>> good morning from london. anna edwards. these are today's top stories. trump pulls the trigger. u.s. tariffs on $34 billion of chinese goods coming into effect. beijing says it's forced to retaliate. fed unfazed. fmo c says they keep hiking gradually despite the trade war. showdown at checkers. theresa may faces a battle over the eu divorce plan. catchy fight off a revolt from her cabinet exit years -- brexiteers? ♪

good morning, everybody. it's funny morning. this is bloomberg daybreak: europe live from london. let's get to the market action we've seen in response to the imposition of these tariffs by the united states on chinese imports. markets keeping calm, even bouncing slightly in some cases. the asia-pacific market up .3%, the shanghai composite down about a percent in the early part of the trading day, now down .3% or so. no sense that this was not priced in. markets factored this would happen. this is getting real, tariffs being imposed. now it will get real for chinese manufacturers and u.s. farmers. they said they will retaliate. they will be forced to retaliate. they've given no timeframe for doing that. today headingem back with a 25% tax on u.s.

products, soybeans, industrial items come up cars, chemicals, planes? with that in mind, let's check out key gauges of market sentiment around this story. this is the dollar against the chinese currency. we haven't moved far from the 6.65 level. we threatened to move up to 6.69 earlier. it's been strengthening since then. dollar against the yen, not much moving their. -- movement there. we have not seen a great yen bid with noting. the fed is committed to the rate hiking path despite their citation of trade concerns and emerging-market concerns. they are sticking to the path. that's one of the key messages. we get jobs data later on. after recent months, the latest on the wage dynamics.

are we going to see the lower unemployment rate further inflation? we look for impact on the trade. this is what we have for u.s. futures. we saw an uptick around 5:00 a.m., woman got the trump administration putting in place those tariffs on china. we look ahead to next week, trump's visit to europe and meeting with putin. we talked exclusively with leyen, the german defense minister. a first word news update with juliette saly in singapore. juliette: u.s. president donald trump fired the biggest shot yet in the trade war by imposing tariffs on $34 billion of chinese imports. china immediately said it will be forced to retaliate. trump told reporters another six

to $8 billion could be imposed in the next few weeks. a could reach $550 billion, figure that exceeds the total of all u.s. imports of china in 2018. >> the war was lost on trade years ago. we'rer was lost, but now going to when it because we have all the parts. juliette: theresa may's team of ministers is finalizing the post-brexit trade plan. a group of seven pre-brexit ministers are pushing for her to tear up her plan. they met the foreign secretary boris johnson's office late yesterday to talk about their position on the prime minister's policy. federal reserve officials reaffirmed their commitment to raising the u.s. benchmark lending rates amid rising risk

from trade battles and emerging-market turmoil that could blunt the tailwind from fiscal policy. minutes from the june meeting also highlighted policymakers on the right and -- on how many more rate increases would be needed. at the meeting, officials raise the lending rate for the second time in 2018 and lifted their median rejection to a total of four hikes this year. saudi arabia cut prices for most of its oil grade as the world's biggest crude exporter raises production. there is sufficient supply. wall street journal is reporting saudi aramco and the country are not ready for an ipo that could but also0 billion, bring unprecedented scrutiny to the company. the general quotes an unnamed senior executive on the subject of an ipo as saying everyone is certain it's not going to happen. global news 24 hours a day on air and at tic-toc on twitter, powered by more than 2700 journalists and analysts in more

than 120 countries. you can find more stories on the bloomberg at top . let's have a look at how chinese and hong kong markets have come back up. we saw the u.s. imposing those tariffs. it's in positive territory, up by .5%. the shanghai composite tear had losses of 1.6% into the lunch break. hong kong in positive territory, as is the nikkei. a lot of this is factored in in terms of overall market sentiments. you have a late rally, but asian equities are on track for a fourth week of losses. it's been a hard week for asian investors. let's have a look at some of the stocks. samsung meeting estimates. m has an interesting piece on the bloomberg. is the third quarter in a row they have missed estimates.

, this is forn 70% additional property curbs that came into effect that shocked a lot in the market. 19.5%,upside, eisai of and it has had a pretty good result for its alzheimer's drug test, jumping the most since 2015. we saw that coming on the nikkei, as well. anna: thank you juliette saly. the u.s. imposed tariffs on $34 billion of chinese imports. the levees target products like semiconductors and airplane parts. china responded immediately, saying it will be forced to retaliate. we are joined by china correspondent tom mackenzie. what is the latest in terms of what we are hearing on the straight conversation? -- on this trade conversation? tom: they did put up this

statement, where they accuse the u.s. of acting like a bully on trade and saying it would impact the markets and trade flows. china also saying in a statement it will continue, despite actions from the u.s., to open up markets and protect intellectual properties and uphold the multilateral trading systems. too little too late. some u.s. goods are being held but as yetand china, we have not had retaliatory measures pushed up from china. they said they would hit back with their own 25% tariffs on $34 billion of u.s. goods. anna: that's the top line. this morning, they reiterated they would do it. they've given us no timetable. could this be days, weeks? how is china expected to respond?\ tom: it would be surprising if they didn't match what they've been saying in the month leading

