>> good morning from bloomberg's european headquarters in the city of london. i'm nejra cehic and this is "bloomberg daybreak: europe." beijing imposes new tariffs on $60 billion of u.s. goods. the premier says he will not devaluing the yuan. asian stocks extend their rally. leaders meet to map out a brexit deal. barnier and may signal readiness to meet in the middle. dirty money, new details on the involvement in one of europe's biggest financial scandals. how will regulators crack down on money laundering?

welcome to "daybreak europe."i am irritated. here is what has been happening in the asian session overnight. you are seeing the msci asia-pacific index with strong gains. you will see those gains are pretty broad-based in terms of the regions, this despite the fact that we have got the retaliation from china to the u.s. tariffs. tariffstaliating with on $60 billion of u.s. goods, but equities continue to rally for a second day in asia. we get china's premier, leakage the chinese premier saying he will not devalue the yuan. we see a bit of strengthening in the yuan. this is what the offshore is doing. the 10-year gilts also catching our attention because it has gone above 3%. it did that in yesterday's

session, rising six basis points. the 3-5 handle is where -- 305 handle is where we are. this is the fifth and sixth time we have gone above that 3% level and then pulled back from it again. the front end is worth watching as well. do you want to take duration risks? let's switch up the board and take a look at u.s. futures. we saw gains in the u.s. session yesterday. futures struggling a little bit for direction, so we might not get such a strong rally in the u.s. as we have just been in asia. let's is the bloomberg first word news with humphrey in dubai. china will not devalue its currency to make its exports more competitive. the is the message from premier as just hours after his country retaliated against the latest increase in tariffs by the trump administration. the offshore yuan rose after the

conference. earlier, the u.s. china trade the bit and as beijing announced retaliatory tariffs on $60 billion of american goods that came in response to donald trump ordering his administration to levy tencent tariffs on about $200 billion in chinese goods from next week and in january the rate from 25% in beijing refuses to offer trade concessions. beijing announced plans to hit u.s. goods with 5% to 10% tariffs. pres. trump: we are the piggy banks of the world. we have been ripped off by china. we have been ripped off by, excuse me, mr. president, the european union. of which you are a part of. [laughter] pres. trump: we have been ripped off by everybody. >> the bank of japan has left its monetary stimulus program unchanged after adjusting policy settings for the first time in nearly two years in july.

the central bank maintained its 10 year bond yield target and guidance on interest rates as .redicted by all 51 economists the decision leaves the boj even further behind its global peers, who are moving to return to a precrisis monetary policy. north korea has agreed to dismantle a key missile test site under the watch of international inspectors and take other steps toward denuclearization. the announcement came after the meeting of kim jong-un and south korean president moon jae-in in pyongyang. the complete denuclearization of the peninsula is now "not far. " the u.k. and european union have signaled their readiness to work to break the deadlock in brexit talks as britain's prime minister prepares for a crucial summit aiming to persuade leaders to back her plan. michelle barnier repeated his offer to rewrite his blueprint

for avoiding a hard border between the u.k. and ireland. theresa may initially rejected the plan as "unacceptable" because it involves keeping northern ireland in the e.u. customs territory. >> we are ready to improve this proposal. work is ongoing. we are clarifying which goods are arriving in northern ireland from the rest of the u.k. which would need to be checked and where, when, and by whom these checks could be performed. clarify that most chicks will take place away from the border. 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. thank this is humphrey -- you so much.

we are seeing gains in equities across the board. juliette: we certainly are. we are seeing this rally continue for a second day. certainly trade tensions being shrugged off by investors and you can see that japan is really leading the gains. the topix at a three-month high and on track for its best four-day. good gains coming through in hong kong and on the mainland as well. the australian share market up by .5% and up for the kospi. you're certainly seeing risk momentum coming back into these markets. jump ashe aussie dollar well after china said it will to be devaluing the yuan abuse exports. let's look at the stock movers. there is a little bit of weakness coming through in the south korean market today. a lot of the so-called peace talks are falling. we are not moving closer to north korea having complete

denuclearization. also watching great wall motor on the h-share market in hong kong, rising substantially after the chairman announced he has bought up the stock over the past three days. worth noting this is one of the worst performance on the hang seng index over the course of the year. elsewhere, we are watching chinese property stocks. some of the best performers on both sides of the border today. the chinese government is drafting rules on tax deduction. analysts saying this could provide momentum in the hot property market. nejra: juliette saly in singapore. the offshore u.n. has extended -- yuan has extended gains. china will never go down the path of stimulating exports by devalue it against currency. nejra: joining us now is tom

mackenzie, bloomberg china correspondent in beijing. good to have you with us. did china's premier offer any concessions to the u.s. in his speech? tom: well, there were a couple president trump and the administration in this speech. you had the chinese premier talking about the need to crack down on intellectual property violations, saying as well as foreign firms would face a level playing field and the key takeaway is the one you mentioned, saying the yuan would not be devalued and any interpretation of this roughly 8.5% drop we have seen in the last five months is being used to support chinese exports, and that is simply not true. the premier saying that devaluing the currency will be more painful than not, so yes, a the trump administration, but a major concession as he

