david: good morning. i am david in hong kong. >> welcome to "bloomberg daybreak: asia." s&p is raising nearly a 3% drop in a late turnaround. market on the bottom, or is it year and rebalancing? and beijing confirms new talks next month. david: industrial production numbers are out of south korea. it is very bad.

1.7% down for the month. we are looking at the year-to-year figure. we wereious month expecting 1.5%. barely up. .1%. best lead as we move into the year in south korea. and confidence numbers from the largest manufacturers are slightly lower from the previous read. 8%.equity market was down 18% down for the year on this last trading day. kathleen: let's look at the close in u.s. stocks. everybody, to remind stocks were down for most of the day. down,p 500, most stocks

and by the close, 82% higher. the dow had a swing of something like 800 points in less than two hours. 500.of the s&p the nasdaq in a bear market monday and aged to close for tense of 1% higher. a very interesting day. i, help but wonder what this means for australia and asian -- i cannot help but wonder what this means for us charlie and asian markets? david: it is barely a description of a healthy or get when you get in 11% swing within 48 hours. answer, get to your the stoxx 50 index fell into one.

can i get my chart up? stoxx 600 might be next. the italian indexes measured from january 23 to the here and now. the early signals we are getting in australia and the open in japan. kathleen and i will be taking you through that later in the show. suffice to say we are not geared up for a very high open. kathleen: let's look at the market action in new york. our lifes us from team. mike, you watch it and it has been back and forth. >> such a dramatic turnaround for the u.s. market. if you look at the lowest point

of the day, it was near the close, around 2:00 new york time is when the market bottomed. the s&p 500, only three stocks were higher at that time and in the dow, all 30 were lower. and then it was like someone flipped a switch in the last 90 minutes. and we saw at the end of the day more than 400 of the s&p 500 stocks went higher. ofthere was not any sort catalyst or fundamental information that came into the market. it is just symptomatic of when their is volatility introduced in the market, it tends to be unpredictable. everyone was wondering if this was the bottom. often on christmas eve, on monday there was a 3% drop that brought indexes down into the bear market 20% range. people wondered if that was the worst it was going to get.

i think there are two cohorts of investors that are active fund managers that were maybe were lightning their exposure towards equities at the end of the year. and then you have institutions that want to rebalance to get the ideal ratio, whether it is 60% 40% or something along those lines. so i think there was a little bit of rebalancing in the way the whole market turn on a dime and went higher. aggressive buying. given the big discrepancy performance, going into christmas the s&p was down something like 14% for december. the bond fund was up 5%. given that wide discrepancy in performance, it is natural to see some rebalancing at the end of the month. and that may have given other

investors the confidence to say, we are more confident this might have been set given the bounce off. david: mike, good morning. nice to see you. you mentioned a little bit already, the backing up of the bond markets. help us understand why that is significant. treasuries ended the day higher but if you look at the 30 year yield it was down as much as eight basis points at the lows today. it came back to more or less unchanged for the day and it goes back to the potential rebalancing. it is hard to prove that is what was at play today. it isright around the same time stocks took off, it was major selling in the bond market and it adds evidence to the notion

that rebalancing was at play today. it is that time of month. it tends to happen with five or fewer days left in the month. mistake to read too much into it in terms of what it entails for sentiment. once the calendar turns into 2019, we will have a better idea of what true market sentiment is like. david: can't wait. a lot of people can't wait to get rid of 2018. [laughter] thank you so much. let's have a look at your first word news. confidenceconsumer slumped in december from the lowest since july. expecting more jobs.

conference board says the decline reflects increasing concern that economic growth will slow in the first part of next year. the world's number two economy risks heading to a weaker 2019. smallport says enterprises continue to borrow it elevated levels and low protection rates. companies appear to be using the money to pay bills rather than invest. it could be populist government is rushing to push a bill through parliament. ahead of a financial lower house line if he misses the by -- deadline he must use a special procedure. in saudi arabia, key supporters of the crown prince are in their

cabinet jobs in the first government shakeup since the murder of journalist jamal khashoggi. they retained their positions and are issued by the king. he also hired several young royals. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: somewhere hopeful signs on the trade war. aging confirmed they will be hosting talks with the u.s. -- beijing confirmed they will be hosting talks with the u.s. tear supposed on china for imposedtual -- tariffs on china for intellectual property violations. let's talk about the exclusions.

