yvonne: we are live from the asia headquarters. welcome to "daybreak: asia." markets with the fourth of july holiday. of the tradeo some tensions saying it will not fire the first care of shot -- tariff shot. ramy: it is just past 7:00 on wednesday. cartel is driving oil higher and prices must come down in nearly.

coal is king in australia. at 58tal value put billion aussie dollar's after the next five months. ♪ ramy: it is a quiet day on this july 4 in the u.s. it is independence day, the birthday of this country. markets are closed right now in observance of that. there are's bill a lot of global issues that we have to talk about common that we will get to the course of the next two hours as we hurtled towards july 6 and those billions of dollars in tariffs. the next 48 hours could get interesting. we will see who will do the

opening shot. china has said despite the time difference, they will play a more defensive approach and retaliate after we get any announcement from the u.s.. we could see a september or october hike next year. how that plays through in the asian session as well. ramy: at least some ecb policymakers were an easy that people were not pricing in to december of 2019. this is something that be adjusted.eds to let's get you up to speed with where we are in terms of u.s. market. they are closed for the july 4 holiday, but we actually have futures trading that has already gotten's darted in the past hour. .1%.es are up i about about .1%.

just be aware of that. take a look at currencies as well. they are on the move. right now, we are calling that flat in the asian session. the euro rising just a little bit. hike could come sooner than december 20 19, possibly september or october of next year. the british pound also rising. pmi actually grew at its fastest pace in eight months. the expectation was for no change. a final look at crude after donald trump's tweet saying that opec says it needs to bring down prices. rising quite high.

gas futures down by more than 1%. not much of a lead in for asia. holding theirtors hands pretty tight on the sidelines before that july 6 announcement. comes toxed when it futures. aussie futures pointing to a 1/5 of 1%. dollar-yenng the 110.5.zing at , we had hit those -- we haveght now hit those declines right now. really trying to stabilize the market. did not do much for stabilizing the market. the yields ticking higher across

the board. it was the 10 year german that we were watching for at 31 basis points right now. u.k. 10 year yield on that data you mentioned, we are seeing up three basis points at 128. >> u.s. faces being sidelined. and therance, germany u.k. will meet to can -- ensure the continuation of the accord. tehran says they will -- were new their nuclear program if the plan is dropped. encouraged that more american concerns are raising

about white house trade policy and expects them to have an impact. he does not see major fallout yet it remains concerned about retaliatory measures. say to more people have been poisoned in southern england with the nerve agent. it is the same substance used in march to attack former russian spy and his daughter. unconscious 13 commenters from where the others were poisoned. to northeo returns korea on thursday. kim jong-un is securely ramping up his nuclear program. after that, the white house said pyongyang was no longer a nuclear threat. now they are saying they are going to north korea with their eyes wide open. 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. this is bloomberg. ramy: thank you very much. china has said that it will not implement tariffs ahead of the u.s.. that is despite a deadline coming out hours earlier. it says it will not fire the first shot. joining us now is sarah mcgregor. the u.s. expected to do? >> the u.s. is going forward with its plan to put tariffs on chinese goods on friday. i think it is important that china decided to reschedule its retaliation and not necessarily put it into place right away. waiting for the announcement is something that we are thinking that we really want to see the u.s. decision come down here. as we all know, the trump administration has retreated from trade threats that it has made in the past.

there is no reason to believe that the chinese tariffs will not take effect. everyone was wait until that decision is made before we see the rubber hits the road. hourswe are still 24 ahead of when that will happen here. german auto industry lenders are making the case to the white house on a trade feud will cause irreparable it -- damage to global business. >> we have heard from u.s. automakers submitting comments for this auto import probe that the trump administration is trying to determine if imports pose a threat to national security. we have heard from gm and a lot of american carmakers that if you put tariffs on cars because you think they pose a threat, it disrupts supply chains and it will hit businesses.