talked about the need to step up reforms around certain sectors that policymakers have been drumming on about for at least the last few years, reiterating some of these positions, but no concrete deliverables, so foreign businesses in the room and business leaders in the room at the world economic forum south of beijing, applauding these comments. but unlikely to go away with any concrete additional details for what it means for the businesses. , are: and longer-term, tom we talking about a decoupling of the u.s. and chinese economies? now somethings is that is being looked at by a number of economists. the longer-term implications is that there is no offramp, so the obsession with tariffs is a horse worthwhile to some extent, but you need to look at other things that are happening. of the supply chain, there is going to be a massive

impact and there will be some who benefit. and then you get the likes of eurasia group saying that this is going to have significant ramifications and the use of tariffs is viewed as some anicials in washington as incentive to get american companies to remove their supply and relocatehina those either in the u.s. or in allied countries, and when you talk to chinese officials here, they told us off the record that they are increasingly convinced that the trump administration is trying to contain china both militarily, economically, and technologically, and that is an idea that is starting to crystallize in the halls of power in beijing. nejra: thank you so much to tom mackenzie, our china correspondent. joining us is michael metcalfe from state street global markets. i want to pick up on the last point that tom made in terms of bigger strategic goals here. is this just the start of what

is actually a bigger standoff despite the market cleaning to shrug off what happened over the past 24 hours? michael: shrug off? notink the comments about devaluing are actually a very positive thing, so one of the big questions around the trade war is how does it escalate from here? right now, frankly, it is not big enough to impact markets, and it has the potential to do so. i think those comments suggest actually that's that is not on the agenda for now. i fully understand the market reaction now. it could get more positive, you know, if that has been ruled out. now to the strategic question, i mean, yes, these are -- you have an established superpower and an emerging superpower, and they are going to clash. the first place they are clashing is on trade. there is a big imbalance there.

it's understandable why trump would try to address it. nejra: i totally take your point yuan, but yesterday, we saw the response in asia as well. i just want to show a chart here. it shows the scale of china's response. they announced tariffs to cover 75% of american exports to china. he said the comments on the yuan likely to support markets. what would come from china to derail the risk on sentiment other than talks of devaluing the yuan? michael: that would not be at because there has been a card that china has not played aggressively yet, which is to talk about the treasury holding. china's treasury holdings have been going down and it has not really disrupted the market. hardball game to play.

that may well be a last resort, to be honest. the currency is one threat. nejra: i love that you thought that up because i have a chart which just show this. we did the china reduce its treasury holdings in july. that data just came out. we can show that therein a chart. -- there in a chart. how far do you think -- what do you price in? thinking of the u.s. actually imposing tariffs on all chinese imports and then a further retaliation from china? how far does is actually going terms of what you are pricing in? michael: it is a really interesting question to try and havee out how much market actually discounted. you look at the performance of u.s. equities and think markets have just ignored this, haven't they? at the same time, if you look at the relative performance of the u.s. relative to the rest of the world, actually, it would seem

alreadyst that markets have a significant escalation in the trade war. when you get comments about the currency not being used, i think there is always a hope at some point that there is just -- this is just a negotiating tactic from trump and maybe the chinese will give a little in the u.s. will give a little and we will finally get some kind of resolution. it's a little bit like brexit. and actually, if markets have already discounted quite a lot of bad news, there will be room for some risk on sentiment. the trade war does not escalate in the way that they think. things like this comment today about china not evaluating the currency are a step along that road rather than this is global trade war and global growth will be much weaker. nejra: if risk on sentiment does continue, does it continue with america first, i.e. u.s. equities outperforming? michael: the rest of the world is trading at a

discount. nejra: michael metcalfe stays with us. coming up, denmark's one of -- status as one of the least corrupt companies is being challenged. one of the biggest money laundering scandals in the nation's recent history. we are in copenhagen, next. this is bloomberg. ♪ is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe." i am nejra cehic. it is 6:18 a.m. in london. ftse futures pointing higher by .2%. we have seen gains in the asian session and also got a headline coming through from theresa may paper saying that you need to advance its position

on brexit. this ahead of the summit. >> tesla has confirmed its being contacted by the u.s. justice department. thes under investigation by doj over public statements made by the company and ceo elon musk. federal prosecutors are understood to have opened a fraud investigation after musk tweeted last month he was contemplating taking tesla private and has funding secured for the deal. tesla shares have fallen by almost 25% then. they are marketing a 3.5 billion it continues the long task of cleaning up its balance sheet after a 2012 bailout. bloomberg has learned the deal is split between 1.5 billion a 2 billion euro portfolio of real estate owned

properties. residence on which the bank foreclosed and which have failed to sell at auction. apple, who are embroiled in a global fight, got mixed messages from a german court that his hearing one of between thesuits technology giant. yesterday, the presiding judge said qualcomm has not yet convinced the three judges of any apple infringement of its intellectual property. the iphone maker may not be able to invoke antitrust claims as a defense. in an exclusive interview with bloomberg, qualcomm ceo said he sees a chance of settlement. >> we have a dispute over the price of ip. we think that is moving now into a period of time where our strategy is unfolding, and the environment is such that i think you are in a position where a deal could get done. >> you can see that exclusive interview in full next wednesday. that is your bloomberg business

