as much as 1.2%, hovering around the 1.27 handle. italian drama off the center stage for now, but it gives them a chance to focus on the fundamentals in the data. we have pretty good industrial production numbers. sophie: we have that kickoff with korean output. official figures at 9:00 a.m. hong kong time. resilient in the face of deleveraging. that could put a dent in growth. investors will be watching. typically we have seen asian shares with her -- wither.

weakness started in the last quarter of 2017. a full check of japanese production, expected to maintain 1.4% growth in april. india expected to report 7.14% growth in the first quarter. they see headwinds due to rising inflation. ramy: amazing numbers. india set to be one of the biggest growth countries in asia. crisis hasitical moved to the back burner, at least for now. its shadow hangs over two of the world's biggest central banks as they prepare to meet in two weeks time. kathleen hays is here with a look. where is the main focus? economic growth, inflation? kathleen: they are thinking, what will the fed do?

italy's crisis slowed down the fed rate hiking, we can go back to the economy, stocks rallying, even the u.s. bond market had stellar gains. we can focus on the economy. what did we get today? let's start off with gross 2.3% to import, from 3.2%. setting the second quarter up for more of a rebound. some are looking for a number north of 3%. that would be strong on gdp. the beige book, and anecdotal survey, getting ready for the meeting two weeks from now, say it is growing moderately strong, even though consumer spending has stopped and wages are still only rising modestly. the probability has rebounded also from yesterday's doubts about how much the fed will raise rates. let's look at another bloomberg chart from our library. how many hikesr

fell back to, well they just do two? that june rate hike looks like a done deal, at least in terms of what the market is expecting. ramy: the ecb also meets in two weeks. with regards to italy, some tension is off the table. in terms of those bonds, those purchases, what do we expect? the ecb iskathleen: walking a policy tight rope. a definitee to have path toward slowing stimulus? what kind of government will rule? is germanoday inflation. it jumped over 2%, that is the white line. 1.8% was the forecast.

euro area inflation is the more important one. itsany is a big economy, if inflation is picking up, the ecb may be wondering how much to hold back because of italy if german inflation is picking up. meanwhile, consumer confidence fell, not surprisingly. not just in france, but italy and spain. italy and spain both have political crises. even tougher decision for them if he is going to announce a more aggressive fiscal stimulus reduction. another bank took action, raised rates once again. is this going to pay off? kathleen: they are not just in a currency battle, but a currency war. it is the same thing emerging markets are facing in asia. a stronger dollar, capital

outflows. that is what people are afraid of. the bank of indonesia did raise a key rate less than a week ago. the new bank governor says, i will continue this battle. he is doing this ahead of a expected the fed rate hike with an eye on possible outflows. you can see this is a move that has been made -- we did get a bounce in the rupiah. indonesia is also facing rising oil prices, a weaker currency, that could boost their inflation. most economists are expecting one more rate hike. they do not think they are out of the woods yet. it is about a lot of central banks. yvonne: it certainly is, just to get ahead of the curve. thisto talk more about roiling in italian bonds, look

at those stories on the bloomberg. it is what happened to bill gross' fund. it was certainly a nightmare scenario. the worst day in almost four years on tuesday, given the steep slide we saw in the treasury yields, triggering fears italy might leave the usro, that send gross' jan fund it down a 3% on tuesday, making of bad year even worse for bill gross. his fund is down the 6% for the year, trailing 96% of rivals. i am sure he was up all night watching what was going on in europe. ramy: probably taking headache medication or drinking something. though he diding, not have comments about what was happening today, in the first quarter he said it was a misplaced bet, a wrong bet. happened to the terminal one more time.

