♪ haidi: a very good morning. asia's major markets have just open for trade. juliette: welcome to daybreak asia. this: our top stories wednesday. muted start for the trading year for asian stock markets. data, the yeni gaining. stressing self-reliance. china's president talks of

changes unseen in a century as he prepares for a major speech on taiwan. meetingt trump calls a of top congressional leaders after suggesting he is open to a deal to end the government shutdown. breaking economic data crossing the bloomberg now. singapore's fourth-quarter gdp rating is out. quarter,the fourth adjusted quarter on quarter. was what the market was looking for. year on year coming on 2.2%. expectations of 2.5%. the revised movement coming through as well. 3.5%. 2.2 percent to 3.2%. we did hear from the prime minister overnight for his new year's address, basically saying that over the course of the year we did see singapore's economic

growth hold about a 3%. singaporering that will unveil its 2019 budget on february 18. the prime minister moving to really transition into the new leadership. certainly a miss on this three for the fourth-quarter adjusted 1.6%. let's have a quick look at the markets. is very lonely on the gmm function today. new zealand and japan still out of action. australia's market pretty fat. everyone else seems to be at the beach. banks down. health care stocks moving higher. wti crude up by more than 1%. quick look at the aussie dollar, fairly steady. after a spike earlier in the session. we did have that miss coming through with the core logic house prices down 1.3% in december. we are awaiting that revised

manufacturing number as well which we saw on monday. low 50's for the first time since 2016. haidi: thank you so much. let's take a look at the implications for markets as we get into 2019. the assumptions as we had an is that policies will continue to dominate. the fed was one and done for now. the balance sheets keeps running off. is this another year of volatility? the outlook got it so wrong last year. >> the volatility is the key. you look at how elevated it got across all asset classes last year. reallyls that hadn't been seen at that kind of sustained basis since 2011 or 2012. if that volatility can he is off ease off, iff, --

was very glad i took last week off. i didn't have to try to make sense of what looked as though it couldn't be made sense of. for investors and traders, it must of been very tough to work out from that. where you go from here? do we go away for a couple of months and hope that king -- things will be better? volatility is very key. if that volatility can ease off -- we've been doing our markets live outlooks for 2019. we are doubling down. we were bullish on stocks for last year. we are bullish again this year. we had the invented -- inventions, we are coming into it after stocks have declined. they have more fat in them. last year started off with such a crazy melt up. thered the feeling that

was going to be some problems at some stage ahead. from here, this is a good base if we can get that volatility down. haidi: let's talk about some of those calls. you say that you are going to be bullish on u.k. e.m.. that's an area we really need to focus on in 2019, isn't it? some of these italian bonds. what's been happening in the political space in europe, with brexit as well. >> haidi was talking about how policy was going to be key. the politics in europe are potentially nasty. the good thing, a lot of that potential messiness has been priced in. if we do get some even moderately good results, things like italy's budget problems, what's going on with merkel, just not bad results are

going to end up being good for market. haidi: as good as it gets, i suppose. >> you take what you can. haidi: always the bearer of such good news. our asian markets live editor here in sydney. you can follow garfield's musings on the markets using the mliv function along -- on your bloomberg. let's get you caught up with the first word news this hour. brazil's president has been sworn in. he is promising to tackle crime, corruption and economic malaise in a wave of nationalism. suggests thatpoll two months after his victory, 75% of brazilians think the new leader is on the right track. the brazilian real has given up most of its gains. we have in front of us a unique opportunity to rebuild our country and to rescue the

hope of our competitors. i'm sure we will face huge challenges. if we have the wisdom to listen to the voice of the people, we will achieve our goals. juliette: kim jong-un used his new year's address to issue a warning to president trump. he said the country would take a new path in nuclear talks if the u.s. didn't relax economic sanctions. kim affirmed his willingness for further talks with trump. the u.s. president tweeted that he looks forward to meeting kim again. saying he realized that north korea's economic potential. australia is prime minister started 2019 with the pitch to voters. to drought tax cuts afflicted farmers. as well as record funding for schools and hospitals. he's hoping that this will reverse his governments slump in poor ratings. a budget will be handed down in april ahead of a national

which must take place by may. india will make physical settlement of all equity derivative contracts mandatory from april this year. it's a bid to reduce volatility and curb excessive speculation. the securities exchange board says the change in roles will be staggered from april to october. the move may add to short-term volatility around the exploration of contacts on the last thursday of every month. ♪ haidi: the chinese president makes a speech on taiwan later this day after new year's address that stressed self-reliance. correspondent joins us now from beijing with the details. what were the key takeaways from the speech? >> the speech was aimed at trying to reassure those here in china concerned about the economic slowdown in the pressures externally facing china. the president saying that despite the risks and challenges

facing the country, they have the measures in place to be able to weather the storm. --k about the can's issuing continuing transition to a high-tech economy. talking about some of the reform measures that have been put in place. saying that reforms that can continue. talkinga soundbite about how the door will continue to be pushed wider open. take a listen. >> the world has seen the acceleration of china's reform and opening up, and our determination to carry it through the end. the steps will not stop. our door will be open even wider. data, in that november terms of the factory gauge falling into contraction for the first time since 2016. there were concerns about retail spending slowing as well. there were concerns about the real estate sector here. auto sales have fallen there.

there's a number of domestic challenges that china phalluses -- faces, not to mention the trade war. meetings are expected to take place in beijing next week. the try to move these conversations forward. we had that conversation, that telephone conversation between president xi and trump. there had been progress on that. we will be very much focused on what those conversations will be like here in beijing. the chinese president trying to calm the nerves as these challenges continue for china. mackenzie, our china correspondent there in beijing. our next guest says china in the u.s. are likely to reach a deal in the next 60 days. is a chief asia economist.

