paul: good morning. i'm paul allen in sydney where australian markets have just opened. shery: i'm shery ahn. >> i'm hong kong. welcome to daybreak asia. ♪ paul: the top stories this tuesday -- a warning for devos. global growth is slowing further and risks arising around the world. president xi talks of serious dangers with china facing a simmering trade war and growth that has slowed in three decades.

investorsfic stocks -- digest the increasingly gloomy message. shery: we have breaking news out of south korea. south korea fourth-quarter gdp expanding 1% quarter on quarter, beating estimates that it would only grow by si 6%. previous expansion in the quarter. only group .6%. gdp year on year, growth of 3.1%, beating expectations. a much faster rate of growth than the previous quarter. the preliminary fourth-quarter numbers. we had a lower base of comparison from a year earlier, but we could have also seen some effects of that fuel tax cut we saw take effect in november. that could have mitigated some of the headwinds for the south korean economy. expert growth has been a little more resilient. we had china frontloading of trade and domestic demand weighed on growth in imports.

gdp year on year, growth of 3.1%, beating expectations for the fourth quarter. let's take a look at the markets. the u.s. closed on martin luther king jr. holiday, but we are ca the bloomberg josh -- seeing the bloomberg dollar gain. boosting the dollar against most of the g10 peers. right now in the highest level in more than two weeks. we have some concerns over trade tensions, not to mention the imf saying growth this year will be the weakest pace in three years. the pound holding onto gains. we had private is the theresa may returning to parliament. we heard the u.k. labour party is calling for those in the parliament and that could pave the way for a second referendum. crude higher. s&p futures a little lower, falling a 10th of 1%. sophie: it could be a miranda

are in session after asian stocks went to a seven-week high. off-white i 10th of 1%. a 10th of 1%. this after forcing a drop in iron ore shipments for the fourth quarter due to that derailment of the railroad in november. adages will cost $600 million. in japan, we could see the nikkei open higher after a ojo-day gain as the doj -- b kicks off its policy meeting today. policymakers will see if they will take a more bullish view. imf lifting his outlook on japan on fiscal support by down growth in the global economy. the gdp report from korea comes after the trade data for january saw exports fall by the most in more than two years. quite a few data points to

consider at the start of this week. paul: sophie with the check of the markets. thank you very much. let's get the first word news. my: the u.k. opposition labor party is calling for a second referendum on brexit, saying parliament should be allowed to vote on options. theresa may is refusing to rule out, but is under pressure from a draft bill that could force her to ask brussels to extend the brexit deadline. she told the house of commons there is no justification for a second referendum. >> it would require an extension of article 50. we would likely have to return a new set of mps to the european parliament in may and i believe there has not been enough recognition of the way the second referendum could damage social cohesion by undermining faith in our democracy. >> going through the motions of accepting the results, but in

reality, it is in deep denial. the logic of that decisive defeat is that the prime and is there must change her red -- prime minister must change her red line because her current deal is undeliverable. ramy: the home secretary says britain should work with its allies face guarding telik on that courts -- telecom networks. in the blocking hauwei committee. the committee concluded national security was threatened by huawei's failure to improve its devices and software. india said to be considering a plan to transfer cash to farmers, instead of offering subsidies for farm products. the modi government could spend almost $10 billion combining all subsidies into a single annual cash handout. the plan comes after the ruling was defeated in polls last month. india faces a general election

this may. global news 24 hours a day, powered by more than 2700 journalists and analysts. this is bloomberg. paul: thanks very much. the international monetary fund with a forecast of the global economy as trade tensions deliver the weakest expansion in three years. watching this is our global economic editor kathleen hays. she had a look through the reports. this is the second downgrade in three months, so what is the biggest driver? kathleen: well, certainly, one of the very biggest drivers is the slowdown in europe. it looks like it is going to be led more than ever by germany. this is not just on as davos starts the world economic forum meeting, this is a week with major central banks meeting including european central banks and the bank of japan. this is extra because of that. actually blaming softer demand across europe and global factors

as well. clearly, this is a warning from the imf. let's listen. >> given as the economy continues to move ahead, as i said, it is facing significantly higher risks. some of them actually related to policy. increasinglyre intertwined. andk of how higher tariffs rising uncertainty over future trade policy fed into lower asset prices and higher market volatility. kathleen: it is interesting when madam lagarde mentioned policy as part of risk, she is not just talking about trade, she is talking about global central banks. eventually raising key rates, maybe that is a bit of a warning. the list is interesting. looking at u.s. and china, no change in the growth forecast,

not yet. the risks are tilted to the downside because of the risk of more tariffs, brexit without a clear resolution, a hard brexit, and even deeper china slowdown. she cut european slowdown ahead of the ecb meeting on thursday. the imf chopped their german 2019 growth forecast to 1.3% to 0.1%.s down this is something that a lot of market participants are saying, gee, mario draghi, can you afford not to soften your stance at the meeting? this is another reason why the report resonates. shery: it is interesting the imf actually upgraded its forecast for japan, so what is japan doing right? kathleen: i am sure prime minister abe is very happy to hear all of this. imf predicting that the japan economy will grow 1.1% in 2019.

and 0.5% in 2020. 2019 is 1.1%. both forecast rates a little bit stronger. let's look at a chart because why is this important? third-quarter growth in japan stumbled a lot because of natural disasters, but down 2.5%. this is reinforcing the view the bank of japan has that growth is on track and is hopefully strong enough to start boosting inflation a little bit. the main thing the imf supports is fiscal support for japan's economy, including very important offsets that are in the plan for that 2019 consumption tax hike to loosen the effect on families. to make sure that even as the taxes finally raised, it will not hurt the economy. this is a very important deal. lastly, the cabinet in japan -- last week, the cabinet in japan

voting. one more thing on what asia and the importance, the imf stressing that what happens in china, can their government managed to keep the government going, provide the right kind of stimulus -- very important. another positive note for japan if i may take a look at the australian open is that kei nishikori advancing to the fourth round of the quarterfinals in the aussie open last night, yesterday. i think if you are japanese, he's got so many fans in this country. it is a good day on many fronts. shery: thank you so much, kathleen hays in tokyo. jinpingpresident xi stressed political stability and said serious danger in the unusual meeting of country's top leaders. he points the growing and slowing economy. tom mackenzie joins us from beijing.