i will show you what we are talking about. on monday there is an extra yield investors are demanding for the 10-year debt from the u.s. over germany. that is at its most since the year 1989. we can see the reason for this fall, its biggest one-day loss ever. probably trying to figure out what to do next. yvonne: others reporting their biggest one-day gains since 2009. a bit of a backside to trade for bill gross. in trades the pickup today, inflation out of europe, the jobs report friday, perhaps could change the tone when it comes to where bond yields go. let's go toward next story, a bloomberg scoop. warren buffett proposing investing $3 billion in uber,

but the deal fell apart over the terms and size of the deal. let's get to eric newcomer, helping break that story, not joining us from san francisco. tell us more about this. we know it is warren buffett's m.o. to jump into a crisis. what did he see in uber to want to invest $3 billion worth? eric: crisis is right. there are echoes of going into goldman sachs during the financial crisis. except this time uber is in a crisis of its own making. it has been vulnerable and a good opportunity. where are company would benefit from having warren buffett behind them. this was right after the softbank deal, which closed in january. as it uber was negotiating this term loan, they were talking with buffett about different sized deals, potentially above $3 billion. there was a proposal for $2

billion. ultimately it fell apart. ramy: why did this deal fall apart? eric: it seems over terms. the sense from the uber camp was going toett was command really good terms in exchange for the brand benefits they would get, relative to what they would otherwise be able to receive. the terms were pretty favorable to buffett. i think there were terms questions, may be by reducing the size of the deal, getting less out of you. it does seem they could not come to an agreement, it fell apart. yvonne: is that bad for uber? or do we see this as a position of strength of they came from, that perhaps they did not need this type of investment from buffett, and it is not as troubling as it seemed? eric: it is nice to have berkshire hathaway's money, but

uber is very well capitalized. they have over $6 billion and they raised another $1.5 billion in term loans. there is pretty of money -- plenty of money. of years past, they lost $4.5 billion in 2017. they may be starting to turn a corner this year. it seems they are in a better position in terms of needing money. there is the ceo dara khosrowshahi, who has helped turn the page in terms of scandals they faced last year. ramy: you never know, something could change in the future. we will leave it there. eric newcomer, thank you. theill be speaking with s&p's best performer last year with a 129% gain.

invisalign keep up their performance? and, our interview with the james gorman in about half an hour on bloomberg tv and radio. this is bloomberg. ♪ is is bloomberg. ♪

ramy: welcome back, this is "daybreak asia." i am remy innocence you in new york. yvonne: i am yvonne man in hong kong. a testament for how good medical up 136 percent. even so, the maker of invisalign remains a small player on the index with annual sales of $22 billion. joining us more to talk about their prospects, the align

president joining us from singapore. thank you for joining us on the program. invisalign has become a household name. revenue coming you have doubled in just three years. you are taking off in the u.s. and china. you seem confident about where growth is growing. what is driving that? technology has gone to where we can do more cases, 70%, which used to be handled with wires in brackets. we are going a lot of -- a lot wider, internationally. europe it has been between 30% to 40% and above 20% in the u.s. ourave good demand for product line and drive it with better distribution and better technology. yvonne: can you break it down further? i want to take a look, market by market. which do you expect to grow in

and who are your target customers? joe: we expect it will be an interesting answer, we appeal to all markets. we have been going double digits in all markets. our core market used to be women between the ages of 22 and 24 years old, but we have seen that expanded downwards into teens. we are also getting more of a male population interest and an older demographic. there is a lot of mal inclusion -- many all over the world have crooked teeth. , it is easier to move those teeth, from the patient's perspective. that is interesting. your penetration growth seems to be around 10%, is it?

correct, about 12 million case start the year. anywhere between 9% and 10% penetration. clinically, we can do 70%. with new technology next year, we will be close to 80%. yvonne: why is the number still so low? is there a lot of education to do when it comes to orthodontists? have they not bought into the idea this is the replacement for the metals? joe: it takes a lot of training to do this. we have taken a 100 year analog process and digitized it. we have a scanner on the front end that digitizes your teeth and an algorithm that will move your teeth in a digital cents. we put that all in plastic. the 3ose aligners have million lines of code.