great to have you with us. beijings talk about having the advantage of being a central command economy. flexibility and more control over the economy than most other economies would have when it comes to policymaking. are we starting to see the limitations of that in terms of being able to counter domestic and structural forces and outside forces like the trade war? >> definitely. sides want to strike a deal. in china, they are facing economic slowdown. according to the recent data, it seems that this slowdown is worse than expected. that's why they need to reach a stabilizethe u.s. to the actors. that's why chinese authorities

have announced that they want to settle matters, doing what they can to reach this kind of deal with the u.s.. balanceed to strike the between maintaining stability of the growth and pushing forward the important reforms on the chinese side, including open domestic markets to the u.s. and other foreign capitals. they want to stimulate the economy through more opening up matters. i want to bring up this chart energy tv library. my g tv library. we had quite a mess when it comes to the official ratings into the end of 2018, where the manufacturing gauge fell below 50.

this is a chart looking at business conditions. know that a lot of the bump that we had an 2018 was really frontloading before the tariffs kicked in. this downside we are seeing, does this suggest it's a structural slowdown that was already written in stone for the trade war? should beijing give up on gdp targets for this year? >> that's a good question. because of this accelerating they will have, some kind of slowdown. in exports. i think it's still very difficult for authorities to abandon this growth target. i'm afraid this year, they are going to have lower targets around 6%.

also, they will implement more easing measures for this growth target. it is still very difficult for authorities. it's not only about this target. it's also about other people's confidence. a lot of the chinese investors are eyeing for it. if you abandon the target at this moment, maybe people will lose confidence. i don't think they are going to do that one. i don't think it's a good idea to abandon targets in this difficult year. how aggressive do you then think authorities are going to be in china to try to stimulate growth in 2019? definitely, they need to do more. they still have some policy room. they could cut this tax, also for this.

they still have the room to anothere tax rate for 2%-3%. on the monetary side, they can inject more liquidity into the banking sectors. they can even cut interest rates. we do anticipate they are going to make some moves in the 20's -- in the second half of this year. they need to do whatever they economy,timulate the to ensure that the economy rests at a stable level. they need to do that. haidi: stay with us. we want to ask you more about how you think all of that can play in with what the fed might do in 2019. chief asia economist here with us in our hong kong office. coming up, how the trade war between the u.s. and china, how will it impact the rest of the region's economic growth in

2019? later, will trade tensions continue to dampened the appetite when it comes to m&a activity across the region? a new survey that actually has some surprising findings. we will discuss that later this hour. this is bloomberg. ♪

haidi: you are watching daybreak asia. is the bbva chief asia economist. we were talking earlier about china. i want to ask your thoughts on what we could see from the fed. i have a chart showing that we are actually not expecting much to happen from the fed coming through in 2019. in fact, we could start to see some rate cuts over the course of 2020. if we dive into my terminal.

end of 2018, huge crush in inflation outlooks. we could seeg that a slower pace from the fed than previously anticipated? what is your actual call for potential hikes? >> yes. previously, markets are going to hike three times this year. 2019. this has changed a little bit. a couple months ago, people started to price in another 1-2 interest rate hikes this year. i think it's reasonable. we are at the end of money tree policy normalization. nobody knows at what level they are going to stop that one. at which level should be the neutral interest rate for the united states. it's important for policymakers

in the u.s. to become more cautious and data dependent this year. they have already come to an end of this interest hike cycle. no one knows. they need to make better communication with the market. the need to be very cautious on that one. that's why we expect they are going to hike interest rates for times, rather than three times. juliette: the fact that they have press conferences is going to allow them to be more clear to the market in what they are formulating for their next decision. i want to ask your thoughts on what it means for growth across asia. we had that gdp miss here in singapore. we have concerns coming through on the australian economy as well. have you changed your outlooks for what we could see across the asia pac region for 2019? asia, they are affected

by two important forces. the first one is the interest rate hike in the u.s.. if the u.s. lowers the pace of asia hashikes, maybe more room to do policy maneuvers. the second one is the trade war between china and the u.s.. now, we have seen the slowdown of the singapore gdp in the second half of the year. this may be related to the trade war. important supply chain in asia, especially for east south asia. are in a certain position in the supply chain. china is in a very important position. the two biggest country economies in the world. they have this trade problem. all the countries along the supply chain will get affected. singapore is a very important heart of the supply chain.

seen awhy we have significant slowdown of the singapore gdp, and also other countries in the second half of the year. we have a better outlook for it depends on how china and the u.s. can solve this trade war issue in the next 16 days. we are still cautiously optimistic about our outlook on the street go between china in the u.s.. there's always a lot of uncertainty related to this bilateral negotiation. if this doesn't have a good -- may be the it asian economy outlook will become worse than we expected. juliette: what's your outlook for the yuan? does it continue to be the anchor currency of choice for all other asian currencies? a decline of 5.5%, that was

significant. sinceggest yearly decline the currency started trading offshore. are expecting a structural slowdown, doesn't matter of trade gets resolved? we will still see downside in the currency. >> definitely. china still has the structural problem of domestic economic slowdown. year, first half of this the yuan will be under depreciating pressure. the authorities will do whatever they can. it will not depreciate between the 7%. become that they anchored. that's why the chinese authorities want to maintain relatively stable exchange rates. they need to create a good

atmosphere for bilateral .egotiation with the u.s. it's a big concern about this currency manipulation issue. deal,y want to reach a even after they reach a deal, they try to reassure that this deal will become relevant through the years. they need to reassure the chinese yuan want depreciate too much. one will fluctuate within the reach of 6.6-7 through this year. in the first half of the year, the lower end of this one. in the second half of the year, after implementation of this economic stimulus, we expect the chinese growth will bump a little bit. that will give some boost to the u.n. exchange race -- yuan exchange rate. haidi: always get -- good to get your insight.