up to this that they would hit back tit-for-tat, blow for blow, as the way they've described it. it may be a matter of hours away. we've got a foreign ministry briefing at 3:00 p.m. local time. we make it local details than. they said they would target imports of soybeans, pork, and all those from the u.s. ford came out with a statement saying the lincoln model luxury brand it exports from the u.s. into china, about 80,000 units last year, they would not raise prices here. interesting also we know from lincoln they are looking to build production facilities in china, possibly to mitigate these concerns. there are longer concerns about what happens should trump go ahead with these additional $200 billion of tariffs later on at a later stage, particularly u.s. corporate's operating in the chinese markets.

the american chambers of commerce said there was not a level laying field in china but they are concerned about these actions by washington. the china business council said they are seeing u.s. corporate's change their supply chain as a result of these tensions, saying the uncertainty is having an impact and u.s. companies don't know how this unfolds from here or how it ends. that's a key concern. anna: tom, thank you very much. we're showing you there how the trade war is having an impact on asian equity markets this morning. we did see weakness and a mixed picture this morning. things turning around quite quickly. we were down .3% on the shanghai composite 20 minutes ago or so, now we are up .8%. alsoong kong hensing index extending gains, as did the new zealand markets more broadly across asia, up .7%. joining us for a perspective on

the market, fx strategist at ing is here with us in london. good morning to you. we talk a lot about the yuan in recent days. we see that weakening against the u.s. dollar. then the got those lines from the pboc that put a line in the sand and said we are not going to allow this to happen anymore. where do you think the yuan goes from here? does this get brought back into the repertoire of tools of china? or will they be reluctant? guest: probably a bit of reluctance to see it weaken. it was a market-driven move rather than -- anna: that they tolerated. guest: yeah, they felt they had to come in and drop this line in the sand. the effectiveness in the policy front has been the key element of stability since 2016.

it's what we've been used to since 2015. that's what we're going to -- withoutwe can't to allow for semi-weakness. if we put it into context, we've got an economy weakening and a central bank easing monetary policy. that's textbook negative. anna: the trade war would slow the economy by 0.2 percentage points. ande are things we know, then the broader mood music around trade. the things we know might not have an outside impact on global trade by his measure. but it's the mood music. guest: exactly. it's the uncertainty. it could move up to seven over a 12 month. idiosyncratic,s

nothing self engineered, a function of a weakening economy. anna: what are your safe havens of choice? is it dollar? is it yen? gold? maybe swiss bank. this has got the yen, swiss franc, and gold. the swiss franc is not want to go for because it's a small economy and an open economy. maybe the yen is. guest: even the yen at this point is not exhibiting its safe haven characteristics. we've talked this down to a few factors. when the source of market risk is trade policy and auto tariffs, we know there is a fundamental affect on the japanese economy, 20% of car imports come from japan. if that's the risk having markets, there is a negative yen weakness here. you got the second factor where the yen is getting caught up in

asian fx weakness. we saw this back in the asian crisis where dollar-yen traded higher just until the point this came a broader global sustain selloff. we may be in that sort of mood right now, just this local asia fx weakness. that's dragging the yen lower, but maybe only if this were to be a global selloff, we would see the yen revert back to a safe haven status. anna: what about the rest of asia? this is the global currency. this is actually versus the cmy. this shows the weakening in the chinese currency we had been seeing in the past month and the strength we been seeing in a host of currencies. the peso, there are stories around these. the korean won is pretty flat against the chinese currency. is that where the trade story sticks in asia? is that one economies need to

keep an eye on? guest: yeah, you got korea, malaysia. we've had to revise our forecast because of trade sensitivity, but when it comes to safety, thee forced to revisit dollar smile theory back again. anna: remind us of the smile. guest: you are saying to elements, the dollar -- two elements, the dollar doing great, higher u.s. interest rates. but it also does well when the rest of the world is weakening when you've got risk off and it got these two elements of flipping from one week to another. that's seeing the dollar strengthen over a period, a month now. we're back in that phase. the dollar is the face -- is the safe haven anna: -- save haven. anna: would you expect trump to

get on twitter soon and say this looks too strong? guest: it doesn't make sense to have protectionism, antsy trade policy, and a stronger dollar. that just doesn't load well into -- bode well, if that's what the u.s. trade policy is going, and seems to be the case. when we look at the dollar going forward, we remain strategically bearish over multiyear rise and we expect it to weaken, but it's all about timing and finding that element. when it comes to smile, it's about when we see the positive in the rest of the world. you're kind of seeing that. trade policy will be a drawnout process. we see it being a one-off currency of markets, something we have to factor in. but equally, at some point we will say, let's trade the economic data and actually there may be turning point here. anna: i sell one talking about

the comfortable location of the offramp. the trade wrote -- trade war continues. every knows when that will be. viraj, thank you for your thoughts so far. you can get minute by minute updates and analysis on the trade war by going to our blog. just run tliv on your bloomberg terminal and click on the china u.s. trade war news and analysis tap. you get all the latest there. one of my colleagues on the asset markets team, talking about how we shouldn't forget china pledged to support those businesses impacted by the u.s. tariffs. perhaps that's the market moving factor that has asian equity markets bouncing a little bit. coming up, theresa may faces a battle over brexit and a showdown that throws the eu into disarray. later today, we'll bring you our interview with the german defense minister.

