haidi: welcome to daybreak asia. the top stories, asia-pacific markets are set to rise after renewed optimism. apple, among the winners. demand for iphones remains strong. services are also paying off. globalrom bloomberg's headquarters, iming new york. it is just past 7:00 p.m. on tuesday. by do is seeing a bounce after hours. it beat estimates last quarter as its personalized news service helps sustain growth. it is time to talk, or is it? sources say the u.s. and china

are discussing how to re-engage and reboot stalled trade negotiations. all right. very good morning to you. to our viewers across the world, looking at where we ended on the markets, it was general relief rally, because at least the earlier breaking lines that the u.s. and china are talking to .ry to defuse trade tensions the s&p 500 was up by 0.5 percent. new news that donald trump is going to throw another additional $200 billion on to china. ofdi: the high tariff rate 25% versus the previous expected 10% paints a picture of how quickly things can change when it comes to this trade war.

are gettingime, we inflation numbers out of korea. cpi month on month for july thang in at 0.2%, less 0.4% analysts had been looking for. year on year, that is 1.5 percent, slower than the 1.7%. of a.1 percent, a bit miss. we are getting trade numbers of the next hour. given that we have the dissenting vote in the bank of korea decision, expectations were that there would be more of a debate about the move, but that doesn't give impetus for a rate hike from the bank of korea. let's take a look at how we are tracking in terms of equity sessions in asia. as we get started in the new trading week, the trading month i should say, the previous month had volatility all around. new zealand stocks dropping now at reaction to the usc report that perhaps we will see a 25%

20 -- $200 billion of chinese goods. that is a lead balloon when it comes to these trade commodities. new zealand and australia, going into the open. chicago and nikkei down after the boj released a finely policyted reading of its tweaks, and kospi futures, 0.3% higher. let's take a look at currencies. we saw a strong move in the 0.1%, 74.17., thehore yuan, a reaction to news of potentially more harsh tariffs on more chinese goods. dollar-yen holding at 111.75. forad a nice broad strength the dollar overnight. let's get back to our top story, tech and apple shares.

apple shares jumped after third-quarter earnings came out. current a strong quarter. let's get to san francisco. mark joins us. let's start off with the good. , higher revenue, $53.3 billion higher. iphone revenue up 20% year-over-year. strong growth in services, up 30%. a clear path forward for the services segment for apple. wearables up 60% year-over-year, very strong all-around. , mac sales, 3.2 7 million units, the lowest sales reported since 2010. that is eight years ago. that is not great news for the mac. revenue is down 5% year-over-year. ipad down 5% year over year, as well, in terms of revenue.

you wanted to talk about, i will ask you about the weakness we saw. the disappointment when it comes to iphone sales, is that considered seasonal? analysts?worry >> not really. the revenue results were so strong, 20% up year-over-year on the iphone, because of the average sales price. that is a short-term thing, not something apple will be able to rely on annually going forward. they will need other segments to pick up the slack. we are seeing some of that in services and other products. ramy: one interesting thing was in services. 31% or so. to what degree does this alleviate investor concern with regard to the slowdown in the number of sales, the percentage inthe pie, it fell 56%

revenue? >> it is incredibly significant. without the services business and the rapid growth there, apple would have a problem. 1% year-over-year unit sales growth was them -- with the most important product could be devastating in terms of investor and analyst reaction. but the service business is picking up the slack. the appple music, store, and they are trying to get to the $50 billion mark by 2020. it seems they are on their way. mark in san francisco, thank you very much. to news out of washington, d.c., the united states is said to be planning billionariffs on $200 of chinese imports. we are told the trump administration is proposing raising tariffs to 25% from the planned 10%. joining us is congress editor joe. what is the latest you are hearing? >> this would be the third round

of tariffs the administration proposed. they will go forward with proposing that these be raised from 10% to 25%. this sets up the procedure of the u.s. where they -- there have to be public hearings and public comment before the tariffs could take effect, which would come as soon as the end of august. this is a move by the trump administration to ratchet up pressure on china. at the same time, treasury secretary steve mnuchin has at least been discussing having new negotiations with the chinese government over the trade issues between the countries. so they are looking to force china to make additional concessions. but the talks still haven't taken place, and they haven't been scheduled yet, so we are a long ways from either backing down or fully diving into a trade war. ramy: looking at the clock, 10 hours ago is when the news hit

that the u.s. and china were talking about talking. i was watching daybreak americas, and that was the other side of the coin. it seems like in less than 12 hours, mnuchin on one side, his folks are saying free trade, we will talk. side,eiser on the other taking over now. >> it illustrates the split within the trump administration. mnuchin has been taking a softer line by comparison to others in the white house, particularly the ustr trade representative. there are mixed messages coming out, but i would say it is pretty clear that being tough on china and forcing china to make some concessions is pretty consistent with what the president has said. he will generally have the last word. haidi: thank you so much.

getting more details on this breaking story, let's get reaction from wendy, the vice president and managing director and former accu doing -- acting deputy. wendy, this breaking story, putting the trade negotiations, hoping the markets would flip. last time we spoke earlier in the month, you said a negotiated position or solution is possible but that required both sides to suffer more economic fallout. is that what you anticipate will happen? does the ratcheting up surprise you? support -- as a surprise because as of tomorrow, the administration is in the to impose the extra $16 billion worth of tariffs. now, they are ratcheting up according to this report the amount of tariffs they put on

the $200 billion. i wonder if the president said i want to go ahead with $500 billion and his advisers told him, we will ratchet up the tariff and only do $200 billion but let's go through public procedures, which are mandatory. we are looking at live pictures the president, holding a make america great again rally in florida. we will be listening to see if he makes reference to the $200 billion at a higher tariff rate 25 percent. as a former trade negotiator, do you think this is part of the game and -- the game of chicken we are seeing at the moment he? we were optimistic because the u.s. managed to reach some sort of trade detente with the eu. is the relationship with china different? >> i think it is very different. when you look at the back and forth that took lace in geneva ambassadoretween the

to the wto from china and the u.s. ambassador, this is getting heated. ofp in mind the next crunch 200 billion dollars includes a lot of consumer products. 10% tariffreasons a was proposed was to limit the impact on consumers. for 25% tariffs, it will be put on this $200 billion, this ups the ante in this game and i wonder if the u.s. ends up losing more than china. we have talked about how china and beijing has been patient, trying to match but not overcome what has been happening out of the trump administration. trump isthat donald trying to continue to poke and kind to try to debt some of, not just a reaction but maybe an overreaction so he can be justified here. what are your thoughts? >> that could be the case. it also could be the case, he is

focused on the american reaction and it seems a lot of his supporters get excited. go up, we wills go from hitting industrial products to consumer products, and the hurt will be felt by more americans. the hurt will have a lag time, right? perhaps not in time for the midterms? quest -- >> if it goes in effect on september 1, consumers will be seeing the effect of these tariffs combined with the other tariffs that have been put in effect. this is ratcheting up the pressure. hip.s more than upsmans ramy: wendy cutler, asia society vice president and former u.s. acting deputy trade ambassador.