today, we have heard that the u.s. ambassador in germany has met with german carmakers, bmw and the like, trying to spread the message of trying to make a deal and coming up with a solution to avoid tariffs. we talk about oil holding a three-year high. it is going to be pretty rampant in the summer season, but president trump also reacted with an angry tweet. the opec monopoly must remember that gas prices are up and doing little to help. they are driving prices higher as the u.s. defense many of the members for very little dollars. this must be a two-way street. reduce pricing now. we have heard from the saudi's saying that they have done everything that they can to fulfill some of these supply disruptions. why do you think the president is so upset about this? >> he thinks opec is keeping

prices high. as he said, it is a pretty popular declaration to make, .specially on independent day it would probably play well with a lot of americans who are noticing how much it takes to select at gas pumps. he wants to put pressure on some of these decisions made over gas and as consumer prices start to rise, higher oil prices could be a drag on the u.s. economy. it could start adding up for consumers. that is something the trump administration will have in mind are sure. yvonne: sarah leaves our economic policy coverage in washington. -- let'sg an hour bring in our next guest. take you for joining us. leon the trade drama right now,

this seems like it has gone beyond the protection of ip or market restrictions. it seems more like a fight between who becomes the next global superpower. do you think the relationship has changed are good? >> it is changed. china says they are not firing the first shot, which is an important message. onre is a lot of pressure china and the global economy -- community, but also the u.s.. if you really want to do this, let's go ahead. we are ready to retaliate. that is what they are saying. the first shot has to be fired by you. that is a tense moment in the relationship. the challenges of calculating has been very

difficult. impact on assess the investment overall? >> first of all, if you look at u.s. trade with the rest of the world, if you look at trade with mexico, 67% of u.s. imports are related party trade. that means that 57% of trade with mexico is intercompany trade. most a little lower for asian companies, so it is not the case that products are produced i completely independent producers. intercompany trade, the best geordie of trade, not only in autos, but they go across the board is very quickly. the first observation is there is the case that this is not just two countries fighting each other, it is the global supply chain. the second statistic is, if you look at auto x or, for every car exported for the u.s., -- auto

exports come for every car exported the u.s.. it actually consists of components that come from somewhere else in the world. the fact that the world is so globally integrated is causing a lot of problems which is up -- why they are complaining. so trade slow down globally at you are predicting. >> prices for specific car models will go up percent. if a car cost $20,000 and it goes up $3000, that is a significant increase. with theight to say indications are. the good news is it is not really about autos. it is about everything that is going on right now.

that is why we still come to the conclusion that the global growth picture is still that growth will be 50% for the next few quarters because it is not enough to offset the cost of impact. $34 billion proverbial relative drop. , donaldcontinues on trump has said $200 billion is the tit-for-tat continues. to what degree, to what number do we get to that we will start to feel some kind of affect your. >> that is an important question. it is relatively modest. divide it, you get the impact on u.s. imports is only

about 2% of u.s. imports. u.s. only 10% or 15% of gdp. the bottom line is we do not know. ?hen will he get worried when we will get really worried is when it gets to cars and autos. if they actually deliver on --ting tariffs on autos," autos, it gets more complicated. gdp is excited to be around 3%. the tax cut.m 0.3 would be from trade. the trade war is not big enough to offset the effect of the tax

cut. if you see this brought an outcome you can worry that the negative effect would be what comes from the tax cut. the trade war would have more serious consequences on global growth and u.s. growth. ramy: it is really interesting. going to the point that everything is mixed together, our chief economist said there is no one way to hit back at the u.s. from china's side because everything is put together. mcdonald's and coca-cola are backed by state owned firms. how can china try to push back? do the second stone. it makes sense what they're are doing, saying we do not want to take responsibility. if you want to start this fight,

you can start punching and we will punch back. they can do something with the exchange rate. there are some pros and cons with that. it looks like the strategy for china, canada, mexico and europe to put pressure on trump to say, you want this and we do not want this. they are putting pressure on the u.s. administration because there is a lot of pushback across many industries. example of where we have tariffs. producing aluminum. if 90% of the aluminum industry is people who have to import or

get aluminum that is more into common the cost of working with aluminum will go up as well. right.o you get a list of 1000 products. i do not have a model where i can quantify. i do not have a model where i can quantify the exact impact. you mentioned about the exchange rate and what they could possibly do. they have descended the currency and stabilize the little bit. they will highlight the risk reversals. inhing near what we saw 2016. what do you think the pboc stands now? >> they are trying to scratch their heads in figure out where this is going. how can we respond to this in a way where this is minimized from a global perspective?