flash. humphrey in dubai, thank you so much. denmark's status as one of the isld least corrupt countries getting challenged. an internal bank reported expected today to detail what happened. this is unlikely to be the end of the biggest money laundering scandal. joining us is annmarie hordern, and in paris is alan katz. let me start with you. give me some background to this report. annmarie: good morning. it has been more than one year in the making, this report, and really, what it comes down to is not just the bank as a whole. the reputation for denmark's financial services industry. we should remember this is not just the danske bank here in denmark, but the estonia branch

that was funneling billions of illicit funds through that branch from russia, moldova, azerbaijan. some say it was alleged that vladimir putin's cousin was using this as well as those connected to the secret service in russia. originally, they thought it could be some $3.9 billion in a legal fund. that number has tripled on reports saying eight billion or 9 billion. this will hopefully show how much money it is. one interesting report that without was saying that just in 2013 alone, 30 billion u.s. dollars could have been funneled to the nonresidential portfolio. 150 billion u.s. dollars. this report will likely show how much money we are talking about. then there is the question of potential fines and of course speculation of remedial measures and potential management changes. are authorities and regulators likely to be

satisfied with the information that comes out in the report? annmarie: likely, they are going to want more information, and we can really expect some speculation that after this report, we are going to see those management changes. we have the ceo. isomberg analysts say there a 33% chance he would stay on for the year. there is the chairman. many say there is a 50% chance in our bloomberg survey that he would last for the year. penalties,are the money laundering penalties on the rise. ing paid $900 million to settle a probe. on top of that, it is the reputational damage. this is not just about danske this is what it means for denmark's financial health. they were saying when they review their aaa sovereign credit rating, they are going to take this into account now, and of course, you have seen the stop. it is already being hammered

down some 30% year-to-date. likely, the politicians and the regulators are going to want more information following this report. i do not think it is just going to end here today. alan katz, let me turn to you. not likely to end here. there is more implications, more broadly, then just for danske bank. how far could this actually go? alan: there is a lot more to come. in addition to danish regulators, there is also a criminal probe in denmark. there is a criminal probe in estonia. danske also has a forced witness -- it's not the target of the investigation but implicated. and of course, the united states. when we talk about the big fines, it's usually the united states that leads the way in opposing this. the u.s. said is th -- it is looking closely at dr. bank. there was a probe -- at danske daca bank.

there was a probe. it's in paris today and talking about the financial action task force which is the global anti-money laundering group. he will be asked about the investigation into danske, so there is a lot more to come. nejra: alan, some have criticized the e.u. over the lack of coordination in terms of regulation over money laundering. situation lead to greater regulation over money laundering? annmarie: it -- alan: it certainly raise calls. the ecb has asked for a regional regulator to look at anti-money-laundering controls or oversight. there is a new you directive that came in the force last year requiring countries to take a more stringent approach to and i money-laundering. on -- anti-money laundering.

the trend is not towards more centralized authorities. with the rise of populism, brexit, there is a trend in europe that has been that people are resisting more e.u. control over their lives, so i think it will be quite difficult to get the kind of e.u.-wide money-laundering control the ecb has been asking for. nejra: thank you so much talent alan katzlso -- to and annmarie hordern in copenhagen. you can watch the show using tv as well as the video stream. you can follow all of our charts and functions. you can click into the charts on tv and interact with us. message us directly using the ib function. message me on the team with any questions for our guests. we have michael metcalfe from state street. toos to president -- kim. we are in seoul on day two of

the historic summit with moon jae-in, next. this is bloomberg. ♪ this isn't just any moving day.

this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today.

nejra: 6:30 a.m. in london, 2:30 p.m. in tokyo. a bit like the boj today. dollar-yen doing nothing. let's check in on a broader markets. we go to juliette saly in singapore. hey, juliette. day for: a pretty good asian markets. we are seeing this rally continue, being led a lot by what you are seeing in japan. the nikkei up by 1.2%. topix at a three-month high, seeing its best four-day gain since 2016. we have heard from the chinese premier, really talking about the traits that which investors have put to the back today, and he was essentially saying they will not devalue the yuan to

boost exports. he has seen a big through in the aussie dollar, up by about .4%. we had a fight the cap coming through in the yuan and watching this movie very closely in commodities markets as well. have a look at a pop on the copper futures, up by 2.6%, so a very broad session coming through in terms of asian equity markets, but if we have a look again at this response from china to the u.s. tariffs, you can find this chart in the dtd library. we are hearing that from monday, we will see about 75% of all american exports to china around $110 billion. that line showing you how much of an impact that has had on these exports we have seen moving into china, and finally of course, we have heard from the boj today as well, leaving their purchase program unchanged. no surprise. worth noting the effects we have seen of a slightly weaker yen on the economy because you saw

exports rise for a 21st straight month in trade data. if you see the blue line, back in 2016 when the yen was stronger towards the 100 to the dollar level, you some weakness coming through in exports. we should note you actually saw a drop coming through in exports . sorry, in imports. we saw a force growing in august, driven by sales of semiconductors, cars, and ships. we did see a trade balance in deficit. at this stage, it looks like that yet movement is starting to help out japan's economy and the equity market today as well. nejra. nejra: thank you so much. let's get the bloomberg first word news with desley humphrey in dubai. desley: china will not devalue its currency in order to make its exports more competitive amid the trade war with the u.s.. that is the message from the hisier just hours after