it takes a while for an orthodontist to get familiar with a digital process. ramy: i want to get into the issue of affordability. it is in the thousands of dollars in the u.s., but in the asia-pacific, there is less purchasing power, depending on the markets you want to get into. i presume you might want to get into china, but folks can probably not afford that much. there is a demographic in china that can afford it, and we do well in that sense. the great thing about invisalign , we can do difficult cases that would take more than a year to do. if you have a relapse where you have had metals before, we can or15 a line -- aligners less. when you move up and down the scale of how difficult a certain cases. -- case is. ramy: how about your

competition? some folks say there is invisalign, other companies. what do you say that makes you better than your competitors? joe: first of all, we have been in this business 21 years. we have developed materials specifically that are still on patent for several more years that move your teeth in the right way. our algorithms, in order to predict how your teeth will move and ensure the finish are more refined because we have been in the business a longer period of time. if you look at our competitors, at an orthodontist conference, they employed technology we had 10 years ago -- that is not talking against our competition, that tells you a difficult this technology is. it is not just about the type of plastic and algorithms, it is also one of the biggest 3-d printing companies in the world.

just the scale and learning how to do it takes time. to put all these things together from a competitive standpoint, particularly with competitors doing wires in brackets for years, it is more difficult to move to the digital side. i'm not saying they will not get there, but they are not well-positioned from a technology stands. -- stance. yvonne: some of your foreign patents are expiring this year. brand could become announced -- a noun. apart?you set yourself joe: it is a good question. we had about 25 patents last year, meaning we designed it on a screen and could print on a 3-d printer. we have over 800 patents we have

accumulated over 20 years. over 20 years no one actually believed you could move teeth with plastic. most front patents we have lost our critical, but when we get into clinical specifics and how you manufacture them, we still feel really good from an intellectual property standpoint. our brand name is really well-known. billion over half $1 developing this brand and work with our customer base to promote patienta. -- patients. doctors tod with our grow the product line. the residual patents really help us. yvonne: thank you, joining us in hong kong. ♪

ramy: just moments away on

daybreak asia, our exclusive interview with morgan stanley chairman and ceo james gorman, that will be simulcast on bloomberg radio as well. we are live at the morgan stanley summit in beijing. this is bloomberg. ♪ this is bloomberg. ♪

yvonne: we have made from bloomberg asia headquarters. welcome to "daybreak: asia." toa-pacific markets set extend. also signaling gains this judge the reaction to the political crisis in italy. i'm in new york where it is just past 8:00 p.m. on a wednesday. washington will now impose metal tariffs. cashing in on a fading star.

win whateverhow to the future holds. yvonne: the political fog seems to be fading a little bit when it comes to italy. we saw a big bounce back when it comes to equities. hear whatited to james gorman is going to say in the next couple of minute about whether we have seen the worst of this italy crisis. ramy: that's right. looking at the markets and how those ended, it seems like what happened yesterday never really existed with the s&p 500 and the turning around. it will be interesting to see what happens when markets open, like they are doing right now.

yvonne: let's take a look with sophie kamaruddin. quite a bounce back. sophie: quite a bounce back given the losses that we saw on wednesday. take a look at what is going on in tokyo. the nikkei gaining. bond traders await the boj purchase plan for june. saying they are waiting to see what the fed has to say regarding its interest rate. when it comes to the euro-yen, that is coming off high, now 126 .78.at it has been overly sold on italy's political prices. -- critical crisis.

anticipated resilience in chinese pmi data. pickup. than forecasted japan industrial output slowed more than expected on a daily basis since april. as cameron crise points out, recent events are demonstrating how woefully short attention spans are as they swap from one issue to the other like magpies. the potential tailwind could come from the next trade offensive from trump. at samsung, which fell 3.5% on wednesday after a sold stock to avoid reaching isolations. as we take a month-long view, down 4%. sophie checking the

markets right now. thank you very much. an exclusive simulcast on bloomberg television and radio. morgan stanley is china summit is underway in beijing. let's go live there where tom mackenzie is with james gorman. tom, take it away. ceo james gorman. thank you for your time. as you have been taking to your clients and investors, what have you been getting from them about the market that we have seen over the last 24 to 48 hours? >> thank you for having us and thank you for being here. this is our fourth china conference. about 300 corporate, about 1000 other investors. it is a unique opportunity for the rest of the world to come to understand the

