manus: good morning from bloomberg's middle east headquarters in dubai. i am manus cranny. day one of 2019. these are today's top stories. janus challenges, falls below 50 for the first time in a year and a half. country tourges the whether the slowdown in his new year's speech. let's make a deal, president trump calls for a meeting of top congressional leaders, suggesting he is open to a deal to end the shutdown. president warns about

the countries piling debt. markets will react to the market today. warm welcome to daybreak. day one, ground zero for your trading in 2019. is a less than auspicious start. let me show you how fraught it is, from equities to currencies, you have the official pmi's and private manufacturing data in contraction in china. that is knocking the msci asia-pacific, the worst start to the trade year since 2016. aussie dollar is ground zero for the trade data. since 2016.

you are looking at the market flipping around. we went from a rate hike in november, down to a cut in australia. the translation of this into the crude market, the very epicenter . if you are worried about global demand, oversupply, this is the personification of where markets are. equities are down, oil is down, crude is down. what does it take to get an opec emergency meeting? that is a question i put to the markets. let's check in on asian markets. yvonne has the context. day, if you want to put 2018 behind us, it looks like the same thing we are doing in 20. equity markets, a sea of red, the worst start since 2016.

hong kong as well, the hang seng index down 2.7%. the nikkei is still closed. pmi numbers have disappointed in data weut also with the got on the asia side, malaysian seenas the weakest we have . south korean pmi in contraction. it is a fundamental story that will be plaguing some of the markets despite the fact if we get a trade truce between the u.s. and china. a speech from president xi, talking about reunification with taiwan. some stocks we are watching, the liquor maker in china forecasting sales and profits in the double digits, which is defined the china slowdown

story. steeply, despite we saw a gain in revenue in december that beat estimates. some say it is short-lived for now. pharma stocks in china seeing a lot of pressure, a plunge where $46 billion of market value wiped out in health care stocks in china. china's efforts to drive down generic drug prices. giving us theman asian markets. it takes us to our question of the day. you have rhetoric about big progress, how far can stock markets rally on a trade deal? join the debate. we are all there. in, join the fray. debra mao has the first word headlines.

trump has invited top congressional leaders from both parties to a white house briefing on border security. this follows the president suggesting he wants a deal to end the shutdown. this is the first sign of an opening in negotiations in a stalemate that has shut down the government for 11 days. inincludes eight top leaders the new house and senate that convenes on thursday. trump hinted he was offering and all of branch to nancy pelosi. warren haszabeth taken a major step toward the 2020 white house run. the massachusetts aggressive said in a message she is launching a exploratory committee for a presidential campaign. president has been sworn in, and is promising to

tackle crime, corruption, and economic malaise in nationalism that is sweeping the country. an opinion poll suggests 75% of brazilians think he is on the right track. we have in front of us the unique opportunity to rebuild our country. i am sure we will face huge challenges. if we have the wisdom to hear the voice of the people, we will achieve our goals. government to ram spending plans through government. canio matamela warns it harm ordinary citizens. maio says there is funny marked to be done on the populist agenda, including cutting pay a politicians. kim jong-un used his new year's address to issue a pointed warning to president trump. he said the country would take a

new path in nuclear talks if the u.s. does not relax sanctions. his willingness for further talks with trump, the u.s. president says he looks forward to meeting kim. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. manus: thank you very much. the latest gauge on china's activity shows a contraction or the first time since may, 2017. then you factoring pmi for december, 49.7 follows president xi's address where he urges china to be more self-reliant, and what he calls changes on for seen for 100 years. >> the world has seen the acceleration of china's reform and opening up, and our determination to carry it to the

end. our reform steps will not stop and our door will be open wider. manus: joining us now is our chief asia correspondent. this data does not look good. if you compile it with the official data, we are building up for a tortured start to 2019. >> we are. haveestingly in china we the official pmi in unison in negative territory. it is not all about the trade war. there are domestic issues ongoing, the deleveraging campaign is one of the critical priorities of the government to get a handle on the debt. the trade war is hurting sentiment, and is expected to have a greater impact in the coming months. at the same time, policymakers have been subdued with policy

