haidi: haidi stroud-watts in sydney. on.y: i'm shery sophie: i'm sophie kamaruddin. welcome to daybreak asia. ♪ >> top stories, asia-pacific markets facing pressure after stocks slump in new york. fed doubts and looming shutdown worrying investors. oil continues decline, brent

tumbles below 55 ball -- $55. and jim mattis quibble over alliances abroad. >> we have breaking news. we're hearing the white house ordered the pentagon to plan for a withdrawal from afghanistan. the u.s. presence in afghanistan amounts to 14,000 u.s. troops. they've been there since 2001 after the terrorist attacks. trump has been critical about the u.s. -- [no audio]

>> differences with the president on alliances, saying president trump has a right to the defense secretary that is more aligned with his own views. now we're getting the latest reports that the white house ordered the pentagon to withdrawal from afghanistan on top of the we sent -- recent withdrawal from afghanistan. jim mattis announced his resignation. plenty to judge us for investors -- digest for investors. the dow falling 2% and the s&p 500 at a 15 month low. the nasdaq on the brink of a bear market, ending only 19.5% below that august record. s&p futures right now unchanged, but a loss for markets in asia as we had the fed rate decision. we have trade tensions between the u.s. and china, as well.

how are we shaping up so far? sophie: in the week before christmas, anxiety is piling up. we keep be looking at -- we could be looking at a tempestuous session.in asia in sydney , we are seeing slight gains after a three-day decline. today is adding 25%. taking a closer look at the performance of the benchmark, we do have some gains this morning. we have to check in on the asx 200. while we have green on the screen, that will not derail the benchmark from a second straight weekly drop of over 1%. 're keeping an eye on gold miners after gold broke through the 200 day moving average for the first time since may. it could signal a rally, should

the break be sustained. we're also seeing the light of agl energy rise over 1% in sydney. let's check in on the end. -- the yen. it's the biggest jump in 13 months. not too far off from a september high as the dollar is faltering. haidi: sophie kamaruddin on the markets. u.s. equities are on pace for their worst year since 2008. let's get the grim details from ramy inocencio standing by. which of these is superlatives and it was a bloodbath. ramy: grim indeed and we can see that on the screen. they did close off a session lows, but the s&p 500 down 1.6%, the lowest since september of 2017. the dow jones industrial down 2%.

it was as low as 200 points lower than this. the nasdaq taking it on the chin, 1.6%. losses, it breath of was everywhere. hop into the bloomberg terminal. i want to show you the imap function. heren see everything except for utilities barely making out, just over 25%. everything from financials -- over .25%. energy down 2.8%. we said -- we've seen wti crude take it on the chin. on the 46 handle, a lot of folks say it needs to be around $50 to have some support. it's causing investors worry. let's take a look at how we've been faring. over the course of the past three quarters and into the fourth quarter, a shutout to my

colleague who put this chart together. through the first three quarters of the year, we were doing pretty well. 9%,dow was up 7%, s&p up nasdaq 16%. they may go for the downward trend just in the most recent fourth-quarter. we're not over yet. this 19% here, we're just almost at bear market territory. we are already into the bear market. let's hop back into the bloomberg terminal because even though there's negativity, there's positivity out there if you look at some past episodes, in terms of the s&p 500. these green boxes, the last time we thought the -- it's all threat of a government shutdown. the good thing is ever since there was a resolution, we saw the s&p climbed. pastlease -- will we see

that? in terms of three being the charm, a lot of people are hoping it will happen. shery: momentum took a hit. the nasdaq so close to a bear market now. ramy: that's right. let's take a look at the fangs here. .0%, weom facebook, up netflix,1%, amazon, alphabet shares are down a little more than 2%. let's flip up the board because i want to show you the new york faang etf. right now year to date, it's down about 1%, but that doesn't tell the whole story. when it hit its peak in the end of june, it's actually down by about 27%. we know a lot of investors are moving in from momentum stocks and this does paint that picture. before i send it back to you,

there's one little piece of good news, and that's with nike beats up 6.5% because it second-quarter earnings. the actual came in at $.52 across the board in terms of gross margin, north america, all beating asia-pacific and latin america. just missed revenue, but investors are void when it comes to nike, giving investors a run for their money. shery: thank you so much. breaking news, tiger global set to get a $1.6 billion from that deal. paltry a bought a 35% stake in jewel labs. this is the u.s. market shares leader in e-cigarettes. that values jewel at $38 billion. you'll shareholders will receive $150 per share in payout and we are hearing tiger global is said

to have gotten $1.6 billion from this deal that took altria getting a 35% stake, paying more than $12 billion for juul labs, which is a market leader at e-cigarettes at a time the cigarette industry is really under threat. turning now to washington, james mattis will retire at the end of february, citing differences with president trump. he made the announcement in a tweet, saying during his two-year tenure, tremendous progress has been made, especially with respect to the purchase of new fighting equipment and the new secretary of defense will be named shortly. joe, we have that letter from the secretary of defense himself, laying out the reasons that he's leaving. what were the key takeaways?

joe: the key take away was that general mattis said that he had a strong belief and respect for u.s. alliances and a clear vision of u.s. strategic competitors and malignant actors in the world. he said that was formed over a long, long career working in those areas. he said the president deserves someone whose views were more in reason thats as a he's leaving the administration. while trump called it a retirement, mattis made it very clear it was the differences, most recently the announcement by the president that the u.s. would be withdrawing completely and syria, that caught him other national security officials by surprise. and mattis let it be known to members of congress he did not agree with that. now there's word the president

is considering a full withdrawal from afghanistan. before that, negotiations with korea and development of that relationship. so this has been building and it was clear that both men had been souring on the relationship for some time. we have no idea yet where trump will go for his next defense secretary. >> very interesting that his resignation -- very politely, the very clear the two men had different worldviews on where the u.s. fits in the world, and in terms of the importance of their strategic alliances. as you mentioned, we're just getting reports the white house ordered different options to a strategy for afghanistan. one of them is a complete withdrawal. it wasn't just jim mattis who have these conflicts with president trump on national security. also his secretary advisor john bolton, secretary of state mike