let's get the first word news with jessica. says it identified a campaign to influence november's midterm elections. it labeled those behind the drive bad actors and said it really did at least 32 pages and accounts from facebook and instagram. the company has worked with the fbi to investigate and says it doesn't know who is behind the accounts yet. is signaling it will focus more on supporting growth as it faces risks around its deleveraging should -- campaign. a communique was released after a meeting of senior figures. it says the drive will continue to measure pace and policy will be improved this year to be more forward-looking, flexible and effective. to make it easier for foreign buyers to take stakes in companies listed on domestic exchanges. the step may address complaints

its markets are two closed. the ministry of commerce is shortening the lockup time for shares acquired by foreign investors to one year. it is allowing equity in foreign companies to be used as payment for stakes. national basketball association is betting on mgm. the league is forming a tie up that will make the casino operator its first gambling partner. we are told the deal is worth 25 million dollars. in states where betting has been legalized, mgm will be able to use official nba and wnba logos and trademarks and it will have access to data streams to create in-game betting. global news, 24 hours per day, powered by more than 2700 journalists and analysts, i am jessica summers. this is bloomberg. have more on apples better than expected results. possible challenges ahead.

commitsming up, the boj to easing, while the fed is tightening. at diverting central-bank policies. this is bloomberg. ♪

ramy: welcome back. this is daybreak asia. i am in new york. haidi: and i am in sydney. global bond investors looking at the bank of japan as they gear up for decisions from the reserve bank of india. kathleen is here with more. let's get the aftermath from the bank of japan. changes toignificant curve control policy. what does this mean for future policy? >> it is interesting, because i think it remains to be seen down

the longer road what this means. it seems the bank of japan has given themselves more flexibility on policy than they had. the tweak in policy is what everybody was wondering about. at the press conference, they made it very clear that it makes -- has to do with lack of liquidity in the bond market. let's take a look and listen to one of the things he said at this important press conference. bank will continue with the current purchase program, but with more flexibility in terms of the amount. while doing so, the yields may move upward and downward to some extent due to the economic activity and price movements. we see the range of 10 year yields may double from the current 0.1%. kuroda says he is not trying to remove stimulus.

this allows the boj to have a sustainable policy longer-term. they had to cut inflation forecast. the governor thanks that with wages rising more, inflation will move higher, but they added they are going to keep stimulus in place for an extended time, borrowing from the playbook of the fed and the ecb. doubling the range now for the 10 year jgb yield from 0.1 to 0.2, raising questions if they will be in a position to allow markets to push it higher should they choose. in a nutshell, what could have been a hawkish move, looking like a dovish move. it could lead to hawkish moves in the future. on the reserve bank of india, it is about inflation. inflation is sticky. our team says you are going to see a pause. as for the fed, there is no press conference. they probably won't hike the rate, but they will probably be scrutinized on a rate hike in

september. ramy: stay with us while we bring in roberta -- roberto. he spent eight years implementing monetary policy for the fed. thanks for joining us as we look ahead to the fed. we know it is not a live thing here, but what is the most probable thing that is going to come out from the statement? statement will have to mark the outlook. the first paragraph will be different from last time, but i think the tone in general will be about the same because the data has been probably been in line with the forecast. that suggests we will do it again, another rate hike in september. the other question is, will they tweak the language about future rate hikes? in particular, will they inject the wording for now, we can proceed with a gradual rate hike? the for now words were used at

the testimony. i think that is an open question. if they do, i think it would suggest a little more caution on the part of the fed going forward. >> how are you reading what the bank of japan did yesterday? many people were skeptical that they made changes to early, yet using open the door to yield curve policy. but the door 0.2, is open to him doing more than that. the big focus on, what is wrong with inflation? why isn't it rising? some say this is the early days of a backing away on the 2% inflation target. >> i think you said it well. i think it is a dovish move. they committed to keeping the rate at the current levels for another year at least, until october, september of next year.

so i don't think they can back off. i don't think any hawkish changes in yield curve control, they can't control that. was tocision today enable them to continue with this very dovish policy for quite a long time, and inflation is what it is. they are set on making inflation come back up. it is not coming back up. the forecast when down. the only way is to keep rates low to promote, it is the only tool they have and i think that is what they will do. haidi: we had a robust discussion with our previous guest about what is special about 2%, and in particular for japan, coming through from a dark time of deflation, it is hit the 2%t key to target? what is critical about it? if you have economic indicators

that are otherwise positive, should the boj be backing away? >> there is nothing special about 2%. there is no law that says 2% is the right number. it could be lower or higher. the reason people pick 2% is because it is not zero, it is a little above zero but it is tolerable amount above zero. in the case of japan, i think coming off years and years of very low, and actual deflation, i think it is important to be able to pull inflation back up to, maybe not 2% but substantially above zero. that has to send a message to people in the market. i think it would be probably a quote unquote bad thing if the boj decided to percent is too high, let's do something else. i think that would send the wrong message. i think kuroda understands this. >> coming back to the yield

curve control tweet, is it possible the boj is already buying a lot fewer bounds -- bonds than it could by? does this allow them to continue to buy fewer bonds and gradually pull out of this policy that is hurting the banks? and yet, still maintain aggressive monetary stimulus? >> absolutely. purchases since two years ago, when they started yield curve control. to bend will enable them purchase even less if the market doesn't push rates against the new upper band. i think that is what they hope for, and that is what they should be able to accomplish. i think markets should improve a thele as a result, but substance of the policy remains the same. i don't think the market will want to push rates to test the

resolve of the boj to keep rates south of 20 basis points. i think they will succeed in that. the market will function better, banks will hopefully be a little happier. monetary policy perspective, this is not a hawkish move. this has been policy for a long time. haidi: thanks, roberto. kathleen global editor with us in tokyo. there is more to come on daybreak asia. this is bloomberg. ♪

haidi: dollar-yen holding at when 11 point 73. taking a look at apple earnings. this is bloomberg.