responses so far. economists question how long they can hold out. side, --acturing manus: that softness has a contagion effect in terms of the region. it is not just the official china data that is sanguine. it is spilling over into other regions, singapore. most definitely, softness in singapore today. south korea in december was weakened. korean exports to china fell almost 14%. korea makes components for widgets and gadgets that china signs off on. the weakness in the pmi, taiwan taking a big hit along with malaysia. there are domestic issues, it is hard to discount the slowing

tech boom. there is no doubt when you speak to economists in this part of the world that are heavily reliant on manufacturing and exports, they say the trade war is their biggest concern. where does asia go in the near-term? had the new year fromh about self-reliance xi jinping. what did you take away from that speech? enda: i thought it was on the optimistic side. chinese authorities speak of .onfidence in the economy it does not signal great panic. they have dealt with these issues, when he mentioned the biggest changes in 100 years. it is a view that policymakers are treading water somewhat. they have to wait to see how trade negotiations with the u.s. pan out before their next big

move. they do not want to resort to massive spending and borrowing. if they can cut a deal on the trade side, that would take pressure off of officials, and that is what president xi is playing his cards close to his chest. if they do not get a trade deal, that means more pressure on officials. manus: there is no deal done until a deal is done. cheap asia correspondent in hong kong, thank you for joining me. our guest host is lena komileva, friend of the show, managing partner/chief economist, g plus economics. happy new year. let's get straight to the chart, straight to the pain. i want to know if you want to correct me or not. historic day. i'm looking at korea, taiwan, china manufacturing data. am i right to be worried, or am

i looking at backward data? lena: i think you are absolutely right to be judging the degree --which chinese authorities those comments. this is a story of many parts. without a doubt, the trade disruption through the u.s. trade war and china have magnified the deleveraging efforts that chinese authorities .egan some quarters back that is important because china is trying to rebalance growth after decades of sharp debt troubleswhich created in the financial system. clearly, the growth model of the past is no longer sustainable, they are is concern

running into difficulties. this will be key for emerging markets in 2019. manus: we will dig into emerging markets in a moment. this is monetary conditions in china. everybody is saying, they are going to do more. i want to get a sense from you, the language from the chinese has shifted to keep monetary policy prudent between tightening and loosening, dropping the neutral description . what do you think that means? what guns are they going to fire in 2019? lena: it is a fine balancing act between easing policy to a degree that hopefully prevents contraction deleveraging in the economy, and panic selling in the yuan.

at the same time having conditions that will help, to a sustainable growth. ultimately, there is little chinese authorities can do about the damage of payments that is slowing global growth and to the u.s. tariffs. it is trying to send a message of encouragement about produced domestically, but also trying to create a sense of management with respect to the slowdown which is nowhere near complete. manus: i have it on good authority they will do a big deal, they will make huge progress, and we will have tremendous wealth. rally on tradeks progress? if i look at the market, not that far on rhetoric. we need details. if we get a deal, would you be

advising to move from cash -- i know you're a cash kind of gal -- move from cash to equities? there may be opportunities here of value. it is clear while a deal will be juncture, itis will be a stopgap in what is turning out to be a war between the worlds major powers. what we are talking about is destruction in the growth bubble that has worked well for the global economy for the past .hree decades of globalization if the u.s. and china are no longer exporting their labor cost differential to the rest of the world -- in other words if the u.s. is no longer pioneering asbal markets and openness

it is expanding domestic markets, any further chinese exports is diminished through the effects of the u.s. tariffs, and is no longer deemed as the powerhouse of the world. we are looking at a disruption in a new state of the global economy. cautious, there may be damage to market valuation on the back of these trade tensions. the damage in itself is a testament that the markets ability to assimilate risk, and to adjust to a new global growth model is no -- is by no means guaranteed. talk more about risk protection shortly. lena komileva, you stay with me, managing partner/chief economist, g plus economics.