pompeo also agreed with him, along with vast parts of congress. do we have any idea what the national security strategy game plan is going to look like next year? cleart this point, it's more and more that trump is his own national security advisor, secretary of state. there have been building differences with the people that he brought in, initially with the administration, and even though people like secretary of state mike pompeo had aligned themselves with trump, he is clearly just not paying a lot of attention to their advice. at least what those people, both for instance, were telling lawmakers on capitol hill, lindsey graham said today that there was widespread disagreements and surprised by some of the president's recent

policy moves. that seems to be the pattern emerging for the next few years of his administration. >> what's been the reaction so far from all of these white house personnel, staff, and people around the president leaving? we know that there's another general, john kelly, who's the chief of staff at the white house. we really haven't found a permanent replacement for his job either. now we're hearing from the secretary of defense leaving and this is pretty scary. joe: yeah, in fact mattis was seen as a real stabilizing force in administration that was chaotic at best, and not given to sort of keeping within the norms of policy and everything else. there's no clear successor to john kelly. and it's not clear who the successor to mattis will be,

whether trump will go to the military and he's had a hard time finding people that are willing to serve in the administration, given the circumstances, that their advice is apparently not going to be listened to. >> a very busy morning, or evening as the case may be for you. one of our previous guests said this ruins of the christmases of many national security experts around the world. let's get you caught up with the rest of the news. >> thank you very much. china confront trade talks with the u.s. will resume, although the date and other details will be discussed. they declined to say where or what would be on the agenda. president trump and xi agreeing tit-for-tatthe tariffs. opec and allies are expected to

release details of their plan to curb output and boost prices, leading producers agreeing to lower output by 1.2 million barrels a day, but not told the market exactly each of these members will be cutting back. the lack of clarity sent oils to the lowest level in the year with people skeptical. carlos ghosn affair taking on a new twist. he allegedly tried to conceal the scale of his compensation in an email seen by bloomberg that renault and nissan executives discussed the plan in 2010 to channel some of his pay to a dutch holding company that oversees the alliance. without disclosing that, the email admits the plan carrying "legal risk." lawyers are seeking his release from jail as early as friday. london's airport remains closed as the army hans for drones flying over the area.

suspended, have been disrupting the busy holiday season, creating headaches for thousands of passengers. incoming planes are being diverted to other airports and neighboring countries. gatwick is saying it's too early to know when operations were turned back to normal. -- a return back to normal. global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. pemmaraju. this is bloomberg. >> still ahead, the former new york fed president says market volatility was probably necessary for helping policymakers restrain the economy expansion. our exclusive interview later this hour. >> the u.s. government shutdown deadline looms ever closer with no deal insight. more analysis is next. this is bloomberg. ♪

no changereaking news,

from gatwick airport. all flights have been canceled, continuing to cite the drone sightings in and around the airfield. they're turning to the military after police were unable to stop these incursions from illegal drones that have closed the hub for the next 24 hours or so. disrupting journeys for more than 100,000 people on one of the busiest travel days of the year. thousands are stock on the departure heart fu -- hall floors. the runway will remain closed. the chief executive officer said it involves two drones, clearly meant to cause maximum disruption, the police are saying they are most likely not to be terror related at this stage. shery: thank you for that.

let's turn to president trump pulling the rug out from under congress and investors, saying he won't sign the compromise doesn't haveit funding for the border wall. >> any measure that funds the government must improve border security. has to. not for political purposes, but for our country, for the safety of our community. shery: his stance increases the odds of a shutdown and investors don't like the element of uncertainty. simply feel to the fire, says gregory. we've seen government shutdown threats very often in the u.s. how significant is this? greg: it's not that big of a deal. 75% of the budget has been appropriated. this would be only a partial government shutdown. we know a full government

shutdown subtracts maybe attempt from gdp growth for each week. 75% of the government has been funded. economic impact is minimal. but this adds fuel to the uncertainty fire ravaging through the markets. lasting markets need his political uncertainty. shery: markets so sensitive and minor communication blunders can cause whose reactions, as we've seen. how difficult will the fed's job the next year when every meeting is a live one? greg: it will be difficult for the fed to communicate its intent. it is wanting to further tighten monetary policy and financial conditions, but financial conditions tightened on their own. that's one of the key aspects of communications next year is going to be signaling this intent to gradually tighten monetary policy, but do so carefully so as to not imply a negative market reaction. that's the key challenge for

chair powell and the rest of the f moc committee. shery: this chart on the bloomberg refers to what you're talking about. we seen the balance sheet rundown and liquidity just continuing to fall. how tight are conditions right now? greg: we've seen a significant tightening. if you look at tightening of conditions over the past year, we had financial conditions adding to growth in 2017 probably to the order of 0.5 percentage points to growth for gdp. this year, we're seeing reduced contributions. in the final quarter of this year, if we look at the downturn in equity prices, we're seeing financial conditions restricted for growth of about 0.4 percentage points. a significant drag for financial conditions, and the fed is coming to the realization of where we stand in terms of overall tightness in markets. haidi: i suppose that was the

question for markets. would it have hurt the fed this time around, given if you take into account the running off of the balance sheet, you'll take into account more financial tightening next year. the thing that would have soothed market sentiment? 4-wood that have limited upside, because it's -- or would that have limited upside? greg: there's no right decision for markets right now. had they decided to signal no right hikes, markets with have tanked and viewed this as a signal the fed new more about what was coming. the economy is very strong, very solid. 3% growth year over year. yes the economy will slow, but we're only forecasting it to slow about 2%. still a solid backdrop, one in which the fed wants to perceive -- proceed cautiously. if is like is in a dark room full of furniture and it will proceed cautiously.