7:30 a.m. wednesday morning in hong kong, just 30 minutes away from the opening of trading in asia for the start of august. looks like a pretty interesting start for the trading month with this news of the trump administration upping the ante on this trade war with china. carrot and aout a stick at the same time. up by about half a percent. this had been bullied by the earlier news 10 hours ago the u.s. and china had talks to try to defuse trade tensions here.

with most recent news -- it will be interesting to see where things go from here. i am ramy inocencio in new york. haidi: we do live in interesting times. all of those top stories of course, but in the meantime let's get the first word news. to be u.s. is said planning higher tariffs on an additional $200 billion of chinese and boards. a source tells bloomberg a hike from 10% to 25% could be announced in the next few days. earlier, bloomberg sources said representatives of treasury secretary steven mnuchin and the chinese price premier had been trying to restart talks into averting full-blown trade war. the u.s. and mexico are said to be close to a deal on cars. when of the biggest sticking point in overhauling a cup. exchanged new

proposals and more talks are scheduled in watching tonight thursday. two months ago mexico city could be flexible on auto we just and content, after the u.s. demanded of workers making $16 an hour. the trump administration reportedly rejected canada's request to join high-level nafta talks between the u.s. and mexico this week. we are told can it is attempted to join the negotiations were either ignored or spurned by the office. president trump suggested he might vote for a bilateral trade deal with mexico before turning to canada. apple rose in late trade after forecasting sales topped estimates, suggesting continuing demand for high-end iphones and wearable devices. they expect fourth-quarter revenue to be as much a 60 $2 billion. -- $62 billion. the stock and more than 10% this year. closer tooving

becoming the first u.s. company with a trillion dollar market value. global news 24 hours a day on air and on tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. this is bloomberg. ramy: thank you very much. turning to after the bell earnings as well as the wrap up for the s&p 500's fourth monthly gain. one of the standouts in extended changing, moving higher after profits. >> big beat on the profit, and that is a positive for the company with his head trouble stabilizing. we are seeing shares move higher. asond quarter revenue beat the rising popularity of its personalized news service helped sustain growth. sales jumped to 3.9 billion u.s., the sixth straight quarter of revenue growth. let's see the pattern it has

been on. compared to 72% a year earlier. we have seeing revenue growth and the percentage of mobile revenue in that growing as well. thes move on to one of after our companies. we are not seeing this move much. it is been a challenging year. they narrowed their forecast going forward. they did boost outlook having to used gage inely the hospitality industry. haidi: in terms of the regular session, july turned out to be the biggest monthly gain for the s&p since january. tech also managed to come back a little bit, but also down to the industrials as well. interestinglys, the back of the trade war talk was on a lull. we had boeing and caterpillar strong. a lot of strain from a chinese

company involved in genetic research. it seems china has doubled up on the industry, and you are seeing strong performance. that company and qualcomm announcing a 10 billion share buyback. almost quadruple the amount of volume in that share. let's look at the banks. a missed performance ahead of apple shows you how tentative the market was about how the other a was going to perform. let's go to the bloomberg so you can find his amazing charts. this one is called valuation premium holds. even after the fall, tech is maintaining its premium in the green. this is the rise and fall of tech. it has been a rough ride particularly earlier this week, but again, holding valuation in this group. haidi: let's get back to apple now. strong third-quarter earnings

and fourth-quarter outlooks with the stock jumping in late trading. tom, great to have you. were you impressed come were there areas of concern? -- tom: thank you for having me on for starters. i would say the lesson for apple with the iphone x is if you have a smart phone with more than a $1000 selling price, you can sell a lot fewer units and still bear the financial fruit. we are seeing that coupled with the favorable u.s. tax law changes. it has freed up a lot of cash flow to return to shareholders. i was impressed with the performance. i thought the guidance was good. in addition, their services and wearable revenue was also good. everything could

change on the comments made prior on tariffs. about 10 minutes into the call, they were talking about potential challenges for apple on the terrace front. -- tariff front. the risk beingk taken by this superpremium expensive has paid off and it means we are going to get further models that are not -- that are even more expensive? tom: absolutely. i think the lesson apple learned from last year's rollout of the 8 and x, is go premium, go expensive. an appetite for consumers to buy that high-end phone from their wireless carrier. i think that's an important one for apple, yes. ramy: now, one really big question though is coming from gene munster, saying this really could be the end of the iphone gross story. hop into the bloomberg here.

this is apple's dependence on the iphone. it has fallen to something more than 55%, before it was 62% or so. what do you think about that in terms of where the iphone gross stories setting next? tom: i think that is a wonderful point. the near-term basis, continued strong cash flow generated by the iphone and returning an increasing to shareholders as the stock doing well for the next couple years. but at some point time they really need to get something going in connecting phones. i see kind of the homepod as a 1.0 opportunity forbut apple, definitely room for improvement. i do think as we talk about the call, on the consumer internet of things, amazon and google certainly have a head start and it is important for apple to play catch-up. ramy: one thing i know anecdotally is that when the iphone x came out, a lot of people were saying, gosh, $1000,

i think i will hold off. is there any chance we will see a slingshot effect, where people who held off will now come in? tom: it is possible. an argument could be made that pent-up demand was never greater than last fall. so, i do think that on that basis, they were really set up for what people talk about as a super cycle. i think what happened is expectations got ahead of themselves, then expectations reset. once those expectations reset, i think investors saw that financial benefits of selling that when thousand dollar plus smartphone were quite significant. i am not sure we saw a lot of consumers put off any for this but's round of smartphones, i do think you have seen a reset in expectations that has worked favorably for the stock. haidi: tom, were you surprised by, i guess, the kind of sanguine attitude towards the trade wars and the trade tensions? today, uppingws

the ante on 25% tariffs, almost $200 billion worth of chinese goods. should there be more concerned about the disruption or the making over potentially of the asian supply chain that comes through from all this? tom: absolutely. apple is taking two significant risks when it comes to tariffs. one, is what you are talking about, the notion their products to become more expensive to the u.s. consumer. two, they generate a large portion of sales to consumers in china. in an escalated trade war it could have two dampening effects on apple. one, high prices and lower yield sales to u.s. consumers, and two, lower sales to chinese consumers. it could be a double whammy. what is web -- what is working in apple's favor is it remains to be seen to what extent the white house is using the threat of a tariff and what extent they

have to actually follow through. they might just be working hard to bring the chinese government to the negotiating table, so the tariffs might not come to fruition, so to speak. haidi: is a competition something to worry about? samsung, andss for that was largely blamed on chinese upstarts and some asian competitors. is that really something that apple needs to worry about at this point? tom: historically the answer is no, because most of the products are competing at at the low or mid-end of the market. on a near term basis there is not a lot of competition in the premium category within smartphones, so i think apple is great shape there. ramy: great stuff. we will have to leave it there. forte, thank you very much. we want to bring an alert to you, as donald trump continue

speaking live in tampa, florida, talking about jobs and employment workers. glossing --ngs crossing the terminal right now, pieces this deal industry in the u.s. is seeing a big revival. of course this is also the tariffs he has announced for the industry. donald trump has also touted, buy american and higher american, perhaps a new slogan. cheering.eing folks one interesting thing comes up on the topic of soybeans, possibly saying that they want to make soybeans great again. he wants to get it back, he says. haidi: i think you and i know that soybean products have always been great. quite a bitpent of time talking about soybean prices, saying they were down.