country retaliated against the latest increase in tariffs by the trump administration. the offshore yuan rose after the comments. china tradee u.s.- war deepened as beijing announced retaliatory tariffs on $16 billion of american goods. that came in response to donald trump his administration to levy 10% tariffs on $200 billion in chinese goods from next week and to increase the rate in january to 25% if beijing refuses to offer trade concessions. in retaliation beijing announced , plans to hit u.s. goods with 5% to 10% tariffs. china's holdings of u.s. treasuries fell to a six-month low in july, just as a trade war between the world's two largest economies began heating up. beijing's ownership of american bonds, bills, and notes, slipped to 1.17 trillion dollars. increased its holdings as

did saudi arabia, taiwan, singapore, and france. the bank of japan has left its monetary stimulus program unchanged after adjusting its policy settings for the first time in nearly two years in july. the central bank maintained its 10 year bond yield target, asset purchases, and guidance on interest rates, as predicted by by 51 economists surveyed bloomberg. that leaves the boj further behind its global peers, who are moving to return to precrisis monetary policy. u.k. and the european union have signaled their readiness to work to break the deadlock in brexit talks as britain's prime minister prepared for a crucial summit aiming to persuade e.u. leaders to back her plans. chief brexit negotiator, michel barnier, repeated his offer to rewrite his blueprint for avoiding a hard border between the u.k. and ireland. theresa may initially rejected the plan as unacceptable because it involves keep being northern

ireland in the you -- e.u.'s customs territory. >> you have potential instability and some of the german political areas. europeanot some companies caught in the crossfire of the u.s.-china dispute. i think there is a strong desire to park brexit as an issue. forey: in the u.s., lawyers the woman who accuses brett kavanaugh of sexually assaulting her decades ago said a public senate committee hearing set for monday should be put on hold until the fbi investigates the allegations. senate judiciary chairman chuck there isresponded that no need for an fbi investigation and the investigation for california college professor christine ford to testify still stands. day, onews, 24 hours a air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: desley humphrey in dubai.

president trump has praised north korea for agreeing to further steps towards denuclearization after kim jong-un find a joint statement with moon jae-in in which he agrees to dismantle a missile test site under the watch of international inspectors. the two leaders have sat down for talks today during the second day of a landmark summit in pyongyang. joining us is bloomberg's reporter in seoul. is this a positive outcome to the summit then? be it positive or negative, that is definitely a question for many other people to answer. a lot of analysts at bloomberg news are actually quite negative and they say the agreement stated in the joint statement between moon jae-in and kim enough.is not it does not make the cut. they are saying these facilities that kim jong-un agreed to dismantle or shut down are

already facilities that kim jong-un himself has decided he does not need to test anymore, saying that this could be a little insufficient for him to prove his credibility and commitment for denuclearization. nejra: insufficient, so what does that mean for the peace process then? jiyhe: well, in terms of the whole piece price this in the long-term -- process in the long-term, moon jae-in's goal was to persuade kim jong-un to take certain credible steps and to take these results back to the united nations when he goes to new york later this month to meet donald trump. in terms of how donald trump perceived this, according to his tweet, he seems very satisfied with it, but a lot of analysts are again saying that we do not know what would take place talks.the closed

so we will have to wait and see for more updates to see if there are details that have yet to be disclosed regarding kim jong-un's commitment to denuclearization. nejra: jihye lee, i am sure will come back to you for updates in the coming days. our reporter in seoul, jihye lee . itsbank of japan has left monetary stimulus program unchanged after adjusting its policy settings for the first time in nearly two years. the central bank maintained target, asset purchases, and guidance as predicted by all 51 economists surveyed by bloomberg. it leaves the boj further behind its global peers, who are moving to return to precrisis monetary policy. michael metcalfe from state street global markets is still with us. we are waiting to hear from doj governor haruhiko kuroda. is he likely to stay away from saying anything that might move the markets too much, specifically that might strengthen the yen? michael: that is the big fear.

you rightly say the boj is behind everyone else normalizing, but the reality is the boj is in fact laboring. there asset purchases are falling. they are not buying as much. i think they have the slightly conflicted policy setting where they have the yield curve controls, the yield target, also an amount to buy, and i think there is a tension between those two things, and i think the reality is there is a reluctance from the bank of japan to drop their asset purchase target because they are scared of looking like they are taken into much. nejra: and therefore perhaps strengthening the yen, but is the yen actually undervalued by some measures at the moment? michael: we have a metric which suggests it's very cheap, 15% undervalued. it really should not be that concerned. in the context of concerns about global growth and also because, look, japan is halfway to meeting its inflation target, and they are just not that confident that inflation, especially with the tax hik

e, they are not confident they have it on a sustainable path yet, so you can understand why they are cautious. nejra: if you look at global central banks, is the fed the only game in town at the moment? michael: in terms of tightening, yes. a really interesting question for the ecb is, you know, the economy. ok, it has underperformed expectations on the roadside. actually, inflation has been fined. we are beginning to see signs of wage inflation. will they allow the market to continue to price their first tightening all the way at the end of next year or will they bring that forward? nejra: i want to talk more about the fed as well because i have a great chart basically showing treasury yields starting to converge around the fed's target rates. we have about the 10 year yield above 3% but if you look at the front end, you are looking at the yields rising. you are looking at a two year yield at 2.8%, looking at a five