that's at 9:30 a.m. nato meetings just around the corner. this is bloomberg. ♪

anna: good morning, everybody. this is bloomberg daybreak: europe live from london. live shot from singapore, and we show you the msci asia-pacific. it's 1:21 in the afternoon in singapore. let's bring you headlines out of china. it's set to weigh further cards -- cuts to vehicle subsidies, lowering it by more than a third. to consider increasing range for subsidy. the red headline, some thinking about subsidies coming through in china. the bigger story is a run tariffs, the imposing of these tariffs by the united states on chinese imports. that's something that happened an hour and 20 minutes ago.

those products from china to the u.s. will be subject to those tariffs. what kind of impact are we seeing and markets? a positive one. my colleagues are pointing out that china will support companies that are affected, and maybe that's something boosting sentiment in the asian equities session. let's get a bloomberg business flash with juliette saly. heinrich geithner has quit after seven years at the helm of one of germany's top industrial companies. anger.wed to shareholder his departure comes days after thyssenkrup reach an agreement with the giant. the deal was reached last year, but you opposition from investors and union leaders. samsung has reported operating income that rose to $13.2 billion at the and of june, below the average of analyst estimates.

sluggish smartphone sales krimp earnings, while the biggest should maker struggles. the company struggled with weaker than protection -- protected sales by its samsung galaxy smartphone estimated by the beginning of the year. representatives for elon musk are in talks with authorities about aiding in the rescue of up or a -- of the boys on a soccer team, by pumping water or providing heavy-duty battery packs. efforts to rescue the 12 boys are being hampered by narrow passageways and rising waters in the cave system. it's unclear whether tight officials will accept the offer. that is your bloomberg business flash. anna? anna: thank you very much. let's return closer to home. theresa may is facing a battle with her cabinet over the u.k. featuring ties with the european

union. rebelile, pre-brexit cabinet ministers met yesterday in an exceptional move to coordinate their opposition to the premiers policy. patel is still with us. politics takes center stage. we've got meetings taking place. brexiteers are having their own meeting to galvanize their views. what are you watching for? this could be difficult for theresa may if she hasn't got something that will reassure the brexiteers, who are not my did to like her plan. viraj: we been calling it a brexit trinity. thes got ministers, consensus within the commons, and also the eu. in reality, she'll only be able to choose two out of three parties.

the best outcome would be if one were to see this alignment is closest to the eu, one that manages to get a brexit within the commons but may not of these the brexiteer ministers. one of the models we've been saying, what matters for what brexitrkets is delivers and not what delivers brexit. anna: is it soft --? viraj: that's embedded here. we have to assume there's a smooth brexit applied, not least of bank of england policy. if one is seeing higher u.k. interest rates driving the pound, that would apply of smoother brexit transition. anna: we got a good example of pushes and pulls on the pound. yesterday's trading session pushed up on the bank of

england's comments about the u.k. economy, sounding hawkish. then it was dropped down by the realities of brexit and germany's reaction. this is the push and pull. viraj: exactly. you got a negative brexit story outweighing it. if this was appear bank of england story, it would be trading at 1.36. there's an element of discount here, an element of uncertainty. we seen this before. we seen it go into extra time. if there's a last-minute winner, one could see sterling, a big sort of relief rally. we're still looking for that. that's berlin potentially seeing a handle at the and of the year against the dollar, contingent on what happens. anna: that assumes a soft brexit. viraj: exactly. anna: strategist at ing. he stays with us.

the fed says it will gradually be hiking on the back of a strong u.s. economy. could trade risks cloud the sunny outlook? we discussed trade risks next. this is bloomberg. ♪

anna: good morning, everybody. 6:30 in london. i know must amount of movement in the dollar-yen. handle, not allar slight to any kind of say haven. that's not what we're seeing this morning. if anything, we're seeing a bounce in equity markets. the markets in the asian equity session are bouncing. the shanghai composite is up by over 1% now. it was down by nearly 1% earlier on, now up by 1%. looking at the tliv log as we show you the features. s&p futures, ftse futures alternating a positive picture.