tremendous stories coming to the market. people are very focused on the substance of what is going on here. there have been dislocations in the market. i'm sure we will talk about italy in a minute. what they are focused on is where is the growth coming the next decade out of china and how do we participate in that? tom: we are seeing some positive data out of germany around cpi and the jobless rate. are the political machinations in italy and spain distracting us from the fundamentals? is there a broader concern that you have? >> it has been interesting. the last couple years the things i have focused on -- we have extraordinary synchronized growth. everywhere from japan to the u.s., china doing well, the southeast asia, cross continental europe. we have had these political you eruptions.ich is --

what is going on in italy and again, angela merkel trying to pull together. it is almost competition between corporate growth and its improvement and economic against political instability and the rise of populism. the italian many crisis that lasted about 24 hours is just another manifestation of that. tom: it seems like you are taking a more nuanced view. someone else said the eurozone faces in accidents all -- and existential threat. >> that is ridiculous. this has been playing out for about 10 or 15 years. there is in many countries

around the world a sense that the average performance in the economy is better than the individual performance of the citizens in that country. that is what is giving rise to the wave of populism. this has been a long evolving political trend we are facing. i do not think the eurozone is in jeopardy. you do not react to 24 hour news. u.s. movedin the down 30 points overnight and then rebounded. you cannot respond as an investor. these are not hedge funds. they are trying to preserve their capital for the long-term and 10 rate returns. that is not something you rich -- you respond to. tom: do you think it changes the calculus for the fed in terms of rate hikes? >> i doubt it. the fed has been incredibly

consistent. they have been focused on long-term unemployment. was -- inal target slight modest inflation wages. that is why we have taken this long to get this far, which is not very far at all. rates are at historic lows. all the fed is trying to do is get back to a normal rate environment, which gives it monetary power for when the next crisis occurs. the inflation target has not been hit. will raise rates four times this year, i might be wrong. it might be three. i do not think the last 24 hours will influence that. tom: we heard jamie dimon saying we should prepare before. i am not good at predicting rates or currencies or markets

because we do not know what it will be tomorrow morning. obviously up. is if it ise surprised under 3%. i would be as surprised if it was above 4%. tom: it does not plan to that or become more sustained for investors that could see the fed slowing down. >> they could. this could be the early warning sign. my guess is that it is not. tom: in terms of the u.s. dollar and the euro, are you going to see further sustained dollar weakness? it has softened again. your view on the dollar given the deficit challenges and funding challenges in the u.s. >> again, you have the balance between deficit versus rate increase.

is likely toar strengthen overtime from where it is right now. tom: the trade tensions we are seeing, we got a new outlook that trump is looking at and ong tariffs on china the european union, mexico and canada. what is your view of the administration on how concerned you are about this dragging on? >> i guess i am disappointed. i think we have achieved great trade cooperation around the globe. fractionsclearly in that need to be corrected. there are certain industries in certain countries that are not playing by the rules. that needs to be fixed, but the broader global trade is a strength for global economic growth. it is what has brought so much prosperity around the globe. now the u.s. is talking about

chinas on imports from and that is on a base of $500 billion of imports. -- it would take $10 billion off. is that really what is going to change everything? is it that important? it is punching above its weight. what i think they are trying to do is correct where there have been obvious infractions or inconsistencies in application. what i feel they are not trying to do is enter into a major rebalancing war because i do not think it is in the global interest or the u.s. interest. tom: do you think they have a strategy when it comes to the trade negotiations with china?

does that apparently of strategy concern you as well? the am not privy as to what administration is doing. i am not in advisor in any sense. are well published points of view from different members of the administration. i assume there is a strategy that has evolved. the strategy respondents to how the other actors -- responds to how the other actors react. tom: who has more to lose from this trade friction? >> hard to pick winners and losers. i think the reality is that the u.s. and china need each other, they are dependent on each other. this is a symbiotic relationship. it is an evolving relationship. a trade surplus on

services. this is not a clean winner and loser to be had. this is about finding where there are obvious infractions, fighting them and dealing with them. -- finding them and dealing with them. tom: switching focus to china. inclusione msci asia that will kick in today. obviously there will be a fraction of the title msci title index. does it point to a broader trend? significance? validation that the chinese markets are opening up and becoming global markets. the hong kong shanghai connect this is another