that is a much more political discussion. it is really about second-guessing. the next question was difficult to second-guess, not only from boat,inese, the same which is unusual where they to figure out what is the best response. if it goes to autos, we will worry about what the impact will be on u.s. gdp growth. we will have more just ahead. we will talk trade tensions and how to avoid the crossfire. ramy: what the sudden death of the cochair means for one of china's most indebted companies. this is bloomberg. ♪

yvonne: this is "daybreak: asia." let's continue our

conversation here because some policymakers are said to be uneasy that investors are not betting on interest rate hike until december of 2019. rejoin deutsche bank chief still with us out of hong kong. i want you to weigh in on what , talking about an 80% chance to calm. do you think this is warranted? >> it is somewhat unusual. they made an effort at the last meeting to say i do not act the rate hikes. the fact that some are a little uneasy saying that may be pricing is a little too dovish, another way of saying the fact

that some members are apparently sending signals that they think the market is too dovish, that is a little unusual. what is going on with italy and going on with the budget company, a lot of concerns. they have come down a little bit, starting to stabilize. somewhatstill a sensitive situation. growth, so getting to this conclusion that we want to see rates go up much more. conviction is a little surprising in this environment. yvonne: it could be motivated that he wants to start this hiking cycle. >> yes. they are very eager. saying that they think it will go up quicker is still somewhat

unusual. who knows what the data will look like in 2019? the u.s. recovery is still strong. we do believe that we will see that rate hike. it is really unusual for the central bank. i want to bring up a chart. one chart you always watch is the spread. it has been driving the euro. do you expect the spread to widen? year, the rest of this the fed is still poised to hike rates. that we are probably going to see more divergence for the next x months. tot year, we will have

figure out that the europeans will deliver. this spread will continue to be wide. it could continue to widen. ramy: tomorrow, we will be getting the minute out of the latest fed a meeting. werexpectations there expectations for future rate hikes? absolutely. minutes become very important. saidowell has essentially all these things about she is saying who really knows what the level is or where we ultimately will be looking in terms of the rates. he said that just watch the incoming data. on friday theget payrolls.

all that tells you that the data is still good. the fed will be on track. it comesd of the day, more sensitive to what the incoming data is and what earnings would do on friday. it will be the highest level in five years. yvonne: what does this mean for the pboc? is the central bank doing too much at the moment? >> they both have structural challenges. andas been in the pipeline continues to be in the works areas they have to manage a complicated business cycle. , the firstpeaking

thing you learn is that if the u.s. is raising interest rates, you will have emerging markets to do something in response. you cannot stay at the same level because it will become less and less attractive. that is what we are seeing across the region where countries are in a difficult situation. the risk-free rate is going up. yvonne: a fair point. how much more can they loosen the tax. thank you. our national economist joining us in hong kong. coming up, australia's largest pension fund is cutting exposure. the growth cycle nearing the end.

whate all counting down to -- july 6. how much they are intending to impose tariffs on chinese goods. retaliate after keeping that defensive strategy there. more ahead. this is bloomberg. ♪

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home. order now and get $150 off, and free shipping, too. go to buyleesa.com today. you need this bed. yvonne: 7:30 a.m. in hong kong. pretty foggy right now. 7:30 p.m. in new york. not many people in town. markets closed yesterday. futuresrkets closed for and trading. yvonne: you are watching "daybreak: asia." let's get the first word news. it will not be the first to impose tariffs, even though the deadline arrives 12 hours ahead of the u.s..

the finance ministry was responding. bloomberg has said that technically, china could abide tariffs, but that has been ruled out. leaders of the german auto industry are said to have been met with the u.s. ambassador to discuss the fallout of tariffs on imported cars. and volkswagen said it would cause irreparable damage to businesses around the world. the meeting was aimed at forming a direct link to the trump administration. week thailandast meeting discusses the appropriate timing of a rate hike. moves,id if inflation the case for a rise could be

made. says they will not be -- because of its controversial dual class structure. it offers 10 votes per share. xiaomi is expected to start trading in hong kong on monday. 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. this is bloomberg. we are counting down to some of the major market opens in the asia-pacific. let's bring in sophie kamaruddin. we are heading into today. sophie: you have at july 4 holiday, but we have a few items ahead of the friday meeting minutes. this morning, from south korea we got a sizable jump.

while that is outdated, it could lift some of the gloom on asian markets. we could see some slight gains. spotlight.n the see ife are watching to they will issue an arrest warrant. his pompeo is to embark on north korean visit. we have japanese retailers reporting this week, including reporting a rise in operating profit. -- releasee to his results this afternoon. exports are forecast to slow after a double-digit performance in april. investors have concerns around government policy. about $33 billion in value have been wiped.