>> there were nearly 1000 exclusions put through today. this is one of votes -- one of those things that you say, this has to happen if we are actually going to have a top. let's say this was a step toward trade talks. certainly traders are looking for any signs of a thaw and this is one of those points you look at and say, this came along. there is a bigger thing on the horizon about trade exclusions. when we talk about the $200 billion line, there is a huge ocean. so we have more to look for. but encouraging signs. a christmas present for

everyone. kathleen: let's hope so. when we open it up, we do not know what we will find. let's talk about the government shutdown. nearly one week. no end in sight. nancy pelosi is waiting for january 3. her house can vote to reopen the government. looks like this could go on for a while. >> yes. get comfortable. we could be here for a long time. like i said earlier today, i think there is a problem a lot of people are looking at this and saying, this will solve itself. how? how would it solve itself? there are options for off ramps for democrats and the white house but there is no sign anyone will take them. the capital was so quiet today. democrats and the president are lobbing vague accusations about who is responsible back and forth. congress is not in tomorrow.

there is no sign that will do anything sis -- anything substantial over the weekend or early next week. willat means the shutdown last through 2019. january 3 at 12:00 noon washington time, democrats take control of the house. election foran speaker and it will most likely be nancy pelosi. at that point, she has said democrats will put forward immediately a stopgap spending bill. it will probably not have wall money in it. you can imagine how president will think about it. but that will be the next move unless there is a breakthrough over the next couple days. kathleen: if there is, i know you will cover it for us. thank you for joining us today from washington, d.c. still ahead, japan's latest

industrial production numbers and what they mean for the economy. enjoyednd while markets a brief relief rally, we will look ahead to march madness. not basketball. this is next. this is bloomberg. ♪

david: welcome back. you are watching "bloomberg daybreak: asia." researched,latility resurfaced big-time in u.s. markets thursday. stocks bouncing back after flirting with a bear market. our next guest sees the uncertainty heading into 2019.

ben, you cannot say volatility has returned because it has been such a feature of the market this year, particularly in this corner. let's talk about march madness. we will have a lot going on in march and depending on how each of them comes out, it could potentially fuel a bull market and stocks continuance or it could take whatever is happening by then and turn it into a bear market? >> that is exactly right. it is appropriate to call it march madness. we have brexit do and the trade talks with china coming to a hard deadline. and the debt ceiling process is starting and whatever else around that time. it is an important month. as we extend the uncertainty into the new year, with the first vote coming out for brexit in january, all of these events will keep things uncertain. it is really difficult to guess

which way we will go. even as we get these bounces we seeing, more bounce goes with more volatility, which you normally see in a rally when volatility falls. kathleen: volatility unnerves a lot of investors but traders make money. let's talk about the fed. that is a january meeting. a march meeting, which a lot of people think could be the one, there is a bloomberg chart showing at this point the watches fed funds has priced out a rate hike. dudley, i asked him about a rate hike in january and he said no. will large be pivotal -- march be pivotal? >> to an extent.

but i think those numbers play into that. i would not be surprised if the fed incorporates it in their decision. the words global developments in the statement a few years ago when geopolitical environment was imports of the decision-making, the march meeting is obviously important as you mentioned. there are all of these expectations priced out and you could see it flat. we might not see a rate hike yet but we are in neutral and that meeting would suggest you would go above neutral. to what extent can you afford that if the uncertainty is so compound that we are already seeing effects today and the economy slowing down? it is obviously not the fed school. said-- fed's goal.

so presumably the meeting with the white house could take place and the first line of communication comes in. fair, yes orhike no? i think it is overextended. follow-up, there is the old adage home is where the harness. is.ome is where the heart is the neutral rate close? has anything fundamentally changed in the u.s. up -- u.s. economy since all of these things kicked off that might have led to the neutral rate adjusting lower to maybe where we are on the fed rate? >> it is an important point in the terms of what projections a december show. then 2.75%.ber and

before september it was also at 2.75. so there is room to move in the neutral rate in the fed itself. economy is apparently shifting. fiscal coming off a stimulus and significant amount of promoting of imports of china and sales to avoid tariffs. the economy is boosted and now we will see a slowdown. that can affect the neutral rate to an extent. if you look at it carefully in real interest rates, there has been a significant fall. it indicates there is something about the neutral rate that is sensitive to lower estimates and someone shifting down. that is a concern potentially because it means it will not be growing as much as the fed and white house would like. david: bad news for inflation. >> it is.