let's make a deal, president trump signals a possible opening for negotiations to break the stalemate that has the u.s. government partially shut for 11 days and counting. when you are traveling to work, you can join us on bloomberg radio on your mobile device. this is bloomberg. ♪

manus: markets are on the move, the weakest start to this first day of trade in asia. msci asia-pacific excluding japan is on the move, down 1.65%. seng is down by 2.75%. dollar-yen, we are going into

so you have the dollar down, the yen rising. since june 2018. worst month for the s&p 500 since 1931. the worst u.s. stocks since 2008. the worst rout since 1931. in the meantime, debra mao has our business flash from hong kong. einhornnvestor david closed out 2018 with the biggest ever loss. hedge fund fell 9% in december extending its annual declines to 34%.

some of the best returns in the early years, but has stumbled losing 20% in 2015. it posted monthly gains in may and october of this year, underperforming its peers and the broader market. the number of chinese lenders may drop by 70% this year, according to a research firm that tracks the industry. could remain by the end of the year. peer-to-peer lender announced its exit as authorities are said to wind down small and medium-sized that forms nationwide. that is your bloomberg business flash. manus: thank you very much. donald trump invited top congressional leaders from both parties to the white house on border security. it is the first sign of an opening on negotiations to break the stalemate. the government has been shut

down for 11 days. jodi schneider joins us now. deal tof a potential reopen agencies closed, maybe a little good news on day one of 2019? jodi: is the first sign we have seen that there could potentially be a deal. president trump until now has continued to insist, demand he get that $5 billion for a wall or border structure before he would allow the government to reopen. leadership tong come to the white house, saying maybe they can make a deal. he is still being critical about democrats, and saying to nancy pelosi, it is in your court. you start with democrats taking over the house of representatives. it is for you to decide.

unclear what kind of deal we will get, but the house will be in democratic control with the new congress and there is probably some desire to move forward and look at their agenda , rather than deal with the effects of a shutdown. manus: thank you very much. let's see how much progress they make. lena komileva is the managing partner/chief economist, g plus economics. she is still with me as my guest host. the government shutdown in itself does not seem to have butd markets tremendously, if this rolls on, it can say something more severe. you suggest it is going to be an interesting outcome if it caret ratherending -- spending carrot rather than a

stick. lena: markets are going to be trading headlines. be asked if markets should optimistic about the u.s.-china deal, and i said stay cautious because the bigger picture is one of a chinese slowdown that is difficult to manage. should markets be excited about shutdown? stay cautious, how this plays out in terms of a broader risk importantt, it is what the cost of the deal is, how the shutdown gets resolved, will there be more deficit spending. an increase on infrastructure noiseng will amplify the that has lifted market rates, and contributed to withdraw of

liquidity. dynamicsone is how the between the democratic dominated house and the white house play out. that will determine the third in factor, what that means terms of the white house and foreign policy. brinksmanship between the congress and white house that we have seen through the shutdown, it increases the chance we will not see so much strategic policymaking out of the white house. manus: we have a lot more to talk about in terms of markets. lena komileva, managing partner/chief economist, g plus economics stays with us. 2019 investors seem to have priced out any rate hikes this year.

what path will the essential -- will the central bank take? the dollar is dropping. ♪

manus: live shots of sydney and the aussie dollar is touching levels we have not seen since 2016. some say it is ground zero for and anticipation of growth from china. bet by the market, we have gone to 33% of a rate cut. if you own property in sydney, it is a bit of a battery. in australiaoperty regionally, it is taking a

pasting. it is it a bubble bursting? happy new year, it is not starting well for the indian markets. >> happy new year. weaknessuddenly seen in the indian markets, and at what isnt in time, , theng these indices down metals sector had down risk come in for the metal majors. the other that is keeping them markets down is the auto sector. when it comes to the nifty that downrginally red, but not as much as the nifty. down to the auto sector we are

seeing weakness after disappointing volume numbers emerge or december. on the back of that, a lot of weakness in other companies , dragging the major indices down. manus: thank you very much. i did a screen grab this morning, we have this dispute every day, which was the worst equity market globally. in the last 12 months it is china. >> happy new year. equities, chinese this was the world's worst stock trillion were wiped out. if you follow my chart, you can see how low we have come from

the 2015 peak. this is a year that was dominated by trade tensions between united states and china, and that reflected in chinese equities. 2018 was the year of the yen, the japanese currency was the biggest gainer against the dollar, the only currency in the 0 that make gains. it is a theme we have seen for three years now. right, let's see who takes the moniker this year. thank you wall. today, we are asking the , howion on the mliv blog far can stocks raleigh on a trade deal? join the debate.

