♪ haidi: good morning very nine haidi stroud-watts in sydney where australian markets have just opened for trade. ramy: i am ramy inocencio. welcome to daybreak asia. haidi: let's get you our top stories. apple shares plunging as they cut first-quarter revenue guidance, blaming and expected slowdown in -- an unexpected slowdown in chinese demand.

-- adding to the new year glam, a global manufacturing slump as china's factories had late disappointing -- highlight disappointing data around the world. ramy: we are seeing green on the board for this training session in the united states, the s&p 500 up .1%, futures are currently down. a minor just eking out gain. the nasdaq is the biggest bump of the three, up .5%. , they these indexes opened negative largely because pmi in asianna -- countries, like china. i will show you what exactly happened. it was the energy sector that was the biggest leader, up 2%.

this after reports as saudi arabia was cutting its exports, and that gave a boost to oil. wti and brent crude rose 2% on the day. that was the highest in the past two weeks. haidi: let's look at aussie markets. they have just opened in a staggered start to the trading session. we were expecting upside over 1%. we have paired that back to gains of .2%. we are expecting to see gains across energy and materials after the jump in oil, wti getting boosted by the cut in exports from opec plus friends. we saw the likes of not just saudi arabia but iran and libya reining in the output supply. aussie dollar falling under $.70 u.s. 68.90 is where we are for the moment, a triple whammy of the two china pmi's entering

negative outlooks. new zealand resuming trade after the new year's holiday also on .he back board looking at this market story broadly, apple shares falling in after-hours trade as the tech giant lowered its first -- fourth quarter sales outlook. people are upgrading use of phones as well. let's bring in mark. you look at what analysts theymend, the bearishness, are taking site of the last earnings season. is anyone surprised? mark: i don't think so. we have been anticipating this the last few months. this was bound to happen, the culmination of the market slowdown in china, growing trade tensions over the trade war and the impending tariffs discussions. we had sites of from apple that

iphone sales were not as strong as anticipated. they had an internal buyer drill as one person described it, looking at ways to turn around sales. this is not surprising combined with the supply chain evidence out of asia. you mentioned -- haidi: you mentioned the fire drill focused on iphone sales. the issue a lot of apple people have is the lack of diversification or attraction when they brought out into things like services. mark: it was broader, then it would have been more mitigated. we are seeing a slowdown that is exclusively related to iphone sales in china alone. seeing nearly $10 million revenue from initial estimates of much higher numbers. if there were other products to mitigate, we wouldn't have this discussion. ramy: there is a knock on effect

with apples suppliers across asia. we are looking at those markets to open. there is negativity expected. ,n terms of their links connections to apple, what does it say in terms of their need to diversify? mark: most of the suppliers already priced in this anticipated announcement. there was a litany of suppliers 45 of the top suppliers, indicating that revenues would be -- four and five of the suppliers that they would have lower revenues. this has been a long-term problem for them banking all of their eggs on apple. it is not going to be a long-term winning solution for most of these. ramy: it seems to be the prevailing sentiment with everyone on bloomberg television. thank you. , apple hasell news

taken wind out of the stock rebound in the regular u.s. session, but stocks erased losses in the normal session on concerns of china factory data and that rebound got a big assist from oil. su: as we have been flashing the futures are down 1.2% on the s&p, and it is all about the after-hours stock market action that will ambulance the open -- that will influence wall street. as get to the suppliers. we heard our guests saying, yes, the suppliers and investors expected this, but it could be the magnitude of the cut and the details that the ceo is providing, and analysis across the tape. let's look at other suppliers. the second page, look at this, down 8%. these are huge declines. there was a view tim cook is war fortrump's trade

slash in guidance. fears or stoped earlier in the day by the asian factory data that led to a decline as we opened -- were stopped -- fears were stoked earlier in the day with asian factory data. we saw oil rebound when we did get positive news on the output cut. oil jumping after an early jumped 5%own 2.3%, it on a report from the saudis they have initiated these output cuts. if we going to bloomberg really quickly, the trend is something we have talked about for some time, the multiyear uptrend. it was recently breached as you see here. that is really the test for the market open on wall street. do we breach this trend right