it might surprise some people given the fact we've seen tariffs imposed of by the u.s. perhaps markets were ready for it. one of my colleagues was talking about how they were well prepared for this. that line from mark cranfield. this is not coming as surprise. that's the vibe at the moment. things are positive in terms of risk appetite. here's what we're watching for. watching the data in the united states, its u.s. jobs day. employers added 200,000 jobs in june while the jobless rate held at 3.8%. we'll keep an eye on those numbers. it will be the jobs creations numbers we will keep an eye on. , they's prime minister head of that will be meeting with the french president emmanuel macron to discuss climate risk. i know that's a fund rethinking

where it invests its money based on climate change printable's. changes bulls -- climate is bulls -- climate change principles. we've talked about whether we need to take action at the european level to protect contracts in a post-brexit environment, in particular the insurance industry. let's talk about the united states. fed officials said a strong economy wanted increases in benchmark rate while citing turmoil as risks to growth. that's according to the at the most the meeting. mike mckee reports. michael: been officials sought the economy running in top gear and increasing business investment. that justified another gradual increase in their benchmark interest rate, particularly

since inflation might run above their 2% target, driven in part by falling unemployment that would push up wages. many business contacts said they were expensing rising income costs and they were passing them through to consumer prices." many noted that if the fed state on its path, the fun rate quote could be at or above the neutral level sometime next year. what could knock them off that path? most participants noted uncertainty and risk associated with trade policy had intensified, and that could "have a negative effect on business sentiment and investment spending." business leaders were telling the fed about scaling back or postponing consumer spending. policymakers worried about deficits and an unsustainable fiscal path here and risk from political and economic developments in europe and emerging markets.

there was a long discussion about the flattening of the yield curve that could be driving that. some thought it may be a less reliable indicator of future economic activity and a number said it would be important to watch. finally, things might be too good. even with unemployment falling below as the neutral rate. some participants raised the concern that a long period in which they operated beyond potential could give rise to heightened pressure and the fiscal imbalance that could lead to an economic downturn. in other words, a sunny day with clouds on the horizon. michael mckee, bloomberg washington. anna: viraj patel is still with us. a sunny day with clouds on the horizon. a nice way michael mckee summarizes the fed. was that your take away from the fed? viraj: pretty much. one of the things we note,

especially when you look at dollar priced action, we haven't adjusted to the clouds here. that's what makes us uneasy about looking at the fx market is. we don't think there is directional trend markets because of what's happening in trade war's, but one of the things we look at is the ms. prices. markets don't seem to have adjusted to u.s. growth expectations, relative to a period of trouble -- prolonged trade war uncertainty. wen we look at the dollar, say the dollar might be higher, but the only way is an up. it's unfettered, unconstrained dollar upside. short might be against the e.m.'s. against the euro and the yen, we may be there about. we are looking for flatlining dollar profile, not really seen

probably because risks haven't been adjusted. anna: we don't talk much about the clouds. as goldman sachs ceo was saying, when you're in financial markets, you're paid to take account of terrorists. we talk about them a lot -- tail risks. we talk about them a lot. it's coming back to haunt the fed. which of those should lodge itself in the fed's psyche? the trade risk? they're linked, i guess. as soon as we start to see nation signs of this, maybe the jobs status later today, we might start to see evidence of slowing activity. the spellgive the fed back into e.m. from higher u.s. interest rates, from weaker e.m. asset prices. -esque fed, we were

used to looking at it as a risk. now that may not be the case. i think the logic will prevail. the fed understands their role in global markets, and that's if things were to intensify from the em front. that could put up break on fred tightening. anna: this is around services in the u.s. economy. given the concerns the fed has around trade or emerging markets, maybe they are right to focus on the sunny skies rather than the clouds. this is the strength we're seeing coming through on the manufacturing index. this is nearly 90% of the u.s. economy. trump likes to focus on the manufacturing story, and that's what we're talking about today. 90% of this economy is services and with got the best increase in some four months. doesn't sound like an economy consumers are nervous.

viraj: not at all. and that's what the fed is looking at the now. they have to look at the data in front of them. it doesn't suggest there is trade war uncertainty, but we've seen similar effects in europe. we seen it happen in asia. pmi's coming off trade and export figures slowing down. the u.s. economy would not be immune to a full-blown trade war. if that's one central assumption, if we are going to get retaliatory tariffs from china to europe, i don't think the was economy could withstand that. we might see a loss of economic momentum not being filtered through the markets. anna: why do think we trade sideways for the dollar against the euro? some might say a trade battle against europe, domestic growth story, germany for example very reliant on trade, some might suggest that wouldn't fit well for europe and the euro might

weaken. why do you see it as trading water? 115, we think4 part of that is the adjustment. we've shaved a couple of percentage points on the growth outlook because of trade uncertainty, probably because of bad weather, italian politics, potentially. the adjustment factors happen to some extent already in the euro, but not in the dollar. when we look at things and we think they are going to escalate, it's going to get pretty serious over summer, we think the mispriced is on the dollar side, but as you mentioned, the euro is not immune. it's lose-lose here in the currency markets best outcome is flat and neutral. anna: another thing flattening is the yield curve. we talk about the data as it stands and the fed is focused on the data in front of us. when you look ahead, deep the

