.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 leaders reject the

chinese president's call for reunification talks to heal what he calls a wound. markets.k at our japanesening the fray, traders are off for a second day of new year's holidays. japanese apple suppliers are safe. the embattled sentiment will not be coming online until tomorrow. we are watching for those suppliers there as we have seen an after-hours reaction in apple stocks and its american-based suppliers. costs are turning negative. sydney stocks are the rare outperform or in this part of the world. a 3% bump up when it comes to energy traders in sydney. opec followed through with its promises to cut output. taking a look at some of the outside move in the sx space.

keep in mind this is partially -- we are still under 70 u.s. cents. that happen for the first time in three years. bearing the brunt it is really taking a look at the aussie dollar. let's look at our top story the this morning which is playing across not just equities but also bond markets being moved as well by this appleshares that have been falling after the tech giant lowered its first-quarter iphone citing demand from china. it's bring in our tech reporter mark gurman.

when you talk about the sentiment towards this company over the past few months, shares have been trading lower than tag for lowest price the last fortnight or so. this is maybe not coming as much of a surprise?mark mark: it is certainly not surprising. we have been building up to this. certainly since october with the release of the iphone xr. immediately people responded to it as a dodd. the $250 price difference from smax wasn't enough. asia indicated it would need to lower its revenue estimates because of cutbacks from one of the largest u.s. based phone suppliers a.k.a. apple. we had reporting in december indicating that apple was

restructuring its sales and marketing staff internally from concerns overver how many iphones they are selling. it was the obvious we were going to get something like this when we saw apple halted around the end of trading day in the u.s.. we knew this is what the impending announcement had to be and here we are. with these mark gurman top headlines around apple. let's get more on this huge news. we are joined by david kirkpatrick, he is a good friend to bloomberg. diversification is the word a lot of investors, apple executives are speaking, why not sooner? they are doing really well in everything but the iphone. they made that very clear in today's announcement. enoughard to diversify when you have a product as successful as the iphone. foras just been burgeoning

a long time. a number of years. it is true that maybe they got a little ahead of themselves on the pricing. you hadstunning day, the great mark gurman on who always listen to very acutely on these matters. his article on this today, he noted this was the first revenue shortfall announcement by apple in over two decades. that is historic. ramy: in terms of what they need to do to pull up from this, it does not seem it is going to get better anytime soon with regards to china, the trade war, upgrades here, what degree do you think this will be prolonged? youd: i don't know how could be so certain. right now we are in such an uncertain global economy, such an uncertain stay in u.s., china relations. such an uncertain stay in the smartphone prospects.

to say it will not turn up anytime soon it beyond what we can really know. it looks pretty grim today. on the other hand the tone of the note overall was still fairly upbeat. i would point out one thing that has not gotten as much attention as i would have expected. they will still hit an all-time high in earnings per share this quarter. profits per share are still going to be better than ever, even though revenue will decline for the first time in a long time and unexpectedly they hit a real speedbump in china and with the iphone. haidi: i found it interesting the course of this morning's conversations we found our china falling into the cap or the apple camp. there is the question, is this apple story a china macro story, a global macro story? we have the bearish indicator so far or is it a complete

structural story for apple? david: i have a strong opinion on that. i think it is much more a story about china than a story about problems at apple. i think apple could still have significant revenue problems if the china story gets worse. the could be a canary in coal mine kind of development for the chinese economy. this is the most prominent foreign company in china. there is all kinds of interesting political and image issues for china. the most prominent foreign company in the their market is saying failure in that marketplace has hurt its results. very visibleinly a company. i think for china does not look good. for apple it is much more questionable how bad it is in my opinion. haidi: it could also speak to the nature of competition. the nature of consumer

willingness to spend. given your measured optimism isn it comes to apple, this taking a look at the recommendation still on the company. it is close to if not a record low, even that we have seen the underperformance in the share price it has been trading lower than the lowest price cap in the last fortnight, is this how bearish investors are feeling? david: i would be reluctant to do that either. i think on balance i am a modestly optimistic about apple. could not get worse given the incredible uncertainties in the political and economic landscape right now i think is risky. asked about diversification, clearly apple would do much better if it was more diversified. services are growing like crazy only $11 will still be

billion out of $84 billion, that is not enough to really move the needle in terms of what they need from the iphone point of view. it is also interesting to note the watch, their pods, macbook air, all theseit is also interee tracks were supply constraints, they couldn't build enough of many of their other products. they have some other things that could make up for it if they could just build enough. ramy: on the supply chain aspect with regards to the asia-based its suppliers, of course we are waiting for markets to open. to what degree are these fortunes needing to be unlocked from apple's fortunes to make sure they need to diversify as well? david: they all should be but this is one of those things when you have such a good customer as apple, if they will take all of your production you will sell it. it is a great customer and you want to sell it next quarter too. beld all of apple suppliers

better off if they were more diversified in their own customer base, yes. apple is a huge consumer of everything in tech and they are such a monumentally important company in the tech ecosystem. think another alternate universe maybe apple would not be as important and it would be more diversified. that is so far from the reality. apple is an overwhelmingly important company in the economy, the chinese economy, in the universe. the makes this an important day. haidi: really appreciate you joining us on is very eventful day. david kirkpatrick, joining us in new york. apple's asian suppliers are expected to take a beating this thursday morning after the company's earning and the cutting of the guidance.