here and put it under pressure? chart watchers will watch that closely. haidi: a little about oil and gold, both of these assets kicking up with strong moves. a safed will benefit as haven play. let's start with oil. a lot of headlines that crossed midmorning in the u.s. really turned oil around. you saw stocks come off the decline. let's look at the headlines. cut could really take effect and we are seeing it fall by the most in almost two years. that is a dramatic piece of data that took the market by surprise and helped provide support, turn oil around from being down more than 2% to being up 5%. there is also a view that saudi arabia's cuts are more anticipated than expected, iran

being off the market is an add-on. this puts oil and more positive position. in terms of gold there is a view given the concern earlier in the data,th asian factory which underscores the global concern about growth, that gold is benefiting, it is extending its fourth-quarter rally with the first trading day of the new year in the u.s. there is a view that where you have companies cutting earnings outlook again, and that could be tied to the trade war concern, that will only exacerbate concern and help the gold bulls in terms of their safe haven status. haidi: su keenan, a very active session in the after-hours. let's get to melbourne. we have already a very eventful

morning, with only a couple of markets online. let me ask you about the apple story. one analyst says this is a corporate story, not a macro extrapolation, but it is hard to see that when as to the increasingly bearish picture with trade, chinese manufacturing. we see it move, the risk off sentiment with currencies and even bond markets, the 10 year yield falling an 11th -- to an 11 month low. >> what the market is telling you, and particularly aussie dollar and how that has moved, the pmi numbers from china have pushed that already, but the further movement from apple being around, tim cook's statement was blaming the slowdown on china being stronger than forecasted, expert to -- etc. you have been seeing this for probably almost nine to 10 months now. we follow closely the msci

emerging markets index which is dominated by china and also asia as a whole. it has other parts of the world. you look at correlation between msci, emerging markets and the pair, dollar-u.s. dollar correlation is high. have been heavily into that in 2018. they are devalued, but there is genuine signs the selloff was not only valid but they are [indiscernible] the fact apple is showing china was under pressure, and if you have a look at the main providers into china, samsung, tencent, they have been telling you for this for a while. -- they have been telling you this for a while. maybe actual gdp is lower than normal. you have seen a contraction in manufacturing and

nonmanufacturing parts of the economy to show china is now asking the question. yes, they are hurting. they have a scenario where they are not trying to stimulate the cuts tobut we have seen the required ratios, changes to the financial stability mechanism they have been trying to list for three years, all of it showing china is in an inflection point people have been forecasting for decades. haidi: that leaves australia vulnerable. relies on athat supply chain. where does that leave with investor decisions being made this year, if you assume the actual outcome is somewhere in andeen, completely awful the highs we saw last year -- somewhere between completely awful and the highs of last year? aslast year particular was awful as you alluded to, but it is listening for that.

diversification, that is always there. what happened in equities is giving you the idea you need to look back to other assets. we know the pickup in cash and funding for cash has become cheap, so there is opportunity. looking at funding in the s&p, that is the cheapest level for three years. fixed income, the spreads got out, there is value to be had. people will see the equity movement as a safe haven movement opportunity, and those spreads that have moved out to get out as well. -- have a chance to get in as well. growth becomes questioned, the over valuation argument is true from june last year and became the inflection point. we have been moving away from growth. we are still moving in that direction. we are not discounting the fact

growth is winning. there is signs growth, particularly in the u.s., is still reasonable, but it is slowing. the fourth quarter earnings from the u.s. firms, and apple could have possible revisions down, that could signal the move away. a littleant to throw bit of skepticism on tim cook's reasonings. a revision is huge, but let's say it is right. does it harold more downward revisions for other companies and apple could be the first of many? >> i think there needs to be a big picture. i will take the reasoning behind the u.s.-china trade war as being an issue for china. it is is not just u.s. firms feeling the pressure. you have a look at the slowdown in sales in samsung, china, looking at traditional names