i don't know there's a right answer for the market at this point. shery has spoken about the last couple of days, president trump hardening his stance with regards to the shutdown and funding for his border wall. we had some shocking news, perhaps not shocking for some watching this deterioration between the defense secretary and the president, but the resignation of jim mattis. now this talk about the national security strategy when it comes to afghanistan being reconsidered, as well. how much does political risk and presidential risk get heightened on your radar for next year? greg: i think it's an important component. uncertainty is going to be key in 2019. the economy is going from an economy that's resilient to one where there is an attempt to soft landing economy in 2019. uncertainty is key. policy uncertainty with regards

to what the fed will do, policy uncertainty as to the fiscal environment. that includes the risk of a government shutdown. and uncertainty with regards to trade policy. trade tensions are very important at this point. uncertainty on that front is elevated. if you factor those factors, they are not good for businesses. investors are not people that like that amount of uncertainty, and that's going to be the key challenge for the fed and never getting this landing, but also for markets next year. haidi: on trade, the fed has kept on his as wait and see. i will point you see inflationary pressure see through from the trade war, assuming we don't get an easy resolution by march? greg: the inflationary pressures aren't going to be that great. we have to make a boost to cpi inflation if the u.s. doesn't pose 25% tariffs on china as it has threatened to do so in 60

days. that would only lead to an upward boost of 0.2 percentage points. i'm not concerned about inflation next year. i think the fed can slow the pace of tightening into 2019, signal lower rate hikes over the course of 2019 at its january meeting, and perhaps skip the march meeting in terms of raising rates. >> always great to have you with us. the trade standoff between the u.s. and china is coming back to the boil with the justice department accusing two chinese nationals of economic espionage. we bring in our washington reporter, greg sullivan. what do we know about these allegations? greg: they announce indictments against two chinese nationals, accusing them of a decade-long campaign of espionage. the allegations include targeting 45 u.s. government

agencies and u.s. businesses. the range of attacks have targeted businesses in sectors such as banking and finance, and other sectors looking for personal information. the navy is said to be one of the organizations targeted. this move underscores one of the key grievances in the dispute with china, and that's targeting u.s. ip and it tech secrets and knowledge and campaigns that range from espionage to policy disputes. we see the government underlying their case that china has engaged in malicious activities to steal u.s. information, be it military or trade secrets. >> does this in danger the delicate detente we are seeing between the two can countries -- the two countries? greg: it underscores the u.s. central grievance about ip, but it also fits with what we've seen, the u.s. announcing that releasing reports accusing china of ip threats and tech threats,

and the huawei arrests. instantly going to increase tension. >> greg sullivan in washington, thank you so much. much more coming up. this is bloomberg. ♪

>> we have a stronger japanese yen as we head to the japan open. the topic already sell into a bear market. breaking news out of japan, the latest inflation numbers. we are seeing headline inflation coming in at 0.8%, inflation steady. and as expected, 0.8% growth. but accelerating from the previous month, where it rose 1.4%. core inflation, excluding fresh prices, fresh food gaining 0.9%, really underwhelming expectations of growth of 1%, andy cellaring

from the previous month -- and decelerate from the -- decelerating from the previous month. crude is falling to a bear market, falling 20% in the month of november. november core cpi, which includes fresh -- excludes fresh prices, energy going only 0.3%, which is underwhelming. suffice it to say, the number the boj follows core inflation disappointing as 0.9% growth, which is less than half of its 2% target for the boj. haidi? haidi: let's get reaction out of tokyo. we have ahead of japan economics at bank of america merrill lynch, joining us, the final appearance for this year. we talk about this every time,

where cpi comes in as expected, maybe underwhelming. there's still a question of where is the inflationary pressure after all the effort and extort very monetary policy they have gone to? guest: yeah, i think the problem is it's true that labor markets are tightening. there's some upward tightening on which costs and this is --eezing private it's sensitive to the business cycle, which is quite small. oil heading in the wrong direction and fx not being much of a help, from a macro perspective, i think inflationary pressures are going to be contained in the statistics. >> is is still trying to escape shadows and animal spirits? we've seen aspects of investment in japan inc. showing pretty

positive indicators. izumi: yeah, i think that's partly true and i think the boj admitted it's taken longer than anyone expected to shake off the long-distance inflationary expectations and corporate. if you look at price settings, there have been some firms the heights prices, for some the first -- hiked prices, for some the first time in decades. firms will remain cautious next year if they feel uncertainty over economic outlook. >> governor kuroda saying jgb yields tend to follow u.s. yields, but we are seeing japanese yen the strongest level against the u.s. dollar since mid-september. one will upward momentum to the japanese yen become an issue? izumi: i think at these levels, it's fine. in fact, our strategists see the

dollar-yen going to one of five by next year -- 105 by next year. gradual appreciation is ok, but context matters. they are concerned about what they are seeing in markets, the uncertainty over the outlook, especially in overseas economy, one domestic demand is pressured by the consumption tax hikes, that's the biggest factor they're watching. >> the reaction in markets across japan was really negative. we saw the topic falling to a bear market. there is some expectation there could be some sort of action at of the boj, given market volatility, even mentioning they could potentially see more etf purchases. buy $53he boj already billion in etf's this year. what market distortions are we seeing, given these huge, unprecedented actions from the boj?