where do use it in this debate, is this a story about china and the macro bearishness? is this story about apple? mark: it is about all of those things. it comes a day after we had confirmation of just how much the chinese economy is slowing. tohad another sub 50 pmi follow the official one a few days earlier. are clear signs the chinese economy was in trouble. this apple news reconfirms the fact that there is a serious slowdown going on as well. we still have not finished discussing trade between the u.s. and china as well. all of these things are coming together at the same time. the mood which is already the nervous, the first day of trading for the year, it has been compounded. there is no relief whatsoever. you are beginning to see its spin out into the risk of trades as well. in thesevere moves

yen. it waspoint today trading in the space of 30 minutes, it was a flash crash by most measures. an amazing start to the year. a veryare getting defensive, very nervous, and they are desperate to hear something positive coming out, particularly on the trade war issue. if you believe in the , we are setting up for quality year of volatility again this year. we're kind of overplaying it, if thatork's playing out in session. particularly when it comes to the outside moves in the yen. the chances are today things got to an extreme which we could easily pull back from. it is about time we heard some

soothing voices from the official places like central banks and maybe government officials as well. thankfully we have a lot of the fed speakers are starting tomorrow with jerome powell and others. for peopleeal time from a banks to reassure investors that things really are not quite as bad as this mayhem would suggest. start to comed back. we have the american dedication going to china in a few days as well. the chances are we will get some positive soundbites coming over the next couple of days. clearly people are feeling extremely nervous. they want to know that progress is being made and they want the authorities to tell them that really the economy is in decent shape even though financial markets are jumping around all over the place. there is a time in which people step back a bit and say i will keep out of these markets for a

while until i hear something a bit more concrete coming out of places like the fed and other central banks. greenwas a little bit of and the s&p energy was the arabia part with saudi saying it will cut exports. how long do you think that would support the equity rally? oil was be much the leader. if you go back to the fourth quarter of last year. oil was really the first place that we saw assets starting to cave-in and spread. oil finding a base is extremely important. everybody would be happy to see that. theproblem for opec and countries like saudi arabia is the level of production which is now coming from shale in america. that is outside of their control.

this year is expected to be a big year for production in the american shale sector. opec has to sit there and watch it. there is not too much they could do about it. ramy: saudi arabia needs to get that oil price higher. some say about $95 to meet the budget there. let's get the first word news with selina wang. congressional leaders and president trump have failed to strike a deal to end a partial shutdown of the u.s. government, now in its 12th day. the president has invited on friday to the white house for further negotiations. imitrex take control of the a billnd plan to vote on without a border wall. the president a republican path to do that. why would you not do it?

selina: the pboc says it is adjusting the calculations of summer reserve ratios aimed at boosting the easing step of the economy slowing. loans to small and microsized businesses will target reserved business cuts. the central bank says it would .xpand the rrr cut call toas rejected the reunify with the mainland of china under the one country, two systems doctrine. the democratic recipe says no group can replace is the elected government. --said china and taiwan northent trump said korean leader kim jong-il incentive what we call -- what he calls a great leader and the two would like to meet for a second time.

he says war could have broken out if they had not met in singapore. he spoke a day after kim is threatened to backtrack on giving up his nuclear arsenal if the u.s. does not relax sanctions. global news to buy four hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. let's take a quick look at how south korean suppliers of apple are trading. we are seeing some downside when it comes to suppliers in asia. unsurprisingly, it is the usual suspect if you will. 3/10ajor suppliers down by of 1%. the biggest loser is the lg in notech. i suspect we will see the brunt of the selling come when taipei comes online.

you have them coming online for trading when taipei opens. e with japanriev not trading today. let's look at the outlook for ipos come 2019. pwc says it will be a year for small and midsize countries to shine. we will get their reasoning later this hour. ramy: up next, the aussie

♪ ramy: welcome back. global markets are reacting negatively to apple forecast. the maker of the iphone blaming china weakness squarely as the reason for the downward position. there been it number of bad news

for china's, the official pmi in december was the first since 2017. we saw that mirrored in the privately held midsize businesses as well. that comes against the backdrop of a global factory slum. in the u.s., europe, and a number of asian economies suffering the same headwinds. been talking all morning about the downgrade to the revenue expectations for apple, lots of concern at this is a broader china story. is this just another indication of the global trade and manufacturing slowdown coming through in continuing to be a theme and 2019? >> certainly towards the end of last year and early this year a number of global industries turning. we sought early last year, it has certainly softened. were oneade tensions

of the things there. i think more broadly there are some other things too. they are facing some domestic eadwinds in the u.s. that really strong growth we saw over the first half of last year was not as sustainable coming into this year. there is a whole range of global suggesting the growth story is facing risks this year. you think this could be a good gauge of whether this domestic rebalancing, domestic demand is in a strong in china as we would have hoped? perhaps, along with the trade tensions there are the curbs on which affect economic growth.

the high management levels, china has been focused on keeping a lid on that. that the expect government will shift its attention back to supporting growth. they do have the means to support growth. i think in that sense we are not overly concerned. ramy: a little bit of optimism at the end of your answer. looking at currencies, the aussie dollar at its lowest .ince january, 2016 our reporter called it a possible flash crash. are these currencies really just held hostage for now with regards to china and u.s.-china trade wars? >> that is certainly a big thing

with the currencies. i think we need to realize we are in a really low trading environment right now. any movement will not be exacerbated or bigger than they otherwise would be. the other point is with the it hasian dollar, since broken through that 70 sent mark, the risk was it would just plummet. that is more of a technical reason. i did get a bit of a shock this morning when i saw that on the screen. i think certainly over the quiteterm we are still fragile, there is the risk we could see a further weakness.