we're going to make it come back, is the line. not quite sure what he means by that. certainly start stepping -- sidestepping the core of what we see with this $200 billion worth of tariffs on chinese goods. 25% on them. saying he has respect for china. not a great deal of surprise in terms of the rhetoric. part of that report is that trump himself actually instructed the uhdr chief to up from 10% to 20% on those proposed tariffs for chinese goods. we know there will be a review period for that and on the current $15 billion of goods up for debate. on wednesday. ramy: one more line, donald trump is saying china has targeted u.s. farmers in a quote, not nice move. i want to timeout -- point out

the timing of these new lines for the extra tariffs. as he is leading this rally in tampa right now. we will get more to you as we get those crossing the bloomberg terminal. let's talk about what is coming up next. firm is gaining in market trading ahead of his debut. we will have debut of its first trading day in hong kong. this is bloomberg. ♪

haidi: this is daybreak asia. well, over to tech again. baidu posted a strong set of results despite a string of executive departures. over to beijing now. david, walk us through these figures. david: well, it looks like

things have basically matched or beaten expectations which is good news for biden. that's baidu. they lost -- he quite after -- he quit. ramy: newsfeed services managed to escape the higher of regulators the past, even as competitors have been help -- hit with temporary bans. david: that's right. baidu has been fortunate in a couple areas. it has better connections and moderation than some of its popular rivals. itsas also benefited from netflix-style streaming service, which has really gone up. all the costs are up. haidi: does this mean that baidu is over, let's call it a

challengingperiod, turbulent few months? it's really difficult to say. baidu is a company that remains in transition. only recently started shedding units that do not make any money, such as food delivery, and really concentrated on its usingwhich is technology, artificial intelligence to try to make money. if you look at things like the manufacturing of driverless car's, mass production is still a least three to four years away. i think there is still plenty of uncertainty at baidu to come, but this set of results is a good sign things are still in progress. haidi: thank you so much for that. taking a look at the baidu results in beijing. some counting down to major market opens on the first day of the month in the asia-pacific.

let's get to sophie with a look at what to expect. those who were hoping for a sleepy start, they might be jolted awake. let's start with tech, we are stalking -- also trade. a quiet start for august after a surprisingly bright end to july. hit.es taking a keya's response will be after tuesday. policymakers will focus more on supporting economic growth. the prospect of higher tariffs on chinese imports also dragging on currency markets, u.s. aussie taking a hit and offshore yuan. trading around 6.83. althoughs up a touch, still around a one-week low. i want to highlight the kiwi dollar. a big miss on average hourly earnings.

let's look at the futures boards. a mixed start for asian stocks. in terms of data we are waiting on south korean trade. in a short while we are expecting a rebound in exports for july. also manufacturing pmi's on the region. auto shares as well. honda joining other carmakers in predicting difficulties ahead. it did write employee earnings projections slightly because of the weaker yen. apple earnings will be front and center. the makers of lens -- today iso on the radar the trading debut of a pharma in hong kong. what is the story? sophie: it is a chinese maker of hiv and liver cancer drugs. it is the first company to take

advantage of a new rule that allow biotech firms know -- they have not done too hot. can see the performance of those recently listed stocks. ahead of the debut, jumped as much as 12% in gray market trading. raised as much as $400 million. applying a market value of $2 billion. this ipo is a part of the hong kong exchange's efforts to raise funds for the biotech industry, which tends to be risky when it comes to investing. attractive fors china's growing middle-class. ramy: looking forward to that. now for a look at some stories trending across the bloomberg universe.

ita bloomberg.com story, talks about how officials reining in china's debt are being selective about their target, but not giving up completely. are on the terminal, users reading about the wealth of amazon founder jeff bezos's parents. a publication about nelson mandela's prison letters. you can check out those online. this is bloomberg. ♪

haidi: this is daybreak asia. let's do a quick check of the latest business flash headlines now. sony is raising its outlook for the current fiscal year thanks to robust playstation sales and a stake in spotify. net income is now seen a $4.5 billion through march with sales of 77 billion, up from 4.4 and

70. they were surprised in april when new ceo gave a pessimistic or year forecast which sent shares tumbling. haidi: honda is joining the list of carmakers forecasting challenges from a trade war. sales are sputtering in china where buyers are holding back on car purchases after tariff changes caused pricing confusion. honda is facing stiff competition from nissan and toyota in its to mystic market. standard chartered fell in london as expenses for the first half of the year jumped a higher-than-expected 7%. the emerging markets lender also indicated those costs are unlikely to decline over the rest of 2018. the bank finances trade across asia and accu -- africa. he told bloomberg he is confident.

moment we are not seeing evidential signs of weakness, but obviously we are keeping a very, very close eye on it. over a period of time we will see what happens. a lot of activity happening in china will continue anyway. we are very well-positioned. we are neutral but keeping a watchful eye. investors may be seeing high returns on the horizon. the ceo's three-year turnaround adding $9ht earnings, billion of banking assets. they say it receives an eu antitrust complaint last week over reading a foreign exchange rates. >> this was a very good quarter. assets, which is

very important for us. management, you have $40 billion. jaguar land rover is counting on demand for new models that an increase in chinese sales to help it rebound from quarterly loss. they reported a shortfall of two of her $75 million in the three months since june. rover andhe range compact suv are rising, offsetting a drop in deliveries for other models. haidi: we're counting down to the market opens in japan and south korea and here in sydney. this is the picture we are seeing. futures perking up a little. cross be also looking to open positively.

coming up, speaking to some great guests on why they think china will blink first. ♪

haidi: it is 8:00 a.m. here in sydney or markets just opened. welcome to daybreak asia. offshore yuan -- president trump may raise tariffs to 25%. beijing has always said it would retaliate. ramy: from bloomberg's global headquarters, i am remy inocencio in new york where it is just past 8:00 p.m. markets had been lifted by a rebound in tech and renewed optimism among industrials. and apple is among the winners,

destocked jumping as demand for high-end iphones remains strong. services are also paying off. we have got some breaking news crossing the bloomberg terminal here. south korea's trade balance and exports have come out. the number, 6.2%. that is a miss according to bloomberg consensus, which estimated a 7.4% pop. in addition, the imports here are less than expected as well. 17%% versus a survey of growth in that space. interestingly, though, looking at the bloomberg terminal, you can hop into that right now. over the past, say, 1.5, 2 years so, exports have been growing

since 2016 coming out of south korea. you can go and find this in the gtb terminal. here shows what south korean exports are. even know there was a mix of 6.2% versus 7.4%, we can still see that is still growth, especially through the lens of what is happening with u.s. tensions between u.s. and china. haidi: yeah. we should point out despite that weakness we see today, it has come on the back of what has been a really strong period for south korean trade numbers and volumes as well. is typicallynow, seen as the canary in the coal mine, the bellwether for asian trade conditions and typically correlates when it comes to trade activity in china as well. we will continue to watch that with great interest, as you say, in the context of this ratcheting up of trade tensions

with the ustr said to be onposing to -- 25% tariffs $200 billion of chinese goods. sophie: trade and tech will be two key themes this wednesday. on the trade front we are seeing pressure on currencies, the offshore you want and aussie taking a hit on the back of the report that the u.s. may raise tariffs on chinese imports. ,hecking on the korean yuan we are seeing a strengthen despite the weaker than expected rise in exports at 6.2% year on year. thening the trade surplus $7 billion. in seoul we are seeing stocks gain for a second day. best performer so far today, sam some -- samsung electronics providing support. rising for a second day.