of thee affirmation state of readiness china is and to participate on the global stage in all regards. it is still a heavily state owned and driven economy. companies become public companies and moved to global basis, that is when you will reach the full extent of the chinese openness and global competitiveness. tom: the pace of opening, do you think that is rational at this stage? >> i am not in the chinese government. i would not presume the right pace. this is one point 4 billion people going through an extraordinary multi-day gave -- multi-decade transition. i think it is pretty impressive. i would not question the pace. you can overheat these things but he quickly. tom: can you give us an update

on your plan for your joint venture? >> thank you. we have a minority interest in securities, which has been our core platform in china, based in shanghai. we have taken that from 39% recently. we are very clear what the chinese government and shareholders that we want to move to majority position. we should not be conducting --iness in major can economies as a minority partner. we are in the process of getting there. i do not know where it is in the legal word. we will move to 50% and eventually 100% with the support of the chinese government. tom: the timeframe is not clear yet? >> this is life. we are moving and we want to be in a core shareholder business in one of the largest markets in the world. tom: what are your ambitions for the private business in china?

do you want to move up the rankings? >> always. you want to be number one. --ning in the private world you bring on one client at a time. it is not like a big underwriting where it is a once and done. this happens over many years. switching focus to the business itself. strong first-quarter results. continuing -- are you continuing to see volatility? >> the first quarter was flattered by low tax rates. 70% -- bout a the first quarter is always strong. activity in the

markets. the last few days have been volatile. you want to make sure you are on the right side of that activity. playing itare appropriately. it is obviously too early to predict. we like our business model. -- when theance markets moved, they move big. that combination works for us very well. tom: you said in the first quarter results that it was extremely like the client. is that picking up or is that level with what you saw? >> there was a conference at one of -- that one of our executives spoke out at. it does not surprise me. i am not at all concerned about that. the margins continue to improve.

year-over-year performance has been strong. it is hard for clients to take thective position in market. most people are looking for a reason to be disappointed. up until six months ago, most people were looking for a reason to be positively surprised. whether it is the move in , the saudi's and work oil prices are, whether it is the recent turmoil in italy -- we talked about bank regulation stuff. all of these with global tariffs on north korea summit on or off -- all of you giving people reasons to be concerned. when they are concerned, they tend to sit on their hands. when they are panicked, they tend to sell. right now they are sitting on the hands, but that is not our business. you touched on regulation.

we had the news overnight. it looks like it is moving in the right direction. how much of a boost is that likely to be? >> not huge. designed to stop institutions that take deposits, risking their capital and profits on trading and investing. i agree. they should not do it. livenot see how you can with the inconsistency of doing that. hand, taking principal positions and making markets through those principal positions, whether through come holding bond inventory, all the things that we do for our clients. for the client over a reasonable point of time -- that is how you provide liquidity to the market. i do not think they ever intended for that part of the business to be affected, to take

liquidity out of the market. i am not read the comment letter the fed has put out. the other agencies will also put out something. to the extent that you separate principal and market from proprietary -- the level of bureaucratic compliance with every trading , that is overwhelming. it is silly. substance. simplify the application. bring liquidity back to the markets, but do not fundamentally disrupt the depositpieces, which is institutions.

there is an efficiency benefit. it is a benefit for the markets. it will not change morgan stanley fortunes. it is a small positive and it should happen. tom: thank you very much. giving his insights. yvonne: great conversation there. we covered a lot of ground with the ceo. they will not focus too much on what is going on in italy. he calls this a mini crisis in italy right now. not facing an excess central threat. -- existential threat. saying the rhetoric is punching above its actions. we will talk more about the situation. the process of

submitting the application. eventually they want that to move to 100%. we will take a look at the market sentiment. investors are pretty much sitting on their hands are yet it is hard for clients to take action in the market at the moment. on can get those stories dayb . this is bloomberg. ♪

yvonne: this is "daybreak: asia." attentions turn our to tencent, which is gone from market superstar to something of a pariah. one hedge fund says it has the perfect plan for a safe and