tom, are we seeing an increase sense of urgency from president xi jinping? was a cool tohis provincial leaders at this unusual meeting that took place in beijing. we were given no heads up, no official heads up or guidance that this meeting was going to happen. we only found out about it after the meeting had taken place. this is a call from president xi for these provincial leaders to wake up and smell the coffee on a number of issues. the domestic issues, whether it is the environment or economy. also, external pressures. but as you said, front and center, the most important for the communist party, the social impacts of many of these issues when they come together. the social fabric in china. social stability absolutely key for the communist party. there was is interesting line from president xi who was talking about the external pressures on the chinese economy, as have the premier in

recent weeks and months. this interesting line from president xi when he talked about the dangers, the risks to the long-term rule of the communist party. that really highlights their concerns about what this may do to slow the economy, social stability. the communist party has been able to ride the waves of three decades of continuous strong growth. that has helped them hold onto power. now that growth is starting to slow, there are questions about what that means. there is no indication there is anything like a big upset on that front, but there are number of anniversaries later this year that could put some pressure on the ruling communist party, if grievances come and they use those anniversaries as a point to coalesce around some of those issues. whether that is the 70th anniversary of the people's republic of china being founded on the first of october, or the tiananmen square crackdown. that is what china could point

to as potential flashpoints looking ahead. paul: we have this imf report showing global growth slowing. beijing's policies for the economy going to once again come to the rescue and boost global growth? tom: essentially, the view at this stage is no, do not expect china to rise to the rescue. 2008,id that in 2002, 2009 when they injected record stimulus into the economy and that helped to lift growth globally as well. china provides or accounts for about a third of global growth. the view is with the step-by-step these meal policy measures to support growth, or at least penalize growth here, that is not going to be enough to feed into stable growth. we heard from the likes of capital economics. their view is that the slowdown that they expect to see in china in 2019 is going to knock about 0.2% off of global growth. the question is whether or not

policymakers under pressure step up that support. for now, the consensus view is you were going to get continued tax cuts and continued monetary policy loosening, injections of capital into the financial system and more support for the private sector. not enough to give the global economy that huge boost. the trade war is front and center. we had that tweet from president trump that suggested the mood in washington is turning more sour on how much progress is being made in these talks so far. trump saying it was time for china to strike a real deal and highlighting the weakness in the chinese economy. again, there is no mounting scrutiny, increased scrutiny on the continued talk to the end of this month between china's vice for mere at robert lighthizer in washington to see if they can come up with concrete proposals and alleviate one of these key pressures on the chinese economy. paul: all right, china correspondent tom mackenzie, thank you. still ahead, the ubs wealth management tells us why it's betting on chinese stimulus

measures giving a boost to economies. shery: we ask mainstay capital how long the rally in u.s. stocks could last and why it is looking into emerging markets. this is bloomberg. ♪

shery: this is daybreak: asia. paul: i am paul allen in sydney. with the world economic forum kicking up in davos, corporate executives joining the imf to warned that the global economy is at a turning point. joining us now is mainstay capital management founder ceo and chief investment strategist david kudla. thank you for joining us this morning. let's start up with this warning from the imf. we can show you exactly what they are talking about. we will jump into the bloomberg and take a look at chart 3614. that shows you the imf's global growth forecast. 3.5%, revised down from 3.7%, the weakest in the three years. perhaps on a positive note, the

outlook for u.s. and china unchanged. david, is it time to start getting defensive? david: well, this has been a concern for a wild. -- while. this is another slowing of growth, second time in three months, after our last downgrade from the imf. this has been the concern that we have slowing global growth, slowing growth, significant slowing growth in europe. concerns about china. u.s. growth has continued to be quite robust, although there are concerns about 2019. we have seen some strength in japan, strength and south korea. encouraging gdp data there. what we have gone through is this repricing in the fourth quarter and a lot of global markets, especially the u.s. maybe in overreaction to the slowing growth. we think that growth will continue to be better than

expected and that is why we are seeing now a rally in january. so, i think that there is justifiedhat are very about europe and we have been avoiding europe. we think the concern is real about europe. there is going to be stimulative measures in china when it comes to emerging markets in the u.s., we are quite positive. paul: in terms of europe, we are saying from guy hams, you cannot rationally invest in the u.k. is that a view you would subscribe to? david: yeah. the -- europe is really just quite a mess right now. with brexit, the concerns with brexit. with whether it is the yellow vests in france. political turmoil in italy. the wrangling between italy and the eu. we just take the economic data

in germany alone. a major exporter. their caught up as a victim in the trade wars between china and the u.s., and what is happening to their exports, what's happening to their economic growth. really, we look at it as the eu is meant to bring europe together. it seems to be ripping it apart.it is dividing countries . we are seeing that with brexit. with all the political turmoil ecb is going on with the that is at the end of their stimulative cycle and we are seeing economic growth on the downturn -- that is not a good sign. we think we have to avoid europe here. continue to avoid europe. shery: earnings season in the u.s. is in full swing. we have johnson & johnson, ibm, ubs reporting this week. this chart on the bloomberg showing the top panel where the s&p 500 is. the bottom panel showing

estimates and gdp estimates for 2019. for sure, it is really decelerating a little bit but it is not a huge plunge. how much will earnings potential really provide a boost in support for the equities market in the u.s.? david: that has been the concern. we have had fear that earnings would fall off a cliff going into 2019. some concern we would see quarters of negative earnings growth or really earnings contraction. we don't see that negative of a picture. consensus earning estimates are about 8% earnings growth, about 5% revenue growth in 2019. we are following a spectacular earnings growth for 2018. with 8% earnings growth on top of that in 2019, we think we could have a pretty robust year for u.s. stocks. we are off to a very good start. through thursday of last week, the best start for the s&p 500 and the russell 2000 small-cap