we are keeping a close eye on the jgb market. as new guidance promises a windfall for japanese bonds. you have a slight imps it -- uptick in 10 year yields today. we are seeing a spike in volatility with yields trading in the widest bailey range -- bailey range since 2015. bloomberg intelligence reckons there is more volatility given market speculation may be fueled by the doj be more flexible on operations. ramy: looking ahead to the market open, thank you. let's switch gears and go into geopolitics between the u.s. and china. a stand between both countries may be heating up again. sources in washington told bloomberg he trump administration will propose raising tariffs on too much a billion dollars of imports from 10 to 25%. comes hours after signal

that the size were actually talking about that rhetoric. tom mackenzie has the latest. help us understand what is happening here. well, this announcement net we got across the terminal earlier wraps up the pressure aren on china, because they already feeling the economic impact of these trade tensions. what we are hearing is that the u.s. are looking potentially at raising the tariff level from 10% to 25% on these proposed $200 billion worth of tariffs. that would put it in line with the 25% level we got on the initial $34 billion worth of tariffs. of course nothing is final, this is not set. there is a consultation period for these additional set of tariffs. it ends on august 3. after that, then you may get these tariffs imposed and we have to wait to see whether or not the review process, we will

see if this goes back down to 10%. nonetheless, it puts china in a tighter spot. they have less room to maneuver. ironically one of the measures china would have potentially look that, because they cannot match the value of tariffs on the u.s. side, potentially china was going to look at raising its own percentage of tariffs to try and level up with the u.s. looks like the u.s. got in there before them. certainly it makes the chinese position of strategy in terms of how to contend with the u.s. that much more difficult. like eventsit feels have overtaken after this point, but there have been vague indications the steve mnuchin's people were trying to talk to get real engagement on trade talks. do we know if that was happening? again, sources in washington said, yes, the representatives of the people around steve mnuchin and those

the vice premier have been talking about potential talks about potentially getting banks to the negotiating table. there is no timeframe around this, no agreement on what the content will be, the focus. so there are a lot of unknowns. there is also a wide gap in trust between the sides. after three rounds of talks, the u.s. and china came out with an agreement. he thought he made progress, then trump turned and said the agreement was not going to stand. quite frankly, that left him looking fairly the million. they are hoping to keep the company in business and it would help move this deal forward. that did not happen. both sides lacking trust. the other component making it complex is you have mnuchin facing up to u.s. trade representative bloomberg light i am are --

until they can coalesce around the strategy, one the president backs, then it is unclear as to what they can talk on and agree on. haidi: all right, thank you so much for that. a lot we do not know, basically. let's get back to our other top story, and one that is going to play out across the trading theme of the day. apple jumping in extended trading after delivering an earnings beat in a third quarter on a strong sales forecast for high-end iphones and services. let's go to san francisco. quietthis is been a quarter for apple but what have been some good spots? mark: things attached to the iphone. the apple watch, air pods, ipad accessories. also services business looked very strong with double-digit growth in many countries.

year-over-year growth for apple music, now with 50 million subscribers. services and other products are doing really well for them, even know iphone unit sales are very slow just 1% since the third quarter of 2017. wearables arehe really the standout. was that surprising we saw such strong growth, about 60% on year, 40% growth when it comes to the apple wash along? mark: not really surprising for those who have been paying close attention. i think a lot more people are paying attention now that it has become such a big number. this is something we have been writing about and expecting for quite a while. it is becoming a bigger piece of apple's overall pie. ramy: one interesting thing was the rise of the average sales price, of course thanks to the iphone x. what degree do you think there is even more tolerance to push this even higher? mark: right.

i think we have basically cap doubt. i think there is very low likelihood they will continue to increase the prices of the iphone. i think you need to look at this $1000 price point is a logical barrier a lot of people crossed. i don't think you can go much higher. taxed over you are $100 depending on the state. in california it is 9%. then you are going to get applecare and all the services on top of it. this thing could be $2000 when you are said and done. i don't think there's much more wiggle room. ramy: fair point, especially when you think about you can buy a computer for that amount of money. mark in san francisco, thank you so much. let's get the first word news with jessica summers. jessica: thanks. several people have been hurt but no one killed after an error mexico plane made an emergency landing in durango.

the plane was carrying 97 passengers and four crewmembers, but many were able to walk away from the scene. air mexico says that is still striving -- trying to establish the reason for the incident. the operator has put the blame on bad weather. the u.s. and mexico are said to be close to a deal on cars. when of the biggest sticking point in overall and nafta. the two sides have exchanged new proposals and new talks are scheduled for thursday. mexico said it could be flexible. that is after the u.s. demanded 40% of a vehicle be made by workers earning $16 an hour. the trump administration reportedly rejected canada's request to join high-level nafta talks between the u.s. and mexico this week. requestsld canada's

were either ignored or spurned by the office of a trade representative. he might go for a bilateral trade deal with mexico before turning to kind of. -- to canada. says it has identified a coordinate campaign to influence november's midterm election. it is labeled those behind it bad actors and says it has deleted at least 32 pages and accounts from facebook and instagram. they have been working with the fbi to investigate the activity, and it says it does not yet know who was behind the accounts. global news 24 hours a day on air and on tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers. this is bloomberg. coming up on daybreak asia, market reaction to the trump administration's plan to hike tariffs on chinese imports from 10% to 25%. more,as the boj eases

other central banks go the other way. a deep dive into the increasingly divergent policy directions at the world's top central banks. this is bloomberg. ♪

ramy: welcome back. this is daybreak asia. let's get more on the trump administration's plans to raise land tariffs on a next her $200 billion worth of chinese imports from 10% previously to 25%. joining us is nick griffin. this change in risk appetite going into this new month, given that just a few hours ago we had had a report that may be talks would be back on between washington and beijing? nick: look, the tariff issue is