economist in our studio. bloomberg users can interact with the charge shown using to tv . catch up on key analysis. this is bloomberg. ♪

>> a quick check of the latest business flash headlines. growth fostering hopes that they bucked -- revenue in macau rose 70% in december to $3.3 billion. that's the fastest growth since august. china's crackdown on lending has claimed another victim. intermediary is the latest to shut up shop. refunding is 32,000 lenders

after months of losses. iny received investment 2014. much more to come here on daybreak asia. this is bloomberg. ♪

>> it is 8:30 in hong kong and we are one hour away from the open ath just australia this moment for trading. japan is closed for a public holiday today and tomorrow. the official number from contractring fell into territory for the first time since july. watching you are daybreak: asia. let's get the first word news. trump has invited top congressional leaders from both parties to a white house

briefing on border security after suggesting he wants to make a deal to end to enter the government shutdown. the invitation includes the eight top leaders in the house and senate that convenes thursday. trump hinted he was offering an olive branch to house democratic leader nancy pelosi. the chinese president makes a speech on taiwan later today, marking 40 years since the end to direct military confrontation. he used the earlier year addressed to stress self-reliance. he cited a series of technological achievements and 2019 -- 2018. used a video message to urge an end to negotiations over brexit, same country has everything it needs to survive after leaving eu. she said britain could turn a corner if parliament backs her deal.

eu has been in talks with counterparts over christmas break and will continue discussions this week. david horn ended 2018 with the biggest loss ever. the hedge fund fell 9% in december. it extended the annual declined to 34%. posted great returns in the early years but has stumbled. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. haidi: let's take a look at some of the trades we are seeing. it is a pretty loathsome -- loan some trading day. -- lonesome trading day.

throughoutfell 6.9% the course of 2017. 2018 tracking the global equity downside for a number of global markets. open foreing a later south korean trading. the kospi will have a little bit of positive -- positivity. australian stocks we are seeing some declines. financial materials are holding their heads up. sydney's property market is set to deepen. some analysts would say 10% to 20% this year declines. we are looking ahead to up locations for aussie dollar trading. as trading gets underway this year and looking ahead to the trade implications of whether or

not we get a resolution between washington and beijing. where to go to hong kong anna joins us with more context about what to expect for the next year. there is a great deal of uncertainty as to whether march to bring an end to the tariffs or if we will get longer-term data between china and the u.s. my biggest question is, if we are looking at a longer-term strategic battle between these superpowers, what does it mean for the economic implications for the economies so vulnerable in asia? >> we are already seeing signs of vulnerability. south korean exports which are a .ellwether for economic trade

exports from south korea to china are down almost 14%. components forny goods made in china. singapore has slower than expected gdp. another warning side. -- warning sign. similar readings on index in the u.s. rest of no doubt the beijing is feeling the effects of the ongoing trade war. we are starting to see tangible signs. it goes to show you how much is writing on whether or not the two countries can agree by march or whether it will break down and we go back to where we were with nontariff barriers. a lot rides on the next coming weeks. the reading,ms of

this is also a good bellwether in terms of externally exposed and vulnerable economies in asia . they are bearing the brunt of the suffering from the trade tension. >> no doubt. it is one of the most trade oriented economies in asia. a very important manufacturing sector. to where we are going in 2019. one factor economists are ordersg is frontloading and shipments late last year as companies and buyers tried to get ahead. that impact is expected to fade as we head into 2019. inventories are stockpiled and we will probably see a slowdown in new orders.

manufacturers in singapore and south korea. , while no one is talking about a crash landing for global trade growth, most people are expecting a slow down the next coming months. haidi: thank you and happy new year. let's get more on what we should be watching as trading gets with andrea in sydney. we have now turned a new page. it is quiet today. it seems like a lot of people are at the beach. but what can we expect to see as the new year kicks off? >> i do not think we will get a clear picture until hong kong and china markets open. little is happening in the

australian stock market. japan is closed. but we have the u.s. futures up strongly for asia this morning. that is perhaps on the back of news there could be a deal struck to end the u.s. shutdown. that, investors are still reeling from a horrible year. even though the s&p 500 ended up a little stronger on monday, it still had a dismal december, down 9%. we also had japan and markets in europe entering a bear market. this morning we also have oil higher, which is positive, but that is after the first annual loss since 2015. factorsa lot of the

that were weighing on investors last year have not changed as we start 2019. concern about trade, higher u.s. interest rates, lofty valuations in u.s. equities, slowing global volatility increased we saw. investors are still trying to this and are very sensitive to it and to any uncertainty as we go into 2019. safe havens do not really behave the way we expected. >> and the dollar-yen is up again this morning. it was up against the u.s. dollar last year because of the safe haven. the euro was pummeled by the

italian budget. the pound pummeled by brexit. currencies under pressure. but the yen was up for a third year and investors are saying with this uncertainty unlikely to go away anytime soon, he could be in for a fourth year of gains. -- it could be in for a fourth year of gains. canette: don't forget you check out our gtd library and take a look at the charts. it is on g tv on the bloomberg terminal. haidi: this is bloomberg.