stock index since 1987. a very good start to the year, coming off that low of december 24. we think we still have a decent your ahead of us. the thing we have going for us compared to the last couple of years is we came into this year with cyclicals at their lowest forward p.e. relative to the s&p 500 ever. investors have the advantage now that they can diversify their portfolio with dahlia stocks that have been underperformers along with growth stocks. those value stocks offer tremendous value, no pun unintended -- intended. we think they will do well in 2019. combined with growth stocks, tactically opportunistic but diversified portfolio for 2019, we think we could do quite well. shery: we are seeing consumer confidence. showing the university of

michigan's readout of consumer sentiment in january really following -- falling to levels we have not seen since 2016. i know when we talk about the government shutdown, we say it does not have a big impact on equity markets. yet, we are talking about the longest government shutdown on record. we are a month into this partial shutdown. i know it is not necessarily about the money. you also right in your notes that it is not about a $5 billion vote, it is a political fight. we continue to see this gridlock in 2019 and continued uncertainty. when will the start weighing on the markets? david: it will start weighing on the market. it will have an economic impact eventually, if it is not already starting to have an economic impact to on consumer sentiment, though soft economic numbers, those tend tend t to be somewhat volatile, emotionally driven. i think what happened in the fourth quarter, the concern about what the economic environment would be in 2019,

certainly what happened to the stock market in the fourth quarter drove some of those numbers, soft numbers impacted them on the negative side. i think of we get a recovery in the first quarter which we have already seen, we have a positive december's jobs number, we will see how the gdp data comes in -- we might see a recovery to some of that soft data. consumer sentiment, business sentiment. that tend to be emotionally driven based on recency bias and how those polls are looking at most recent data. the government shutdown certainly ways on people. it certainly is impacting people that government workers -- very unfortunate happening to those that are directly affected and it will have an effect on the economy here over time if it continues, and we hope it gets resolved quickly for a lot of reasons. paul: all right, david, we have to leave it there but thank you

for joining us this morning on the bloomberg daybreak: asia. david kudla, mainstay capital management. bloomberg users can interact with the charts we show using gtv go. reason charts on key analysis and you can save charts for future reference. this is bloomberg. ♪

shery: let's get you started with a quick check of the asian markets. we are seeing the asx 200 falling a quarter of a percent after five sessions of gains. stocks in asia have been at the highest level in almost a miss weeks -- seven weeks but we are seeing some downside pressure with qe stocks falling a 10th of 1%. gdp numbers, really surprising to the upside. futures unchanged at the moment, but we do have a bank of korea rate meeting later this week.

paul: coming up next, brexit. the u.k. labour party calling for a second referendum. we will have all the details coming up next on bloomberg. ♪

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"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. paul: this is daybreak asia. ramy: the international monetary fund cut its forecast for the world economy, protecting the weakest pace of growth in three years and say impressed trade tensions would mean further trouble. the second downgraded three months, it blames the softening demand in europe and reason volatility in the market. christine lagarde says growth is lower than expected and risks are rising. >> given as the economy continues to move ahead, as i said, it is facing significantly higher risks. some of them actually related to policy. increasinglyre intertwined. ramy: president xi jinping warns

senior leaders in beijing that political stability is crucial in the face of slowing economy and simmering trade war. he says the communist party must make greater efforts to prevent and resolve threats, saying areas of concern, politics and ideology to the environment and global circumstances. xi warned of pacifists and glowing corruption. the u.k.'s looming split from europe sees two he more markets move out of london. cme group is shifting its forward and swaps to amsterdam. the foreign-exchange is $15 billion each day. also moving most of its european equity to the netherlands. cme and cboe are both waiting for regulatory approval from dutch financial authorities. ireland has nominated central bank governor phillip late to join the ecb as it prepares to end crisis-era stimulus. the eurozone finance ministers met in brussels and government

but lane forward when the term ends in may. he could take the role as ecb chief economist. he told a doctorate from harvard and is widely considered a front-runner. global news 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts. this is bloomberg. shery: thank you so much. we are seeing some downside pressure on asian stocks. australian stocks now falling for the first time in six days. let's go to sophie with the details. what is weighing on the market? sophie: when you have the aussie share market five-day advance retreating from the 10 day high we saw on monday, off by 2/10 of 1%, a bit of a mixed bag with what is weighing on sentiment. a few ratings of note for example. let's show you some of those players. one of australia's largest developers, while telecom cut.

this comes as we learned regulators are delaying a decision on the vote merger to april 11 from march 28 as it waits on more information. chp is falling for the first day in three. unplanned outages will cost $600 million. sims metal continuing to decline after losing 16% on monday on its earnings report. it was downgraded to sell with a lower price target. paul? paul: all right, checking the markets. thanks very much. in the past hour, the u.k. opposition labor party proposing a parliamentary vote that could pave the way for a second referendum. earlier, prime minister theresa may would not rule out a delay to the impugning divorce, but said a second referendum could create social unrest.

we are joined by our senior international editor jodi schneider. what do we make of this offer from the u.k. labour party? jodi: interesting. jeremy corbyn, who has not been part of the crop party talks that theresa may has been refusing to talk as she tries to seek another deal on brexit -- they're basically saying it is a complicated parliamentary procedure with amendments and things like that. basically, as soon as next week, they could be going through parliamentary procedure that could pave the way to another vote, to a second referendum. theresa may does not want a second referendum. she has said she will not rule out delaying the vote, delaying the exit from the eu. i think everyone at this point realizes that a delay is going to be necessary. even eu ministers are debating whether it should be a long war shorter delay. -- or shorter delay, but a

second vote would complicate it a great deal. this is something theresa may and her party are going to be against. we will see whether the labour party can be successful in pushing for this. paul: a second vote, of course, does not guarantee a different outcome either. it might guarantee a my divisive and brutal campaign. thatrms of a hard brexit, is still not off the table either, is it? jodi: that is right. theresa may publicly and in her comments yesterday was still talking about how to negotiate with the eu and try to find something, some path that would allow a deal that could still get through. with only nine weeks left to go, it is really hard to see how that could happen. again, the debate even in the eu is how much of a delay and how this would work. at the same time, we have divisions within parliament, still very strong divisions