ongoing. i think it is a negotiating tactic. how much of this is real in affecting earnings is questionable at this stage. ultimately out of the results we have seen so far there have been references to trading and tariffs. caterpillar mentioned another 100 or 200 million. in terms of an actual earnings affect it is not that they. mainly sentiment. for that it is a moving face. haidi: is it enough of a worry to try and hedge against? i think like many of our competitors or our peers we are running more cash at the moment. we are running over 20% cash at the moment. worry to enough of a see the markets be volatile and not easy to invest, but ultimately it is not escalating

to something we think will cause a bear market. growth is still good and earnings in particular have still been pretty good. but it is definitely increasing volatility that we had to do with. ramy: pretty good, but of course it depends on which sectors you are looking at. technology of course the theme right now. a bunch of them not doing so well, down 20%. what do you think after we have seen apples beat earnings out of the fangs, finally, some people are saying, is this the nail that did not go into the coffin of the stocks? nick: yeah. look, of the fangs, i thought the amazon results were very good. apple results were more a relief after issues they had last quarter, but still very good on services. the real disaster was facebook. that was a huge shock to the market. it was a shock to us also. i think there are really big

question marks on how this company moves forward. the one thing keeping us looking at it is the valuation. you're ultimately looking at a company trading on growing revenue a 20% at a minimum. ultimately it was a large guide it down. people knew they were issues but the issues ended up being much bigger than anyone thought. i think that has permeated through the group. but actual negative results, naked -- netflix was a little disappointing, but the stock is running hot. ultimately we understand why technology is under winding -- unwinding a little. other than facebook the rest are ok. ramy: disaster did you were. -- de jour. i think i'm going to use that later on. it is a question whether we should rotate from value into growth. even before this, people were saying, tech tech down down.

hop into the bloomberg terminal quickly and i am going to show you this other chart. it looks like at least investors are pulling out of growth here in the white histogram, and pushing ever so slowly into value. your thoughts? we : yeah, i think -- so, run a growth front here, so we specialize in growth stocks. periodically we seem to deal with them twice a year. periodically they seem to be getting more and more savage. i think without doubt the growth stocks got overextended. in this most recent period. your aforementioned trade tensions help with that because they do not really affect tech stocks, but they do industrials and some retailers. that gap got wide. is there room for to close? yes. as it started?

probably. ultimately it is transitory. it will appear over a period of time. earnings growth is what drives equities. so if valuation might occur over the next three to six months. the best earnings growth is still very much in technology. you can see it in software. you can see that in the apple results. the world is essentially moving to digitize. ultimately that means there are a lot of strong, underlying trends in technology for earnings growth. we are -- how long this will last is important to the fact that is transitory. earnings is what ultimately drive stocks. haidi: i want to throw out this quick charge of what was shown. i don't know if you can call it a rotation, but maybe some reallocation. from 0.7mance of value percentage points monday, the

most we have seen in eight months. having said that, also point out we have a correlation between all investment packages on the rise recently, which complicates matters if you are an active investor. if you are a medium to long-term investor, you have got to be in tech. nick: i think so. as growth investors, we think so. we understand that there is crowding and this wonderful thing called index. we do not look at the index that closely. if you aren't index manager right now you have to sell the things you like and by the things you do not like to lock in your relative performance. all these things play an effective market. ultimately we think there are opportunities to buy long-term earnings growth. that is still in the tech sector. not exclusively, there are other sectors that look good to us. but it is hard to deny earnings growth is there.

in many of these cases, valuations actually got a lot better. ramy: is there such a thing as tech value? nick: yes, definitely. in fact, what is interesting within the tech sector, i think some of your other contributors have pointed this out, but the tech sector is about to change at the end of september. they have come up with the communication services sector. facebook and netflix and videogame stocks and others will move into this thing called communication services. so the tech sector will shrink. what is interesting is within the tech sector, obviously there is value. hardware is valued, so it is not required by the cloud so it is cheap. lso, the sectors are also going to change. i think people get too hung up on sectors.

you should look at sectors -- stocks individually and not that -- not get hung up on what sectors they are in. haidi: what do you like in asia? nick: in asia, ok. so,m w we like consumer luxury goods. mainly drink stocks. we would also play french and italian names. louis vuitton in france. thing is we do like internet. we like the internet platforms. john in particular is the only country in the world that can actually have its own internet platforms. everywhere else, the u.s. has taken . we like -- taken that slot. we like alibaba and tencent. haidi: you could probably call

that the affluent chinese consumer influence -- index. nick, great to have you. remember, bloomberg users can interact with all the chats we just showed you. this is bloomberg. ♪

ramy: welcome back. a quick check of the latest business flash headlines. baidu gained in late trade after second order revenue and profits topped expectations. the rising popularity of its personalized news service helped china's largest search engine sustain its growth. sales jumped to $3.9 billion and --t income hit 900 million $939 million .

they lost their former coo in may. haidi: more profit than expected in the second quarter, offering reinsurance about its financial strength. that follows its biggest deal and almost two decades at $10.5 billion of shell assets. adjusted profit was $2.8 billion. net ratio dropping to 27.8%. ramy: sony is raising its outlook for the current fiscal year thanks to robust playstation sales and its stake in spotify. net income is now at $4.5 billion for march on sales of $77 billion up from 4.2. investors were surprised in april when the new ceo give a pessimistic full-year forecast, sending shares tumbling. haidi: china's pharma has jumped 12% ahead of its listing later on wednesday.

the company raised about $400 million selling shares at the midpoint of its indicated range. the biotech company -- more on that in just a moment. ♪ ♪ retail.

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and it can be included with your internet. which could save you hundreds of dollars a year. plus, get $150 dollars when you bring in your own phone. its a new kind of network designed to save you money. click, call or visit a store today. in hong kong there in terms of the negative reaction to it ramy, there are ratcheting up trade tensions between washington and beijing. ramy: that's right, we are parent and stick, coming out of washington dc and the trump administration. trying to do something with beijing, not exactly sure what yet.