flattening of the yield curve is telling something about the economy? or do you share the skepticism some have shown that it's a less reliable indicator than it used to be? the fed so in control of parts of the curve? viraj: it's different than what we're used to. i think we look at the fed's estimates and we are taken into account the term premier, yes is flat. it's flat for a raising. -- for a reason. we have to look at the drawing forces behind that. is it because short-term interest rates are moving too fast? or is it because the back end is starting to push lower because of safety? that drives the currency moves. for us, the bounce to risk we're going to be flat. anna: potentially invert. it's interesting to ask why the 10-year is sort of anchored. i know we're merging into bond

market territory, but is it because markets suggest if the u.s. can't keep accelerating with the rest of the world, that it's arguably keeping rates low at the 10-year horizon in the united states? or is it because the markets think the fed is going to go too fast and simple growth in the u.s. economy? do you think there is that risk? it's a policy mistake often that kills a bull market. elementeah, there's an of a policy mistake and bedded into that. that's one of the reasons watching the yield curve is important is because if you are going to fast at the front end, what is clear here is that growth expectations, inflation expectations, they are a short-term phenomenon. maybe this year, next year we will be above trend, but i don't think anyone is expecting this to be a sustained upside to the u.s. economy.

we're in here looking at the turning of the cycle, the potential of the u.s. to fall off the fiscal cliff. that would be the next narrative into 2019, and all of that is a toxic combination for risk. it's not looking pretty for emerging markets. if the u.s. economy turns, it could look even worse. anna: do think the fed continues to hike if we are of coaching that fiscal cliff? -- approaching that fiscal cliff? viraj: they can only focus on the now and the present. with policymaking across the world, it's a tough job but equally, it's a rate hike a rate hike situation. i think we can look to september and the risks around september, but making any sort of judgment about where things go in 2019 when you've got trade war uncertainty, geopolitical uncertainty, any central bank that can accurately say they'll

know what will happen next year this time, would be a brave central bank. anna: i was raising that point yesterday, talking about the ecb, some members pushing back against market expectations. they were saying maybe it comes earlier in the auto. it's a long way off. thank you, viraj patel. viraj will be continuing his conversation with us on radio, so you can get more of his thoughts there. coming up, trump trade war deepens. the president fires his biggest shot yet. we bring you the latest. this is bloomberg. ♪

anna: good morning, everybody. this is bloomberg daybreak: europe. let's get a business flash for you. juliette saly joins us from singapore. juliette: heinrich-her has quit after seven years at the helm of

one of germany's top industrial companies. he's about to shareholder anger over slumping revenue and share price. this project comes days after they reached an agreement on setting up a european giant. that deal was announced with fanfare last year, but true opposition from investors and union leaders. debbie morgan, which employs 10,000 morgan -- 10,000 people in london, has been asked to relocate across the european union before brexit. and please join from the investment bank and asset management, will begin moving at the end of the year. they are bolstering operations in madrid, paris, milan, and other locations. 11%s drawing bids at an discount in hong kong monday. according to sources, some

investors sold this as long as hong kong $16 20 with no offers. the chinese market priced its share at $17. the high valuation and concern over u.s. china trade war has overshadowed what had been one of the world's most highly anticipated ipo's this year. and that is your bloomberg business flash. anna? anna: juliette, thank you very much. westech about technology. samsung collection -- let's talk about technology. samsung reported $13.2 billion in june as sluggish smartphone sales weight on earnings. let's bring in sam kim, in seoul for us. bring us up-to-date. it'sas you said briefly, the smartphones not selling enough.

we had the galaxy s nine smartphone released in the first quarter and samsung has not been happy with the performance in terms of sales of the smartphone. a lot of people are saying there is no wow factor that sets apart the galaxy s nine from the previous model. note smartphones are dipping in simpson's operating profit, they're big enough to be the difference between bidding the estimates and coming short of estimates. anna: thank you very much. let's turn is down a little bit in seoul. sam kim joining us from seoul. let's talk about trade because this is the big thing of the moment. united states imposed $34 billion of tariffs on $34 billion worth of imports from china. the levees target products reading from semiconductors an airplane parts.