93 handle. on a 2 what does this mean in terms of how you position around the curve? would you be taking duration risk? michael: that's a good question. one of the real puzzles is even if the markets -- you sort of got round the idea that short rates will get to neutral and maybe even through neutral next year, the long end is not this line. two thingsse together and this is why the new york fed's recession indicator is that a tenure high, because it is based on the yield curve. so i think there is this question where there is just a sort of disbelief that the current rates of growth in the u.s. on the current rates of inflation will not persist, and i think that is a dangerous assumption to make at the moment. nejra: what does that mean for how you would allocate in treasuries if you are at all in the market?

michael: i would be a little concerned that at some point the premium will come back in and longer-term treasury yields can rise a little bit further. there needs to be the term premium in there. i would be a little defensive on treasuries because of that at the long end. nejra: you say you would be defensive on the long end but we have an auction yesterday and four-week bills yielding more than 2%. is the front end looking attractive then? michael: a little. we are not quite fully priced for hikes to continuing 2019. that is my on a hesitation. in terms of relative value, it is a long and that worries me a lot more. thea: the market down in fed perhaps. michael metcalfe from state street global markets stays with us. when you are traveling to work, tune in to bloomberg radio. dab digital radio.

tesla versus the doj. shares slip as the electric carmaker is said to face a criminal probe over elon musk's comments. in france, the company's partner is said to seek an ipo, the largest in the country. buses, thecks and chief, joins us after it :00 a.m. u.k. time -- 8:00 a.m. u.k. time. this is bloomberg. ♪

7:46: 6:46 a.m. in london,

in austria. he you leaders are gathering today ahead of a special -- e.u. leaders are gathering today ahead of a special summit. leaders will discuss migration and the latest brexit proposals at an informal meeting in wolfsburg, awesome -- in austria. addressesolaf- schulz -- different prime minister's meet with vladimir putin in moscow. let's get the bloomberg business flash with desley humphrey. qualcomm and all are embroiled in a global fight over royalties. a germansages from court hearing one of the many lawsuits between the technology giants. yesterday, the presiding judge said qualcomm has not yet convinced the three judges of any infringement of its intellectual property while the iphone maker may not be able to invoke antitrust claims as a

defense. in an exclusive interview with qualcomm, qualcomm's ceo said he has got a chance of a settlement. would have a dispute over the price of ip. we think that is moving now into a period of time where our strategy is unfolding and the environment is such that i think you're in a position where a deal could get done. desley: you can see that exclusive interview in full next wednesday. the chief executive officer of the qatar investment authority is leaving after almost four years at the helm of one of the world largest sovereign wealth funds. bloomberg sources say the reason behind the surprise the part sure won't immediate -- were not immediately clear and the replacement is yet to be named. a spokesperson was not immediately available for comment area and that is your bloomberg business flash. back to you. nejra: desley humphrey in dubai, thank you so much. more problems than a

maverick ceo and living up to bullish production targets. shares fell by as much as 6.5% yesterday as it was said to face a criminal probe. our enforcement reporter that robinson has the story --, matt robinson, has the story from new york. under investigation in san francisco. they are facing a criminal probe over elon musk's suite last month about -- tweet last month about taking the property private, saying funding was secured. attorney followed the fcc silk road -- civil code looking at the same thing. what investigators are looking at to see whether that statement violated securities laws by saying something that was false

or knowingly false, so the government is in the process's on gathering information, talking to board members, you know, anyone who is involved in or potentially involved in a takeover of the company, you know, taking the company y will gatherhe a lot of evidence. it takes months of not years to oft of flesh out what kinds assumptions elon made when he tweeted that out. i am matt robinson was bloomberg in new york. have: emerging markets been locked in september over rising trade tensions in the currency contagion which it reverberated -- which reverberated around the world. thany hikes rates more forecast and russia making an unexpected move last week. and brazilian central banks set to announce today, -- withel metcalfe is still

us. let's start with that. we are not expecting changes from the central bank i just talked about, but we are seeing emerging-market equities in currencies rallying today along with other markets perhaps on sort of markets shrugging off these trade tensions. could we get any surprises this week? michael: this week, i think not. the key thing to look at in places like brazil and south africa is to look at the inflation data, because in the end, we have had quite significant currency weakness if you get past through into inflation. what bond investors will be looking for is to see how the central bank react to that because ultimately, turkey has had a lot of credibility problems because they allowed inflation to get out of control. they want to reassert their credibility. other central banks are washable that -- watchful they don't allow that to fall. saya: it's interesting you

that, because often, when we talk about e.m., we talk about the fed on the dollar, but historically, when you look back, it was not always the case that when the fed had a tightening cycle, you saw outflows from markets. the commission is not that binary, is it? michael: we do not need to say that this is an entirely systemic thing. in the end, the fed's tightening cycle has been very gradual. long-term yields have not gone up that much. the trade war is at a potential threat rather than a realized threat at the current level, so yes, it's very easy to paint a very bleak picture for emerging markets, and it is a challenge in our environment, but if emerging markets can do the right thing, that does not mean that it has to be a crisis. nejra: does not have to be a crisis. perhaps we are being too bleak. let me take you to this chart which shows u.s. equities breaking the way, this america