there are some reasons i think to suggest that sentiment could turn around. we have trade talks between china and u.s. i think the risk is if we do get a positive outcome, we get some for markets.rise a positive reaction in markets. in terms of the australian dollar currency, there are certainly a lot of downside risks but there are a lot of positives as well. ramy: in terms of some of the pressure that is being taken off when it comes to the fed, investors coming on bloomberg tv ,re saying maybe it is 50 bits a positive's early as march, what are your thoughts on that? fed could move a

few more times. certainly more than what markets are expecting. that could be a risk for -- it could have sentiment down. there are signs that the u.s. butomy is losing momentum .e are still expecting growth jobs will exceed the rate of population growth. that means tightness from the labor market will continue. in that environment you can fore that there is the case the rate hikes. and for a movement towards a more neutral policy setting. i think the? is what is mutual policy-setting? the bond market may be where we are very close.

estimatesby the fed where we still have a little bit of a way to go. ramy: a little bit of uncertainty. a lot of folks are figuring out where that is, arthur? we will have to leave it there. quick check of the business flash headlines. tesla shares tumbled wednesday after the carmaker announced it is slashing prices by $2000. the cuts come after the company delivered fewer of its model three cars than expected in the fourth quarter. hell,usk tag production andng to more than 61000 2018. haidi: sources tell bloomberg saudi arabia's national bank is getting in line for a potential merger. it would create the third-largest lender with 100 to $80 billion -- $182 billion in

assets. coming up next, apple's asian suppliers are getting beat down after the downward revision. ♪ ter the downward revision. ♪

expecting to follow the trend lower as we see declines. trading in seoul at the moment. ramy: you are watching "daybreak: asia." now expecting revenue of $84

billion where analysts had expected 91 billion. tim cook said apple did not foresee the economic deceleration and greater china. shares have fallen from an october peak about -- ongoing concerns about the iphone. the president has responded to scathing criticism by mitt romney by calling on him to be a team player. andpresidential nominee former massachusetts governor used a washington post opinion piece to say that trump had not risen to the mantle of the office. trump tweeted that romney should focus on border security saying i one big and he did not. the ceo has applied -- agreed to pay more than [indiscernible] he donated 250,000 euros to 4.5ity and is order to be million to the german state. prosecutors investigated his

purchase before it emerged the company was seeking to take over the lse. nasa's new horizons spacecraft has sent back images of the us distant objects ever explored. it is made up of two spheres joined together not -- looking not unlike a man. it is 1.6 billion, desk limiters beyond pluto. china may attempt a landing on the moon. global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ramy: the first quarter down markets.working on the this month -- smartphone market

is declining. we asked if that means apple's reliance and hardware should come to an end. >> is not the end of the reliance on hardware and if you look back over the last several years, apple started talking about services and the services on its quarterly call, probably four or five years ago. they have been building up, they knew this day was company and they have been planning for it. more -- paying more faster than people had expected. the challenge they do have is they do not realize -- really have any huge hardware hits in the near term that anyone knows theirt will replace iphone revenue. they will do some other interesting products but some of those will not hit till 2020. in 2019 not only are they facing smartphone difficulties now, come the fall, they will not have a 5g enabled phone even though not everyone will need

one. that will be seen as putting them behind. it will not have a foldable phone which a lot of other leading members will have. a number of factors are stacked up against them, it will make the iphone story get worse and 2019. >> this was one of the other factors, the dominant factor being the slowdown that was cited by tim cook. it really was down to this macro story in china. end and the upgrade market has been slowing for some time. that is part of the same -- reason that the overall smart phone market has stalled. almost everyone who has -- can get one has one and the market upgradedent on these

cycles. the sales cycles link than. the market itself starts to decline. apple in particular pushed things by kicking up these average selling prices in the u.s. and other parts of the world to the point because they knew overall unit sales would go down, they thought they could compensate. and is becoming an issue has somewhat backfired and they will have to rethink that strategy. we saw in the u.s. them lowering the prices on iphones for the holidays, that has never happened before. that was an indicator that things were slowing down and the impact on china, a lot of it is morbid geopolitical. when you are looking at paying over 2000 and aussie dollars for the top-of-the-line iphone australia that is giving consumers pause. taking a look at the number of analyst ratings when it comes to ratings, ratings have fallen to 53%.

taking a dip after this guidance or downgrade we got earlier. that is close to a record low. as you mentioned earlier, analysts would not be surprised, this is a stock that has been trading lower than the lowest priced estimate for the last couple of weeks, last earnings seasons we had a lot of concerns. you reckon it will get worse before it gets better but are we close to the bottom when it comes to share prices? >> that is hard to say. stock call one a this. the overall factors that are impacting apple are longer-term issues that will take a while. they have been building up the services business and it will grow and the margins are less for services than they are for hardware. 2019, we should see the launch of a video streaming service similar to what they did with itunes on a bigger scale to compete with netflix and other types of vendors. they have another -- a number of things coming.

it will help move the reliance a bit down iphone the pike as far as the percentage of total sales. that does not change overnight so in the short-term term we are going to see continued pressure on the company and likely on the stock as a result. guess -- getld worse before it gets better for apple. bob o'donnell speaking to us .arlier terminal subscribers can get the latest market analysis through the apple revenue were cast down grade is taking place in our top life -- top live blog. taiwan's ruling party has xi'sted chinese president plans. the 70 yearsettle dispute during his tenure. tom mackenzie joins us now with

the details. we expecting any kind of realistic prospect they have -- they cross strait talks could happen on the issue? tom cole and given the rejection of the overture it seems unlikely, this is a tri-national relationship. -- you have had a ratcheting up of tensions on all three parts. you had washington pass legislation. and a higher level of engagement, and from the chinese side, communications are cut and amped up pressure to ensure

handful of countries reassess those relations and they have had that -- some success. [indiscernible] saying that taiwanese people would not want to put up with that kind of system. they could look to the erosion asfreedom and human rights an example of why that may not be a good fit. longer-term it is clear that president xi and his team are wetting themselves to reunification. he said it is inevitable and refuse to take off the threat -- threat to resolve the issue. his focus was trying to set the stage for what he said could be democratic discussions and dialogue. we had analysts at citibank saying a warning that the cross straits relations could become a flashpoint in 2019 later this year and could risk or could see more market volatility, trigger more market volatility, something we should all be watching.