cheap way to cash in, regardless of where the shares move. the ceo gave us his strategy on the sidelines. >> the stock has been bullish for so many years that people are not assigning high probability choice i rushed to a selloff. you're not calling for a big selloff in the stock, but if one were to occur, these will have a significant amount of value. distribution of your call? you are saying to go along with some shares. >> we are recommending to buy 2018, which has a 10 delta. you by about 2% of the stock when you buy it. for the stock to rally a lot, you would lose the money on your premiums that you would make quite a bit of money on the stock that you lost. this allows you to make money

either way. if it is down a lot or up a lot you make quite a lot on this trade. option premiums are so low. look at the consensus ratings on the stock. more than $500 is the consensus rating. we have one morningstar calling for 641. even from the big institutional banks it is continuing to rise. >> the dominant view is that the stock can only go up. if it were to go down, it would catch people by surprise. one of the things i talk about the presentation is from a market cap point of view. it is an amazing company. the market knows that and investors know that. were the stock to hit some of the targets that people have, up 30% would be bigger than google.

can that happen? for sure. it is not that probable in the next to 12 months in my view. fuchs. that was benjamin let's do atime, quick check of the business headlines. watching an investigation into failed tos that ceo comply with the code of conduct. looking into a whistleblower complaint with certain borrowers. it alleges she violated provisions over a period of time. have complete confidence in their ceo. they will be ready for an ipo next year but may not want to go ahead with that.

no issues with going public but wants to ensure that it would be a major benefit to the company. they remain keen to merge with airbnb. more to come. this is bloomberg. ♪

yvonne: just a half hour away from open in singapore. seeing quite a bit of a turnaround when it comes to equities, bonds as well. taking a look at your asian markets. a little gloomy this morning. ramy: you are watching "daybreak: asia." let's get to first word news with paul allen. china with -- and beauty products. the decision comes after meeting with state council and follows

trump's announcement that he will proceed with measures against chinese imports. u.s. commerce secretary says theington is concerned that wto and other national institutions are too rigid and slow to adapt to change. the trump administration would moodce -- if decisions faster. moved faster. >> for any of the multinational organizations that said here is a list of 10 things we must do right away. that kind of approach, as opposed to interminable study groups proliferating more study groups is the kind of thing that gives us very great concern. -- : european union paul: the european union is

the u.s. tariffs on steel and aluminum. eu leaders are still trying to find a solution. >> i am always very helpful. i do my best at what i can do. paul: president trump has hisessed regret about attorney general. he quoted a lawmaker saying there are lots of good lawyers in the country and he could have picked somebody else. new york times early reported that sessions refused trump's request about recusing himself.

gorman has told bloomberg that -- that he does not think the eurozone is in jeopardy. geopolitical turmoil come he still sees the fed hiking four times this year. the fed is trying to do is get back to a normal rate environment, which gives monetary power, if and when the next crisis occurs. the inflation target has not been hit. the fed will raise rates four times this year. i might be wrong. it might be three. i think it will be four. paul: global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm paul allen. this is bloomberg. to see how the

asian markets are shaping up so far this morning. a lot of focus has been on italy. let's take a look with sophie right now. and thethe peso canadian loonie. this as we wait to see whether trump will impose those metal tariffs. there has been some flip-flopped when it comes to that. he provided some breathing room he announced the tariffs on march 23, but we are waiting to see if they will be fully imposed. when you take a look at the broader action, stocks are rebounding. energy stocks are leading those gains. trading is above 77 -- above $77 a barrel.

began has strengthened. yen has strengthened, but it could falter once more. the 10 year yield slipped. told tomanley mackenzie he would be surprised if it stays below 3%. he expressed the dollar to strengthen overtime. fallingar has weakened, the most in three weeks. signs are indicating that the greenback does not look stretched just yet. the dollar is set for its second monthly advance. it looks like markets are regaining some of their footing after the italy crisis. finance ministers from the

world's largest economies are flocking to canada for the next g7 summit. trade tensions and the political crisis in italy are set to take center stage. mike mckee.s storylinese main expected to be? there is hardly any consensus as it stands. >> you are right. it is italy and it is trade that will dominate the agenda. agenda --e official there is no getting around the fact that the u.s. comes to this position. a weakened it could be ugly tomorrow.