first trade. we have them against the u.s. cia world. is cutting u.s. stock saying the america first trade will not last. strategists are favoring stocks in emerging markets. would you be doing that as well? michael: i think it's a little early. i think we will get there. i think right now -- the challenge with the u.s. story right now is that it is actually still improving, so the data, whether you look up a macro level or the earnings level, it is still very favorable, and i think there is still enough doubts outside the u.s. to keep people in the u.s. first trade. this divergence is very unusual and it will be reversed. at some point, people will definitely go back into em. i think things like china saying they are not going to devalue will be moved some of the uncertainties that are there, so that is a step in the right direction. nejra: i am glad you bring up china as well. what matters more tem? what is happening -- to em?

the u.s. or china? when you look at the em space, how would you allocate? what signs are you wanting for in terms of what markets you might select? michael: central bank credibility is by far one of the most important things. nejra: who is best? has done well. we have the nafta sort of thing out of the way. that would probably be the place where there are the least clouds. nejra: what about russia? because inflation is not really that you're the target yet, so you could argue they are taking this preemptive step. questions whether that hike is the start of a hiking cycle or just one and done. is that a market you would find attractive if you put the threat of sanctions aside? theael: i will add into kind of thinking about the central bank reaction function politicalbut also the situation because politics has

been a big driver for markets and will continue to be so. you also have to think about where the political risks are. we don't know quite which weighed up going to go. nejra: i want to bring in the ecb because he made a point earlier and i moved onto the fed, and it was interesting. if the market could be underpricing what we are going to get from the ecb, are we underestimating the ecb and also the path of eurozone growth at inflation? forael: the big challenge the ecb, and they will certainly have this in mind, is where will rates being the next time the economy slows? if they do not start moving, given that rates start from below zero, if they do not start moving rates until the end of 2019, there is a real risk that it's just above zero by the time the next downturn comes. if the outlook is fine, which are currently is, and the wage rose continues, inflation will stay on target. nejra: so just to sum up because it is the end of the hour with

michael metcalfe, how are you positioning globally with equities? michael: we favor the u.s., actually. in general, in terms of the global outlook, we are relatively constructive, and we think people have been a little bit overly concerned about the trade war, and that is starting to keep out of markets now. nejra: thank you so much to michael metcalfe, global head of strategy at state street markets. take a check on the chinese equity market. take a look at the shanghai composite, the hang seng, and the csi 300, we have been seeing risk-on in today's session. you can see all these indices up to more than 1%. markets today shrugging off the escalation in the trade war between the u.s. and china, and speaking of trade, up next, nafta talks resumed today in washington. republicans warning that time is running out for canada to join in the u.s.-mexico trade agreement. 10 they reach a handshake deal by the end of september? we will discuss nafta and u.s.-china trade, next, as well

as brexit, in the next hour. this is bloomberg. ♪

>> good morning from bloomberg's european headquarters in the city of london. this is bloomberg daybreak: europe and these are today's top stories. beijing imposes new tariffs on $60 billion of u.s. goods pickup he won't devalue the you went to boost exports. asian stocks extend their rally. eu leaders meet to map a brexit deal. dirty money. bank'sails on deutsche involvement in one of europe's biggest financial scandals could involve -- and shape. how will they crack down on money laundering? ♪

anna: good morning. welcome. it is 7:00 a.m. here in london. we are under and away from -- under an hour away. you see broad-based gains on a regional level. markets shirking off the escalation in the trade war between the u.s. and china. uighurs can see a similar picture in europe. we saw europe close higher yesterday. u.s. equities gained as well. ftse 100 futures pointing higher. it looks like we could see gains on the ftse 100 and the dax. we have some breaking news that we are watching out for. i want to bring you kingfisher. we have these numbers coming through. pretax profit for king picture -- kingfisher coming in. the first half total retail profits coming in at 404 million

pounds on kingfisher for that retailer in the u.k.. those are some numbers that are coming through. kingfisher, -- i want to move on to sainsbury. we do have some numbers coming through there. sainsbury'sf the referred for an in-depth look here. it says that it raises sufficient concerns. those are headlights coming through there. a bit of breaking news there on the retail space. let's check what is happening on bonds. not a lot going on. the 10 year treasury yield is still holding above 3%. we gained six basis points

yesterday. spread lin dunn yesterday. we'll see if that continues. let's get the bloomberg first word news. >> thanks. china won't devalue its currency in order to make its exports more competitive. that is the message from the after his country retaliated against the latest increase in tariffs from the trump administration. the offshore yuan rose after the comments. the u.s.-china trade were deepened as aging announced retaliatory tariffs on $60 billion of american goods. in response to donald trump and ordering is a ministration to levy 10% tariffs on $200 billion of chinese goods and to increase to 25% ifn january

beijing refuses to offer trade concessions. beijing has announced plans to keep u.s. on 5-10% tariffs. >> we are the piggyback to the world. we have been ripped off by china. we have been ripped off by the european union. we have been ripped off by everybody. north korea has agreed to dismantle a key missile test site under the watch of international expect errors -- in specters and take other steps towards denuclearization. the announcement came after meeting between the two korean presidents. the complete denuclearization of the peninsula is now not far, says the south korean president. the u.k. and european union has signaled -- have signaled to continue brexit talks as the prime minister prepared for a crucial summit.