there's think distortions in the bond market. that's actually the biggest motivation what the bank of japan actually squeezed through the july policy tweaks to -- they're in a tough spot right now because while there was a debate over the acceleration of normalization building, the situation right now is that uncertainties over the economy and markets make it difficult for them to move at all. there's also a split between the dove and some of the more cautious members of the board over whether to prioritize financial stability concerns, or whether to go full throttle in trying to stabilize inflation. i think the result for the boj is that you will see them in limbo. you're not going to see much action from them in either

direction. consensus about the growth in japan when it comes to the gdp number and the disruption to the supply chain and trade, as a result of the trade war next year, is the window closing for that tax hike? can the economy withstand it given the disastrous aftermath we saw last time? izumi: with regards to the chances of the tax hike being postponed, we said the probability remains very low. right now, i think the government and the preference is to try to cushion as much as possible the negative impacts of the consumption tax hike. we saw the government rollout measures to stimulate consumption. what you'll get is more of a tax and spend policy, rather than small government policy. it bears further shock to the

global economy, you'll see the question come up again whether it can go first. >> i zzumi, always a pleasure. thank you for joining us. numbers,g to those cpi essentially looking at lackluster inflationary pressures in japan. let's get you the first word news. you.thank james mattis expected to retire at the end of february. the president expressing his thanks and said a successor will be named soon. the board in washington said the president's decision to pull u.s. troops out of syria sent a clear rebuke to the former army general. he has argued that mission is not over yet. ,ews of the resignation

followed by reports president trump once u.s. forces out of afghanistan. there are 14,000 troops serving in that area and nbc news is reporting the pentagon has been ordered to withdraw the plan to bring them home. this could trigger more criticism from friends and foes. 's decision to withdraw prompted comments home and abroad. the shutdown of the u.s. government remains in the cards with president trump refusing a stopgap spending bill because it does not approve funds for his border wall. republicans say they would not support it. a new vote will consider adding the $5 billion the president wants. the uncertainty sent stocks tumbling. >> we had a productive meeting with the president. he will not sign the bill that came from the senate last evening because of his legitimate concerns for border considering -- more security. we want to keep the government

open, but we want an agreement that protects the border. we have serious concerns about securing the border. uma: the u.k. government is working on a secret brexit plan b, increasing fines -- signs theresa may's bill is now dead. the idea of sending the question back to voters is gaining traction. we're told the first step would be to delay brexit and extend the article 15 process. india plans to spend billions of dollars to clean up bad loans at banks. lenders are struggling to find opponentsencouraging of the prime minister ahead of next year's election. they have the worst loan ratio after italy's $12 billion of stress on their balance sheet.

global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. and this isaraju bloomberg. markets,take a look at sophie kamaruddin taking a look for us. are we getting any kind of we can julie at all? -- joy at all? sophie: the aussie dollar ticking up a touch. bonds are slipping, but 10 year yields are keeping below 2.4%. on theners are leading asx 200. if we switch the board to check in on gold stocks, this as a spot gold broke its 200 a moving average for the first time since may. miners are continuing to -- in

sydney, extending if the client had a 15 month low after oracle reported softer pricing for the december quarter. pharma is falling to a may low after announcing an extension to its debt facility. helfgott rising after a six-day drop. it extended the exclusivity period, which has received due diligence materials. they value it at $3.2 billion. quick check on trading diary from korea, we will get a sense on how exports are performing. shipments did remain robust, but pace slowed in november. ditto for thailand, coming in at below 4% last month. last week, the central bank of thailand lowered its forecast for growth this year and next. we get more data from thailand.

-- the thai baht set to end the year as one of the best emerging currencies, due to the ethics reserve, which stands at two under $4 billion. congressionaltic leaders speaking in congress, we've heard from nancy pelosi and chuck schumer, nikkei pelosi saying present trump refers to have a government shutdown, senator schumer says there is still hope to avoid a shutdown, but the president's tantrum won't result in a border wall. president trump wants $5 billion to build the border wall with mexico and has refused to sign a temporary funding bill. funding runs out on friday in the evening for nine government departments and independent agencies. senator schumer says it's sending the u.s. into chaos. both leaders citing market

turbulence in president trump's stance. nancy pelosi also referring to the resignation of the defense secretary james mattis earlier, saying all americans should raise secretary mattis' letter of resignation. we heard from the white house, sarah sanders saying she was not aware president trump asked mattis to resign. she also said the president will not travel if there is, in fact, government shutdown come friday evening, were fund it would run out for nine government agencies. we are seeing reaction from other congressman. senator marco rubio saying congress must do its duty as a check on the executive branch, also talking about secretary mattis leaving, saying the letter makes it clear the u.s. is headed towards errors. we heard from senator mark warner, saying the news of the secretary of defense mattis leaving was a scary.

now we have just heard from congressional democratic leaders. we'll have more on the potential government shutdown as we get more data. this is bloomberg. ♪

shery: this is daybreak: asia. i'm shery and in new york. haidi: i'm haidi stroud-watts a. from the subscribers are focused on market volatility with the rising threat of a government shutdown looming. on bloomberg.com, we're leading with the u.s. accusing china of economic espionage as tensions between the two nations simmer. on tictoc on twitter, we're looking at stars on the 50th anniversary of the apollo eight mission to the moon. jim lovell shares the risks his crew took on the mission.

these are the stories trending. shery: tightening financial conditions are among the drivers of the worst december of the s&p 500 since 2009. those looking for powell put were disappointed. former member bill dudley told the fed not paying much mind right now, but that could change. the markets should understand the fed doesn't care about market prices for themselves. they only care about market prices in terms of how it affects the economy, unemployment rate, and inflation. the fed is not there to take away the market's pain. they are there to follow monetary policy of sustainable appointment -- employment. the fed dialed it back yesterday. they went from three hikes in 2019 to two as the median estimate. they made some language that suggested maybe they are not going to do as many, some

gradual rate hikes. they added the issue of financial conditions being a factor. they added the notion they are watching what's happening in the global economy. seems to me they did dialect back. maybe they didn't -- dial it back. maybe they didn't while it back as much as markets would like, but they did dial it back. >> last time you came to sit and talk to me, we had a downdraft. you said this is not going to affect the fed. this is small potatoes. since then, we've had a steady decline, not just in the u.s. stock market. it seems to be accelerating. i think what people are worried about, the fed is in danger of making a mistake because they are not taking market signals seriously. powell, inchairman his press conference yesterday, made it clear he is thinking