china said it's forced to retaliate. joining us is marion schneider, a u.s. fellow at chatham house. happy to have you on the program. let's talk about the mystic u.s. situation and how this could influence trump's policy. do you see free-trade republicans raining in trump on his tariffs? d.c. that as a possibility? guest: that's the big question, especially into midterm elections. in theory, they could rein in trump because in theory, congress has the authority to do that. they could now take that control back. to some extent, there is republican free traders that have taken steps to introduce a bill to rein in trump on the ability to impose tariffs for national security. however, republican leadership is an interesting in advancing this bill because they are aware the republican base and voters

are more in line with trump on trade than the traditional free-trade orthodox. anna: this might go through the mind of the chinese as they are wondering where to plant these retaliatory tariffs that they talked about this morning, but given us no timescale on. they are mindful of hurting kentucky, wisconsin, the places trump has a lot of support. whether playing with the base continues through the midterm if it's not to hurt. guest: is not the chinese lyrically targeting -- a lyrically targeting retaliatory -- politically targeting retaliatory tariffs. the economy in the states is doing very well. the overall concern about the tariffs isn't there yet. it's still very much, tax has delivered. until we really see economic impacts from the tariffs, i think this is not going to be a

concern for voters on the ground. anna: i was reading about trade talks land between the united states and japan. this was a useful reminder to me, what is the point of this tariff imposition on both sides? is it that we get to the talking table? is it conversations happen? are you seeing that as the endgame? that's where we get to between china and the united states? we sit around the table and we talks on tradee taking place? guest: in the trump administration, that's the aim to use that as a pressure point to get to the table to negotiate. the concern for me, trump has valid concerns, especially about china's intellectual property. technology transfers, intellectual property theft. however, that really gets lost in the debate on tariffs on sleeping and -- soybeans and harley davidson.

also on confronting china, there's an opportunity for the united states and the european union to work together on china. at the moment, that isn't happening because what trump is doing is pushing the europeans against the wall by introducing new tariffs and likely also imports of cars and automotive parts. anna: who does the european union want to work with? the chinese offered to work a lot with europe on this. maybe the europeans feel pushed away by the trump administration. experts with trade partners say the europeans need to work with the u.s. to try to tackle the abuses by china. guest: exactly. this is the last opportunity of common ground to work together. there's also the opportunity for the european union and united states to come to a wider trade agreement. at the moment, we're seeing talks of a narrow -- involving

cars and automotive's. that can't happen. it has to be consistent with the wto's to cover substantially all trade. if you want to look for silver lining, this could segue into larger trade talks. anna: angela merkel was suggesting should be in favor of trade talks. she would be in favor of that. that's what she's talking about. the european union candidate dropped its 10% tariffs on car imports because the u.s. because it would have to do so with other trading partners, as w ell. trump might want to have conversations about car but he has to talk with all your. -- with all your. -- all europe. guest: you would get into the same issues and stumbling blocks you saw in the transatlantic partnership. anytime of that being soon are slim.

it would be under a different name. to see what to look variations of what the united states are demanding, with europeans are demanding, and i see structural dialogue, especially when you look at services for the european union and united states. trade is important when it comes to services, but there's room to address that. again, the futures are trading services. anna: what about the wto? it continues to live on amongst all this because the united states, there is a concern the u.s. is trying to reduce its power by not giving it the nominations to the body and the like. guest: it's critically important. it's been pretty much nonexistent with the doha round, but the wto is a form to settle disputes. the united states, not moving

forward with a nomination process really undermines the system. even though trump tweeted he might pullout of the wto, that to me is less of a concern than the united states actually undermining the system and potentially, with regards to the tariffs proposed in the name of national security. the wto has to come to the decision. it's between a rock and a hard place. if they side with the united states, they can open the door for other countries to introduce tears, leading to a wave of protectionist measures. on the other hand, if it decides against the united states, trump is likely to pull out. anna: thank you so much. you can get minute by minute updates and analysis on the u.s. china trade war by going to our life log on tliv on your bloomberg terminal.

the asian equity session is positive, up by 1.1%. chinese talking about supporting companies hurt by the trade war. that could be something causing the bounce. this is bloomberg. ♪

>> good morning. i am anna edwards. these are today's. top stories. from -- trump pulls the trigger. beijing says it will be forced to retaliate. markets calm for now. fed unfazed. officials say they plan to keep hiking gradually. and showdown at checkers. y faces aay revolt over her brexit plan.

good morning, everybody. 7:00 in london. 8:00 in paris or berlin. let's talk about what is happening in europe. an early gauge of where we stand. futures, positive, as our u.s.. moves into equity market. the risk radar, you can see where we are. bounce in asian equities. terrorists coming into force. rrifs coming into force. the rally in the asian markets continues. chinese havese the

said they are going to support companies that are affected? is it kind of, your move next, china? confirmationg for about when and where they are going to retaliate. we wait to get confirmation as to whether that is taking place or not. getting a gauge of where we are, this is the currency markets. pretty stable. offshore yuan. threatening to move up, but calm down.. if you are looking for a flight to safety, no evidence in the end. -- yen. of talk about what else is coming up. the trade conversation, next europe.esident trump in will talk about trade, defense and security with the nato meeting and putin meeting. the german defense minister joining us for an exclusive conversation.