that's get to the first word news from around the world. isina's manufacturing pmi contracting for the first time since may, 2017. it fell to 49.7 down from 50 .2 in november. meanwhile, president xi used his address to urge china to be more self-reliant as it faces what he calls changes unseen in 100 years. >> the world has seen the acceleration of china's reform and opening up, and our determination to carry it through. our reform steps will not stop, and our door will be opened even wider. has been sworn in as brazil's resident, and is

promising to tackle crime, corruption, and economic malaise. a new opinion poll suggests two months after his victory, 75% think the new leader is on the right track. us andave in front of unique opportunity to rescue the hope of our compatriots. i am sure we will face challenges, but we have the wisdom to hear the voice of the people. >> italy's president has chastised the coalition government for ramming its spending plan to parliament. sergio matamela warns that the growing debt, and criticize the government. hope thengly parliament, the government, and political parties can find a way

to hold a constructive discussion on what happens, and it sure adequate debate in the future. >> north korean leader kim jong in used his new year address to issue a pointed warning to president trump. he said the country would take a new have an nuclear talks if the u.s. did not relax economic sanctions. toasserted his willingness talk with trump, and the president said he looks forward to meeting kim, saying he realizes north korea's economic potential. theresa may has urged britain to put aside divisions that has brexitsince the referendum. speaking in a video message, the prime minister said britain will start a new chapter in 2019, and has all it needs to thrive after leaving the eu. the vote in parliament is scheduled for the third week in january. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries.

this is bloomberg. manus: thank you very much. trading will begin at the lowest level in six months. u.s. futures are down, and the market is shifting expectations for the number of fed hikes this year, and this week we will hear from the fed chairs past and present, bernanke and yellen. .hey will interview mr. powell on the same day, you will get a blast of data, jobs reports out of the states, unemployment at a 48 year low is what we expect. where does the fed in 2019? money markets have next the idea of a rate hike this year, but is it that simple? lena komileva, managing partner/chief economist, g plus economics is my guest post.

the market has used that phrase, nixed any rate hikes in 2019? would you concur? doubt there is confusion about what the fed will do next, i am not sure the fed knows what they will do next. it is clear there is a fedonnection in how the sees the outlook for 2019, and the market risk assessment function. how that gets resolved, whether there were calls the fundamentals are strong, and for some scope of risk-taking in the weeks ahead will prevail, or whether we will see the fed converge market fundamentals. at the least, the lessons of the last quarter, we have seen

contractually the rating of global risk assets that has been led by the u.s. the twin repricing of market risk and management through the normalizing as the fed balance sheet remove liquidity insurance , at the same time the combination of rate hikes and deficit spending, the u.s. has lifted the rate to the highest since the global financial crisis. that has disrupted markets. deleveraging, it is volatility we haven't seen for a while. when markets return they will be facing a more hostile environment. manus: what does that do to treasuries?

in 2018.flattening we saw a small turnaround in the curve at the close of business in 2018. this is the consensus we are taking, the weighted average on 10 year treasuries, blue line is where we are at the moment. average weighted for the year-end, 3.29%. it isrket is telling me less distressed about this year than at the close. lena: there are parallel things here, one is we have a very 5% plus nominal growth in the last three quarters, it tells us this is

sufferingnomy that is under a tight monetary regime. when you look at the markets, the markets ability to assimilate risk has peaked. the cycle of increasing leverage and declining marginal returns on investment has reached the minsky moment, it is no longer profitable. that is why we have a vicious d rating -- de-rating. combined suggest this is a market that is struggling to .ove toward a new equilibrium on one hand you have a strong economy, and the creates potential, on the other hand i do not think the process is anywhere near complete. we have a convergence of slowing growth and tightening market