about it. is talking about the tightening of financial conditions. he also said the financial condition tightening have to be significant and long-lasting to have an effect on the economy. at the end of the day, what is the fed's outlook for growth? what is the consequence for unemployment? what is the consequence for wages and prices? what the fed is saying is they still think, despite the selloff and the stock market, despite slowdown in global growth, the economy is going to grow at an above trend pace, and that's why they are continuing to tighten. >> will you say to people who may be don't understand what you just said? is there a point where a stock market selloff, that so -- >> of course. >> that we better pause? >> of course. if this went on much further for much longer, and a change the fed's view on the outlook. they are looking broadly, but

they are looking at the economic news. they need to see payroll employment gains of about $100,000 a month to stabilize the unemployment rate. they been seeing gains much greater than that. the economy is growing. we arty have a tight labor market. we need to slow the economy down. somewhat tighter financial conditions aren't really about thing. they're probably a necessary thing. >> that was the former new york fed president will dudley speaking to kathleen hays. let's take a look at the market open in japan and south korea. sophie is in hong kong and i suspect bracing yourself, given we did have an awful day and worst december since 1959 for japanese stocks. sophie: it was a terrible thursday but we muted gains for the nikkei, so it may be a

wishy-washy session in japan. the cost be looking at a little change. take a look at the yen, trading at 111 after a five-day rally. japan mayflation in add to fears over mounting risk. perhaps for spite for the topix after entering a bear market on thursday. the boj did not after a safety net. foreign funds have dumped $48 billion worth of japanese stocks, the biggest sell down since 1987. but they've been piling into jgb, the last few weeks marked the biggest signing spree on record. they admitted to easing. that reinforces the potential haven of jgb's, continuing to push yield spend closer to zero. shery: thank you for that. you can get a roundup of the stories you need to know to get your day going.

go to dayb on your terminal. you can customize your settings. you will only get the news and industries on assets you care about. this is bloomberg. ♪

shery: i'm shery and in new york. haidi: i'm haidi stroud-watts in sydney. executives considered a plan to secret,pensation for according to any mail received a bloomberg news is lawyers work to get carlos ghosn released. jaileporter is outside the he's being held. what is this secret payment plan, first and foremost? thish, sigrid payment plan is about how carlos ghosn -- yeah, this secret payment

plan is how carlos ghosn tried to hide money from the public. he wanted them to pay part of his compensation through a dutch holding company, that is the one that runs the alliance. it was to be done without disclosing it publicly, which is the key. greg kelly, who's also being held in the detention center alongside ghosn, said the message carried legal risk. >> he's been in detention for about a month, but we're hearing he could be leaving soon. >> that's right. tokyo court rejected an appeal from prosecutors to extend his jail time, and that boosted his chances of receiving bail and fighting allegations. his lawyers are saying he intends to plead not guilty in his trial. >> what happens next?

if he is released from jail or imminently. released, according to his lawyers, he's saying he wants to speak to the media for the first time since being detained here since his arrest on november 19. if he makes bail, that is. he helps the court will let him travel outside japan before coming back for trial. >> thank you so much for that. a quick check of the latest business flash headlines. danske bank added to investors' woe by cutting profit forecasts for challenging market conditions. it lower the estimates to the equivalent of $2.3 billion, down from $2.6 billion originally. the cfo said conditions worsened in the last three months, by don scott underlined -- dance get --

danke's underlying business remains unchanged. financing backing from hillhouse capital and wealth management in addition to investing investors. they are capitalizing on smartphone adoption in india, and has seen market topping $2 billion. is supporting $330 million into its struggling carrier, ruling out the revival of plans to serve the airlines. the bid to make air india profitable comes after the failure to attract bidders to privatize the operation. air india, with $5 billion of surviving onn taxpayer handouts after losing money for years. >> coming up on the next hour, talksacific economists tel

about risks facing the region going into the new year. the likelihood of the trade tensions would be resolved before early march as we get the revolution of those tariffs. also the japan and korea market opens our next. this is bloomberg. ♪

haidi: good morning. asia's major markets have just opened for trade. shery: good morning. sophie: welcome to "daybreak: asia." haidi: our top story this friday. facing more pressure after stocks fell in new york. oil continues its steady decline with brent tumbling below. clarity.production

mattis resigning amidst talk about withdrawing from afghanistan. wall street took the s&p 500 to a low. let's see how we are looking in early trading. sophie: early trading looking very tepid. percent. a not good news as he saw them enter fair territory on thursday. little rest by. the -- frostbite -- respite. gains for this morning. when it comes to the data this morning, we did get a read on

korean exports. coming in at 1% on the yearly basis. we are seeing that continued downturn which has added to concerns for the government and the be ok. bok. yields are in focus with 0% insight. relating negative yields is not a big problem. u.s. treasury yields with hopes for higher yields space. some strategists are calling -- the 10-year gilts is keeping the haidi: that is0% sophie on the markets. let's get first word news. china has confirmed trade

talks with the u.s. will resume in the new year. declining to say where the talks will happen or what will be on the agenda. sides attempt to the resolve their differences are you opec and allies expected to release more details on their plans to boost prices, leading producers agreed to lower output but have yet to tell the market exactly what they will be coming back. the lack of clarity has sent oil to its lowest levels in a year. , taking thes information after allegedly trying to can deal the scale. bloomberg hasby discussed the plan.