ramy: we always see these common go for several years. cut taxes pledging to but that could come at the cost of china's rich. what are the details? $24cole and they have trillion, that is the personal wealth and china. and one trillion overseas. tos is to go some way taxessing the shortfall in incomes as they reduce the income and start to target a high net worth individuals. some of the tools at their disposal include corporate taxes companies held by chinese individuals. they could be up to 20% from zero. other area that they could look at is the increased oversight they have over things like

property holdings. another area which has not been taxed is the gifting of assets from family member to family member. that gets -- could be set at a level of up to 20%. , we haveausing concern been speaking to some consultancy say they have seen a surge in wealthy chinese looking toset up overseas trust protect their wealth. it will come down to implementation by the chinese taxman how far they are prepared to go to skim off some of this tax from china's wealthy to make up for the shortfall. it is happening in china but also around the world. tom mackenzie in beijing, thank you. 2018 was a record-breaking year for company listings in hong kong. can that market continue to thrive? we will take a look at the ipo

picture for 2019 with the hong kong entrepreneur group leader from pricewaterhousecoopers. this is bloomberg. ♪

haidi: this is daybreak asia. ramy: time to talk ipos and specifically hong kong ipos. pricewaterhousecoopers says the market will dominate from -- with offerings from small and medium companies. good to speak with you. year 20 for hong kong ipo market. what was standout there and will that translate into 2019? breaking year,

there were 218 ipos and also we had the fundraising increase by over 100%. for 2019, with the current market sentiment there will be less mega sized ipos. it will be dominated by medium-sized ipos. there will be 200 this year. the total fundraising $28 billion u.s.. at this moment there is a strong highflying in hong kong. there were over 200 companies that have submitted their applications to the hong kong stock exchange. what we expect to see is for the first half of 2019, the market may still be [indiscernible] economice of the uncertainty settled and we may be -- may be able to see an increase in activity and we may be able to see one the two mega sized ipos.

ramy: in terms of the amount of money being raised i see that it is forecast to be a little bit less than in 2018. what do you talk that up to in terms of factors? >> this is mainly because of the mega sized ipo. we have a strong pipeline but most of them are small and medium-sized. we understand there are five large companies which are considering to be listed. whether they come to hong kong or go elsewhere, we do not know at the moment. we hope they will choose hong kong as their destination. not a question as to when they will get this. if there is an improvement in market conditions we hope to see one to two to be listed in hong kong this year. some of the concerns over the slowdown in china and -- are

affecting sentiment when it comes to the chinese equity market. those that play into appetite for listings? >> benson: for the asian market in 2018 what we are seeing is a europe reform. there is an honor -- a lot of new rules coming out. there were only 105 ipos. we expect market will hopefully stabilizing in the second half or the asian market as well. we expect there will be 132 150 ipos in the asian market. with a total fundraising between 15 billion to 18 billion dollars u.s. what about the tech outlook? that was a difficult year in 2019 -- 2018. the outlook looks like it will be tough as well especially of the trade issues are not resolved. benson: for the hong kong market there is only one major tech

are talking we about. for 2018, there was a reform in the hong kong market we start to accept they will be out and last year there were two ipos and inever they were both listed the third quarter. the market started to fall since october up to now. the shares are not performing well. since the beginning we have only liked two and it is too early to draw any conclusions about the hong kong as a destination for the the tech of pennies. we hope to see there will be more coming over hong kong in the future. want to show you and our viewers this chart. i am glad you talk about tech. over the past year these

companies have not been doing so well. down 28% ever since it ipo to -- it ipoed. this does not instill confidence when folks are thinking about n hong kong. what do you say when you will say this is not doing so well? are only ahink there few examples at the moment. there are a lot of unicorns in china. listing in the future. but whether they would like to come to hong kong or go to the u.s. is still unknown. hong kong will be one of the listing destinations they will consider. in terms of sectors, last

year in retail, consumer goods and industrials come of those were the biggest sectors. in 2019, how might that change revolve? onwe expect it will continue with this trend. it will be dominated by retail and consumer and followed by industry. , small andhe sectors medium size ap -- ipos are coming from. the other thing is hopefully there will be more new economy companies coming over. wong.that was benson still more had. we will be taking a look at apple's asian suppliers. all falling right now. ♪

haidi: this is "daybreak: asia." -- qatar her hair ways olds 613 shares of making it the fourth biggest investor in the carrier. it owns almost 10% of cathay pacific and twice percent in british airways' parent company. bank -- it may be

hard for rivals to pay -- play catch-up. it is handling one of this year's premier deals and that is the ipo for uber. ramy: urging the world's largest online -- online retailer to open petrol stations. getting into the business could give amazon thousands of locations to increase its delivery efforts. 2400have a price target of dollars on amazon. 60% higher than the current price. let's take another look at apple suppliers. we had the news, taking the markets by surprise, the revenue forecast cut month the news putting pressure on its asian supplier. we have had the suppliers

trading in seoul over the past hour. a little bit of a reprieve coming from the japanese suppliers given that japanese markets are not trading today. if you take a look at the major comprisingliers, about 21% of the overall cost be kospi. underperformers. will be joining us. they are falling moderately, another one to watch out for is down over 70%.