10 to see how the asian markets are shaping up so far this morning, let us. sophie: bring in sophie kamaruddin. sophie: ramy, it is a mixed start. stocks saw the best month of gains since january, the asx 200 looking a little changed. the cause be and the nikkei 225 are set for a second day higher. we are seeing reaction to the latest trade move from the u.s., the offshore yuan slipping by a third of a percentage. the qb also falling after the surprise jump in the interest rate, and a big miss on hourly average earnings in new zealand. the korean won is edging higher as exports rebounded in july, albeit at a softer pace. much in focus here is sony, one of the best performers in tokyo, jump into a decade high of its earnings, getting a boost from the nikkei 225. other top movers in the region,

given the flood of earnings out there come out we have sharp gaining ground after its first-quarter earnings beat estimates. plus, the company said it is on targets.beat is local media are reporting that sharp will buy back of first shares with its own cash. nintendo rising the most since october 31, software sales made up for weaker shipments of the switch console. the company maintained its full-year forecast. also highlighting honda, the latest carmaker to chime in on the headwinds facing the industry. they trimmed its north american sales projections by 75,000 vehicles, but it raised it full-year earnings projections slightly. on the other side of the spectrum, panasonic is also doing well, first-quarter income meeting estimates. on easychecking in timeshares, falling after earnings came in below

consensus. the retailer has been trying to revitalize its business, and japanese retailers are likely to step up efforts to win over price sensitive shoppers over the next year. ramy: thank you so much, sophie for that. haidi: that is a familiar refrain, sophie kamaruddin on the markets. now, that as get the first word news. bethe u.s. is set to preparing to put an additional $200 billion of chinese imports. 10% to 25% could be announced in the next few days, according to bloomberg sources. treasury secretary stephen mnuchin and the chinese premier have been trying to restart talks in trying to of art full-blown trade war. apple rose late trade after forecasting sales that topped estimates, suggesting continuing demand for high-end phones and mobile devices. first quarter revenue is asgested to be as much

52 billion dollars, analysts had been looking at $59 billion. apple is moving closer to becoming the first u.s. company with a trillion dollar market value. china is signaling that they will focus more on supporting aowth, as it faces risk from de-leveraging campaign at a simmering trade war with the u.s.. the politburo released a communiqué after meeting the countries -- a meeting of the country's senior figures. improved this year to be more forward-looking, flexible and effective. china plans to make it easier for foreign buyers to make stakes in companies listed on the mustek exchanges, a step that may address some complaints that markets are still too closed. the ministry is shortening the lockup. for shares purchased by phone investors from one year to

three. it also allows equity in foreign companies to be used as payment for stakes. the national best of all association is a betting on mgm. a way toe is forming make the casino operator is first ever gambling partner. we are told that the deal is worth $25 million. in states where sports betting is legalized, they will have access to official nba data streams to create and game betting. 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 jessica summers. this is bloomberg. ♪ mne's took a modest hit after it was reported that the u.s. is learning higher tariffs on $200 billion on chinese goods. this comes after u.s. stocks jumped back. industrial shares bounced back a little bit, tech shares also staging a recovery. we hear that talks between the

u.s. and beijing are getting closer to being back on stream. on thes like a punch first day of the month, from trump. >> it looks like it is a punch of that the markets are ready to roll with now. the kiwi and the aussie looked a bit down, the biggest reaction was probably in the offshore renminbi. but even that was not at all panic station, it is still a bit stronger than it was just after the u.s. rumors broke. all, it is first of probably not going to bring all that much hope for real breakthrough in trade, but even the sign that there is at some level, the trump administration is thinking that the aim is to open up an opportunity for talks , it is perhaps positive, given that there has been so much negative going forward. haidi: we heard some pretty exciting trade numbers, but we

have been looking at semiconductors, which have managed to sort of withstand the seen.urmoil we have garfield: some of the underlying demand for semiconductors, and away way, they are set of the industrials of the world, and industrials in general are looking ok. favorite ofracting interest, both here in asia, and also in the u.s.. so yes, the picture is mixed. the big question is, when we came to the beginning of this year and in the first stages since, there was a fear that the markets got overstretched on the upside. we had big drops. the question has always been, how far is enough for the decline? so i think that is a question that we are looking to answer going forward, especially with happening, tweaks

both in china, japan, and also in general, a bit of a more measured race when it comes to global tightening wave that the so has been leading -- again, it is a really tough ask to say, just by this, or just by that. you have to be very nimble at the moment. to the firstead day of trade for the open in the asia-pacific, we will see how that pans out. thank you very much, bloomberg strategist. now to the top story, signs that the trump administration wants on chineseriffs imports from the current 10% to 25%. we bring in derek scissors, american enterprise institute scholar, and he joins us on the. line from washington great to derek.ith you,

on one side early this morning, about 11 hours ago, there was positivity that there might be some talks happening. now, it seems like the other side of things. what do you make of this, in terms of the resolution of the endpoint? >> i think both things are administration. we know very well that there was a group of the administration that would like to make a deal, and another one that doesn't think a deal is advantageous to the u.s.. the star's might seem contradictory, i don't think they are. i think what the u.s. is doing in floating the possibility of raising tariffs, not that they will do that, is giving itself more options to put pressure on china, either on the negotiating table, or if negotiations don't work, to put pressure on china economically. the u.s. is not going to allow china to depreciate the renminbi against the dollar sufficiently sooffset the 10% tariff, this is a move to strengthen their hand. part of this will be infighting in the administration, and the

other part is whether china wants to make a deal while it is under pressure. ramy: looking ahead, what do you think is most likely, and along what timeframe? through the lens of perhaps the midterm elections? week: i used to think that would get a deal before the terrorist went into effect, that is still possible -- before the tariffs there is a review timeframe, but it doesn't mean that was the review period is over, that the tariffs go into play. it is a fact that the u.s. seems to have created a negotiating framework with the eu. washington,talk of but -- if the u.s. thinks it is making enough progress with europe and its partners, the american economy is strong, it means the u.s. may want to wait this out.

they might say to the chinese, your offer is not good enough. so there is flexibility on the american side, but i think that if we get a deal with mexico especially in the next month, the u.s. might say, that is a wrap, before the midterms. haidi: derek, there are structural and longer-term issues with china's economy that they will not be him what to change holistically for donald trump to be able to claim as a short-term win. there are also ideological grounds that i don't think beijing would necessarily be willing to give up. to what extent do you see this as more of a hegemonic quarrel as opposed to an economic one? derek: i don't think the president sees it that way. you are right that there are big changes that people -- some people in the united states, including me, would like china to make. but it will not happen quickly, and it will not be obvious. the president wants concrete results. but i also think, the president is not looking to establish u.s. leadership for 25 years, i don't

think it will be anything like that. i think we have a narrow window here to work with, but the window is that china can make short-term changes that lead to immediate or very quick gains for u.s. producers exporting especially.a, then, some other talking points about starting to make other structural changes, whether they not.n or i get this from the chinese side all the time come of that this is a conspiracy, that the u.s. down.ing to give china on a sick of my have it here is that for 20 years, but i think that is the way president trump things about it. i don't think he is looking to crash china, i think he is looking for a win for himself and u.s. exports. derek, our last guest said that this was not going to come to any sort of compromise, that both sides will suffer the repercussions of a trade war. how much gain can the chinese tolerate?