inside china, they have seen slowdowns in discretionary, and that is what apple is, a uy.cretionary b i agree with you there. exposed firms that are either very small or up to a fair and amount to the chinese or asian story will find a downgrade. that is what is happening is you will see a downgrade momentum. ramy: what does this do for the fed, other central banks, in terms of fighting -- in terms of tightening? some are saying a rate cut by 2020. >> i think what is likely to happen, looking at the movement in 2019, what i am starting to really look at, pricing in is a pause. march was always a month that

was going to happen. listening to the language that happened at the end of december, what came out of jay powell is they have got to watch. the economy the chance to show they have had a massive movement where you can argue towards are touching the neutral range. let's see how we perform, see whether or not it does -- moderate the economy. he is trying to moderate the growth that has been moving the last three years. i will reassess that comment in june because that is when you can ask maybe the 25 or additional 50 bids will come in. but the fact you suck four major members move back down to where they were before the meeting suggests there is a pause in the next six months. smartevan lucas, invest chief market strategist, thank you. more on apple surprise revenue

forecast cut. we will look at the follow for asian suppliers later this hour. haidi: president trump remains firm on the u.s. need for a wall on the southern border. the latest on negotiations out of washington. this is bloomberg. ♪ ♪

>> i am selina wang, and here are your first word headlines. rulingd's -- taiwan's party has rejected the call to reunify under the one country, two system doctrine. they say no group can replace the role of taiwan's elected government. she said taiwan and china should enter into democratic consultation on reunification. president trump said kim jong-un sent him what he called a great letter and they would like to meet for a second time.

trump says they have established a good relationship. the war could have broken out if they had not broken out after they did not meet -- he says war could have broken out if he did not meet. the pboc is adjusting the calculations of the bank's reserve ratios, boosting the economy. ? enterprises with a credit line of -- micro size enterprises will be required to cut. this would expand coverage of a previous rrr cut. 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 am selina wang. this is bloomberg. ramy: u.s. congressional leaders and president trump have failed to strike a deal to end a 12th day.now in its the president invited them back for further negotiations friday.

joining us is joe. out of today's meeting, what was accomplished? nothing: pretty much but talking and arguing. they will be going back friday, but this is after the new congress convenes and democrats take control of the house, and nancy pelosi is as expected elected speaker of the house. that will change the negotiating dynamic between the two sides when they go back in. democrats also will come in with a house package of legislation that would fund the government, give sometime about a month for negotiating on the trump border security package. ofy: what is the likelihood that? republican officials will not do anything unless donald trump has already given his green light. joe: it will not go anywhere

until trump says what he will go along with. senate inagreed the december pretty much past the same package with the understanding the white house was in agreement and trump would sign, but he turned around and raised objections. when that happened the controlled house refused to take it up and mitch mcconnell has washed his hands, saying he will not act until he has a firm public commitment from the president to pass legislation. haidi: how does this -- how long does this drag on? it will take a lot of compromise. democrats are offering the white house and republicans a chance to hammer out a deal on border security. it will be somewhere less than the $5 billion trump is demanding, perhaps more it willf compromise.

than the $1.3 billion democrats are offering. they want a month to do that. trump at least is saying no, he wants it now in this package. it could go on for days. it could go on for weeks. we will have to see where they are at after friday. it is possible once the new congress is in, the dynamic changes. perhaps both sides will take another look. haidi: figure so much. you can get a round -- thank you so much. you can get a roundup of your stories in today's edition of daybreak. go to dayb on your terminals, meltdown, the iphone, growth cycle appears to be over. that is the top story come also available in the mobile anywhere app. you can customize settings so you get news on industries you care about. this is bloomberg. ♪ this is bloomberg.

♪

asia, ihis is daybreak am haidi stroud-watts in sydney. ramy: i am ramy inocencio in new york. tumbled in newve york wednesday after the electric carmaker announced it by $2000.g prices this comes as the company delivered fewer of the model 3 sedans than expected. they had seem to have shaken what elon musk tagged production vehiclesking at 1050 to more than 61,000 in 2018. haidi: sources tell bloomberg saudi arabia's national commercial bank and riyadh bank are seeking advisors for a merger. this would create the gulf .egion's third-largest lender it could be the biggest bank merger for three years. saudi arabia is exploring bank

mergers as a way to boost its financial sector. ramy: esl investments will offer $50 million in cash and $1.3 billion in credit financing. this is for sears. company is not qualified by this friday, then the offer will terminate. enables seek to buy key assets including the retailer's real estate. checking asian -- haidi: it is a morning of volatility as more of the markets trickle back online. you have on the stoxx seeing gains over almost 1%. we are seeing optimism with the crude patch that will be feeding through the energy suppliers after the bump up in wti, the output cut coming from saudi arabia and opec. new zealand back online from the -- off halfay, half

a percent. seeing futures in seoul looking optimistic but we are expecting downside pressure with the asian apple suppliers after the first quarter revenue guidance was cut. this is bloomberg. ♪