in a way some of these asian supplies have been precursors to what we are seeing in the decline in apple stocks. the proof has been filling in at the edges, a couple of our analysts have been saying this is a plane crash that has been waiting to happen but not one thing has to happen at one time to go wrong. a bunch of things have to go wrong all at the same time. we may be seeing this as well. -- you can see what is happening with apple's, this has not been a downturn of the past month or so. this has been happening for the past quarter, even longer than that. ever since the early part of october, we can see that apple share price also has been falling, is now down by more than 30%, down 33% as we have seen these things to do with the edges, at confidence and the numbers. everything from apple saying we

are not going to talk about the iphone sales numbers anymore. all these things have been coming to fruition until this day when we get this number about the revenue being revised down by about $7 billion. let's head over to our asia reporter debbie will -- wu. talk about the significance of apple cutting its forecast. debbie: what we are seeing is this is going to be the first holiday quarter that apple will sincedecline into sales the new ceo. surprise because a number of suppliers have been cutting their forecast over the past two months. -- the severity and magnitude of how much apple is cutting its revenue. also the fact that tim cook is exciting the greater china

slowdown and the trade war as concerns. that is putting the market in a jittery mode. , also inee with apple asia right now. korean suppliers including lg electronics, shares are taking a hit. ramy: we will be monitoring the suppliers.pple's let's get a quick check on how asian markets are performing. and asx up byp one. ahead onre pain account of apple.

rishaad: this is number markets china open. >> asian suppliers are hit by the revenue forecast cut, a first in almost 20 years. rishaad: with stocks and a pressure s&p futures also going on. yen triggers a flash crash and currency markets. made worst -- worse by thin liquidity.

reality sinking and for apple with that stunning revenue cut to their forecast by tim cook, a defining moment for him. we've got to wonder if he is catching up to what the market has been pricing in. we have been looking at the type of supplies over the past two months and been sending out worries to the market, let's have a look at some of those coming on board. this is what we have for those in taiwan. you would expect it or falls, you look at the likes of semi conductors, the company is taking a hit from what we have seen with bitcoin. we have so many of the tips going into service which crunched the numbers to mind those coins. falling back to my these companies are major apple suppliers. lg down.down and in the latest

quarter, that is the revised figure. we were looking for 88, 80 9 billion. that was being mentioned, already being priced into the market. taking the biggest hit because we do have the supplies cluster there. about two thirds of 1%. but have a look at the prospects for the start of the trading day in hong kong and shanghai. up one thirdures of 1%. such a big gain. we could be seeing some gains but more muted. .sci china at 2% the yuan was at 6.84. the offshore yuan trading at

6.88 at the moment. that is a brief look at the markets. let's get to the first word news ahead of the -- and join kathleen hays. kathleen: congressional leaders and president trump have failed to strike a deal to end a partial shutdown of the u.s. government now in its 12th day. the president says he remains willing to work with democrats and invited them back to the white house on friday for further negotiations. democrats take control of the house on thursday and are set to vote on a plan to end the shutdown without funding a border wall. >> asking the president to open up government, we are giving him a republican path to do that. why would he not do it? why would he not do it? hasaiwan's ruling party rejected the call for the island to reunify with the mainland under the one country to systems doctrine. the democratic progressive party

replace thep can role of taiwan's elected government. he said china and taiwan should enter into what he calls a democratic consultation on reunification. kim jong-unump said center what he calls a great letter and they would like to meet for second time. trump said they have established a good relationship and that war could have broken out if they had not met last year in singapore. he spoke a day after kim threatened to backtrack on promises to give up his nuclear arsenal if the u.s. does not rule out sanctions. thangreeing to pay more five billion dollars to close an insider trading investigation. he donated 250,000 euros to charity and was ordered to pay $4.5 million to the german state. andecutors investigated him 2014.

the company was seeking to take over the lse. 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 kathleen hays. this is bloomberg. rishaad: shares tumbling after a return to later trade down by 8.5%. this is all down to the big story of the day, the tech giant cutting its first-quarter forecast expecting revenues of $84 billion. analysts expected $91 billion. --apple did not foresee the magnitude of the deceleration when it comes to china. shares have fallen 32% from that october peak ongoing concerns about the iphone. let's bring in our bloomberg reporter joining us with the latest. how big of a cut is this, is tim cook coming to

reality about the slowdown that we are seeing? a five to wise it is $9 billion cut, they are projecting $84 billion in revenue, it should be a 40 -- a $4 billion decline. anticipated, $93 billion guidance when they reported last year during the fourth quarter. with all the news that has been filtering out of this part of the world with the various apple suppliers setting out concerns, there are some worries there. is it not a surprise that we have seen a cut? is apple's management been a been -- has apple's management in a bit slow? >> you're totally right, we have seen lots of indications the iphone is not selling as well as anticipated. we had a report here indicating there was a fire drill internally, apple worried about

the iphone sales and looking at ways to boost those. there was a time in december where for five different major suppliers and asia were saying they need to cut their own revenue guidance due to a slowdown in demand for components from a major u.s. phone maker. it seems indicative apple being the source of the problem. a blame china story, how much does this pertain to apple itself or are they quick ,o blame the trade war on these what has led to the revenue cuts? >> the trade war has been impacting but this is an apple problem at heart. if they were selling a product at the pricing that consumers were looking at where products that consumers wanted to upgrade to, consumers would upgrade. a few years ago when the iphone 6 in six plus came out you had a huge storm of demand.