bargains.e hunt for some health care stocks are now at attractive levels in malaysia. data is also do from the philippines. i see from the dashboard that we are expecting an uptick? sophie: that is the case. accelerated prices. we are seeing that push pressure -- put pressure. especially with the peso at a 12 year low. philippine stocks have climbed to a high ahead of this data. it is down about 18.9%. top is the country's pension fund. thailand also staying on the

sidelines. with global stocks consolidating, we see the in at -- the international pension funds leading the market. ramy: thank you very much. let's stay on the topic of pension funds. australia's largest pension fund -- they plan to move more money into fixed income and cash. let's bring in our melbourne chief. it is an interesting one. it is the biggest pension fund here. when it makes a decision to shift the equity portfolio from 62%, that is a big move in the equity markets.

the us trillion super has done very well. space ints in equity the last few years. particularly global equities to return to close to 16% over the last five years. potential seeing some risks to the equity performance. fed are in the form of tightening interest rates. fact that the market is increasing trade that you already alluded to with protectionism going up. just to take some of the gains that have made on its portfolio and shift them into bonds and cash over the next 12 months. ramy: what are investors saying about this central trade war we have been talking about? how are they preparing?

it is very much in the forefront of their mind. yesterday that it is something that they are very much preparing for. the risks of countries retaliating to the u.s. position of raising the trade barriers could have in them -- a material impact on the economy. they are allocating their assets accordingly. what is likely to happen as a result of this is that there will be particular harm in emerging markets. they have benefited the most global trade. next 12 monthse they will be assigning their portfolio with a view to that risk. ofy see the position president trump as he really wants to renegotiate the trade agreement and have more bilateral agreements that are and then tedious --

advantageous. yvonne: the australia super obviously a big player here. what other investment decisions are they making right now? >> pretty well. is the bulkd, which of their funds goes to 11 of percent -- 11%. 9.3% or something like that on average for the last three years. pretty good returns for the australians in their retirement savings into these funds. they are starting to come out of unlisted assets and credit a little. the exposure to those kinds of asset. unlisted asset values are quite high.

they will be able to buy them back more reasonably in the years to calm. the main thing the investor market is watching is how quickly they will make this switch out of there portfolio. yesterday there could be different timing on that process. they will sell their equity portfolio more quickly if rates kind of do not rise as much as people expects and the trade tensions ease. yvonne: we appreciate it. moving along, we are talking turmoilcing renewed following the sudden death of the number two executive. tom mackenzie joins us in beijing with the details. tom, what do we know? he fell to his death in the

southern part of that country on a brief tour. he was there for a business visit and took a brief tour. he tragically fell to his death. and cochairofounder that grew from being a provincial airlines to this huge .onglomerate assets he was instrumental in driving the overseas acquisitions. 123 or madeabout about 123 different deals. he was really hands-on with many of these deals including purchasing a big stake in deutsche bank. he was central and a key player in unwinding some of those positions, the scrutiny

from chinese regulators who were targeting asian day. concerns that their debt levels were not sustainable. it really raises questions asked to have the company goes from here. but dollar bond falling about 18% yesterday. what impact could this have on the restructuring plan? >> there is a view that this puts the restructuring plans back on the table. there are serious questions that remain for this country around transparency and ownership. the fact that they have seven companies listed in china. the fact that some of the debt remains intractable.

they have about $90 billion worth of debt. have made some progress this year. hilton worldwide group. they have reduced their holdings in deutsche bank as well. there will be focus on where the company goes from here. certainly, this is a tragedy for the family and calling. in terms of the partners for the library of congress scrutiny is on how they continue to unwind these positions. ramy: thank you very much. alawite coal is said to take the crown from iron ore and talk the australian charts. top the australian charts. this is bloomberg. ♪

ramy: this is "daybreak: asia." yvonne: a quick check of the latest is this flash headlines.

hit there about to south korean market. lawmakers seek to restrict control. insurance is facing pressure to sell the holding pushing a bill that bans concerns firms. bill broder says operation in estonia was used to launder more than $8 billion. that is more than double previous estimate. was --'s biggest lender reprimanded for failing to watch for money laundering. they avoided prosecution. yvonne: the brazilian government has signed off for a joint venture with boeing. stores shared.