the blocks chief brexit offer tor repeated his rewrite his blueprint for avoiding a hard border between the u.k. and ireland. theresa may rejected the plan as unacceptable because it involves keeping northern ireland in the you -- eu customs territory. >> we are ready to improve talks now. the work on the eu side is ongoing. we are clarifying which goods arriving in northern ireland from the rest of the u.k. need to be checked and where, when, and by whom. clarify that most checks can take place away from the border. day,obal news 24 hours a powered by more than 2700 journalists. you can find more stories on the bloomberg at top .

let's check in on the markets in asia with juliette saly in singapore. a second day of gains for asian equities. >> it is indeed. i love it when we see this green color on the world map function. have a look at what china is doing. up by 1.7%. we heard from premier league saying that they won't be using the yuan as a devaluation 12 to stimulate exports. you have a strong rise coming from japan today. best games over four days since 2016. pretty flat. we had those meetings between the two korean leaders and a little bit of witness coming through in the peace talks there. the australia market closing higher. hearing a report that the

indian government is considering rising import prices on steel. a very solid rally once again for asian stocks. let's have a look at some of the major themes as well. we have been watching the currency market very closely. the yuan is stronger against the dollar. we saw quite a big spike coming through in the one after the premier said that they won't be devaluing the currency. the aussie dollar rising on the back of that. it is those it -- holding at its best level since 2014. the tariff implications to commodities market, you saw a big spike on the koppers futures yesterday. have a look at the premium that companies are paying in china. level in almost three years. china's overall copper demand about 4-5%, well above estimates. it's an interesting piece.

nejra: great work. juliette saly in singapore. the offshore yuan extended gains after a leaders said beijing has no intention of using the currency as a weapon in the trade war with the u.s.. will never go down the path of stimulating exports by devaluing its currency. meanwhile, nafta talks said to resume today in washington. page, aus now is david senior economist. welcome, thank you so much for joining us. good to see you as always. seeing this trade war escalation but markets seem to be shopping it off. we talked about -- you think it could get worse than this. >> in the near term, the rhetoric is going to ratchet up.

we have seen the implementation -- china's retaliation has been less. in to the ratchet up january, itnto picks up to 25%. you are going to see the u.s. talking about the next phase, phase three because of the chinese retaliation. that will worry markets. , hopefully, around the time of christmas, you might to see negotiations starting solid. from a market perspective, we will get more headwind from the rhetoric. the different trade negotiations that the u.s. is taking around the world, is the one with china the one that you think will be the most attractive? >> it is the hardest resolved. the u.s. is dealing with allies otherwise. with china, there are specific

issues. there's a problem over intellectual property protection. about the access that you u.s. has to chinese markets. china is doing some work to resolve those issues. china is a major competitor to the u.s. in a global shift. that will make it much more difficult for the u.s. to deal with china. politically, it is an easier target than old allies. that makes resolution harder. that is why most of the allies are talking with the u.s. but china is not improper negotiations. nejra: what does this mean for the nafta negotiations? are they more likely to be resolved given the focus on china? >> negotiations are always unpredictable. i'm sure you can appreciate that. at aiew is that we look negotiated solution. it might not be a win-win for all parties.

although the september 30 deadline has been discussed as a potential deadline for resolution on nafta, we think there will be a resolution. maybe not by september 30. nejra: what does this mean for your allocation? you favor the u.s. over the rest of the world? >> we look at equities globally. we look at international u.s. and canada as our potential allocation for equities. today, we are most favoring of u.s. equities. primarily because of the fundamental growth story. the u.s. fiscal reform has been really helpful to earnings growth. growth --best earning it made it the best earnings growth without any headwinds on inflation. strong jobs growth is strong for the consumer. in canada, we have benefited from that level of growth. in a bit of an

unfavorable position when it comes to our tax situation. feet: in terms of any through this trade war on u.s. growth, let hit the u.s. through growth or tightening of financial conditions? >> the growth impact has to do with financial conditions. these are big numbers we're talking about. we think the growth impact is relatively small. we are shaving our growth forecast by 0.1% next year. we have some deceleration coming through but not much. the majority of that impact comes through from financial conditions. that lessens the impact you see in equities. it comes through from the tightening you are seeing in the dollar as well. at this stage, it is relatively small. thise not sure how far goes or what the escalation of this could be beyond this year. nejra: how far would it have to go for the fed to posit's tightening shy for -- schedule? >> if you start to see a

significant reaction come through, another upward phase from the dollar, some did coming through. , chairmanng to 2019 powell is already suggesting that he is open-minded to a pause ordinance -- upon. pause. nejra: our markets underpricing the fed at the moment? >> i think it depends on what market you are looking at. i think the market has a very get perspective. i think perspective is important to keep in mind when we look at the impact of trade, it looks like it is going to have a pretty small impact on gdp growth as well as inflation. you have to look at what the impact will be on tariffs for

the cost of goods, particularly for the consumer. because both of those impacts are expected to be quite small, there is so much noise around trade, we think that the market is probably fairly pricing in the positive fundamentals and maybe a little bit overdone on the international side, particularly chinese equities. it is fairly reflected in the u.s.. nejra: there could be an opportunity in chinese equities at the moment, given how far they have fallen relative to the u.s.. >> it's important when you look at my -- markets. as david mentioned, the next few months could be pretty shaky. are notk about it, we going to have any more or new information that we have an already seen. want tomay make people not allocate towards asian equities.