let's get to first word news. >> thank you. donald trump has fired the global trade war by imposing tariffs on $34 billion of chinese imports. be forced they would to retaliate. the final total could eventually reach $550 billion, which exceeds the total of all goods imported from china and 2017. -- in 27. 017. the war wasump: lost. now we are going to win it because we have the cards. team ofsa may's advisers is expected to -- they are privately pushing for her to

tear up their plan. they met in boris johnson's offices to coordinate their opposition to the policy linking tariffs and goods regulations. federal reserve officials reaffirmed their commitment to gradually raising the u.s. benchmark lending rate amid couldfrom trade that blunt the tailwind from fiscal policy. minutes also highlighted a debate among policymakers over how many more rate increases d to keep thee economy on a stable footing. officials raised the lending rate and lifted their projection. saudi arabia has cut prices for most of it will grades. oil grades.

saudi aramco and the country are not ready for an ipo that could raise $100 billion, but bring scrutiny to the company. the company quotes an unnamed executive on the subject, saying everyone is certain it is not going to happen. global news 24 hours a day, powered by more than 2700 journalists and analysts. coming into play. if you can call it a relief rally, that is what we are seeing. china saying they are going to retaliate. the shanghai composite, down 1.6% before the lunch break but rallying three japan closing higher, 1.1%. we have heard japan could benefit from reduced u.s. imports to china.

we could also see a pickup in tourism. austrian market, 0.9%. the stocks we are watching. the impact of these tariffs. cuts has said it could -- in the electric car subsidies. this company up 6%. samsung, shares down by almost 2%. the weakness in the singapore market. over 2%. that is due to the property curbs that came through in the lion city. real estate among the most expensive in the world. anna: thank you very much. join us from singapore. i'm getting caught up on breaking news. let's start with german data. german industrial output. a strong set of data for the german growth engine.

it is against an estimate of zero point 3%. this comes on the factory order data we had. although this is one month where the data -- anything showing the bundesbank assessment of the economy recovers into the second half of the year, the start of the year was held up by weather and flu, going down well with markets. the euro bouncing on the back of this. today, a bounce on the industrial output data. this is the satellite business in the u.k.. penceave rejected a 532 per share improved bid from echostar. they had a proposal which would was rejected. they say they continue to seek engagement with the board.

the terms of a recommended transaction. sage is this eight over. -- is not over. intend to it does not make an offer. be aware of that one. the bca marketplace, back in june, rejected an all-cash offer. that was back in june. saying they do not intend to make an offer to bca. the u.s. has imposed tariffs on several billion dollars worth of chinese imports. from semit products conductors to airplane parts. china says they are forced to retaliate. good morning to you. what is the latest? we know the u.s. has pulled the

trigger. 5:00 a.m. london time, about two hours ago. do we know where we are with china? we don't have a timescale. >> no, it is unclear what they are actually going to do. no details on what the retaliation is going to look like. they did release a list in june of $34 billion of exports to china. things like soybeans, pork, airplane parts. those are't announced the things they are going to be putting tariffs on. has been an to this little haphazard. they said they were going to impose tariffs before the u.s. rea they changed their scheduled to follow the u.s..

making trump make the first move. they said they will retaliate but they have not an ounce towel. we are -- announced how. we expect something more from them. thing that was interesting, a couple of economists have noticed, they said they will make china a good environment for foreign multinationals to do business. one of the concerns was china would hit back at u.s. companies doing business in china, ge. instead of imposing tariffs. according to their statement so far, that is not going to happen. some saying that is the reason you are seeing a market rally in the afternoon. anna: thank you very much. the china economy editor joining us with the latest. caroline simmons, the deputy head, is with us.

good morning to you. when we look at markets, we have seen positivity in asia. is this a relief rally? the futures suggest we carry that on. why this kind of positive response? data weof the german were talking about is a reminder so far this is not actually affecting economic growth. it is aoment, renegotiation of existing trade agreements. that is how it stays. there is the possibility the tit-for-tat continues to escalate. we assign a 38% probability of that happening. if you get that broadening out to a wider range of sectors, wider ranging economies, that is when you concert to have an impact -- can start to have an impact.

probably a correction in excess of 10%. we are not at that stage. we are discussing small, pocketed parts of the industry's. anna: we will come back to the equity markets in a moment. a graphic raises the question about who is more impacted by a trade war. president trump, showed a clip of him saying, we can win this. this graphic shows the siz e of the u.s. economy and reliance on a lack of exports. compared to germany. where do you see the vulnerability? who blinks first? >> i think it is in no one's interest it continues to escalate because it will eventually damage growth.

quite a lot of rhetorical. what gets implemented is probably not as severe. the markets most affected, anyone with a high exports exposure would react the most. any sectors more cyclical would react. predominantly, things like eurozone, japan. they are the more export focused region's. those are the areas we would be more cautious of. anna: i have a chart that compares how the chinese equity market has told off and the e-cig -- has stalled off. estimate, a selloff of 10%. back to 2002,d what that did two u.s. equities. in a worst case, we could see the s&p dropping 18%. >> official range is 10-20.