liquidity. markets will be looking for hedges, and that will push down treasury yields and the margin. manus: part of that discussion is somebody left the party last night, and it was the ecb, they stopped buying bonds. to hang our hat on this as market risks that we are not framing clearly, i want your response to this. these are the balance sheets. ecb leaves the party, and the fed has run off into the distance, i want to get a sense if markets are adjusting to balance sheet dissipation, and hoping because the only other offer is you get a fiscal all of --do i-- olive branch have to look at fiscal policy more the monetary policy 2019? lena: markets are extremely

sensitive to liquidity conditions. the withdrawal of central bank support at the margin is diminishing returns from quantitative easing has come to an end in the u.s. and europe. that will remain a strong thing. how governments succeed, or fail to succeed for the global economy at the tail end of the decade will be a key factor. at increaseding fiscal stimulus. the u.s. is probably going to undergo infrastructure spending off of a trillion dollar deficit. that gives some comfort that we are not in a recessionary global environment. there is a big but here, we are at the tail end of an economic cycle, and this tightening of

financial conditions we saw in the final quarter of last year is very much in its early stages. marketsconcern is that are not able to create stopgaps in terms of liquidity support that are needed when these declines happen. and without the fed support and ecb providing liquidity in an interventionist way, we will see volatility ahead. we will dig deeper into the markets. lena komileva, managing partner/chief economist, g plus economics stays with the daybreak team. coming up, bolsonaro has been sworn in, but can he get his economic reforms through divided congress? we discussed the impact. this is bloomberg.

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ones: what is trending, day 2019 in the bloomberg universe? legalize marijuana, doing so could bring in $100 million in sales and curb the violence. hathaway airways sell $16,000 premium seats for $675. by mistake, it is a ticketing blunder. i would not like to be that person. value drops the most since 1980, does anybody remember the 1980's?

i do. david einhorn, biggest annual loss ever, and the most read story is chinese xi jinping seeking talks to unify taiwan with the mainland. there is are business flash. einhorn closedid out 2018 with the biggest ever 22-year-old green light capital. it extended its annual decline to 34%. we might posted some of the best returns in its years, but has in 2016. losing 20% posted monthly gains in may and october, underperforming its peers and the broader market. cfo, hehas hired a new

has been activision's finance chief since may, 2017. he is on paid leave, and his nd.loyment will e ,ules for the largest lenders the new regulations demand big banks must separate retail operations from investment banking to avoid a situation where depositors could be forced to bail out a bank's riskier divisions. ring fencing could make it more expensive for banks'daily activities. manus: thank you very much. been on a wild ride in 2018. three months ago the whole

market was talking about $100 oil. just a few weeks later, crude plunged into bear market territory. since early october. what is the state of play going into 2019? it has not started well. lena komileva, managing partner/chief economist, g plus economics is my guest host this morning. more volatility to come in the price of oil? >> we are cautiously optimistic for the price of oil in the first half of this year, and that is for one main reason. pluse saying opec and opec production cuts that started on january 1, 1.2 million barrels a day that will be removed from the market. we think this will facilitate a gradual oil market rebalancing,

providing support from the extreme volatility we have witnessed through late 2018 due to demand constraints with rising concerns of slowing economic growth. and on the supply side, we have seen the world, the u.s., saudi arabia, and russia respectively producing at record highs. you, take thisk into the big oil environment, we have gone through a few years of restriction. what does it mean for big oil in 2019? >> european big oil is positioned relatively well considering the macro environment. the 2014 oil downturn, these companies had to respond swiftly capex, and divesting

non-core assets to shore up balance sheets. we look at the european oil space as relatively well positioned. they have a lot of tools in the toolbox to manage their balance sheets. positiveee cash flow outlook at about $60 a barrel next year. it is important to keep in mind these companies have been through the wringer from the 2014 oil downturn, and they are about as best positioned as you can be are the current price environment we are witnessing now. i will start the process of chasing people for oil comments over the next 10 days. hostess lena komileva, managing partner/chief economist, g plus economics, battered and bruised it was a torture year on oil.