on top of the developments in the commodity argot we are going through now, this will pressure down headline cpi and ultimately filter through. so if you are getting a slower economy, inflation will slow down further and that can impact the neutral real interest rate. so i think the market initially was overextended. now we are at the other side of that and we are seeing potentially a rate cut. now.e in the middle neutral picture of the fed fund rate around 2.5. up from: i am pulling the bloomberg library a chart david had in mind when he was

talking about inflation. the break even rates have all theinued to come down since most recent peak in september. 10-year note's. where are yields heading -- notes. where are yields heading? bound?till range is there a chance we will see the bulls finally win after a year of losing and a further rally down? or is this it for the 10-year note? 2.75 says something about what powell himself indicated. long-term rates and treasury market were searching for the neutral rate. that is where we are currently. develop next will year.

it does not really slow down inflation. stable coreintain a inflation environment, what you would get is a flatter yield curve environment, a potential aversion -- inversion. the fed could still hike at some point and ultimately the inversion is where the change happens. at this point i think we will stay around the 2.75 for the 10 year. kathleen: where the dollar going? will we have another year of strength or will we see it weaken? >> it is interesting how u.s. markets have behaved since the fall when things started to change. the stock market in september and october. and now it looks like the dollar index is peaking.

but it is an index. the pound continues to be weak and the euro has challenges. hand, there is some spirit in emerging markets happening. i can see the dollar moderating. we will have to see economic weakness to justify a weaker dollar. kathleen: ben, thank you so much. managing director at medley global advisors. remember you can interact using g tv . you can catch up on key analysis and savior charts for future reference -- save your charts for future reference. this is bloomberg. ♪

david: a quick check of your latest headlines. india is tightening rules for foreign e-commerce to protect global companies. online retailers would be barred from forcing sellers exclusively

on their own platform. government says this will promote their trade and curb foreign influence. and amazon will contest the regulations. david: asset managers are heading for the worst decline in a record -- decade. investors are cashing out and staying on the sidelines for blackrock. it is still in better shape than many of its peers. climbedrket volatility to the highest in three years. david: $3.2 trillion hedge fund had 40 funds close this year. despite challenges facing the industry, the number of closures is well below the 2008 record of

almost 1500 liquidations. bad, but not that bad. kathleen: coming up, japan is on the job with record low unemployment but could the call for wage growth of the trend? we will look at the numbers next. this is bloomberg. ♪

>> welcome back to daybreak asia. breaking news from japan. the jobless rate has ticked higher in the month of november, still very low, 2.5%. below, i 2.4%, just should say just above an all-time low of 3%. job applicant ratio has moved a tick higher. there is now 1.63 jobs for every person working for one, up from 1.62 the month before. a couple of other numbers, tokyo cpi coming up 0.3 in the month of december. take out fresh food year-over-year, 0.9%, a little

bit lower than the 1% the month before. we've got those key numbers. industrial production 10 minutes from now. anything with the labor market very important to the bank of japan, getting ready for a meeting at the end of january. prime minister of a was trying to lean on those companies, and say can we have more than 5% wages like we used to? market reacting to any of this? david: the good days of the 1980's sales tax hike. let's recap quickly where we are, market was. this is how u.s. markets closed. a bit misleading if you look at the close. we were massively down and then a massive rally into the close. look at the bloomberg chart. is that the bottom? i want to remind our viewers, very great indicator. your percentage of the s&p 500 reached new 52 highs -- week 52

highs or lows. very telling indicator. we might not have found the bottom yet. we are calling this bad breath, really. it doesn't seem to show us we are near a bottom just yet. have a look at that. that's the measure you see here. it's quite bad. in terms of market reaction, let's look at early indications in terms of japan futures. u.s. futures, as well, not very exciting. us, bloomberg's asia asset manager, with us in tokyo. we just heard from kathleen the latest jobs number out of tokyo. quite a tight labor market out there. chris: yeah, tight labor market and just underscore that everybody is manning the pumps, as it were, in the job market.