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a.m., one of10:30 the bright spots across the region we are seeing a bump about 15% when it comes to trading in australia. 1.5% when it comes to trading in australia. we are seeing some volatility of the comes to comsome currencies trading today. japan closed for another day for the new year's holiday. a good thingy be is we talk about all the volatility we have been seeing. futures down 1.2 percent.

even the markets are closed we have been seeing a lot of movement with apple shares after the company said it was revising down its first-quarter revenue billion.by about $7 a lot of investors and a supply chain folks are really on pins and needles right now as we wait for the asian market to open. you are watching "daybreak: asia. " >> apple shares tumbled after the cut to the forecast. aboutpecting revenue of $84 billion where analysts expected $91 billion. ceo tim cook says apple did not see the deceleration particularly in china. have fallen 32% upon growing concerns about the iphone. been.s. ambassador has

visited -- a state department officials say he met with paul leyland, a former marine. they family says they have not heard from him since the arrest on december 28. russia says it was an espionage operation. -- -- ceo carson can get her has agreed to pay more than $5 million while maintaining his innocence. he donated more than 250 thousand euros to charity and more than four 5 million to the german states. prosecutors investigated the purchase of the shares before it emerged that the company was seeking to take over the lsb> . nasa's new horizons spacecraft has sent back images of the most distant area ever explored.

it is about 1.6 billion kilometers beyond pluto. later thursday china may attempt the first landing on the dark side of the moon with its probe named after a chinese goddess. news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. this is bloomberg. haidi: let's look at the fallout for asia when it comes to apples forecast shocking markets this morning. i say shocking even though we have seen that deterioration when it comes to the apple share alle and the concern that of this had to come to an end to some time. i think the focus will be on asian suppliers. you have that australian market open. it is up and that is largely on

the back of those energy producers. it will be all about apple's supplies. have overns investors a global slowdown, increasing yesterday theaw data and asian markets took that badly and bring in the red. backng the trade issue into focus, president trump saying he is confident the market will rally if a deal with china is struck. at the same time, investors have started this year very nervous. we have citigroup basically throwing its hands group saying year forecast our for the s&p 500. trade, interest rates, that is going to dominate. i think apple suppliers, japan has cut.

you will have suppliers in taiwan to watch closely. they could very well lead the direction in the market today. weighing ons currencies, in particular the australian dollar. it is below $.70 for the first time since 2016. let's get into more detail and pushing ahead with the outlook is. dollar: the australian -- again it is all about china slowing growth. yesterdaylow $.70 following that manufacturing data. this morning the slide accelerated after the apple news. 67, it dided it at cause laws 67 in a short space of time. that was the lowest since 2009.

a lot of this was algorithm driven. in thes still liquidity forex markets. yesterday, we were talking about the yen. this morning a charged just about 104. nervousness amongst investors behind this move in currencies we have seen this morning. ramy: cannot fault some folks to get into safe havens. out ourrget to check library for some of those charts you just saw there. a global manufacturing slump as 2018 grew to a close is brewing fears of economic slowdown around the world. a concern reflected in one of the most powerful u.s. recession indicators. it -- kathleen hays is here with the latest.

what does this mean for the fed and other central bankers? is a red it certainly flag. it is maybe a wake-up call although trade wars are one of the things people jump to immediately. when you have china's pmi dropping below 50, weakness in europe, even the u.s. doesn't look quite as strong as it did. then you get what we are concerned about. that's a start at the contraction in china. the white line below 54 the first time since the middle of 2017. we could go up to the orange line. look how much the orange line has come down. within that orange line which came down i believe to 51.4 from 51.8. italy is below 50 fighting a recession.