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>> this is daybreak asia. as trade and political tensions continue to unsettle economies across asia, ey says they are still resilient. the majority of asia civic respondents improves the market to improve with a significant portion improving in the local m&a market. let's bring in the managing partner from ey. erica, thank you for joining us. you are still seeing strong appetite for monday. but there are political -- for m&a. there are political risks.

how will it play into 2019? they have not been used to that in the past years and they have to find a way to deal with this. overall the company will continue to grow and show good growth to the shareholders. m&a is the way they have to use to boost the growth. the economy growth rate is not as fast as in past days so m&a is another way for them to achieve the desired growth rate. would imagine the belgian road initiative will provide opportunity for asia and china. what are you expecting to see in terms of activity and have you seen movement ready? a key themectually

in the china market. owned a lot of private companies who have joined the initiative to expand in the market. asia pac is one of the key markets. infrastructure spending they are considering including sectors like telecommunication, media entertainment and e-commerce. so you see a lot of activity. peopletrying to connect and they get more easy to communicate and shop around. this is all part of the initiative. that the last year u.s. was granted more expanding powers when it came to screening

transactions when it came to foreign powers wanted to do deals in the u.s. do you see this as being one of the major headwinds? a result in the m&a transactions becoming a political football in this trade war between washington and beijing? >> we hear a lot of clients have become increasingly concerned about increasing scrutiny by the u.s. government on some of the deals the chinese company has tried to put through. but this is not alone for the u.s.. other companies like germany and france are also trying to put more rules around approving chinese deals, particularly in the key technology areas. challenge isnother for larger deals you will not

see as often as you have seen in the past few years. below half $1 billion deals you will still see that throughout the world. it is a globalized economy. you cannot just cut out part of the trade floor because the government is trying to push for it. have a strong .esire to continue m&a china has more access to the market and that is good for the seller and buyer from a strategic perspective. there is a geopolitical challenge and i would definitely

not cut off the m&a activities. >> what about the effort to keep more money at home? we have seen a significant slowdown when it comes to these massive overseas m&a's, especially from the more acquisitive companies. a lot of these companies have been rapidly shedding and divesting overseas assets. is not a trained you expect to continue? we are seeing government trying to control the investment. see some activity being cut back dramatically in the last 1.5 years. if you look at some of the you want investments

the company to grow and become more global and get good product back to china markets. it is still ongoing. so we are not trying to stop all capital outflow, just the -- just thes irrational ones. >> your report shows not just the capital being a worry, but in terms of the talent pool going abroad. what sort of impact is that having on investment and m&a activity? it is a big challenge for a .ompany to manage the business , one ofese companies the bigger challenges

[indiscernible] meanwhile also trying to respect the local markets. sometimes you see this huge export of talent and they are trying to follow the buyers to make sure they are the people on the ground to know the market and what the headquarter wants them to achieve. [indiscernible] >> thank you so much for coming into our studio. you can get around above the stories you need to know to get your day going. that is it for today's edition of daybreak. on the go to tv terminal and on our mobile app. this is bloomberg. ♪

>> this is daybreak asia. juliette: a quick check at the latest headlines. an analyst has dismissed concerns that led tesla stock to fall to .5% monday. 2.5% monday. said a builduprt

was a sign tesla would face a well in demand earlier this year. haidi: netflix is expected to hire a new cfo. newman is expected to be hired and he is currently on paid unemployment -- juliette: earnings will rise 25%. revenue in 2019 is seen rising. it is highly coveted by the rising middle class.

result could go to easing concerns about the slowing chinese economy. sophia joins us in hong kong. what are analysts saying? >> analysts are optimistic this morning because the expectation that the consumer slowdown would continue in 2019 given the economic numbers are still relatively weak. the sales forecast were above analyst consensus. cicc and city analysts spoke this morning, reiterating commitment on the stock. analysts are bullish. remember consumption downgrade

was a big theme of 2018 and chinese consumers were spending less forwanted to pay certain products. tie wouldhought mao be hit by that. ande 2019 will be different the downgrade story will not spillover into this year. china lift their freeze on videogame licenses earlier this week. how does it set the tone for what we can expect this year? approvals, none were given to tencent yet but it shows may be regulators are trying to ease the constructions on the gaming sector. kongnt rose 1.4% in hong

on the 31st. rockets were open here -- markets were open here. regulatorsyear where in beijing really tightened their grip on everything from gaming to health care to education. this is a sign that it is willing to give a little bit back. tencent lost more than 200 and it was. dollars a big driver of the market. not impact tencent directly in the next few weeks, but it sets the tone for a brighter to thousand 19. -- 2019. was --s take a look at let's take a look as we get into

the opening of trading. australia is open. new zealand is closed. japan is closed. s&p is giving up modest gains. we are seeing modest gains in health care and financial. falling after a difficult year when it comes to energy prices. juliette: south korea's market will open a few minutes. we are watching what could happen in singapore. our markets coverage will continue. this is bloomberg. ♪

>> it is 9:00 a.m. in hong kong and china -- hong kong and shanghai. gaining and there are signs of continuing caution. in ad changes unseen century. of topp called a meeting congressional leaders after suggesting he is open to a deal to shut -- two and the shutdown.