channeling some of the pay through the dutch holding company. -- the plan carried some legal risks. they are seeking his release from jail as early as friday. remains closedrt with drones flying across that area. disrupting the very busy holiday season, causing headaches for thousands of passengers. it is too early to know when operations will return back to normal area -- to normal. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. u.s. equities on pace for the worst year since 2008. making things worse for most

investors. it seems like we are running out of places to hide. ramy: the word has been uncertainty. donald trump refusing to sign that resolution for the government here. leading to more uncertainty. marketake a look at the snapshot in terms of where we ended the day today. right across the board, the last time we were at these numbers was back in the fall of 2017. 13 or 14 months ago. as 600down by as much 79, so we crawled back a little bit from those lows. down from about 19.5% the obvious tide. we are flirting with your market territory. 500ll show you the s&p

sectors. it should be coming up on your screen right now. utilities is the only sector up. energy is down by 2.8%. on the $46 handle. that is the lowest since august of 2017. the s&p energy sector was the biggest loser. you can see consumer discretionary technology also among the bigger laggards. let's take a look at what is happening in terms of the partial government shutdown. there is some optimism here. his third time the charm? see an january, we did uptick. a lot of investors are hoping

that we can get through for a third time. haidi: let's get more details on the government shutdown. president trump is holding back funding until he gets funding for the wall. the deadline is friday at midnight. everything was going to be ok coming into the house of representatives vote. all of a sudden, there was a change from donald trump. a lot of them saying that the conservatives convinced him that now was the time to take a stand on his wall funding. president trump: i have made my position very clear. it must include border security. not for political purposes, but for our country and for the safety of our community.

days of the last few the house speaker, he did say that he would go back to the drawing board and get the funding figured out. he said we also want to see an agreement that protects the border. there are a couple days left to get this in order. the leading scenario is for the tose to vote on an amendment the resolution to get that $5 billion in there. if that does not happen, the house could fall back to the original resolution. on tracknds, we are for a shutdown. 300,000 -- the word of the day is uncertainty. we have to get through the next

four hours to see if there is any clearing on the other side. h -- to has been a lot of news out of washington today. president trump made the announcement in a tweet saying tremendous progress had been and that a new secretary of defense will be named shortly, this coming from the president's twitter account. perhaps more interesting, not just between, but the resignation letter, which is extraordinary in making clear that there were differences in opinion and worldview. that's right. he made it very clear his

convictions about the need for us to for u.s. alliances and , the for those alliances coalition that is battling isis to area and he seemed suggest that he had differences in the way that the president deals with strategic competitors like russia and china. he followed it up by saying that the president deserves somebody whose views are more in line with his, indicating that they had big differences. now we are also hearing that the white house is considering a withdrawal from afghanistan, which would make the job of the defense secretary more difficult. shery: we are hearing reaction from the white house. president trump and secretary

mattis had a good relationship although they sometimes disagreed. there seems to be a wide consensus and reaction towards his leaving the administration. a lot of people have expressed concern over general mattis leaving. he has been viewed as one of the steady hands with experience. putting aed as stabilizing influence on a white chaotic.t is somewhat there was pretty much widespread reaction that this was to the detriment of the u.s. and general mattis was very much admired among the republican hawks and by democrats who

viewed him as someone who kept a check on the president. gone, the next question will be who will replace him? that is a difficult question. members of congress who might be replacements, they have come out very publicly in opposition to the policy. have to reach outside the circle. it might be difficult to find a candidate. ahead, keeping part of the compensation a secret. we are live in tokyo this hour. haidi: look at the market returns in 2018 and how it investment would have fared. this is bloomberg.

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haidi: this is "daybreak: asia." u.s. market sold off sharply in thursday trading. a major asset classes tracked on bloomberg and two are on track to deliver positive returns this year. we are joined by chris. what does your team analysis show on returns this year? >> the operative word is there is no big winner. the cross asset have been remarkably poor. it has not been a disastrous

, but what is particularly notable is the breadth of losses. almost all assets are down for the year. you really found no real, big $10,000 investment probably got you a couple hundred dollars. tipped them into positive territory. if you were in emerging-market, which was a big theme at the start of the year, you would have lost $2500 in investment this year. whether it is corporate bonds, european stocks, japanese stocks -- everybody is down and gold is down. it has been a remarkably broad

set of losses this year. haidi: why has it been so broad-based? it is not as if it were a recessionary year for most economies. interestinghe aspect. many people are pointing out the impact of central banks having moved from so many years of massive liquidity pumping into. has beenal reserve taking liquidity of the financial system this year. taking liquidity of the financial system this year. the bank of japan has been pumping in much less. the one universal ingredient is that central banks are taking back liquidity as a group.

haidi: thank you so much for that. it has been a lackluster year. the sustainable rally will only come after the fed throws in the towel. that is after a deeper period of turmoil. says -- he joins us now from singapore. is that likely? we see jay powell holding his ground. saying it has to get particularly bad in a sustained period of markets for more oil -- market turmoil. mr. powell is a businessman. i think he looks at it as a businessman rask -- risk.

again, i think he is doing the responsible thing. the end of 2017, they were running at $2.1 trillion. global liquidity might be negative. we have this major liquidity withdrawal. it has been driving asset prices. jay powell probably wants to the avoid this. if he was to be pressured. if you look at the statistics of the economy, it needs higher rates. markets.y, emerging

do not forget that to some , we had asset price inflation. most asset classes, according to bloomberg data, they are down for the year. the cello started for the rate hike. we saw the stock fall to multiyear lows. bloomberg showing that after falling to that low, they did not really go anywhere. they have actually done pretty well. does this signal that there could be momentum for stocks next year? >> that is a good question. it depends on the outlook for global growth.

we could see more weakness for global growth. and a bigarket question in regards to investing is the role of the dollar. could we see continued dollar strength? depending on what is going on in washington, we could potentially see more countries increase alternatives to the dollar. some central banks have produced exposure. the trump administration brought it along with the america first policy that over time, it will have an impact. i think some expect that we

could see more weakness in the global economy going forward. shery: there could be trade tensions through the u.s. and china. organizationif the of the supply chain across the world. >> these are very complicated issues. there is an easy solution. about the debate between washington and beijing. -- vietnam could do very well out of this. what we are seeing is a global trend. we are moving into a more prideful their world. it has an impact on supply chain and how businesses are run. potentially, if that would mean

he would have to raise rates more than the market would like to. ultimately, i think this is the right decision. haidi: very quickly, your top conviction is gold and gold mining companies. are you expecting it to that right by in the investment cycle? >> i think it is very much out of favor. going forward, we could potentially move into an easing ankle. the environment of weakening the economy ahead of us would mean that the growth potential would be very much support it.