, our u.s.rked out team looked at what companies were exposed to what sectors. be doing to the prices. anna: we don't know when this will take effect in the u.s. do we have to see the u.s. consumer start to react for this to take old? >> -- hold. >> it is not impacting growth and prices, particularly in the u.s. if you look at the implied volatility's of the u.s. market, they have not arisen. it has not taken hold in the u.s.. it is a matter of time, wait and see, how these things progress. today is the launch, it was going to launch today.

these things can be relatively slow-moving. mark ourhave to calendars. the european perspective, in terms of the european confidente, are you about the data we have had out? industrial reduction did. this seems to be a rebound into the second half of the year? >> coming into the year, there was a view there would be a slowdown globally. it was not going to be an end of the growth. that would start to improve again. or for theong rebound to come through than people thought. we had extreme weather. data was not as strong as people thought, but now we are getting that rebound. it is a reassurance the global growth picture is a solid one. anna: thank you very much.

she stays with us on the program. if you want minute by minute updates, you can get that by going to our live blog. contributionshat, around the goods impacted and what the chinese media is saying about the whole thing. lots of details on the whole thing. the fed says it will continue gradually hiking off the back of a strong economy. we discuss that next. later on bloomberg tv, we will bring you our exclusive interview with the german defense minister. week, geo policy, defense, as trump visits europe. this is bloomberg. ♪

anna: good morning, everybody. 7:19 in london. 40 minutes to go until the start of the european equity trading day. doorcompany manufactures opening solutions, keys and locks. earnings in the chinese market. they are taking one offs, challenging chinese market conditions. keep an eye on that one. let's check on the broad market's. a graphic showing euro stocks. strength at the start of european trading, futures suggesting we will be higher. we will be waiting for the job report later on. higher on u.s. futures. preparingem to be those gains.

in conjunction with the asia equity session coming off highs. equity has been risk on, or by the dip. u.s.ariffs on china by the tariffshe response to on china by the u.s.. shareholderto anger. ans comes after there was agreement setting up a european steel giant. that was announced with fanfare last year but with opposition. singapore has moved to drive out speculative investment from property markets, one day after the central bank noted euphoria. individuals taking up their first housing loan will face tighter borrowing limits, while

15%ign purchases will see raised to 20% that is your bloomberg business flash. anna: thank you. let's talk about the united states. the fed officials said a strong economy warranted into need increases and benchmark rates. while citing an escalating trade war as potential risks. the minutes were released last night. the head of the u.s. office, welcome. how do you see the fed continuing to hike amongst these trade tensions and concerns about emerging markets? >> essentially we believe they do. this continual, gradual rate rises. toy cited potential risks investment as a result of trade tariffs. they looked at the unemployment rate and felt that could

continue to move lower. there were discussions around the shape of the yield curve. the conclusion was they think they will meet their neutral rate next year. our forecast is for one rate rise. anna: you see no fed induced bear market? of the yield curve is going to be something that puts a break on growth prematurely? have a global growth backdrop. the fed hiking gradually. we expect equities will continue to move higher. though risk case would be if you were to get some big shots from the trade side or oil or a combination of actors. which might lead to higher inflation expectations. need the fed to act more

excessively. if you are looking for a slowdown in the night states, when you see that happening? economicading indicators are strong. we do not see recession in the next 6-12-18 months. the fixed income markets, potential for inversion, that is not giving us the lose it once did about any impending recession? are things in place that could be contributing to a flatter yield curve than anticipated. it has been flattening. it is getting closer. quantitativehaps easing by the central banks. we have democratic reasons, needing to buy more bonds. structural changes, meaning it

does not always behave or as be as good of a predictor as in the past. unds areere pension forced to buy. where you buy? small and medium caps? you think the trade war will hit the multinationals? >> we would not go to small-cap because the cap valuation differential is not attractive. if you are worried about trade wars, domestic sectors like utilities. having an escalation, we still like financials. we still like energy. we are relatively fixed with key positions. anna: you prefer exposure via global equities, you get a bit of the u.s. growth. >> is right.

the valuations look better at the global equity level. 50% of your exposures to the u.s. anna: what are your expectations of where the dollar heads? he expects it to trade sideways against the euro. it has been looked at as a haven. >> our view is the dollar will continue to weaken. we believe it is overvalued. , thealance deficits different regions between the u.s. and eurozone will even out. recently, we have been seeing dollar strength. that could continue in the short term. we think, a little bit of dollar strength is possible. anna: great to see you, thank you for seeing us. deputy head of the u.k. investment office at ubs. we saw markets in negative territory, and then they bounced

above 1%. coming back a little bit. european futures, a little weaker than an hour ago. market open next. ♪ retail.

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good morning, welcome to bloomberg markets >>. we are live from our european headquarters. i am guy johnson. >> the city that never sleeps. asian markets have staged a dramatic turnaround. the cash trade less than 30 minutes away. >> shots fired. america imposes