we are in the slowdown territory. it is the first drop below 50 and 27 months. even germany, the biggest economy in europe, 51.3 is their number now. the blue line is the u.s.. purchasing managers index is at 53.9. it is well above 50 but isn't sloping down as well? haidi: we've been shrugging off the fact the u.s. curve for a few months when it comes to the fed we action -- reaction we were expecting, is becoming an issue? some people of said the curve has gotten so flat. the most important is the three-month to the 10 year lead. it is far from flattening. it has suddenly started to make

a big move in that direction. this has got to be a very important message to the fed. we will go to the live right now to look at one of our charts of the day. you can see how this three-month , this 10 year note yield is going into the financial crisis. the great recession. you can see how it was a very strong signal. d officials why fe were worried. look at how it is coming down. it seems to me that is very hard to ignore. the federal reserve is saying we have a strong economy, unemployment is low, that is why we hike rates in december. that is why we are still seeing the possibility of a few more in the year we are in now. a couple of things this week, we got the jobs report on friday, purchasing amateurs index, the woman watch closely later in the week. and we have jay powell speaking on friday on a panel.

that may be the most closely watched speech, particularly if you're looking for this kind of value added understanding. haidi: that is sure to be a great conversation with those three attendees. make sure you catch our exclusive interview with federal reserve president robert kaplan. coming up, moody's investors service sends its outlook for china is stable for 2019. there are, as always concerns, we will be speaking with an analyst next. this is bloomberg. ♪

ramy: welcome back. i'm remy inocencio in new york. taiwan's ruling party has

rejected chinese president's plan to work towards reunification. it is a clear sign that he wants to settle the 70 year dispute during his tenure. we are now joined from beijing with the details. not surprising, the details from taipei. are there any realistic talks between the two sides on the issue of? at this stage it looks very unlikely given the stance of the taiwanese president and her rejection of the overture by president xi. and given the more hawkish stance from washington. there is a chance that president opening because of the november elections and the fact that that party could be out of power come in 2020. even if that does not come it is that shet president xi

didn't set a timeframe but he is talked about a rejuvenation of the nation in that context he wants to see china and taiwan united. the context. he talked about the one china, two systems principal and said that could potentially be applied to taiwan. he said the chinese people don't the other chinese people. he did not take off the potential threat of the use of force to address this issue. aiwan rejected the idea put forward, they could've objected to the freedoms in hong kong and an example of why that won't work for the chinese people. sydney bank saying relations could become another flashpoint in terms of market volatility for 2019.

the taiwanese president probably wishing that happened before the elections to sway the outcome a little bit. to cutnt xi has pledged taxes but that could come at a cost for china's rich, what are the details their? tom: this is part of the stimulus measures policymakers are trying to unveil. an economy started with income tax discussion. say, the way they are going to pay for that is by taxing the rich. particularly the superrich. you're looking of personal wealth about 24 trillion dollars, about $1 trillion is held offshore. new policies coming into play tax year allow china to overseas companies owned or

registered to chinese individuals and they can tax the corporate profits up to 20%. another feature is they have created data -- greater data over some of the high net worth individuals so they could try to skim some taxes off there. theher tool is taxing gifting of assets from family members to other family members potentially getting up to 20%. the only going to the tax law which could take place in 2020. that is causing concern amongst those with significant proxy holdings in china. we heard from some of the consultant saying they are seeing a greater number of individuals looking to set up offshore trusts to protect some wealth given what they expect is a crackdown from policymakers or lease the chinese taxman trying to pull in some of this cash. ramy: no one can avoid the taxman.

china, our next guest has the outlook for its is stableinstitution for 2019 put risks remain. joining us from hong kong is david yin, the vice president of moody's investors service. let's start with the negatives here in terms of the risk. what is the biggest risk currently facing china. ? what is the one thing we need to know? david: i would say the major risk come from two aspects. in the past few years with the extension of the asset and the shadow banking, i would say they have accumulated credit risk. this is the first aspect. the second risk comes from the capital pressure. withse banks are replacing the balance sheet loans.