about what should happen here. everyone agrees and there has been more analysis done that shows that a leaving in nine weeks without a deal, a no deal brexit, could have catastrophic economic effects. i think that is one thing people are agreeing on. the question is what happens now, what happens next week if the labour party is successful? would that lead to a second vote? how much of a delay will there be? some eu ministers are actually suggesting there could be a delay for as much as a year which would perhaps include a second referendum to figure out what the next steps are. shery: could this labor move play into the prime minister's hands, because pro-brexit hardliners could see her divorce deal is better than another referendum? jodi: that is true, although given the huge defeat last week in parliament for that deal, it is hard to see that his current deal would fare much better even

with that as a political backdrop. it is hard to see a path through a very divided parliament for anything like this current deal. of course, the eu, if she were driving to get a different deal, the eu would have to agree to that and so far, they don't seem willing to change the terms of that agreement. they may allow for a delay, but significant changes to the agreement is facing greater -- they are very reluctant to make it. shery: jodi, thank you for that. singapore's next leader and current finance minister has told bloomberg it is vital the u.s. and china settle their differences to avoid damaging the global economy. he spoke to us at the world economic forum in davos. are tryingboth sides to cut a deal at this moment. we have a few weeks ago before the final decision. i think it is important for both

sides to try to cut a deal, because the impact on the global economy is going to be very negative. >> where do you see room for a compromise between the u.s. and china? >> i think there are a number of issues. it is not just about trade s eekers -- it is also about intellectual property, the longer-term between the two economies. there are a number of items they are cutting, including in the way companies haven't dealt with, intellectual property has been dealt with. waysthe deficit in many has brought economic factors. economists say it is a measure of a set of - investment between the country.those type of changes will all the to be made not just buy one country, but all countries involved. haslinda: if/when there are

changes to the supply chain as a result of this trade war, where police places take -- where will these changes take place? >> the global supply chain today is highly integrated. multinationals have been sourcing from all over the world. it is a very delicate supply chain. in the short run, many companies are really scrambling to look at how they can -- how they can really structure the supply chain to make it more resilient. haslinda: what does that mean -- china to vietnam? china to -- >> there are some aspects in the rest of asia between china and southeast asia. a number of countries -- south asian countries will have the benefit of restructuring. for instance, some logistics companies are reporting that as a result of this trade conflict, as long as broader long-term

shift in the economy numbers -- for instance, across different parts of the world -- it is already shipping, -- shifting, accelerating. companies are also coming out of china. china has a very exclusive strategy. as we go outcome of the entire supply chain will be reconfigured. paul: that was singapore's finance minister speaking with haslinda amin in davos. coming up next, the latest commodity calls from ubs wealth management. their top picks next. this is bloomberg. ♪

shery: this is daybreak: asia. i am shery ahn in new york. paul: i am paul allen in sydney. bhp released second-quarter production figures. iron ore and copper. the outcome coming to short of estimates.

let's go to the senior energy reporter, david stringer. what is the outlook for bhp? david: as you say, we have had that production data earlier this morning. the key thing we are looking for are the impacts -- in november, it was quite a dramatic issue in its iron ore region with a runaway train. a driver to these enormously long iron ore trains and it hurtled off without them, speeding about 90 kilometers in western australia before it was deliberately derailed. that led to an outage of a rail line for five days. bhp told us it cost them about 4 million. we saw shipments in the quarter drop about 7% compared to the prior year. so quite an impact from that incident. it does mean they are slightly off track in terms of full-year guidance. what we will be looking for is a stronger performance in this opening six months of 2019 to

get them back on track. no cause for alarm yet. they are not making any adjustments to guidance but investors will be watching and looking for a better performance in iron ore. shery: volumes are down to the oil division after that u.s. shale assets, so any plans to add any conventional output? david: absolutely. those volumes are down. the u.s. assets were sold for $11 billion last year. they are focused now on lifting production unconventional oil. a project in mexico is seen as a positive. bhp also considers approving its share of spending with bp. bp approved that earlier this year. they picked up a couple of assets in canada. they're looking to fill that gap and really ramp up production of conventional oil, particularly with a better prices we have seen since the end of last year. shery: david stringer in melbourne, our senior energy and

commodities reporter. our next guest is bullish on base metals, seeing and ease of trade tensions and pick up in china. let's bring in wayne gordon, executive director for comedies and fx. we have had the somewhat disappointing gdp growth numbers out of china, but at the same time, that could signal we could see greater stimulus efforts coming from china. how could that and that in fact act as some boost or help to the return outlooks for commodities this year? inne: i think analysts commodities and the broader market face a pretty similar challenge to last year. how much is actually priced and how will the data evolve from here. we saw growth the downgraded by the imf. from our perspective at ubs, that simply follows what we have been doing to a number of our

forecast over the last six months. starting to cut away from the exuberance of the previous couple of years. base metals, i guess it comes down to what we think is priced. broadly, we think things like copper -- we have seen a broader weakness in the u.s. dollar. we actually think that now is the you are begins -- new year begins, the policy backdrop which really supports base metal is starting to turn to the positive. ubs, we called for one rate hike this year. down from about our expectation of three in the middle of last year. also, we expect that any dollar strength in the short-term is largely come past us. consequently, a weaker dollar over the next 12 months. if you add that in two additional policy support from china, it is very clear policymakers have been out

making sure that people are aware they are going to stabilize the market. consequently, that is a pretty positive backdrop for things like copper which have been largely oversold since the third quarter. shery: the chart on the bloomberg is showing you the copper prices. they have been hovering around that $6,000 a ton level despite disappointing data we have seen in china's manufacturing pmi numbers. that is what is happening with china, demand in china. potentially, more stimulus measures expected. what happens when you are seeking more data from the u.s.? manufacturing surveys on the downside. german on the downside. does this spell trouble for what was supposed to be an undersupplied base metals market? data: i think the german in particular is very worrying,

largely because germany is fundamentally an industrial-based economy. we have to remember in the u.s., a large proportion of gdp is derived from services. services are holding up very well. i think there is room to be optimistic from a very pessimistic base that we started the year with around the u.s. in europe, the slowdown seems to continue. that is one area of concern. what we have to remember is that some of his slowdown -- this slowdown has been driven out of the slowdown in china. we do think the data from the chinese perspective is going to look a little worse over the next couple of months, but overall, i think from an pessimistic perspective, we are reaching peak pessimism. i think the chinese continue to ease credit and that is going to support activity as well as trade data as we go into the

second quarter of this year. it comes down to whether you want to continue looking into the rearview mirror or you look forward and you can see the velocity of the downgrade starting to come -- starting to slow, some of the downgrades are coming to an end. the data looking like it is dropping and we have some optimism that the second quarter will bring better results. paul: what happens with china is very important to what happens in australia. i want you to take a look at this chart. it shows iron ore easing, china's imports of iron ore easing. steel also easing. at the same time, bhp and rio tinto reaffirming shipments for 2019. surely, you think this price target of $65 to $70 a ton on iron ore is a tad optimistic?