the question to you is, what does it take to get an emergency meeting, or something more from opec on the 1.2 million barrels they promised a couple weeks ago? much this is very expectations management for opec at the moment. is in unstable equilibrium, and it has been like that for a number of quarters. out of the fact that the big oil producers are misaligned with the marginal productions out of the producers in the u.s. in oilans there is room supply that will create a more constructive and stable environment. i am pricing that into my bond market, and that is clear at his point the volatility

--are seeing is no means this is a supply-volatility story that will continue into the early months of 2019. i am concerned inflation will be underpriced on the reflationary growth we have in the u.s. even with a weaker gdp forecast for 2019 off of the back that we have limited potential supply left in the system. ,e have high consumer savings and discretionary spending windfalls, the fundamental weakness of the oil price will extend the recovery. i think there is room for oil price of volatility in the early months of this year. i do not think markets are priced in for that. those breakevens,

two-year, five-year, and 10 year , this ties together. minute,less than a there is the nine-year high, is there a retreat insight for em? about a fewoncerned big factors in the emerging market play. the first is a sign of a downturn that will prove more tractable than hopeful. the second is that u.s. little destabilize the key relationship of three decades. and the markets will stimulate more risk without a fed pause. manus: it really is the land for the brave. entire houre this

on your own, well done, happy new year. lena komileva, managing partner/chief economist, g plus economics. we will continue the conversation with lena on radio. ♪

manus: good morning from bloomberg's middle east headquarters in divine. i am manus cranny. here are the top stories. knocking equities in u.s. futures, after xi jinping urges his country to whether the slowdown storm in his new year's speech. let's make a deal, president trump calls for a meeting of top congressional leaders after suggesting he is open to a deal to end the shutdown. matamela dresses down the -- we willnd warns

see the reaction in the bond markets as they opened this morning. warm welcome to "bloomberg your firsturope," show of 2019, and it is a equities, and for affects. it started in asia and china. there is your msci, the worst start to the trading year since 2016. negative territory. .nderwhelming gdp that has transferred into u.k. futures in the last 24 hours. you are seeing european markets open with a lean to the downside. if you are worried about the

rhetoric, and the reality of the pmi in china and singapore and around the periphery, that is hitting our markets in europe. markets,k at the bond these are the u.s. equity markets. down 0.9%. 1931orst performance since , december of last year. u.s. equity markets are not looking good. we will wait for the powell-bernanke discussion. swipe by the president matamela against the boys and girls in parliament, there is a relief. the budget numbers have been given to the market. these equities take a knock.

when does the rest of the curve in germany -- you look across the yield curve in germany, it went negative. now looking at the bunds, negative territory. do you turn toward zero in 2019? is that how you protect yourself? asian markets were right for risk off. yvonne man has the detail. got thisgly pmi's we morning, pressure point here today, the worst opening for the hang seng in 20 years. shares down 2.8%. down by 1.4%. you mention the manufacturing pmi, all in contractionary territory.

much weighing on these markets to kick off 2019. the fiery liquor maker in china, despite the red we are seeing, a drop 1.5% today. profit targets for 2019 still positive.still stay we are seeing casino stocks fall , down 6% in hong kong. we did get the december gaining revenues, but some say that is short-lived. we are saying headwinds here. oils turbulence extending to 2019, and the biofarma stocks, health care stocks from china taking it hard today.

we have been talking about this whiteout in market value when it comes to the health care sector. they are trying to bring down generic truck prices in china. some say not out of the woods yet. manus: thank you very much. day,ve our question of the if you call rhetoric progress versus a factual document. if you would like to join us, please do. tv on your bloomberg. let's get the first word news. good morning. donald trump has invited top congressional leaders from both parties for a white house briefing on border security. this follows his suggestion that he wants a deal to end the shutdown. it is the first sign of a possible opening in negotiations

to break the stalemate that shutdown parts of the government 11 days. the invitation includes top leaders in the house and senate. e branch toed an oliv nancy pelosi. elizabeth warren has taken a major step toward a 2020 white house run. the massachusetts progressive said she is launching an exploratory committee for a possible presidential campaign. gyre bolsonaro has been sworn in bolsonaro hasair been sworn in. a new opinion poll suggests after his victory, 75% of brazilians think he is on the right track. thee have in front of us unique opportunity to rebuild