i'm probably more interesting would be the industrial production figures. in a few minutes, they are anticipated to drop underscoring trade headwinds that the japanese economies facing at this point. obviously, inflation numbers aren't particularly encouraging. taking the whole set of japanese data together, underscores the bank of japan has very little leeway at this point to taper back on stimulus. bank of japan governor kuroda has given signals in recent months that he'd really like to scale back the mega-stimulus that's been in place for more than five years now. but the market volatility, the state of the economic indicators just aren't giving him any little room to do that.

kathleen: it's interesting because the bubble rally in bonds helped out the boj. it's a lot easier to keep the yield around zero one instead of pushing yields higher, the rest of the world pushes them down. any features numbers, pmi nubbers coming out, china, the u.s.. we've got a picture of the japanese 10 year yield, back down from a point where it was when the boj had to widen out the range. what is going to drive this? is it pmi? what this top three when you look at markets? chris: just first on the bank of japan and yields going toward zero on the 10 year, that's not necessarily a helpful development for the bank of japan. because it just flattens that yield curve already, incredibly flat in japan. that much more. and the bank of japan has been

increasingly concerned about the potential negative side effects on the financial system of that very, very flat yield curve. borrowre not able to short and lend long if the yield curve is that flat. so the yield curve around zero are not necessarily a good thing for the bank of japan. in terms of what's upcoming, japan has a holiday from monday through thursday next week. but something that investors will be paying close attention to, just globally, are going to be the two pmi's out of china and the united states next week. both are anticipated to not be that great. u.s. is forecast to come down a little bit, and china is seen right at the dividing line of expansion contraction of 50. those are going to be key indicators that will set direction for markets as the new

year begins. kathleen: i'm curious what your sense is of sentiment toward all aspects of chinese markets. the currency seems tempted by the pboc on one end, no reason to get it stronger at this point. but when you look at stocks and bonds, what stands out to you because you're watching all this? chris: china is extremely volatile at this point. i think the consensus view is that the efforts that chinese policymakers have taken in recent weeks and months will pay off but it won't be perhaps until the second quarter of next year. so again, we may not get a great number on the china pmi next week. we may not get a great set of december data when those come out in january. so, certainly the fact that the u.s. and china are engaging in trade talks is a good thing.

and that's helped to keep trading in the foreign-exchange markets stable. the you want no longer looks like it's going to shoot through or drop past seven per dollar, which is something investors were skittish about. but it does look like we're in weeks andtile several several months even, before greater clarity comes on the efficacy of the chinese policy trajectory for u.s. china trade talks. kathleen: absolutely. thank you so very much. joining us from tokyo. we want to get to first word news with ed. ed: the trump administration granted its first exclusion from tariffs imposed in china for

property violations. they approved almost 1000 requests for exclusions, covering $34 billion of chinese goods. beijing confirms it will host fresh trade talks next month. go into thoseals meetings unsure of what more they can do to meet u.s. demand. the partial u.s. government shutdown will continue into this weekend after house republicans said they didn't plan to schedule votes for friday. there was no sign for progress to fund nine government departments that closed after funding ran out december 21. president trump tweeted most federal employees losing pay were democrats. judge to has asked a throw out the defamation lawsuit by the british cave diver that he called a pedophile. the twitter attack was simply part of a schoolyard spat on social media that wouldn't be taken seriously by any

reasonable person. they argued such speculative insults were opinion protected by the first amendment. 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. i'm ed ludlow. this is bloomberg. let's have a look at the trade talks. beijing confirmed the trade talks will resume less -- next month in the chinese capital. president xi jinping has stepped up efforts to reduce tensions. chinese officials are bracing for the demand because china doesn't seem to know what america wants. we are in sydney tracking this story. where our things right now? we're about 10 days out where the talks are said to be happening.