wayne: i think we are pretty much in the right line. we have sort of had a wider range. we are looking at more fluctuating around $60, $70 for 2019 as a whole. we have seen steel margins come under material pressure, but we are starting to see credit, particularly in the local government level in china, flow more freely. in fact, the government has moved more swiftly than what is usually the case for crude. some of those projects. that is going to continue to support infrastructure, the infrastructure buildout. -- housing market is indeed pricing is coming under some pressure but it is generally pretty robust. we can expect you'll margins to start the bottom -- fuel margin start to bottom, start to improve. iron ore is one of the few commodities in quarter four that surprised us to the upside, largely around what you mentioned earlier with regards

to an outage with bhp as well as fuel prices. all coming to an interplay to lift iron ore prices higher as the steel mills stay open for longer because of lower pollution in the country. we do expect some improvement in steel margins. that should maintain a robust iron ore pricing around the $60 to $70, a pretty fair price. paul: wayne, i wanted to get your thoughts on one of your favorites -- aluminum. sentience -- sanctions are being lifted, large stockpiles are about to hit the market. can you explain your thoughts on aluminum a little more? wayne: aluminum is one of the few commodities we have that is sitting right at its production cost support. yes, we do expect some of the volume that had been taken out of the market as a result of

these sanctions, that will begin to return. but at the same time, at least from a price perspective, aloe them -- aluminum prices have room to the upside, largely because there will be some improvement on the demand side as well as the market will be largely constrained by this cost of production. prices, we think, a pretty stable around the bottom. we think they can move higher on a 12 month basis. that is a reasonably positive outlook for the commodity. paul: all right, we will have to leave it there but thank you for joining us this morning on bloomberg daybreak: asia. ubs wealth management's wayne gordon. you can get a roundup of the stories need to do on today's edition of daybreak. bloomberg subscribers can go on their terminals. it is also available on mobile on the bloomberg anywhere app.

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paul: this is daybreak asia. i am paul allen in sydney. shery: i am shery ahn in new york. let's get a quick check of the business flash headlines. google has been fined nearly $57 billion in france under new privacy laws that allow much heavier penalties for data protection cases. google is accused of forcing users to agree to new privacy policies. it has come under scrutiny in france before but old rules restrictive the fines to $170,000. the regulator says the fine is justified by the severity of the infringement. paul: the recent leak of blackrock is known to expose the data of 20,000 of its advisors. lpl includes 12,000

financial, the largest broker in the u.s. lpl so the leak affected people that work with blackrock's exchange funds unit. sales accounted for a third of the $6 trillion of assets overseas by blackrock. shery: john barley is going on file for fraud a decade after the financial crisis. the capital injection he secured for the bank in 2008 to avoid the government bailout. the case against barley at three other former executives revolved around what information they gave the market went they won more than $15 billion in emergency cash calls. paul: let's preview the market open in japan and south korea. here's sophie. sophie: the nikkei 225 extends gains for the third session. imf boosting its growth outlook for japan by fiscal support. after a five-day game may change on what investors focus on the gdp report which surprised exports to remain a sore spot.

when it comes to stocks to watch, we are taking a look at hankook at it is halting its expansion. labor may move after media reports that show south korea's largest web portal operator has decided not to set up an internet only bank in tokyo. it looks to potentially sell some em assets. we are taking a look at panasonic. a report that it will supply tesla ev batteries for a factory in nevada. it is not clear what that means for panasonic's position as tesla' sole battery supplier. looking at perhaps other suppliers. shery: checking on the broader markets, we are seeing aussie stocks falling for the first five and six days, down 2/10 of 1%. stocks falling after four sessions of gains. we have more downside for the broader market. while the u.s. is on martin luther king jr. holiday, no

trading in the u.s.. plenty more to come on the second hour of daybreak asia. this is bloomberg. ♪

>> good morning. i am paul allen in sydney. shery: good evening. i am shery ahn. sophie: and i am sophie kamaruddin in hong kong. welcome to "daybreak asia." paul: our top stories this tuesday, a warning for davos. is slowing further and risks are rising around the world. president xi talks of serious dangers with china facing a simmering trade war and growth at its slowest in three decades. shery: asia pacific stocks face

a muted start. let's get straight to sophie was a check on the markets. south korea fourth-quarter gdp numbers, a big beat. sophie: we are going to have some reaction to that. fourth-quarter growth coming in better than expected, expanding on a yearly basis compared to the 2% gain in the previous three months. increased spending by the government to help offset slowing exports. concern as hinted at by the early january trade data that saw exports tumble the most in more than two years. ares check in on how stocks kicking off the session in seoul. we have the kospi opening flat after a five-day advance. the nikkei gaining ground, .1%.ds aussie shares are falling for the first day in six months lower. are looking at subdued

sessions after asian stocks rose to a seven-week high on monday and i want to highlight some movers. undere this company down 2%. this on reports that it is not looking to set up an internet only bank. takeda moving to the upside, 2.1%. this on the potential sale of about $3 billion worth of emerging markets as part of the effort to cut the shire deal. paul. paul: sophie kamaruddin, thank you very much for that check of the market. we are joined by our mliv managing editor, mark cudmore. u.s. markets closed monday for the public holiday. no major data expected. there will be some grafting around for some direction. mark: i think that is absolutely right. it will be a quiet session but positive overall. there is a lack of catalysts on the horizon and that means they