happy new year. it is a quiet start in asian markets. japan is closed. a lot of events happening this week. >> we are starting with a bang. these are pmi numbers coming out. we have the tie shin reading. we are looking at that. we have said. fed.id -- first trading day is underway in singapore in 2019. taipei is flat. kospi is up. session andt to the

to the year. after year many would like to forget. just taking a look at china, what we have on the basis of fair value, we can extrapolate. last time i checked what was , where will the u.n. go --yuan go? let's find out what is happening with the first word news. here is steve engle. >> happy new year. kim jong-un used his new year's address to issue a warning to

trump. he said the country would take a nupathe in nuclear talks if the u.s. does not relax economic sanctions. andaffirmed his willingness the u.s. president has now tweeted that he looks forward to again meeting kim, saying he realizes north korea has economic potential. in australia's prime ministers started the year with a pre-election pitch to voters. cuts, supportx for farmers and record funding for schools and hospitals. he is hoping a pledge to deliver a budget surplus will reverse the governments slumping reading. and the new president of brazil has been sworn in. he is promising to tackle crime and corruption in a wave of nationalism that is sweeping

brazil. a new poll suggests that two months after his victory, 75% of brazilians think he is the leader on the right track. but the real has given up postproduction gains. unique opportunity to rebuild our country and rescue the hope of our patriots. i am sure we will face huge challenges but if we have the wisdom to hear the voice of the people, we will achieve our goals. india will make physical settlement of equity derivatives mandatory after april of this year to reduce volatility. the exchange board says the change in roles will be staggered from april to october and the move might add short-term voluntarily -- volatility. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

>> the chinese president is expected to make a speech on taiwan and one hour. he is saying it is a very important speech. it comes after the leader warns of an increased threat from beijing. rishaad tom mackenzie is there. what should we be looking out for in the speech? >> we are expecting some historical references from the president when he makes his speech in one hour. he is expected to reference his overture that was made years ago from beijing to taipei. the two sides remain without a piece pretty. tensions -- peace treaty. tensions have picked up in the last few months from legislation being pushed through in washington to allow higher level the blue medic visits from taiwanese officials --

diplomatic visits from taiwanese officials. it was the first major speech since the democratic progressive party which takes a tougher line did better in local elections. -- strongerfor time ties with beijing. speech will be focused on the language the president uses, particularly as the broader about trade tensions. it is an important speech and we will be listening.

yvonne: they suggested there would be a warming of ties. that is the geopolitics side. we are getting a private gauge of china's factory sector within the hour. after the numbers we saw last week, what should we expect this time? >> this is the gauge that looks at the smaller businesses in china. private businesses. we are expecting numbers to come in line with the print we got in november. we expect 50.2. still in the expansionary territory which will compare and contrast with the data that came out monday. seen early indicators around production slumping. there are concerns about auto

sales and the real estate market. you willan expectation get monetary policy responses as we head into the new year. tom, thank you. let's bring in our next guest. isaac, happy new year. china was down 25%, the nikkei is in a bear market. where do we go from here? is the outlook still cautious or are we putting new money to work? >> i think it highlights the disconnect between what happened in the economy and financial markets. when growth was strong in the u.s., was slowing in china but not falling rapidly.

and we saw a bear market in china slowing. 2019 theut over economics are solid. growth is above potential in the u.s. in particular. that is around 2%. i think that feeds in two reasonable equity outcomes in the u.s.. to seeairly rare consecutive you -- consecutive negative years in the u.s. economy. we think we are in the late cycle of this economic growth cycle and will have reasonable equity outcomes. say that the you factors that caused investors to be so pessimistic last year have not gone away? >> they have not.

that is the driver of equity markets. ask petitions versus reality. last year we had the reality trade negotiations continued to worsen. no one really knew what was happening. we had tweet after tweet from the administration and it had a fairly strong disconnect with reality. but there is renewed impetus to deliver a deal between u.s. and china. both countries would like that. ultimately i think this year we will see development that will be positive. some sort of deal on trade. the reality is the relationship between china and u.s. has changed permanently. that will persist over time and markets -- fromad: they have gone

frenemies to enemies. >> exactly. that will play out in a way that will carry out over time. ultimately the trade situation will see some sort of resolution this year. yvonne: given how bad sentiment has been in asia, you think we are up for a surprise? a weakening dollar, a more dovish said, do you think there -- dovish fed, to think there are trail winds? china's growth will slow. of there will be some sort targeted stimulus, a fiscal stimulus is likely. infrastructure spending and targeted on a terry stimulus will come through.

targeted military stimulus will come through. are a lot ofe debts. and you have to pay back and the debt continues to mount. the debt is getting dangerous. it's not going away. >> they have to prevent a recession against the need to continually leverage. rishaad: are they mortgaging their future? >> down the track there will be a price to pay. we think it will be growth that is slower than now. in the meantime there are downside risks. will it result in a very bad

recession? probably not. we think there is willingness from china's authorities to manage the transition. but will it result in growth that has a different handle than what we have been used to? yes. in the near-term they will manage it in a way that will prevent an outright recession in the near-term. yvonne: you mentioned equity returns. what would it mean, for them to be reasonable? >> long-term, chinese equities ought to deliver a percent to 10%. -- 8% to 10%. we are looking at reasonable returns and that is consistent with the dynamics. in the last few years before recession, u.s. equities have delivered 10% to 20% on average over those years.