that is the report tonight. if that is the case, steve mnuchin will have a lot of learning to do because the oniffs, 25% on steel and 10% aluminum are based on the idea of national security. the canadians, mexicans and eu point out that they are allies. that could be a very interesting session. the overarching issue is italy. it is a real problem there. we are waiting to see what kind of government comes out of italy and what their policies may be. i spoke to a senior financial official who says they are very concerned about what could happen because the stakes are so large. italy has such a large bond market that it is a problem for the rest of the world. what kind of reception

do you think secretary steve mnuchin will get? hisrro rebuking some of comments earlier. went onecretary television earlier and said we are putting the trade war on hold. now the president is threatening sanctions on china again and it looks like he will go ahead with the metal tariffs. we could be in the midst of a real trade war, especially if the eu, canadians and mexicans start imposing retaliatory tariffs. generally, they try to be polite here. secretary steven mnuchin. a restrained greeting from the others. they know each other and our diplomats. --y will speak kindly, the but there will because messages delivered to the u.s. the secretary will defend it and kind, defending the trump

administration stance. yvonne: thank you. it could be the calm before the storm. investors will be watching out for china's pmi data. forecast of china's growth momentum despite the deleveraging campaign. enda curran.n da: it is not a bad thing. the economy is moderating. they are trying to curb the pace. one of the things that we are saying is that industrial is holding up quite well. that is a clear positive. idea that thehe manufacturing sector is doing ok.

the second-biggest economy is and will continue to moderate the second half of the year. if they manage the deleveraging campaign without tipping the economy, that would be quite the achievement. yvonne: are we likely to see any impact from the trade tensions? you are kind of seeing fuel and copper prices going one way. enda: the trade tensions are interesting. when you look at exports, almost 14%. yvonne: south korea is strong as well. enda: the demand for chinese goods. good export demand for chinese goods. how willuestion is

sentiment and confidence be impacted going forward in china. of where it goes from here, especially as tensions continue to ratchet up. ramy: there has been cut about -- talk about a cut to the rrr. the headline when you see the triple are being cut, it is using tensions -- easing tensions. it is more about the pboc andring liquidity sufficient cash in the banking system to roll over and see those demands and the need for payments. .ather than an outright easing the broader story remains that

the central bank has been somewhat neutral. it will speakpect more to a technical move in an outright policy easing. let's stayeantime, with the region. according to a new report from bloomberg intelligence that identifies 10 standout stocks on the engage. steve joins us now. the society has been trading in a tight range. explain why. reasons on a political front, we started the and then trade war, comments from donald trump and now we are moving into the

political turmoil in italy. if you take those aside and just focus on the hang seng index, it is an index that is geared towards heavyweights. a lot of the companies like tencent and some of the chinese banks did not really do very well for the year to date. those are the main reasons why we think the hang seng has been treading water. 7% of or done. yvonne: it is interesting. tencent is no longer that sure bet. have held it down to 10 stocks in particular. how did you break this down and what are the similarities that you see of why this is a trend? >> the journey started with it needs to have the companies that we selected -- the analyst needs to be positive.

it is a sweetener. basically, you can earn about 4.6% on average. with a p/e ratio, that is exactly the same as the hang seng index. standpoint, the valuation is actually low compared to the five-year average. yvonne: you said hong kong focused companies are faring better than chinese ones. >> it is actually a weird index because it is not really hong kong. it is mainly chinese companies. hong kong focused company of our about 30% of the weight. we believe that after analyzing stock, our views -- we are still

positive about china. our views on the chinese stocks are very mixed between neutral to positive. i think the hong kong property names really stand out. they have good momentum for this year. also rental rate efficiency. yvonne: what subgroups have you created? from aou look at it yearly perspective, this outperformed. they basically did nothing for the year. yvonne: thank you. we will talk a little more about the hong kong market is days. we will talk more about tencent in the next hour or so. ramy: in the meantime, we want to get on your radar another big interview coming up on "daybreak: asia." this is tomorrow. and it -- an interview with