gold and gold mining stocks are very much out of favor. contraryomewhat perspective. we love a contrarian view on bloomberg. just remember bloomberg users can interact with the charts. analysis.n key this is bloomberg. ♪

shery: let's get a quick check of the latest business headlines. reporting strong sales in north america and china. forecast.e

most leading regions with top productions. controversial ad campaign featuring kaepernick. banning the sales of some iphones in germany. they agreed that apple is infringing on an energy saving feature but the devices will be available through christmas. bonduld have had to post a to cover any apple losses if the ruling is subsequently reversed. the u.s. department of justice has opened a bribery investigation. the stocks saw its biggest fall in two years. they could face fines of several billion dollars. the investigation comes after

similar inquiries were launched. next, new revelations about a 'san to keep carlos ghosn package. ♪

it is a climbed 30 a.m. in hong kong. a wishy-washy session across asia. the final trading day of the week. we have that negative lead from wall street. nasdaq on the brink of a bear market. in japan, falling into a bear market and seeing its worst december performance since 1959. concerns about overshooting going into next year. the government shutdown looms in the u.s. shery: you are watching

"daybreak: asia." let's get to first word news. >> a u.s. government shutdown is still possible after trump is refusing the spending bill because it does not include funds for the border wall. republicans are promising they will not support it. addingote will consider what the president wants but the uncertainty sent stocks tumbling. >> the president informed us that he will not time the bill that came the senate last evening because of his legitimate concern for border security. to the house.k we want to keep the government open, but we want to see in agreement that protects the border. washington is turning up the heat on beijing. from dozens of u.s. companies,

indicting tot chinese nationals. the ok government is said to be working on a secret brexit plan. a source within the administration says the idea of sending the question back to the voters is gaining traction. the first step in either case would be to delay brexit and extend the divorce process. spend probably dollars to clean up bad loans. lenders are struggling to support. it is encouraging opponents. indian banks have the worst

ratio with more than $210 billion on the balance sheet. 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. haidi: let's take a look at the asian markets. sophie is in hong kong. week before christmas and we are seeing drops. u.s. futures are heading lower, but we are seeing a pickup for regional currencies. this after falling to a six-week low. the aussie is headed for a third weekly decline. this is communication and health care decline in sydney. thatn investors have

dismal flash. made underares were pressure. the economy is unlikely to provide much help next year, so it is slipping further into bear market territory. toyota and sony are leading them lower. leading gainers as much as 30% to the upper daily limit, most.g the they are considering working together on online sales and may consider an alliance. they plan to close two stores in january. we are seeing coca-cola jumped the most in five years.

the japanese business will make its first price hike to raise prices to 10%. on the other side of the spectrum, falling as much after its david. news reports that they plan to make the discount retailer. one day after the bank of japan cap change again, they lower the forecast, underscoring the uphill battle they are waging as they try to hit the 2% inflation target. kathleen hays is here. not looking good. oil prices are plunging. what else can the boj do now? i think they will have to make a very national call to somebody, but there is nothing

that they can do really because part of the reason is that there againstl forces pushing even the mild acceleration of inflation they were able to get last year. , at the think about it last meeting when there was all this conjecture into the fall about the boj having to widen the target range, further away from zero. fallen to juste about zero. now, looking at that cpi, it is a chart that we look at over and over again. look at the number that is the main one. year over year, that is the white line. 0.9. down to the it moved down a bit in november.

this is food and energy. it is not what they want to see. you have falling oil prices pushing to the road towards the end of the year. next year, the consumption tax hike, which the government has done everything it can do to have the least amount of impact on the economy. it will not be a plus for the economy or inflation. you have slower growth from china, trade war that continues, brexit. probably a little bit of a wait. by the way, speaking of brexit, bank of england did not make a lot of headlines, but they do warn about brexit worry intensifying. it underscores that the world is facing some forces that are pushing against -- trying to

stimulate growth and pushing higher. haidi: looks like they will be sticking with us. back to the fed and what the right thing is for them to do. you spoke exclusively with the president of the new york side. some concern about the recent market will off. he said markets might be serving a purpose. we were talking about hazard, right? kathleen: moral hazard is one thing. a lot of people do not want the market to think about it. you have to do something to help the market. when i asked him today about market reaction, how bonds rallied when the fed made its out,ncement, he came right

directly and said it is not the fed's job to help stocks. let's listen to what he had to say. >> the fed does not care about market prices for the elf. they care about market prices in how it affects the economy and inflation. the fed is not there to take away the market's pain. it obtains its objectives of sustainable employment and price ability. if stocks cap falling further and faster, they would have to step in. at the same time, he says that the economy is strong and that it has a tight market. financial conditions help the objective. so far, it is a plus.

he said the fed will hike two or three times next year. i asked what it would be this year and leaning more towards to rather than three now. the question of with a slow it down, only if the economy got so weak that they would have to cut rates. with a change the balance sheet reduction? it would not make sense to reduce the balance sheet at any rate. that was to rattle the markets. look for anyt changes that policy anytime soon. haidi: really interesting conversation there. kathleen hays in new york. incutive considered a plan 2010 to keep some of the compensation a secret according

to an email that has been cited by bloomberg news. working to get him released on bail and that could happen in the coming hours. more about the secret payment plan. the secret payment plan is how he tried to hide how much money he makes from the public. executive considered a plan in 2010 to pay part of the through the dutch company that controls the alliance. without disclosing it publicly, which is key. kelly is also being held at the detention center behind me and said this carried some legal risks. we know that he was arrested at a tokyo air or.