need tosay many banks support the growth. the week capital market makes it difficult for them to create equity from the capital market. there are those negatives of course but the positives are that there is potential easing back of the deleveraging that is happening as well as liquidity. what is your expectation of the liquidity side of things? the system of liquidity will be adequate. 2018,k the second half of china's income banking rate came down because of the shift in monetary policy. this could easily pressure in liquidity and profitability. supportll banks long-term assets with a

short-term borrowing. the change in monetary policy would be positive for them. haidi: are we seeing a of the oldor return playbook of monetary easing in china or do you expect 2019 will low-level year of easing from the pboc? david: the chinese government is trying to find a balance of risking of shadow banking and deleveraging and stability. red pointo find the where these institutions can have significant liquidity and on the other side it would not increase and delay the process. haidi: how much of an issue in terms of the stability and systemic risk when you take a look at some of the smaller seen of theseve

warning cases come through from burrell chinese banks where the balance sheets are just astronomical. is that still a threat to the overall financial system. ? our assessment is the weakest part is those small financial institutions. they are large banks, relatively modest in terms of and liability. also they can benefit a high level of need. for the small banks, in particular in the inland part of years,n the past few they've aggressively expanded assets. i would say this is our major wouldn and i believe this

have an eye on these institutions closely in case anything happens. ramy: how trusting are you that they will not make a misstep? the fact that they are calling privatee loans to enterprises. that goes against possibly some of their best interest. david: it is true. because of the macroeconomic the government is encouraging banks to lend more. it is uncertain whether this kind of practice will lower banks. i would say some development in the past uw years, one haslopment is china regulatory frameworks under the leadership of the space council, they can more aligned to control risks if needed. you for your time.

moody's investors service vice president and senior analyst. we are coming up with more on "daybreak: asia" we will look at the latest line out of apple dropping 7% in after-hours trade. ♪

felte's pain is being around the world right now. the maker of the iphone slashed its outlook for 2018. shares are tumbling as suppliers in asia and the united states are following suit. john butler has been diving into the numbers and john, and a lot of folks have been saying that when they took a look at tim cook's notes, aside from that everything else was

pretty ok if not rosy. what is your take on this? : i would say ok is probably the right word for it. apple is an iphone company. it is a smart phone company. two thirds of the revenue and probably a higher percent of the profits come from the iphone. if there is weakness there, there is weakness at the company. also when you think about it, the iphone also drives services and accessory sales and other products. really sort of the blast radius of a miss like this is broader than you think. haidi: this chart really illustrates the lion share of revenue when it comes to apple. we talk a lot about the strategy of raising the average iphone price up about 20% as of the last quarter and is broadening into services.

that is really not happening fast enough. is a very fine line for apple to walk. you hit on it perfectly. the unit sales of iphone. 0%-1%owth has been quarter in and quarter out. they are growing the revenue through average price and getting the average price higher. ially what has happened is think the price increases have outpaced the future enhancements at this point. you have a lot of people either been off upgrades or talking -- balking at the price. in china that becomes a real issue. ramy: the blame game is clearly there in tim cook's notes. oftalks about the lack upgrades but also pointed to the trade war, china's growth slowdown. what really is the main or top two factors? john: it is hard to point to

one. i think it is a configuration of all of those factors. wouldad to point to one i look at the trade war and competition. the competition is very keen , all making xiaomi great phones at good prices. the trade war magnifies that sentiment to buy at home and buy from local vendors. i think those two factors more may have worked against the iphone this past quarter. john butler, our bloomberg intelligence analyst, want to continue to get more analysis. we have the china macro story, the global demand story, is it i company specific situation? the outperform or on

account of the performance on energy stocks next to the boost in oil prices overnight. we are looking ahead to the open of trading. for theatching out apple suppliers in asia likely to take a dent. this is bloomberg. ♪ ♪

♪ comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast.

.aidi: good morning asia's major markets have just opened for trade. from newd evening york, welcome to "daybreak: asia." ♪ haidi: our top story, apple shares plunge as they cut first-quarter revenue laming an unexpected slowdown in chinese demand. that is expected to weigh on asian stocks today. taiwan's