likewise with the iphone x. the point stands up back in 2017, some of the other models the earlier, this is unprecedented for apple, new territory for a company that has seen so much success since becoming ceo at the end of 2011, tim cook's record has been squeaky clean especially compared to some of the other ceos and other management's we have seen from some of the apple competitors globally. >> the first time since 2000 we saw any kind of revenue forecast cut. thank you, mark gurman joining us from l.a.. --ammad ali area and tweeted al arian earlier this downbeat report is of interest be on the company and its investors. this highlights china's economic weakness and as it is a

relatively crowded trade this spill risk for the whole is considerable. you make oft do this, is this a company specific issue or is it ultimately tell us a lot about what is going on in china? a bit of both. you look at asian supply chain of apple. happen forecasting these cuts for months. we have seen the prices react down like 30% over the last for five months. this has been coming for a while. the fact that apple is suggesting they are cutting their forecast for revenues into next year is not so much of a surprise. growth has been slowing down and for 2018.e part this will shift from trade wars and the dollar to starting asking questions about growth and the u.s. recession in 2019

area has happened much faster. thinking this would happen in the second half. at this point worrying about the u.s. recession is premature. when itdoes it mean comes to a bear market for u.s. stocks? jeff or john was saying this is the kind of thing you see when we are in a bear market, are we in that feeling right now? >> the way we measure equity is at a levelnt which is flashing extreme bearish levels. for the last four times we have seen it was in late february this year, october and going back it was in september 2015. all of these were buying opportunities. >> you're saying it is too pessimistic. suggesting things are still slowing. >> we are expecting a market

range from 582 700. this is contingent on three things, the u.s. needs to avoid 2019.ssion in we need to see china data stabilize. ad we need to avoid escalation of the trade war. it is the china data that is concerning investors. we remain confident that growth will stabilize for this year. asia, youou look at cannot take it is one piece, there are different business cycles. it is not going into unless you think we are into a convergence were everything goes down. mixo: business has been

extremely diversion. if you look at the asian business cycle it is following china. it is not very significant. it is mainly following what is happening in china. business cycle is scraping bottom like we saw in 2015 and 2011 and close to where we were in 2008. i fail to see significant more downside in terms of risk pricing and asia unless we are going to see a massive slowdown in global growth which is not the forecast at this point. >> our guest will stick around and talk about his outlook for 2019. another volatile year to the market. this is bloomberg. ♪

>> doing a check on currencies, we did see what was a volatile session. against i look the dollar and thought there must be something wrong. >> everyone is pointing to these flash crashes. rishaad: just got that through, we were looking at 6.84 yesterday, a slight weakening taking place against the backdrop of what happened with en and strength of -- with the yen and strength of the dollar against the aussie. >> you see how big these moves magnified, this was

thattype of flash crash was caused by some liquidity. take a look at your dollar yen we slumped as much as 3.8% at the beginning and eased off that that we are still down about 1% for the dollar japan, 107 and the aussie dollar was off three point 5%, moving lower. we are waking -- we are weaker by .7 of 1%. the aussie and was a big one, usually the one we see that was a big risk. shortage of liquidity is an issue we are facing in all markets and you have seen this in the u.s. equity futures markets. liquidity and futures has been extremely bad, it is close to record lows and any small change in the market -- macroeconomic firemen can -- and garment can cause big moves. you are seeing something similar

in the fx cycle. >> people are saying algorithms are going one way and magnifying the moves, is this the time to dive into this market? we track the positioning of these investors in the u.s. closely because we think it is an important function. we can see that positioning has been lowered quite a bit. the positioning is close to record lows in certain cases. more selling from these investors is not on the cards. we have seen more selling from active managers. and some sort of retail money output we have seen over the last several weeks. that is causing downside pressure. it is not coming from the systematic strategies. one good thing that has happened over the last month is that inflation concerns have reduced quite a bit and this is good

from a market technical perspective. it reduces the correlation between equities and bonds and keeps all our portfolio from going higher very sharply. that allows the systematic investors to remain [indiscernible] rishaad: that would put the pressure less on the fed. that has been seen by the market. has committed a policy mistake. they have fallen much sharper than even oil prices have which is shocking and if you look at the market pricing of fed hikes from march it is almost there a percent. we have gone from 2.5 hikes being priced in the middle of october two half a hike priced for 2019 in two months. >> and a rate cut in 2020. >> this shift of the fed does and they willis have a chance next week, if it does communicate this and the

market prices that in, that will good -- be good for equities. how will that be for the thinking of the fed? crucialis a cruyff -- driver. more of thet downside to growth expectations is coming from the investment channel rather than consumption. the job support is less of a demand driver at this point. rishaad: i will bring up a chart from gt tv library. it is telling us that near-term forwards are predicting a rate cut beginning next year. is last time you did this one pundit said, this is a good crystal ball with around 2007 and 2008 and we all know what happened. very negative here. probably -- that

happened all the way back in 2005. to so equities in 2005. it would have been a bad idea. rishaad: probably. couldryone is saying that be the next catalyst for the markets, earnings, how are companies looking at a company like apple, is this a bellwether, will the start and that -- impacting investment plans? >> if you look at our u.s. equity earnings forecast, it is still looking at about 10% or 11% growth. , there is probably done -- some downside. including other stocks we've seen downside from. we will get limited growth from eps in 2019. >> people are quick to use the trade war as an excuse. some ofikely to hear

these? >> the trade issues over the last two months have only gotten better. rishaad: i have of your question, if they expect a stronger u.s. dollar against asian currencies, how has that resulted in asian equities moving higher? >> it probably won't. if you do expect a stronger dollar against asian currencies you should not buy asian equities. theaad: this might negative first half baby beginning of the second quarter of 2006. so there we are go, still too early. you are saying that gives us -- >> if the inversion happens the year before the recession hit for you we have not seen that. rishaad: it is indicating there will be a a cut.