will start allocating more capital as volatility comes down. we have seen that seem in the last week or so that after the wild december and early part of january, the volatility has been lowering. on the horizon is the u.s.-china trade talks next week and the u.s. shutdown will matter. for asia, it will be quietly positive. paul: investors are reading the slowdown in china -- are investors reading the slowdown in china correctly? mark: there is a lot of hype around this word "slowdown. it is -- "slowdown." i think the people need to realize that there are effects year. china is the second largest theomy in the world and percentage growth is going to slowly come down. it is still incredible, an

economy growing at over 6%. the u.s. last saw that pace of growth in 1984 when the economy was roughly the third of the size china is now so the u.s. should know that when an economy gets large, it is hard to maintain such pace of growth. the fact that we get excited by slowdown is misleading. china is going to communion slowing down. aside from the data out we don't expect any major economic numbers. does that mean davos will be a driver for the markets? mark: sec. spicer: -- mark: davos is always super interesting. it does not tend to be a big mover. year, trump and xi jinping isl not be there, so it

unlikely that davos will be a big mover for markets but you have to keep an eye out because soundbites do come out. shery: mark cudmore. the u.k. opposition labor party is calling for a second vote in parliament that could trigger another referendum on brexit. theresa may is refusing to allow delaying that, but is under pressure from a draft bill that could force her to ask brussels to extend the brexit deadline. she told the house of commons there was no justification for a second referendum. this would require an extension of article 50. we would likely have to return a new set to the european parliament in may. i also believe there has not yet been enough recognition of the way the second referendum could damage social cohesion by undermining faith in our democracy. the prime minister seems to be going through the motions of

accepting the results, but in reality, is in deep denial. that decisive defeat is that the prime minister must change her red line because her current deal is undeliverable. ramy: the u.k.'s looming split from europe sees more key markets move out of london. to group is shifting amsterdam. the foreign exchange $15 billion each day. another company is moving to the netherlands. are waiting for regulatory approval from dutch financial authorities. theydia, the they are -- are offering -- the modi government could spend almost $10 billion combining all subsidies into a single annual cash handout. the bjp wases after

defeated. ireland has nominated central bank governor philip lane to join the ecb as it prepares to end crisis era stimulus. finance ministers met in brussels and dublin for the six-member executive board. could take the role as ecb chief economist. he does hold a doctorate from harvard and is widely considered the front-runner. 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 ramy inocencio, and this is bloomberg. shery: xi jinping stressed political stability and "serious dangers." it points to growing concern about the social implications of the slowing economy. us fromenzie joins beijing. are we starting to see the cracks of policymakers?

why the sudden urgency? policymakers have long faced a number of domestic issues and external issues, but what they are facing now of is expected to be this long-term slowdown after three decades of stellar growth that has ensure they will be able to hold onto the reigns of power pretty strongly. fromentral message president xi jinping was around that social cohesion you talked about. you talked to his officials, the provincial leaders and ministers, about prevent risks in sectors ranging from the real estate sector to financial markets to the environment, but focus was on social stability slowdown in the economy here and those external pressures. what you did not talk about, which certainly would have been at the top of his mind, you would have thought, the pressures on companies as they start to lay people off, the pressure on consumers and what

that means for the social fabric. that was telling them to ensure they were working cohesively to monitor these risks and step up and prevent them when they do occur. it was a pretty stark warning from the president about the potential impacts on the long-term ruling of the communist party that we had not heard up until this point. paul: what are the chances beijing's policies for its economy are going to boost growth globally? it looks pretty unlikely at this stage, particularly if you listen to the likes of moody's analytics. capital economics things china's slowdown will knock 0.2% off global gdp. we will remember that back in 2008, 2009, china steps up with its massive fiscal stimulus that really helped to rejuvenate the global economy. countries like australia being massive beneficiaries, for

example. they are trying to hold the line as the economy shifts away from investment-led, that has ensure growth. of course, the policy measures they have outlined so far and the ones they have set are going to be coming down the pipeline, or more gradual. you have the triple -- the rrr cuts, the emphasis on providing credit and the cuts andns around tax additional cuts towards the end of this year, but no massive stimulus, and that is why there is a view from the economist that it is unlikely that china, even as it makes up a third of global growth, to give an injection to global growth in 2019. it comes down to how bad the data becomes and there are some who think that at some point, policymakers could start to crack and they could inject a bit more stimulus. we are not there yet. china correspondent tom

mackenzie, thank you very much. still ahead, goldman sachs chief equity strategist is one of the thisst wall street -- year. he joins us in hong kong. shery: business and political leaders are assessing global risks in davos. we will speak with david man. this is bloomberg. ♪

shery: this is "daybreak asia." i am shery on in new york. paul: i am paul allen in sydney. haslinda amin is at the event for us. she looks at what will be on the agenda. the theme this year is globalization 4.0.

this meeting comes against a backdrop of rising anti-globalization sentiment. the person behind the world economic forum says globalization may have peaked, but government leaders will have to continue to work together to address issues like populism, easing growth, climate change. china is looking at the slowest growth in about 10 years since the last global financial crisis. we have the brexit situation in the u.k. and the u.s.-china trade war does not seem to be easing anytime soon. no solution in sight at this point in time. what is apparent is the absence of several global leaders, the likes of president trump, macron, may, who have decided to stay home because of domestic issues. all these reflect the very challenging times and the issues that will have to be addressed at this world economic forum. shery: haslinda amin reporting

from davos. our next guest is bearish on the u.s. dollar and long-term bullish on the chinese yuan, and sees two fed rate hikes this year. joining us now is standard chartered's global chief economist. you are not the only one bearish on the dollar. consensus is we could see a weaker u.s. dollar, but the question would be, what do you like, given that this seems to be economic headwinds and where are we look. -- headwinds everywhere we look. that's absolutely right. it is hard to really say that be jumpingecessarily in with both feet in currencies like sterling with the brexit issue still far from resolved or indeed into the euro, given the cost to carry is so expensive. for that, we will see at least the beginnings of the ecb rate hiking cycle, and that could be

quite a distance away from where we are today. instead, it's more likely that currencies like the yen or the renminbi are calling for appreciation in 2019 against consensus view, these are ones that help to anchor currencies in the region. as long as the delta on news, whether it be on the u.s.-china trade war, on the said the old, oil prices staying in the goldilocks range, as long as those remain in place, currencies may continue to benefit from some decent inflows. to show the gtv chart on the bloomberg showing financial conditions here in the u.s.. financial conditions tightening as we see the fed funds rate hike, but of course, we are seeing a little bit of more easing recently after that selloff reverse into markets buying and gaining ground, but when will conditions be comfortable enough for the fed to hike again, two times as you project?