our country and rescue the hope of our compatriots. i am sure we will face huge challenges. we will achieve our goals. >> theresa may has urged britain to put aside divisions since the brexit referendum in 2016. speaking in a new year video message, she says britain will start a new chapter in 2019, and has all it needs to thrive after leaving the eu. the brexit vote is scheduled for the third week in january. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. much. thank you very stocks in asia have been under pressure on this day one 2019. of china'sgauge factory activity showed a contraction for the first time since may, 2017, evidence of .lowing chinese growth, wages

reeling from the worst year in equities. joining me now is our chief asia correspondent. this data, many people have said this was an engineered slowdown, and is not necessarily to do with trade. would you agree in your reading of the data? fair point, there are domestic factors behind what is happening in china. most specifically the deleveraging campaign which is a push by authorities to get a grip on debt. they do not want easy and cheap credit floating around. that has put a damper on things. trade has held up ok. it is more an issue of sentiment, and showing signs of weakness is what we are seeing

in the private cmi and the official cmi are moving in unison into contractionary territory. that is a sign that things are softening and will remain under pressure. the stimulus measures taken so far have yet to gain any real traction. the downward pressure is set to continue, if not worse. manus: do you think the reading from singapore which was less is caused bylar china, or is it a more global issue? there is definitely a spillover effect. has an does moderate, it impact on all of its trading partners. interested int

exports, softer than expected. 14%, and theell components that go into and production in china itself. slowdown, there are other factors you cannot ignore, such as the slowdown in the global technology boom, the slowdown on smart phones. china sets the tone, they are ,he biggest emerging economy they will have significant consequences for the rest of asia. manus: thank you, our chief asia economics correspondent from hong kong. my guest hostess paul markham, director, newton investment management. good to see you this morning. when you read the data, and you look at day one of trading on areal markets, many people

saying this was an engineered slowdown in china markets. how disconcerting is it for you to start day one with blood all over the screens? it is never good sentiment when we begin the year that way. if you think back 12 months, we started that you're strongly and it got weaker progressively. in some ways it is disconcerting , and it can set the tone. it seems we will need the de-reversal. by no means it signifies the rest of the year will be completely week as it has been this morning. manus: you maintain corporate governance along with this-based equity markets, was one of the worst performing

indexes in the world. you have corporate governance overvaluation as being your concern. why is that, and do you think there is any merit that is this battered and bruised? paul: the first thing we should remember is that the chinese economic development story we are saying is one of the biggest stories for any of us in our .ifetimes as investors the valuations are attractive in some cases. what we are seeing in government policy in recent times, with the developments around the presidency, is china is moving in and authoritarian direction. companies will be more than ever subject to central government policies, and what is in the interest of the chinese government.

clearly, the trade wars we have been seeing with the u.s. make that story even more noticeable to investors. that is why valuations have been as low as they have. with changes in management at high level, senior members of the chinese corporate changing, and that unsettled investors. it is not the case that investors and other countries are a consideration of chinese companies managing them. there is a price for everything, and maybe these are priced in, but we think it will be a concern for some time. manus: talking about pricing, i put together the nasdaq and s&p 500. nasdaq is down, the s&p 500 one of the worst decembers since 1931, 1 of the toughest years in the s&p since 2008. pricing andthe s&p

earnings recession which is too .ggressive of a price what do you think in terms of the earnings potential in 2019? paul: my feeling is we may have seemed the peak of the earnings, there will be individual sectors within that benchmark which continue to do well. tailwindve seen a big from the trump tax reforms fade away, and we should not forget since 2009 we have seen markets ahead of economies and do extremely well when economies have not been as strong as we may have wished. that is due to unexpected consequences as a result of qe style policies from central banks that has begun to weigh on markets. the other big issue for the