>> if equity markets start to price that in, it is a good equities, asian equities, emerging market equities, it eases the pressure from currency side. the dollar starts to weaken a little bit and all those things are good for asia. rishaad: great talking to you. premarket equities are related to the apple supply chain, this is what we have for taiwan. feeling it, 1.8% but a slight improvement. >> we will watch the south korean won. we are seeing steep declines their given how much the stoxx and suppliers are weighed in the kospi. significant declines when it comes to apple suppliers today. this is bloomberg. ♪

>> let's do it to -- a quick check of the business flash headlines. seeking advisors for potential murder. gulf's thirdte the biggest lender with $182 billion in assets area that could be the biggest bank merger for almost three years. saudi arabia is exploring bank mergers to boost its financial sector. morgan stanley is once again wall street's top stock underwriters as the bank be out j.p. morgan chase and goldman sachs for the second year in a row. it may be hard for rivals to catch up. morgan stanley is handling one of its premier deals, the ipo ford over. for uber. and announcing it is cutting prices by $2000, the cuts come after the company delivered fewer of its models -- model

three sedans that were expected. from 1550 ofction the vehicles in the fourth thaner of 2017 to more 61,000 and 2018. in 2018. rishaad: the futures may happen up, down at the moment. eight shares -- futures for each futures are up. apple suppliers, looking at those in hong kong, with this is we have, up by 2%. let'stwo not changed, and look at some of the other stocks likely to be moving. qatar airways taking a 5% stake. it is in one of those tickets that sold it economy class

prices in business and first class cabins. morganwngrading from stanley. a cut in earnings guidance and price target, eight boxes what they are thinking. the open is nearly upon us.

yvonne: samsung electronics one of the big ones there. down 1.7%. sk hynix down 2% in the market. ,t is interesting with samsung sk hynix and lg display. it will be dragging the overall benchmark today. rishaad: 1.7%. really whenuge move

you look at the whole scheme of things. a lot of the bad news had already been priced in with many companies coming out and warning about slowing sales in china and cutting forecast as a result. we are talking about apple. the market getting underway. there we have it. the hang seng had a nasty start to the year. things pretty moderate at the get-go. it shares down. got was number that we pretty much that sinking feeling. take a look at some of these apple suppliers coming out of hong kong.

foxconn industrials is down one third of 1%. that one is a 4% drop this morning. we are still seeing how this effect is going to trickle through. two and two thirds 1% down in the session. that is apple. we have other currency markets as well. the yen was on an absolute terror. -- tear. all of this exacerbated by the volume and that volatility coming through. yvonne: let's bring our next guest out. singapore.from with the china pmi that we got the last couple of days.

what does it tell you about how fast china is decelerating? it is worrying. you have apple saying what it said. two sets of information in toay's is not the best start the year. we are keeping a close eye on china to see how the u.s. trade tensions are affecting china and impacting the economy. part of theortant global equation and it is worrying. not have a huge amount of transparency. to some extent, it is a bit of a walk in the dark. clearly what has happened at the start of the year, it is worrying. let's hope it does not get worse.

and in china swings up down. i would keep a very close watch in china. rishaad: would you say we look at the data and it will become increasingly evident firm macroeconomic data rather than macroeconomic data? if you are talking about the apple announcement of its revenue, no doubt. apple did highlight them as a key factor. upgrades of the iphone, maybe because the new model is not as attractive to consumers. there were other reasons. carriers carrying less subsidies. there were other factors at play. also, you have to balance it with the reasons. i am not trying to diminish the

importance of china. it is a combination of micro and ando to corporate earnings what corporate says about china, becoming growth numbers. the market will be very sensitive in the coming weeks. think this will pressure beijing to come up with a trade truce? would that be the next catalyst? seems from what is coming out of washington and regime, it seems as if they will strike some kind of a deal. , it is hard tomp say. concedey, beijing will to some extent and make some concessions. you are right. it is possible that china will be under a bit more pressure to

strike a deal. china will not give a big amount. i think there will be negotiations. this will take time. i do not see a strong deal. i think it will be something where they will have to compromise. it will take time for this to play out. maybe a couple of years. rishaad: absolutely. derek preempted what you said. >> you should not expect a quick recovery. it will be weaker than some people think. it is also the argument that china will be forced to respond with some sort of stimulus and the market might seize upon that as good news even though the economy is weakening. that is like getting

more heroin to a heroin addict. >> interesting analogy. to some extent. i do not think china will do anything as aggressive as it did in 2008 and 2009. i think they made it quite clear that they will not do anything to dramatic. the measures will be targeted. very targeted fiscal policy. there areknow that negatives to doing anything too aggressive. hoping for a big bank. i do not that that will happen. movenk china is going to very gradually. yvonne: i guess i am looking for silver linings now in this equity market in china. we have a chart that shows may be some hope. take a look at these dividend

yields. we are seeing quite a bit of premium with what you could get in the bond market with your chinese tenure yield. 60% withfers close to government paper. how attractive is that for you? >> no doubt. it is attractive. business in mind this could be a bit -- a value trap as well. you have to be careful because chinese growth is still playing out. they could get even more attractive. of more negativity out of china. chinese policy that -- policymakers -- there will be a silver lining. gradually, i think the market will be quite nervous and that could be more downside from here. i would tread with caution.

rishaad: always great seeing you. have a great year. we will get you down to new york now to have a look at them of those stories making headlines in the first word news with kathleen hays. kathleen: president trump responded to scathing criticism from mitt romney. calling on senator to be a team player. they used a washington post opinion piece to say that trump has not risen to the mantle of the office. trump tweeted that romney should focus on border security, saying i won big and he did not. an american detained on suspicions of espionage. and --with paul wheeler

his family says they have not heard from him since his arrest. during what russia says was an espionage operation. sending images of the most distant celestial object. looking not unlike a british colored space snowman. kilometersillion e.on pluto. china may attempt on the dark side of the moon with its probe named after a chinese goners. -- goddess. 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 kathleen hays. this is bloomberg. yvonne: apple shocked investors with its first cut in decades. some analysts are not entirely surprised. this is bloomberg. ♪