we are expecting something in line with that over the next two years before ultimately the u.s. will go into a recession. rishaad: bear with us. we havet you to what coming up. traders and investors are bringing in a new year. china's is out later today. yvonne: and the latest on the u.s. government shutdown. well the new house bring it to an end? this is bloomberg. ♪

yvonne: we want to bring you the latest lines when it comes to the pboc fix today. slightly stronger and reflect the dollar weakness we have seen. weakness partly due

to the government shutdown. we are in the 11th day. trump has invited top congressional leaders to a white house briefing on border security and suggesting he wants to make a deal to end the shutdown. jody, is this the sign to helpential deal agencies that have been closed for 11 days? >> this looks like a potential breakthrough. the first we have seen since the shutdown. trump indicating he wants to talk and wants both parties to come to the white house. he said in a tweet he thinks nancy pelosi, who is set to be speaker of the house when the , she wantsake over to start her tenure, he thinks she wants to start her tenure without a shutdown. so it looks like he is willing

to deal. and this tweet indicates for the first time that he may not be demanding the full $5 billion for the wall. that has been something the democrats have been unwilling to give him. yvonne: so essentially the tweet was a blink from the president. what will democrats likely do? >> the ticket will -- they take over the next day. pelosi said she thinks if they give democrats a chance to show govern, the plan is for the. -- the democrats put together spending bills when they take over. one would find some of the departments through september. and the other would be for homeland security where the border dispute is. that would be through february

8. so the government would reopen and it would give time to negotiate. that seems to be where this is going. republican leaders in the senate have said they will wait for president trump and the democrats to negotiate something and then they will take it up. that seems to be where this is going. but we never thought there would be a shutdown in the first place, so who knows? rishaad: what are people on the ground saying? >> we are seeing physical signs of the shutdown. national parks are closed and the smithsonian is going to close in the next day. the air and space museum and national zoo will be closed. arernment workers, there hundreds of thousands of them affected across the country and they will not get a january 11 paycheck if this continues. or a partial paycheck if they saw this. and the federal commute occasions commission is not

staffed right now. so they cannot review deals like the t-mobile sprint deal. so we are starting to see some effects. rishaad: thank you, jodi. let's bring back in isaac poole. what sort of threat does this present in does this the immediate future for financial markets? >> i think the real threat to the economy is relatively low. the longer this drags on the larger the threat. but from a specific feedback loop, from the financial markets, i think this will end up being a nonevent in 2019. that if itways risk persists we will get a sentiment driven impact. but i do not think that will happen. when it comes to the

debt ceiling debate, politics will be more pronounced next year. risks that wekey will see through 2020 is higher volatility in the financial markets. that will be driven by a lot of geopolitical outcomes. in the u.s. we could see politics continuing to play a large part in the volatility and uncertainty in the outlook. yvonne: what to expect out of powell on friday? are we likely to see urgency about rate hikes and what the fed is protecting -- projecting? >> i think the fed will become data dependent over 2019. it remains a risk. the disconnect between what markets versus what the fed would like to do.

extent that the fed imposes own view on markets is a real risk. youne: isaac poole, thank for joining us in hong kong. we have plenty more ahead. this is bloomberg. ♪

yvonne: let's do a quick check of the headlines. china's crackdown on peer-to-peer lending has claimed another victim. is die is the latest -- edi the latest to close up shop. the process is expected to take five years. it could be sometime before sam bonuses.s outstanding

rio plans to further differ the funds. walter tired and see -- as ceo and previously have said he acted in accordance with his duties at the company. cooker maker of a rice in china is expecting a big kick this year. earnings will rise 25%, defined the nation's economic slump. it has been highly coveted by the rising middle class. rishaad: let's look at stocks in hong kong. this is what we have in the free markets. we are looking at futures to

remain in china up to one third of 1%. let's look at these gaming stocks. it was a good month. 16% growth for casino revenue for the world's biggest gambling hub. casino stocks are well worth watching. another good year, double-digit gains for casino revenue at the moment. 2018 was a dreadful year. big losses in shanghai. but this is looking at asian stocks as a whole. a loss of 10%. that usually means a rally for the following year. looking at history as being a guide, we could see a rally for

2019. the first trading day of the year is nearly upon us. this is bloomberg. ♪

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kong,: 9:29 a.m. in hong we are counting down to the china open and the first day of the trading year 2019. hopefully we can put this volatile 2018 behind us. we are seeing a bit of a game when it comes to asia stocks. japan is still close for the week. what does it tell us about the state of manufacturing after the awful read we had in the official numbers on monday? seeing a contraction, first time in a couple of years, for manufacturing. more of the small and medium-sized enterprises give it a bigger field of what may be on

the cards of the economy itself. at the end ofggie the week out of the u.s. just going to be getting to the open proper in hong kong and shanghai. let's have a look at the numbers as we start off 2019. down after we are 1/5 the 1%, 80 shares leading the charge lower. yvonne: we saw the 1.3% gain for hong kong stocks friday. we had that bow of optimism on the trade headlines after trump and president she were talking about progress when it came to negotiations. the delegation is heading to beijing from the u.s. pretty soon. the shanghai composite just slightly higher. rishaad: we are watching this one. let's have a look at housing.

it's about its forecast. yvonne: there were always concerns about slowing down, people were not going to buy heiligers, -- heiliger -- hi liquor. we are expecting profit growth to rise in the double digits. perhaps defining what we have seen when it comes to this typical slowdown. it will be good news, stocks of 3%. rishaad: it's a perfect union coming up. part of the piece was on champagne cells -- champagne sales. i asked how it fit into the narrative. what a year it was for the hang seng. 2018, forget it. this is the first time we have had nine-month a losses since 1974. 44 years ago. it was only them are to end we

managed to get gains. otherwise, it's headed in one direction, and one direction only. let's have a look at the risks. the same risks are on the table. sophia is with us. sophia: a key difference. last year, the index started with what we can call a bubble. january was a huge month. for the hangrd seng index. we wrote about how big a month it was and how the markets were really overheated. clearly, that's very different this time around. you don't have a bubble to burst. sentimental moves really low. at the end of last year, turnover was getting low. of don't have that kind exuberance in the market.