james bullard. that is at 7:00 a.m. hong kong time tomorrow. yvonne: the break on the tencent earnings outlook with the company stocks trading sideways these days despite stellar profits. what the concern is. this is bloomberg. ♪

ramy: welcome back. this is "daybreak: asia." chinese investors are unwinding their positions on tencent faster than ever. take a look at my bloomberg chart real quick. you can see this meteoric rise we have seen from tencent stock. clearly, you see this juggernaut 30the past decade soaring

fold in the last 10 years. let's look at the performance. it has dropped more than 60% after reaching that peak january 23. to's bring in our analyst see what is going on now. they delivered strong first-quarter results, but ever since then we have seen the shares trade sideways. what is going on? >> there are several consequences the market might have. the potential decline in margins driven by investments in new business such as off-line revenues as well as growing on less profitable is this is like payment businesses. -- businesses like cloud payment businesses. yvonne: why the concern there?

>> they are looking at the overall gaming growth. pc games not growing much because of users transitioning to console games. a lot of the growth in the past couple years has been driven by a number of players grown rapidly. that number has kind of saturated at about 500 million in the last couple of years. any growth coming would have to be driven by players spending more. tencent being the market leader will have to face that challenge. it is probably not growing that much anymore. it is coming off a strong quarter. the second quarter might be weak. i'm looking at gross margins right now. they have been fighting for the past four years.

to what degree is this concern? how far can this go? >> i think if you look at the argue decline, no one can that the business is investing. mobile payments will drive all of the business this year. it is infrastructure for monetizing other businesses. investments and on -- off-line retail will help them gather data. investments in cloud businesses leverages their technology. these are good businesses. i think the primary concern is the off-line growth that is really quick being driven by these revenues that are far less profitable. in the longer term we could see the margin profile shift downwards. ramy: i am an optimistic person. let's go to the upside. what could surprise positively?

>> i think the market is quite pessimistic about the near-term second quarter game sales. popular battle royale games in china because of regulatory issues -- we could see a very strong step up in game revenues. the are doing really well domestically with downloads and engagement. well globally.ng potential opportunity there, looking ahead. thank you very much. do not forget our interactive tv function that is tv . you can watch us live and catch dive past interviews and into any of the securities or

bloomberg functions that we talk about the show. the capped of the conversation by sending us instant messages during our shows. this is for bloomberg subscribers me. this is bloomberg -- subscribers only. this is bloomberg. ♪

ramy: another bloomberg terminal flexion we want to highlight, you can catch up on the charts that we show here on gtd go.

go.hart library is at gtv -- what isook at the coming up in the next hour. what you watching? this is state data coming out. --ery good and analysis economists giving us an analysis. it would be about the same as the previous month. going up to beijing as well. a good line out today. james gorman earlier, it does not get better than that. president will be a long in the little while talking

about trade talks and where do we go next. moveay in beijing but we to an entirely different subject. tracking. richard jung is his name. he will be along. about an hour and 40 minutes from now, talking about the opportunities that they have for the truck alliance group. ramy: thank you very much. let's do a very quick look at how markets are trading right now. for example, japan's nikkei is up about .5%. across the board, the cost be is spi is up. the nikkei actually missed estimates. the s&p is to -- we really have not quite

exactly recovered from all the losses that we saw yesterday. still seeing a bit of a risk when it comes to the dollar yen. still strengthening. that is weighing a little bit. we also see the crude price reversing those gains that we saw earlier during the asian's -- asian session. we are seeing futures down 2%. another quick reminder about another big interview coming up tomorrow. our exclusive interview with in hong kong.7:00 ♪

george herbert walker bush asked you to help him in his campaign. james: i said, that's a great idea. i don't know anything about politics. number two, i'm a democrat. you are in the white house advising. david: was it difficult to prepare reagan? james: the red light goes on, perfect. david: your job was to go around and get the coalition put together. examplet was a textbook in the way to fight a war. david: what was the reason you were so successful? james: lucky. >> will you fix your tie please? david: well, people wouldn't recognize me if my t