when can we expect him to leave jail and get bail? today is day 33 in detention. yesterday, a big shift in momentum for him because they rejected an appeal. -- chances of receiving bail he intends to plead not guilty in a trial. thank you so much. joining us from tokyo. china is now complaining to the u.s. about those espionage accusations. china is urging the u.s. to stop and withdraw indictments. posting this statement on the u.s. indictments of two chinese nationals earlier today by the department of justice. china saying that it never

supports any stealing of trade secrets and that the u.s. seriously hurt chinese and american corporation. looking into these allegations of intellectual property theft by two chinese nationals accused of coordinating with security officials in an extensive hacking campaign. we are hearing reaction from sayingn response to this -- complaining about these accusations, saying that the and should stop wrongdoings withdraw these indictments, coming directly from the foreign ministry in china. the allegations by the department of justice that the toionals coordinated infiltrate 45 u.s. companies and government agencies. we will have plenty more coming up. this is bloomberg. ♪

shery: this is "daybreak: asia." alliesthe u.s. and its are accusing china of coordinating a decades long espionage campaign to steal intellectual property and other data. the justice department has announced indictments against chinese nationals. the latest out of beijing. what is the latest that we have? tom: this is according to the department of justice and fbi. hacking --s and cyber espionage basically. 45 differentut companies and u.s. agencies, ,ncluding the navy and nasa also the u.k. coming out to say

that companies in europe and asia were also targeted. we are talking about sectors mining and health care. this is an extensive set of allegations put forward by the doj. isheard from rosenstein who the deputy attorney general saying this was an example of outright cheating and theft. saying the country poses a more severe long-term threat to the u.s. economy and its infrastructure than china. example.nother pushing back against these cyberattacks. earlier this year, we had the luring of a spy.

we had allegations that the chinese were behind that. china has come out saying that they want the indictments overturned. shery: making that complaint they clear. we have heard from the secretary. steve mnuchin coming out saying that it is separate from the trade track. now with these concerns surfacing again, can we them to be different issues? tom: it is interesting. there are reports coming out of washington. lawmakers were concerned, angry and annoyed that there are sanctions being leveled against china in relation to this. these are two different issues.

a second deadline to get some kind of trade deal with china, but it -- the longer running issues will be continued. intelligence agencies in the u.s. and u.k., along with a number of lawmakers determined to check china's power and influence, particularly when it comes to cyberattacks and hacking of this sort. we have the cfo being held in canada allegedly over sanctions busting, but many see that as leverage by the u.s. and others to try to check the scope of while way. they say they operate as an independent company and that there is no evidence that it poses any threat whatsoever, but there are many analysts who say this is based in china and has a

committee sitting inside it, so therefore, it is a threat. march 2,get this deal but it does not mean any of the issues go away. concerns are on both sides. thank you so much with the latest on the trade tensions. now, carlos, great to have you with us. so far, we have seen beijing cope with a series of measures to support its economy. what happens if the terrorists rise past march 1? that is a very good point. our assessment is that it would be very counterproductive to increase the level. there is a chance that they might not do this, as we move

away from tariff measures. targeted measures against chinese companies. there are various reasons why we believe this is the case. china cannot retaliate on a tit-for-tat basis. there is a limited scope to how far they can go. good 50% of all of the that the u.s. imports from china are intermediate goods. levelsing the tariffs would significantly impact u.s. manufacturers as well. so far, it has been easy to manage. we have seen these measures taken in order to support the economy. rrr cuts that we are

seeing so far this year, about four in total. not really any moves in the lending rate right there. willve also heard the pboc provide the quiddity to companies. if the trade war, are these enough? that is a good point. it is unlikely that the uncertainty surrounding the commercial negotiations will go in 2019. we expect weaker sentiment will play a role and justify some form of stimulus from the policymakers, that it is more likely to be targeted than anything else. on the table, but they will not take place immediately. most likely, they will try to do more targeted direct injections particularlyem,

into the private sector. they have been under a bit of pressure recently. the lending facility announced last week with the goal of increasing. we see more of that and less of a broad stimulus. i want to get your view on the broader conflict, which has been under increasing pressure. also from a more hawkish fed. taking a look at reactions across. weakening in the wake of the fed rate rise. it is looking like it is a short-lived trend. be an expect 2019 will

easier year when it comes to emerging-market assets? >> i believe 2019 will be a year of divergence in asia. some markets will experience out growth. we are seeing pressure on the peso. is room for the central bank to continue to tighten in that market. , the situations could be better than what we are seeing right now from the reaction of investors. the market might have gotten ahead of themselves in places like indonesia. we see robust fundamentals and strong growth. of course, all of this remains dependent on the pace of rate hikes, which currently, we have penciled in -- we expect a

little bit of a slowdown and for inflation to remain. what is the biggest risk for asian and here? we see the discussion focusing more on that slowdown and external demand. a lot of asian countries are big exporters. they will be affected by the slowdown across the board, which is something that we need to think about in terms of specific geographies. we remain cautious. we have that external pressure. intensification which is a result of an accumulation of that region. we appreciate your time.

let's take a look at how markets are faring so far this evening. going to seee whether they will continue to tumble after being put to a 19 month low. as chinese policymakers are trying to reduce risk. keeping an eye on players that fell on thursday. some chinese banks have been asked to curb profit growth. when you take a look at the board of stocks to watch, we are also keeping an eye on the hong kong exchange. -- this as they take a significant stake in the unit. surge onr the stock thursday on the prospect of sanctions being lifted.

restoring that will take time. they might want to hold on to their new contract as insurance. shery: thank you so much. that is it from "daybreak: asia." our market coverage continues. experiencing -- it looks like the open will see a little bit of pressure after that huge selloff on wall street. track ins seen that asia as well. bloomberg markets open is next. ♪

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rishaad: welcome to "bloomberg markets: china open." news breaking at the moment coming through congress. the house passed its $5 billion for building donald trump's wall on the mexican border. this sets up a clash with the senate, the backdrop of the president saying he will not sign the current budget funding stop cap until he got that $5 billion. let's have a look at how futures