in addition to that emerging markets, there's a real sentiment factor that is playing into allocating a way from those markets. win byy, the u.s. could not losing, if you know what i mean. nejra: absolutely. great to have you with us. remember, bloomberg users can interact with the charts shown using to tv . you can browse recent church -- charts. you can save them for your future reference and take them along to your morning meetings. coming up, you leaders are gathering as they attempt to break the brexit deadlock. we will bring you the latest from ostia, -- austria, next. this is bloomberg. ♪

nejra: this is bloomberg daybreak europe. cable trading on a 131 handle. eu leaders are meeting today. the pound has risen more than 3% against the dollar in the last month. u.k. international trade secretary says that brexit naysayers have been proven wrong. >> we have added 600,000 jobs to our economy. last year, we had more foreign direct investments than any other year in history. i understand the nervous and -- around it. the armageddon predictions that

came with the referendum have not materialized. the opposite has happened. >> our reporter is on the ground in salzburg with the latest. goingtoday and tomorrow to be more about the town rather than anything concrete coming out of this meeting? >> it will be about the town. i can tell you, the u.k. and the european union have been coming along a lot more frankly. european officials know that this is something that theresa may will have to sell back home. they don't want to say anything that could damage or. maynt to point out, theresa knows what you will be telling europeans and -- european leaders tonight. she will argue, we have evolved our position. it is time for you to do it. she will double down on checkers. union is not

prepared to compromise just yet. one is the single market and to is the irish backstop. there has to be a reference to an operational backstop or there is no deal. nejra: how likely is a no deal still? there is speculation about the deadline being moved to november and there being an actual special summit. could we hear more about that today? >> we could. it is pretty much common knowledge here that the deadline will probably have to be moved to november. unionk. and the european will have to work on the technical details. there's a sense that one alone will make any concessions until the conference is done later this month. from october to november. no deal is still a popular really -- possibility.

some old tell you it is a very risky strategy. it can pay off its theresa may goes to london and tells lawmakers, this is what we have. we the were -- we either accept this or crash. it is increasingly binary. nejra: thank you so much to our reporter in salzburg. david page is still with us. we keep talking about the irish border. this is something that will be grizzled the day. is this an irreconcilable issue? >> actually. they have decided to have no border which is a construct that we only see in a situation with a single market. we know that both parties are trying to avoid that. you can't get to the solution. the question for brexit is, when we recognize that fact. now, it crystallized will lead to a no deal.

we can't solve that situation. , in my beenhed back issue that we -- it won't be watertight, that is fine. then we can move transition. ultimately it is something that fails during that. of time. haveasiest route is to some form of fiscal infrastructure as we see on other borders in ireland. that is going to be the sticking point. the problem we have for markets now is the town has improved. it does sound like there is more chance of concessions. this is not going to be easy. so far, the eu doesn't recognize the amount of back-checking the u.k. requires. nejra: is there a risk because whening has gained, reality kicks in, the downside risk to sterling and others is even greater? >> i think so.

we're talking about this november summit and markets waiting. dealmaking,ack to typically it is the final hour where the deal is made. thatnot obvious to us europe needs for months to ratify this deals. is time forat there ratification even if he didn't get a deal in january. if that is the case, the temptation will be to not make the concessions by november. possibly no deal by december. we still think you get to a deal to not until early next year. you think about the swing, there is downside risk to sterling. nejra: if we do eventually get that deal, there will still be a lot of issues down the road. for the wayst mean that the bank of england might deal with it? you could say, we have some uncertainty, that is positive.

still so many questions. >> uncertainty is not going to be removed. else.s his fear above all if we leave and there are no .eals in place that is what businesses fear. the transition should be smooth. there will still be lots of questions answer but they are not as grand as the sharp risks at the moment. that should help investment slowly pick up. the process will be worse than if we stayed in that eu. it shouldn't be quite as low as we feared. nejra: you were saying the hit to growth might not come directly to the trade channels but to a tightening of financial conditions. what channels we watch in the u.k. economy? under our scenario, you

should see sterling pick up. consumers get a little bit more money. risk is this no deal brexit. if that comes as soon as march, we've had a flavor of that. it will be these logistical problems. flights out of the u.s. eu. that could the manufacturing sector supply-chain. is of that coming together likely to lead to a contraction in the u.s. economy. our hope is that we avoid that outcome and we do get something smoother. nejra: senior economist. thank you so much. great to have you. david will be joining us on bloomberg radio next. you can tune in for morning. let's take a look at how the european market. we have seen asian equities shut

off the escalation. it looks like we could see a second day of gains in europe. that's it for daybreak europe. the european open is up next. this is bloomberg.

>> good morning. i amanda edwards alongside matt miller in berlin. am in a alongside matt miller in berlin. china says it will not devalue the currency. cash trade is less than 30 minutes away. ♪