the risks are still very much there and nothing has changed 4.om q you still have trade war and a slowdown in china. pmi is below 50. you still have all of those concerns, but at least you don't have an exuberant market. yvonne: you can only go so much lower, and potentially higher, as well. the sale target for next -- this year is well above what people are expecting. what is driving that? sophie: exactly what you are talking about. people have been trimming estimates because of the consumption downgrade story. the forecast was chinese consumers were taking a hit from the economic slowdown. and the first thing they stop spending money on were things like luxury liquor. trimmed. had been even every analyst we tracked said buy stocks.

just the fact that they expected sales to increase in double digits, even though that's the pace much lower than last year. it's almost half ss as it was last year. that's still better, considering the economic slowdown. i think that's a story we should look at. rishaad: we've had the , are we in a situation where we have irrational pessimism? pessimism is never irrational. it's better to not expect much from the market. seeing gains for the hang seng index.

mid--- single to mid-double-digit gains projected this year suggest the hang seng will be in a bear market. pessimism, but i will use the phrase i don't like, optimism. you.e: thank our china markets reporter joining us. let's bring our next guest in. she joins us from singapore. what is your take on all of this? we were talking about how so much bad news has been priced into chinese stocks. we could potentially see decent gains. optimistic? as i think 2019 is going to be a challenging year for everyone, not just china, but global. we're probably off the pick of a cyclical upswing.

we are seeing the pmi readings from china, european companies -- countries, they are all slowing down. that's pointing to slower economic demand. this with the trade tensions on the outlook of the china economy. the downside is probably cushioned by low valuation. a four-year low rate now. the downside is cushioned by the valuation. the upside is decided by how much similar the policymakers are willing to carry out into this year, especially the fiscal stimulus -- physical stimulus like infrastructure plans. rishaad: what do you expect when it comes to that? will we see an interest rate cut, as opposed to the one that is stealthy?

isagret: monetary policy likely to remain accommodative this year. i would rule out the possibility of monetary easing. i don't think policymakers are willing to see a reverse of the deleveraging effort made over the past few years. what is likely to come is small-scale targeted. the private sector, the sme's, and small and private businesses. we are still not seeing any signs of an economic recovery. how attractive are these valuations? you mentioned it will be cushioned by how much we have shaved off. i'm looking at the u.s. and europe, valuations are also coming down. it doesn't really make china that much of a big bargain now. look at the we

china market, it's correlation with the rest of the world is relatively low. when we see u.s. and european markets running a bull run, the china market is doing nothing. when the china market goes up, the rest of the world ignores it. there's not much of a correlation between market performances. because china's market is dominated by retail investors, it's sometimes not bad rationale and dependent on fundamental reasons. it is more driven by the policy, as well as liquidity. i would say in order for the market to perform in 2019, we will need to see the very constructive fiscal stimulus like tech cars and infrastructure plans, as well as probably some cuts in the reserve requirement ratios for liquidity. rishaad: stick around with us margaret. let's get back to stephen for the first word news headlines.

>> singapore's economic growth slowed toward the year end as global trade tensions and rising interest rates took their toll on the export reliant city state. an annualized 1.6% in the three months through december from the third quarter. that's quarter over quarter. the median forecast was for 3.6% expansion. manufacturing contraction appears to have been the main culprit. u.s. president donald trump has invited top congressional leaders from both parties to a white house briefing on border security after suggesting he wants to make a deal to end the government shutdown. the invitation includes the 8 top leaders in the new house and senate that convenes thursday. trump hinted he was offering an olive branch to house democrat leader nancy pelosi. may prime minister theresa 's has a new video message to put an end two divisions of her brexit, saying the country has

always needs to thrive after it leaves the european union. britain could turn a corner if parliament backs the deal she brokered when they vote later this month. she has been in talks with the eu counterparts over christmas break and will continue discussing this week. david einhorn close-out 2018 with his biggest annual loss ever for the 22-year-old green light capital. the firm's main hedge fund fell 9% in december. that extended the annual decline to 34%. green light posted some of the industry's best returns in its early years, but has stumbled. global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm stephen engle, this is bloomberg. yvonne: coming up, we breakdown china's pmi manufacturing data and see what it reveals about the growth outlook for the world's second largest economy. that's coming up next.

this is bloomberg. ♪

rishaad: let's have a look at the business flash headlines. dismissing concerns tesla started to fall 2.5% monday. the recent buildup in the model three's inventory as natural as they try to me a tax credit deadline. the buildup is a sign tesla will face a loading demand. it is recommended to buy tesla stocks. expected tolix announce its hired a new cfo. it is tipped to appoint spencer newman. activision'sen chief since may of 2017. he is on paid leave and is

employment will be ended up for causes unrelated to activision's financial performance. rishaad: it could be sometime before the deal sam walsh sees outstanding bonus ease of by the minor. the funds are planned to be deferred as regulators investigate the $10.5 million payment made to a consultant on an iron ore project in guinea. he retired as ceo and said he acted lawfully and in accordance with his duties while at the company. yvonne: we're still waiting for the china pmi manufacturing data. it should be coming in any minute. was 49 pointay it four, non-pmi was 53.8. the 50 is the dividing line. between expansion and contraction. we are looking for a figure here reading 50.2 for manufacturing pmi. plus look how that stacks up --