u.s., the negative sentiment that comes as a result from other markets does feed its way back into the markets. street isan on the less aware of markets elsewhere in the world. finally, liquidity is being siphoned out. it is unlikely we will see earnings in the u.s., but it may be more on the downside going forward. manus: the oil market is trying to grapple with a whole variety of issues, record u.s. , i do not know how you described opec at the moment. it seems tight. markets are under pressure, and i think that is a limit test for the commodity complex this year. how do you look at oil, and how

does it play into trade in 2019? paul: there are some crosswinds, i would not call them headwinds or tailwinds, for the consumption of oil. there is much of around the impact it will have, but on the other hand there is the impact of more usage of air-conditioning. we see global warming come into play. it is something unlikely to change over the next several years. the big question is the ability of opec and the cartel to stick together to avoid the disagreements, or breaking out of discipline we have seen in the past. if the opec nations can keep discipline among themselves, i think they will get the price higher. there are economies that are sensitive to the oil price, not

least saudi arabia and russia. from those perspectives, they will be looking to be rational with production. i think the u.s. going into a net positive is an important development, and that will lead the ministry's do think it is free of constraints around energy policy which may be in the past. nations would like the price slightly higher, not significant lehigh are, kind of -- not significantly higher. kind of in the goldilocks level. how much pain -- paul markham, director, newton investment management. debtg up, the piling mountains, how bond markets

react to the 2019 budget. if you are traveling to work, we are with you every step of the way. bloomberg radio is on your mobile device. this is bloomberg. ♪

manus: 7:21 in london. minutes away from the start of your first european trading session in 2019. picking up the mantle from the inna data, and from the pmi singapore, does not look good, the worst start in three years to asian trading. six month high on dollar-yen. at 2.69%.elds trading ,e wait to see

>> the demand side the ecocide is not helping. s&p 500. you come to the high 20's, is that a value proposition? by 1.8%.t is down what will the fed due in 2019? let's get your business flash. einhorn closedid out with the biggest ever loss for greenlight capital. the main hedge fund fell 9% in december, extending its decline to 34%. greenlight posted some of the best returns in its early years, but has stumbled since losing 20% in 2015. the firm posted monthly gains in may and october last year.

it is underperforming its peers and the broader market. withk's largest lenders new rules, they mandate big retailust separate operations from investment banking to avoid a situation where depositors could be forced to bail out a bank's riskier divisions. someone could make it more expensive for banks to lend to companies. that is your bloomberg business flash. manus: thank you very much. prices, the market has a palpable sense of relief, will it last? today is the first day of trading in italy, after months of deliberation and sergio matamela takes the populist government to task, overran

ramming its spending. >> i hope the parliament, the government, and the political parties can find the way to hold a constructive discussion on what happened, and insure adequate debate in the future. manus: paul markham, director, newton investment management, is still with us. there is an audible sense of relief, but has tie-in risk really gone away -- has italian risk really gone away? paul: i think there will be some , considering the deficit is likely to be smaller than planned at the market is worried about. there is space for italian yields to come down. we are also seeing some of the risk will be going out of that market. delay in theis the

policy andion of the assuagereform will markets for a short time, but that will come back next year, and they will concern markets. we should not forget the from thehave benefited fiscal loosening we saw a few weeks ago has given them more wiggle room. markets will like this for the near-term, but they will worry about the italian fiscal situation and policies again. manus: a little bit of fiscal latitude, likewise --i look at the closing chart for europe. it was the worst year for the dax since 2008, it broke a six-year winning streak. where in europe is your prime

exposure? primarily have taken a larger corporate firms in europe that are reasonably attractive on the valuations, and our leaders in what they do in certain sectors. the fact that the overall market has been weak is related to a couple of things, one of them being growth of domestics. the fact that banks are part of the european indices, and they have been under structural pressure since the crisis, and that has not improved, in fact it was a terrible your lesser for european banks. the german economy are think ofters, if you the industrial cap sector, it is that chinese levels. manus: great roundup, paul

markham joins us very soon, director, newton investment management. anna is on next with you, on the european market open. ♪

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we are live from our european headquarters in the city of london. >> asian stocks are taking a a contraction in december. pmi also falling. european futures are down, suggesting a risk off. cash trading less than 30 minutes away. ♪