>> the key issue here, and i am glad you put in that chart showing financial conditions, that is exactly what the fed has been looking at to decide to go on pause. the underlying data in the u.s. is still in relatively good shape. we know the labor market is tight. there may be some rise, potentially breaking out higher in the labor participation rates in the united states, as the domestic economy continues to be robust. we need to mean we continu see conditions continue to reverse and q4 is when the markets would be able to absorb one more or 20 more rate hikes and we think that will be justified -- one more or two more rate hikes, and we think that would be justified. at should be the end of the hiking cycle, and elsewhere should be the beginnings of the tightening cycle, including in europe. between now and then, there is a huge amount of pieces of news that can swing the markets around. we believe we have seen institutions like the imf

warning about downside risk from the political events, whether it be a sudden reversal in a u.s.-china trade were that can happen at any time or indeed under brexit related issues or other political challenges in europe. we are focusing now on the delta and good news, but we have to be cautious that there are many reasons to stay very nimble in these markets given the news that can come out and anytime -- out at any time. paul: i wonder if the window is closing for the fed and other central banks to get rates more normalized. for the ecb, you mentioned tightening a minute ago. the ims slashing its growth forecast for germany. tightening seems like a bit of a dream there, doesn't it? >> it is getting increasingly in that direction that the risk is the ecb doesn't get the opportunity to hike at all. for us, the key issue on whether the euro can gain substantial

momentum higher will be on getting the deposit rate that into positive terror -- back into positive territory. that should enable a lot of reserve managers around the world who want to increase their allocations toward euros to do so. that should be a story towards the end of the year, but you are right. there is a growing amount of risk that the ecb may not get that opportunity. it is still the case that we do see a height, but the -- a hike, but the risk is that it gets delayed further because of these issues. on the actual slowdown around the world, we are calling for slower global growth. has gone oute tide for the global economy. not for a recession. we believe the markets have become overly pessimistic on what the outlook actually is. softer thanl be last year, but we will be well above trend growth and still will be there for giving enough reasons for this red to be more focused on the inflation part of the mandate by later this year

rather than on the growth. paul: on the subject of recessions, i am wondering how closely are keeping an eye on japan. in just over three weeks, we will get gdp figures. are you expecting to see if the call recession in japan? haslinda: as possible. -- >> is possible. the most important issue is what it would do for the currency. we don't believe there is any real room for the boj to move away from its current policy mix. we gettingve that data, when you have actually the inflation declining, you end up with higher real interest rates, and that, in our view, is one of the bigger factors that has been driving yen strength more recently. are dollarve you bearish, picking something to buy against the dollar, the yen and the renminbi, to us, strike us as the better options. shery: let's talk about the renminbi. you are expecting the chinese yuan to gain ground, but we are

seeing monetary policy easing. not to mention more fiscal whether it isted, income tax cuts or some other form of stimulus. won't this put pressure on the yuan? david: at first glance, that is a fair argument. the reason we disagree is that, actually, you are seeing some millis measures and what will likely be a current account mild one, china, very but i the same time, with index inclusion and the amount of foreign investor inflows, we expect to see this year and the coming years, we think that can easily offset some of the outflows that there could be from the household sector. let's also not forget that to inclusion and have the comfort from foreign investors, we believe it is china's desire to have a relatively stable exchange rate. moderately stronger, not aggressively stronger. in that environment, the balance of flows to us tells us you can still get a modestly stronger

given all of the of it moving parts we have around the global economy. shery: one of those moving parts would be a potential trade deal between the u.s. and china. how much are you factoring that in when you have a bullish forecast for the chinese yuan? thing we arey factoring in is taking the news flow right now. meetingseing some key coming up in a matter of days. we should be seeing more positive progress based on what we are seeing so far, and we believe it is in both sides interest to go ahead with that. it seems to have become very strong. that, some of short-term extension, perhaps, of the existing truth is -- truce is something we are assuming. maybe things go in the opposite direction again, that is a harder call to make, but at least short-term, if we keep seeing the news going in the direction both sides want, avoid this going into and ever

worsening trade war. that should be good news and you don't see the reaction in the currency. if you were to see aggressive rises in paris against expectations, one that would hit sentiment, that is the bigger negative for the global economy. there is that possibility of seeing the currency being also taking some of the pain from that as you saw in june of last year. paul: david, just before we let you go, i want to get your thoughts on the shutdown in the u.s.. epic battle over the debt ceiling. ceiling justbt comes up so many times. as we have already seen, we have had so much trouble making anything function well in the last two years of congress. now that we have a switch with the democrats in charge, it has become even more acrimonious, the relationship between the white house and congress.

it.s difficult to see we are watching to see whether or not emergency measures could be announced to solve "" issues forthe border -- "issues" the border wall. in the meantime, it does look like it will be a battle of deciding who is being assigned more of the blame for it, and at the moment, it has been more blending the white house rather than congress. that could be one of the other deciding factors on limiting how long this goes on for. we are in uncharted territory for how long this goes on. the longer it does, the more it can affect sentiment. we can look at the direct impact of the reduced amount of spending that will be given back, and we will recover that later. the unintended consequences could be the bigger issue here, the longer that this drags on. paul: david mann, we will leave it there. that is david mann, standard

charters mobile chief economist. forget, tv . you can watch us -- do not forget, tv . you can watch us live and die than to of the securities were bloomberg functions we talk about. you can become part of the conversation. you can send us instant messages during our show. check it out at tv . this is bloomberg. ♪

paul: quick check of the latest business flash headlines. the latest data leak of blackrock is now known to have exposed the data of 20,000 of its advisors and that includes 12,000 of the largest independent broker-deal and the u.s.. it affected people who worked for blackrock's exchange funds unit. shery: iron ore shipments fell in the final quarter of 2018 in