>> people watching apple closely like i have for a long time have known that the wall would hit at some time. it happened in a harsher way than people expected. >> it is not alarming to me, but it could be alarming for those whatlating stock prices or volume will be. it is getting harder and harder. it is a lot more new ones in terms of the utility that they provide to consumers. it is harder to convince them that they need to upgrade the stuff that they have today. >> they will still hit an all-time high and shared this quarter. profits per share are still

going to be better than ever, even though revenue will decline for the first time in a long time and unexpectedly, they have hit a real rebound in china with the iphone. weighing in on that with apple. it manages $1.7 billion. he joins us from san francisco. great to have you, especially on a day like this. we kind of look at apple earnings and see that the forecasts are quite conservative. what does this signal now? how big of a shock is this to a lot of people that watch apple? >> it is a disappointment, no question about that. apple'ssuggest that robust revenue growth that we have seen in the past might be behind the company. that being said, we do not think

it was a big surprise. we saw some of the apple suppliers forecast at lower revenues from the upcoming fiscal year. we saw a significant amount of product promotions from apple over the past couple of months. disappointment areas we do not think this is a reason for investors to be running away from stock. we think it is opportunity for long-term investors to buy high quality stock on the weakness. rishaad: has the company been procrastinating and not bringing out this news at an earlier junction, given all the news we have been hearing? >> not necessarily. sometimes things are hard to

forecast in terms of number of units sold. we were thinking that this was a relatively quiet time. we were somewhat encouraged that perhaps we were going to get a very low amount of pre-announcements. apple came out. china, i doue to think this is a temporary setback. nothing permanent for apple's path forward. yvonne: you do not think this will change anyway how they price these iphones? some say they will have to eventually do it cut. that it was wrong to charge $1000 for the new models. >> pricing could have been more investors. i think they have all right -- always priced at a premium.

believe that promotions may be something that apple would be more inclined in doing, going forward, especially if we see continued lowering of demand with these new iphones. he seems to be burying his head in the sand here, blaming this largely on the china slowdown when it could be due to problems with the iphone itself. increase has not really matched the technological leaps that other companies have managed to obtain. >> you make a good point. i do think that sometimes forecasting is a difficult thing to do. for apple, one of the biggest

criticisms is that they have as innovative as they were in the past. do think there is a catalyst coming down the road. .here is an overhaul it will certainly give people a reason to be upgrading their phones. perhaps there is not a reason right now, but when 5g becomes a big rollout, there will be more demand coming from current iphone users. yvonne: does this change are holding on apple in any way? >> no. we typically use conservative forecast. conservative inflation rate and we come up with a $240 target price. necessarily get

there in the next 12 months, but we think that is the underlying value of the apple stock. cash neutral. maybe people would like to see some of that returned to them. >> absolutely. i would not be surprised in the next couple of weeks when they announced the official earnings, that you would see a significant either stock buyback or a one-time cash dividend or a significant increase in the current dividend to pay out to investors. i would not be surprised to see that. company that would be nice. thank you so much for joining us.

we go into the commercial breaks, let's look at what is happening with apple suppliers here. this is the position right now. 3.8% down. about that at the moment. yvonne: we will continue to watch some of these players. it has been positive over the past couple minutes. we saw pretty pretty -- brutal start to the year. worst start in two decades. this is bloomberg. ♪

rishaad: you are back with bloomberg markets. them market maxims heart.

be greedy when others are faced will -- are fearful. you can find that on bloomberg.com. these are the story of hong kong's stock pick up. news of an incoming house democrat is said to break with nancy pelosi. senator chuck schumer accusing of using the shutdown as a political tool. bloombergnd that on online or on the terminal. more on the shutdown now. editor.ing in senior we were thinking of some kind of breakthrough. >> there really was not a breakthrough. was a discussion about border

security. went into detail of how there was a crisis at the border that really inflamed the democrats that were there. ,hey said it was preposterous the details about the border. there was a discussion about why the whole government was being shut down. not just homeland security. there was a lot of pressure from democrats about reopening the government. the president really sticking to his demands for that $5 billion in funding. democrats saying there is no way they will get that. the president has extended an invitation for the leaders to return later in the week. rishaad: a new session of

congress. the seats have changed a little bit. nafta close he is set to become the speaker. act after the ceremony is over will be to pass two pieces of legislation. the government until the end of the fiscal year in september. the other would be for homeland security. $1.3 billion for security. would basically keep that agency open until february 8 to have more time to negotiate with the president over border security. hesident trump has said wants his whole $5 billion. it will some them to the senate and it is unclear if the senate

will pass it. when it goes to president trump, it is in his court. thank you very much. let's have a look at the business flash headlines. making a push. holding 613 million shares in the airline, making it the fourth biggest investor there. of capital pacific. will offerestments $850 million in cash and $1.3 billion of credit financing first years. a bid for the company backed by eddie lambert is not followed by friday, the offer will terminate. to buyy they will seek real estate. biggest and urging the online retailer to open

stations. getting into the gas station business could give them thousands of locations to increase delivery efforts. a price target of 200 50 on amazon, higher than what we have for the current price. yvonne: a look at markets here. taking a bit of return to the positive side. we are shaking off some of these apple lows. -- woes. we have plenty -- we're pretty flat right now. -- iad: the oil prices will check on that as well. with oil, we are down a fraction. the yen, fx markets and all sorts of convulsions. yvonne: a big interview to tell you about, including an interview with the asia-pacific

chairman. rishaad: do not miss our interview with the federal at 7:30 a.m.dent eastern time on bloomberg debris america -- daybreak america and radio. ♪

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