there appears to the uncertainty on both sides. chinese officials are trying to figure out what the u.s. wants them to do to move these talks along next month. hearing is chinese officials are unclear of what the u.s. actually wants and they are saying the u.s. itself might not know what it once. we're not that far out but we're not sure what's going to happen. david: i'm not sure that's a good precursor. should it come as a surprise that china is determined to get a deal or move towards one? karen: no, it really shouldn't. china has had a hard year. it's seen an economic slowdown after years after mattis growth. it's seen -- after tremendous growth. war has been a factor to almost all of this. it's not surprising china would want to resolve this as quickly

as possible and move on to rebuilding its economy. kathleen: reuters reporting a possible white house executive order banning why right and is -- huawei and -- products. i would that settle into the trade dispute? plays into one of the key concerns the u.s. has about china, intellectual property that's happening. we saw a lot of optimism after xi and trump met about a month ago at the g20 and in ensuing days, there were arrests of a top huawei executive by u.s. ally canada. after that, there were two arrests of canadians in beijing, including an x to clement. that has fueled the -- ex-diplomat. that fueled the uncertainties. kathleen: karen lee joining us from sydney. she is our bloomberg china government editor. up next, abenomics will be put

to the test. we got the labor numbers. we look at what the numbers say. this is bloomberg. ♪

kathleen: this is daybreak: asia. i'm kathleen hays in new york. david: i'm david ingles in hong kong. let's have a look what bloomberg has been told, two top officials of china's was par 4 traded companies have been suspended over losses on bets related to prices of oil. giant sinopec confirmed the suspension, said only they were related to "work reasons." analysts say the market is watching for details on scale of the loss. shares tumbled as a result. kathleen: sure so is betting on my bodies for month-to-month

losses after stocks surged 65%. the rally follows the announcement mind-body is to be acquired in a $1.9 billion deal. they have a 30 day window to seek a better offer, which raises possibility of another bid, sending the stock higher. david: shares of blue apron soaring as much as 25% on thursday, catapulting a session gain to more than 48%, collett 50% really, but it cracks the one dollar barrier for the meal kit company, which recorded one of the worst-performing ipo's of the decade and the stock remains down more than 75% for 2018. kathleen: instagram redesigned its platform for horizontal scrolling and the plan went immediately sideways. they announced updates for app users to swipe left and right instead of scrolling vertically. that sparked complaints and the

facebook owned cap reverted to its original feature, saying the redesign was a small test that went wide by accident. david: that's something, wasn't it? a couple of minutes before the opening of japanese markets, stocks there on track for the worst year since abenomics started. japan, he's head of with us in tokyo. it's been a bad year. is there anything japan specific that might have contributed to the story -- sorry state of equity markets there? guest: look, i think there's two factors. one is the realization that yes, unfortunately profits are still dependent on the global economy. more than 62% of the earnings of topics on the listed companies do come from overseas. that's up from 49% five years ago. so during abenomics, japan's

dependence on earnings from the rest of the world has gone up and as a result, japan takes it on the chin when the global economy has jitters. david: i asked this question to another guest yesterday. but since you brought it up, the yen plays a very big factor when it comes to earnings. i had a quick glance on the assumptions based on the latest survey. 109.41 is the assumption for large manufacturers, and it seems they are using these conservative foreign-exchange assumptions and forecasts to help them get that bump in earnings. is that fair, you think? jesper: look, i mean you're absolutely right. corporate's are very conservative and that's one of the good news, the exchange rate assumptions are very low. unfortunately, more important than the exchange rate is sales growth, right? and when you look at sales,

unfortunately, the export machine has been going negative, particularly for the car industry. and you've just seen today nissan announcing production cutbacks. the global car market is slowing down. that's going to feed into some pain here in japan. kathleen: i want to ask you, we're waiting for the industrial number, but we got something, jobless rate, job applicant ratio. i'm going to pull it up from the bloomberg library because we had the job to applicant, 1.63 jobs for everyone worker. the jobless rate is back down to what, 2.3%? prime minister abe, just a couple of days ago, speaking and saying, harkening back to the days when corporations gave their workers 5% rates, could we do something like that? is he going to have any success with that? jesper: look, i think you put

your finger on the polls. you and i want -- pulse. you and i want to be reborn as 23 euros japanese because the market is on fire. it's moving to higher paying jobs. starting salaries for university graduates are already increasing 5% or 6%, and this war for talent is going to raise the purchasing power of the japanese people, particularly the younger japanese people. that's with a boost in purchasing power, the rise of the middle class and domestic consumer spending is going to come from. kathleen: ok, so why haven't wages started rising faster in such a tight labor market? you could maybe criticize unions for not pushing hard enough. our companies afraid of what's going to happen next? jesper: no, it's the curse of the average. you've got to make jack a generation moving towards --