derek: i have made that point before, i agree with your previous guest, but that is a great point. [laughter] i think that china's economy is in better shape fundamentally than people are giving it credit. there was a lot of reaction to the trend which is for weakening , but it is not weakening in a critical way. i think beijing does have to worry, and if you're that in their public comments, that they don't like the direction the economy is going. but not that china is going to buckle under due to pain in the next month or the next quarter. i do think that both economies need to suffer some. tohink that for negotiations become really serious, i think china can stand it through the end of this year. there's nothing critical but, if china cannot come away with its own domestic policies to reverse the weakening trend, the chinese might start to think that any need to make a deal with the u.s.. haidi: i think we are on the same page with wendy cutler, who

spoke to from the asia society, she was aware previous guest. thank you so much, derek, for us.ing that was great reaction to this ratcheting up of trade tensions between washington and beijing. derek scissors, of the american enterprise institute in washington. , the fed is likely to leave policy unchanged. the fomc meets later this wednesday. what we are looking out for. this is bloomberg. ♪

♪ back.welcome this is daybreak asia, i am really inocencio in new york. haidi: and i am haidi stress mars in sydney. it is been a busy week for banks in japan, the fed is also up next as well as the bank of india and the bank of brazil and the boe. our chief asia correspondent joins us now.

let us start with the boj, what was the key takeaway for you. >> good morning, haidi. i think there was something for everyone. on the dovish side of things, it was clear the boj was doubling down on this massive money printing program to have designed to stoke inflation and growth. there was no signal that they would be pulling away from that trajectory anytime soon. on the other side of things, he threw out measures to deal with the criticisms of his program. program ismoney hurting profits for banks and distorting the stock and bond market for example, so a loving more flexibility around the 10 year yield, for instance. total, he did address some of the concerns around the boj policies, but you have to say that the biggest pressure from governor kuroda is that he is very much committed to this massive program. haidi: the r.b.i., let us move on to.

india they were expected to hike today, what would be the case for a surprise? enda: i guess the viewpoint is that perhaps inflation has peaked. there are signs that growth may be under pressure as well. and of course, labor costs in the economy are going up, putting pressure on the bank. there is a case to be made that they are not doing enough, but i think the expectation of the market is that they will move now in advance of any significant slowdown in the second year of higher oil prices and of course, global trade tensions. ramy: enda curran, our chief asia correspondent there was a look at the central banks. let us do an even deeper dive on central bank action now. . we go to tokyo, bloomberg economics and policy editor kathleen hays is standing by a very special guest indeed.

kathleen: richard koo is chief economist at nomura research institute here in tokyo. a man who came up with the -- his book speaks directly to the kind of issues that central banks are trying to solve, and tells us whether or not succeeded. richard, welcome to the show. >> thank you. kathleen: we are actually showing you a picture of the book right now, it is a fascinating book. let us start with the boj, what they did yesterday, and what it means. then we can go into your basic thesis of why it not going to work. add someried to flexibility to its policies, this massive quantitative easing, negative interest rates. from theve been saying very beginning, before the boj even started this policy, that

it has no reason to work. it has no reason to work because , for the kind of monetary policy to work, there have to be borrowers. and there are no borrowers, you bring rates down, nothing happens. but all the economics we have learned in universities, we assume that borrowers are always there. would always assumed that the private sector is maximizing profits. that is basically how the boj started this bazooka policy. they argued that the previous guy did not do it large enough, and if we do it massively this time, something has to happen. five years later, the inflation very.s still low, little is happening that is because we in japan have experienced the lack of borrowers for the last 25 years. , when theasons, one bubble burst, all of these ,eople who leveraged themselves

some of them realized that asset prices were down, liabilities were still up there. if you balance sheet is up, you cannot borrow, you should not borrow, you should repair your balance sheet. everybody started paying down debt. that is how i came up with the policy of balance sheet repair. years, everyone has been repairing their balance sheets, nobody has been borrowing money. kathleen: now you bring up this powerful concept, a third stage of industrialization, where the reason people do not invest in their economy, is because it can get a better return overseas. destinations is right next door, china. richard: all these countries are problems,se economy which is that the return for capital, especially for big-ticket manufacturing items is higher are broad that at home. when you reach that stage, that is another reason borrowers

disappear. companies are under pressure to maximize return on capital. if your home factory only produces say 10% returns, but the one in mexico or engle -- gives you 30% return, you really cannot do much at home, you have there.ver but when all of these companies start doing that, and the households are still saving money, then where does the household sector saving go? they end up going nowhere. they end up either producing bubbles, or also creating .eflationary pressures because as i said earlier, if somebody is saving money, somebody better be borrowing money, for the economy to move forward. the corporate sector is no longer borrowing money and households are not borrowing money either. that creates this deflationary pressure. all advanced countries, especially after 2008, are suffering from both of these issues. kathleen: including the federal reserve, not only the bank of

japan? richard: yes. after 2008, the balance sheet problem became big. borrowers disappeared, and without borrowers, central-bank policies i am afraid, are largely ineffective. so, number one, can the bank of japan "do anything they cannot, what needs to be done in japan to move growth ahead and move inflation and growth higher? richard: i think the bank of japan should come out and explain to the public, this is what is happening. we don't have borrowers the way that we did when we were not in pursuit or pursuing someone else. japan of course, was pursuing the west, all the way until 1995 and into 2000. by the, japan is pursued chinese and all the other southeast asian countries. the u.s. is pursued by

, the eu -- in that situation, central banks should tell the public -- there is only so much we can do. that in the meantime, two things have to happen, there has to be a lot more effort to increase return on capital at home, which means deregulation, lowering but for those things to really create results, it takes many years. in the meantime, governments should be borrowing money so that the economy can move forward. now, you might say, look out, it is public debt, how can we borrow money when the public sector is 200% of gdp? well, and the pursuit of the economy, there are right policy fixes to pursuit economy. was the private sector is no longer borrowing money, interest rates come down to ridiculously low levels. which we are all experiencing around the world. so what the government has to do, is find projects that earn

the rate of return that the theic works project -- public works project that will earn the kind of return that will not be a burden on future taxpayers. kathleen: all right, well. the other half of microeconomics, that is the other half you are talking about. richard, thank you so much for joining us. author of the state of globalization. ura research institute chief economist. we send it back to you, haidi. we meet, maybe we can talk about china. haidi: yes, that is definitely a whole other conversation, kathleen. still more to come on daybreak asia here. this is bloomberg. ♪

♪ is "daybreak asia." ramy: before we hand it over to number of markets asia, a quick look at how the markets are trading. the kospi is up .7%, green across the board. taking a look, rishaad is up next with "bloomberg markets". ♪ oomberg markets". ♪

rishaad: tech stocks are rebounding, lifting the asia-pacific markets and extending overnight gains on wall street. apple with an optimistic forecast, helps to lead the way. robust performance by playstation, but there are clouds out there. reports saying that the trump administration might raise tariffs on china to 25%. in hong kong, i am rishaad salamat. and i am sophie kamaruddin come life from the hong kong stock exchange for a trading debut. it is thfi