plans would be finalized in the next few days. boeing would have 80% of the company with somber air owning the rest. australian exports may have a new king. april saw a rebound in prices our let's bring in australian reporter. why is australia forecasting cold to become the top export earner this school year? exactly as you say, forecasting a bit of a shift in the top export earner in the year through next july. it will be down to some of the rally that we have in in coal pricing. earnings from those exports will compare to it will

iron ore export earnings. hasty close, but coal nudged ahead. rally inid on that coal prices that we have seen, it will feature higher earnings in that market. bit of a brief strength in that market. really, what this tells is more about that weakening market for iron ore. producer is the top and exporter. starting to flatline only for the gradual increase seen there. the demand is starting to falter in china. that is feeding through into those earnings. yvonne: we have been seeing

these prices rally to six-year highs. what is the outlook for prices for exports out of australia? the medium-term outlook is a bit of a mixed picture. metallurgical coal, earnings from that tapered last year. they saw prices decline. some faltering demand. volume asal, they see pretty flat. here it will have a good in this current 12 month, that is representative. yvonne: thank you. next, china says it will not fire the first shot in a trade war. is it enough to calm the world economy?

this is bloomberg. ♪

yvonne: now for a look at stories trending. theresa's world cup headache. while england rebels in soccer success, the prime minister is boycotting the event over the poisoning of a russian spy. of the at the death 57-year-old who fell from 50 meters while taking his photo in france. a fourthhe rage with of july. broadcasting on bloomberg from 8:00 p.m. eastern time. those stories are trending online were on the terminal. ramy: china says it will not be the first to fire terror of shots. it has lowered some of the trade

tensions, but fear of an escalating spot remain. let's look at the potential --lout with the at investment manager. good to speak with you. we also talk about how australia is inflated from global comings and goings. there are clearly linked here. what is the biggest damage that could be done that you are looking at right now? obviously, you will understand i will not get into all sorts of hypotheticals. we have the most ambitious trade agenda. we watched with great interest what is happening. breakout want to see a or further escalation of trade tensions between the u.s. and china. that would not be terrific for global growth. we have already seen some of the

implications off the back of the investigation. we have seen the consequence of some of the retaliatory tariffs put in place. hopefully, we will not see a further breakout of this activity. have you or your fellow colleagues reached out to the white house to try to stop this? i speak with my counterpart pretty regularly. we have a terrific working relationship. ultimately, this is a domestic decision in terms of president trump's vision of the investigation on automobiles and what they might do on a section three investigation. ofhave seen the announcement $34 billion worth of tariffs and

a potential. we have seen china indicate that they will retaliate. good formic is not global growth. we will see in impact from that. the extent to which that impact is mitigated or we feel the full force of it, we do not know. only time will tell. that weing to make sure continue to diversify as much as we can. it has been about bringing down trade barriers and pursuing really high ambition and good quality deals. this week in japan, i have been talking about conference of partnership as well. tokyo to talke in about rcep. path to somehe kind of agreement on your and is

clear now. thatat clear is that -- is being optimistic at this point? >> i think it is reflective of the mood in the room. closely together with japan. we are very invested in the economic partnership. the mood was positive. we just have to roll our sleeves up and work our way to a better outcome. this was a general view that the benefits of this trade deal should come to pass and it would be enjoyed by all 16 companies -- countries. we need to try to get a substantial conclusion by the next round for minister orders -- ministers in singapore. yvonne: it seems to be coming from india and they allow for the free movement of people.

is that going to be the likely scenario here that could scupper this deal? in negotiations. all parties are doing what they can. different countries have different offensive and defensive strategies. several aspects will need to be resolved in the next weeks like good market access and service access. that will be given by the countries that do not have already have bilateral in place. at how thatook plays through. ultimately, australia is maintaining a parallel track to try to conclude a quality deal.

by the same token, we are going to work towards trying to secure a good outcome. say -- it is fair to what would be good is if we could get among the 16 of us a good agreement that build on past agreements. we will leave it there. he is speaking exclusively with us from our headquarters in tokyo. take a look at features will quick. not a lot of directions. the u.s. is closed for the july holiday, but pretty flat when it comes to futures. daybreak asia, our exclusive interview with asset management ceo. he will join us to talk about the impact of trade tensions on business plans in the region and

more. we have the market open coming up next. this is bloomberg. ♪

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