jagger generation moving towards retirement. that causes a drop. meanwhile, the younger 20-30-year-olds, that's where the wage growth's of 5% 6% are happening, but the average is 2.5%. kathleen: we are ok. we are getting the numbers we were waiting for. industrial production was down 1.1%. that was actually a bit less than our bloomberg survey. it was up 2.9%. we had that big rebound after a serious drop. year-over-year, industrial production up 1.4% in the month of november. what does that tell us about the japanese economy? the industrial economy is basically at a standstill right now. the key question is whether over the next couple of months, some of the fiscal stimulus from china actually lifts demand for

construction machinery and capital goods. that's going to be the key question. you've got cars going negative and capital goods hopefully, because of the china stimulus, actually lifting up. we're alsoer, getting the summary of opinions from the boj from the previous meeting, nothing really groundbreaking as far as that's concerned. i won't give too much away, but i can't help but notice your email address contains the phrase japanese optimist. if i'm sitting with shinzo abe, what would the most optimistic analyst be the biggest underappreciated risk for japan in 2019? jesper: i think the biggest underappreciated risk is actually domestic capital investment expenditure, with particularly the domestic service sector upgrading their i.t. infrastructure and their overall capital stock. and i think the preparations for

the olympics is going to also unleash small and medium's sized companies animal experience and capital expenditure. if there is a surprise, its japanese capital expenditure riproaring double digits. david: if i look at the sales tax next year, i look at the price on japanese equities. for me, there's value there. a lot of people would tell me don't do that. it's a value trap. had you marry those two things? jesper: i don't know. i think you're absolutely right. you need one thing. you need profits, profits, profits. again, everybody understands the linkage between japan exporters and the global economy. that's large-cap space. watch the domestic small-cap space. that's really where the optimism on japan, this self-sustaining domestic demand cycle, you want to look very carefully at the japanese small caps and get

involved. kathleen: the bank of japan meets at the end of january. we can guess they will give us a tweak of maybe, but nothing is going to change. what is the end game for the boj? is the economy ever strong enough? his inflation ever high enough for them to say we got inflation to where we need it at 2%, and we can move on to a normalized policy? jesper: it is interesting. i think the answer is not before the tokyo 2020 olympics. i think japan is all about fiscal policy. and at the end, the endgame for the bank of japan is going to starve if and when the fiscal expenditure actually starts to come in. let's not forget, who's the biggest beneficiary of zero interest rates? who wants zero interest rates? answer, it is the ministry of finance, japan's largest aro. -- borrow. kathleen: we've got a ways to go

but it's almost 2019. always great to see you. jesper koll, wisdom tree, japan. we've got your stories to get your day going. whatever is going on in this edition of daybreak. bloomberg subscribers go to dayb on your terminal, and is also available on the mobile on the bloomberg anywhere app. you can customize your settings so you only get the news you care about. this is bloomberg. ♪

kathleen: this is different asia. i'm kathleen hays in new york. david: i'm david english here in hong kong. the market open has a look at indications, as a reminder of where we are as far as the treasury market. it jumped off point, two-putt 77 -- 2.77 on your

10 year right now. it's a late rally in the treasury market. it's not shaping up to be a hopeful open, amid fear, loathing, of version, abomination of risk returning to markets right now. we did get some data out of japan on, not very compelling, decent as far as industrial production. the jobs data taped up in unemployment -- tictoc in terms of -- ticked up in on implement. veryeen: we've got one terrific guest coming up. still talking emerging markets, the most popular trade into 2019. they often are when s&p goes down. i love what he has to say about china. stimulus isn't working because government officials aren't willing to do the government's bidding because they think they will be blamed later. cutera regular. we -- keep it right here.

we're going into the next hour of our daybreak asia show. this is bloomberg. ♪

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free shipping too. just go to buyleesa.com today. you need this bed. ♪ david: good morning. it's friday. i'm david ingles in hong kong. kathleen: i'm kathleen hays in new york, welcoming you and everyone to daybreak asia. let's look at the top stories. asia stocks face a mixed start in many markets after the biggest turnaround since 2010. david: traders trying to figure out if the u.s. reversal signals a bottom for the soft market or the market itself, or is it a case of year end rebalan