let's look at how that stacks up against nonmanufacturing pmi. yvonne: that comes out two days later. we did see the services side of thing was actually quite strong, 32.8 was the official one we saw friday. here we go, 49.7 when it comes to chinese pmi manufacturing data coming through. this is a miss. another indication that the manufacturing, the factory floors in contraction. this was for manufacturing pmi, the official data. last time contraction was in 2016. we are at the lowest for chinese sincenufacturer numbers may of 2017. that was 49.6. further indications of stress in the economy. rishaad: margaret yang is still with us. what is your take? i think the market is probably going to get a hit from

another disappointment in the pmi data. that other one slide into the contractually territory for the first time in more than a through -- a few months. it's a reflection point of the manufacturing sentiment in china. the economy is facing headwinds of global cyclical slowdown, as well as the trade war. another thing we are looking at is the export trade data, which is relatively strong. even the last few months of the year. they are probably driven from frontloading activities. overnight, the first half of this year we are probably seeing more material impact from the trade tariffs to kick in. this will drag down the manufacturing sentiment in a broader base. yvonne: how should i play it

now? do i stick to defenses until we see some types of policy effects coming through? is it a time to look at the quality names and buy on bargain? it's probably not the best time to go buy. we don't know whether it is a dip yet. we will probably wait for more stimulus to shore up the growth and afford consumer sentiment to bottom-up before the market can find a bottom. before we see a turnaround in manufacturing and economic activities, the market is likely to continue to consolidate. sense that have a through december, the clients decided january would be a better time. what's the sentiment, the feeling you were getting?

sentiment right now remains a little bit bearish. analysts and economies are calling for more stimulus, fiscal and monetary, we have yet to see the impact of those yet. for tax cards, conducted in the late have of 2019, there's a delayed impact on the economy. the secondbably see half onward. for the fiscal stimulus, it's more to cushion the downside of economic growth and support employment, which is very crucial for the social stability. in the credit market front, we overall debt to

gdp ratio has stabilized at the last fiver quarters things to the deleveraging campaign. in 2019, we will probably see the new law of a slower pace of economic growth, and a slower pace of loan growth. yvonne: from 2012's bloomberg survey, most strategists think the shanghai composite could end 2019 at 2915. let's a 50% gain level we are right now. is it still too optimistic? right now, the downside is limited. thevaluation is close to lowest level in the last five to 10 years. the upside, it's determined on how much stimulus policymakers are willing to carry out, especially in the form of tax

cards and infrastructure spending. consumer spending sentiment has been slowing down. we are talking about consumer downgrade in china. that is a very interesting phenomenon. as people are feeling less wealthy and are reluctant to spend on luxury goods and high end products, that is pretty worrisome. we will need to see more constructive fiscal plans to spur the growth of consumers. rishaad: thank you very much. margaret yang, market analyst. we're looking at some of the pharmaceuticals. yvonne: tell a pharma came out with a statement to the shanghai stock exchange basically saying they are going to be probed by regulators for suspected disclosure violations. take a look at what we see. we are down by some 10%. we do see some of the pharma stocks falling out of sympathy.

cspc pharma, one of the biggest movers, down 3%. rishaad: let's have a look at debt cap. is thisdo have with it story in the s&p reporting how economy class tickets were being sold. there appears to be an error snapping up those tickets as word spread on social media. return seats from the and him to north america just $5,000 each. yvonne: the you have to wonder if they will on a that. rishaad: a very bullish forecast coming. brea electric jumping up as much as 4%. a new board of directors. there you have it. this is bloomberg. ♪

rishaad: some of the stories trending across the terminal. topping the terminal is green light capitals worst year, a 34% decline. president trump is calling for a meeting with lawmakers on a border security meeting. -- new year celebrations in different parts of the world from sydney to new york. and him bloomberg.com. warning they will take part in nuclear sanctions -- if sanctions are not relaxed. he's also willing to her for the talks with president trump. have a look at the stories on president trump. yvonne: now a response to the new year's address. president trump also looks forward to meeting with the north korean leader. he welcomed kim's comment about

halting nuclear weapons tests. and kim realizes north korea has great economic potential. let's go to our asia government managing editor joining us here. how does this all fare? are we likely to see a meeting with them? >> it's hard to say. they are certainly talking that way. the same as it was a couple of months ago, what will their competition this meeting? kim's speech -- we just see a new. the question is what is that if it's not going back to firing missiles and testing nuclear bombs? if he did both of those things again, he would undermine the case for lifting sanctions. china are ona and his side, pushing for -- it is just the behavior so far. that's the reason he should be rewarded with some lifting of sanctions. trump hasn't bought into that. he's saying we need progress on

denuclearization before we move forward. that still remains. rishaad: we haven't had real movement on the ground. not that we know of. just the victims of obsolescence in the first place. -- the speech was heavy statements saying they want to improve ties with south korea, they can't let foreigners or outsiders come in and dictate policy. he's maintaining the same path the twog to split sides. he and has been pushing for easing of sanctions in areas, as well. that tension still remains. trump chose to focus on the positive side of kim's comments, meetg he's happy to anytime. that is where we stand. rishaad: thank you very much for

that. looking at thee repercussions of these messages. this is bloomberg. ♪ amazon prime video is now on xfinity x1.

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9:00 a.m.lmost falls intotory pmi contraction, below 50 for the first time since may 2017. rishaad: president xi jinping about to have a major meeting. yvonne: president trump says he is open to a deal to end the shutdown. ♪ , i was hoping for

something more positive. that pmi reading spooking investors. over thehat phone call weekend seems like ages ago. week, sameoliday same. japan still closed. we are seeing the china markets ramping up to the downside. hong kong stocks down 2% right now. we did see that 1.3% gain on friday. seenthat pmi data, we have emerging-market currencies taking it on the chin. dollar and aussie weakening. h-shares down .5%.