part due to the derailment of a train. it is flagging a 600 million dollar impact from a series of incidents at home and abroad. suspendedliveries a for five days. plenty more coming up. this is bloomberg. ♪

rainy: -- ramy: this is "daybreak asia." said fresh trade tensions would mean further trouble. downgrading three months, the fun blame softening demand in europe and recent volatility across the markets. christine lagarde says growth is slower than expected and risks are rising. : even as the economy continues to move ahead, it is facing significantly higher risks. some of them related to policy. risks are increasingly

intertwined. ramy: xi jinping warns leaders that's the -- that political stability is crucial. mustid the communist party make greater efforts to prevent and resolve threats, saying areas of concern range from politics and ideology to the environment and global circumstances. of passiveness and growing corruption. more than 100 china experts and former envoys to beijing have called on president xi to release two canadians who have been detained for six weeks. the group includes former u.s. ambassador gary locke,ex-hong kong governor patton, and ambassadors. they were arrested days after the huawei cfo was detained in canada for possible extradition to the united states. petrochina has brushed off a $1.5 billion write-down from the disposal of some assets, estimating that full-year net

income more than doubled thanks to higher crude prices. china's biggest oil and gas producers as net income could have jumped as much as 132% and that would take -- 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 ramy inocencio. this is bloomberg. thanks very much for that. time now to see how asian markets are shaping up so far this morning. let's get over to sophie kamaruddin in hong kong. ashie: caution is in the air we are seeing declines across the board. in addition stocks retreating from a seven-week high. financialsnd weighing in sydney while energy, real estate, and tech are a drag in tokyo. the kospi halting a five-day gain. the kospi is off by about .2%

this morning. when it comes to stock movers of note, switching out the board to check in on the likes of neighbor, because it is on course for the worst today decline since october. local media and korea reporting the company has decided not to set up an internet only bank as it is expanding its financial business in japan and southeast asia. in tokyo, takeda is rising. from a company is said to consider a sale of drugs that could fetch $3 billion. us isdney, minus is -- lin snapping a two day -- lynas is snapping the today decline. -- two-day decline. shery. shery: thank you. japan has won a pat on the back as the imf operates its growth forecast for this year. the banknot enough for

of japan to take long-awaited steps to end the extreme stimulus policies. kathleen hays has the imf report and a preview of the boj policy meeting that starts today. japan is faring much better than china or europe. why? absolutely. what a contrast. germany's growth forecast was ed for thish year. the imf looking very favorably at that's in japan. this year and next, japan's economy is not going to roar ahead. 0.5% for 2020. this is welcome news. jump into the bloomberg library and let's take a quick look at this chart which shows what has been happening to japan's gdp. one of the successes of the boj's extreme stimulus is you

have a lot more green in terms of gdp growth than you did in consecutive quarters. natural disasters of all clients hitting the economy, down 2.5%. concerns about the trade war. overis what is hanging japan. another reason why this probably resonates with policymakers across japan and investors as well. fiscal citing greater support. people are so concerned. hikes have, the slowed down japan's economy, but this year, this program designed specifically to make sure it does not hit particularly younger people too hard. the abe cabinet voted a record 20.et for that wall top ¥100 trillion for the first time ever. in effect, there are many who have been arguing for some time that fiscal stimulus is what is needed even though japan has a large debt to gdp ratio. goodness for now. cap -- good news for now.

paul: definitely encouraging. but that does not sound strong enough to help the bank of japan hit that inflation target anytime soon. what is expected at the meeting? kathleen: the bank of japan has this two-sided policy. this happens so often, doesn't it? they would like to start at least signaling we want to get out of this extreme stimulus. we know it makes it tougher on banks. we are concerned about the long-term effect of it. what it means for the jgb, inflation not cooperating. we are going to look at the core cpi. it has backed down again away from the 2% target. tot is the problem, down zero point 7% year-over-year and of course, that is occurring as oil prices fall. that is a big factor. if it is something standing in at boj's way now, if we look

our bloomberg economics team, what they are saying is they are going to stand pat. there is not much they can do. the economy has a lot of risks. here is what they are looking for. first of all, they are saying that the downside risks, the yen has gotten stronger. global demand -- remember, this is an exporting country as well. to 0.7% slowed year-over-year. the bank of japan, at this meeting, is expected to trim its inflation forecast for 2019 and 2020. some people think that is maybe a bit dovish. it isill also say working. reflation is on track. the consumer price impact has a lot to do with demographics. not only in the press conference, but the resolution of the u.s.-china trade war will probably be featured pretty

strongly. moreld like to include one thing, an interesting report from pantheon macro economics where they say governor kuroda is at the last chance corral. probably in the second quarter of the year. and ity pressure the yen will be time for the bank of japan to at least signal something in that direction, even with inflation lower. so i would say the consensus, if we do not get any change in the policy wraps up tomorrow, any sense of where the boj thinks it might be heading with some of this uncertainty, it would be very important for the outlook for now. global economics and policy editor kathleen hays in tokyo. thank you very much. its global cut forecast, predicting the world economy will grow at its weakest pace in three years. economist explains the

reason behind the second downgrade in three months. the conversation at the world economic forum in dallas. -- davos. advanced economies, it is driven by a slowing growth in the euro area. within the euro area, it will be germany and italy. for is what it looks like the advanced economies. what we are more concerned about are the growing risks to the global economy. several of those. some important ones are an escalation in trade tensions, a worsening in financial anditions, no deal brexit, in the event of a faster than expected slowdown in china, the consequences of the global economy would be far more negative than what we have right now. >> my next question is a two-part question. believe there is enough room both from a monetary policy point of view as well as fiscal stimulus point of view, to counter some of the slowdown?

you are focused on the impact of financial markets. is there a range of satellite events with broader deterioration in investor sentiment? gita: policy space is indeed limited. it is varied across different countries. there are some countries for is abundant policy space and there are others for which policy space is quite tight. monetary policy has barely normalized in many of the countries of the world, so that is a concern. what we are recommending is that , wen that growth has slowed think there is more time left for certain countries to build up. there will belity a downturn next time around, that they would be better prepared. >> in the financial market impact? much it is a big one for

of 2018 while the trade tensions were ongoing. it appeared that advanced financial markets were disconnected from the trade tensions, but recently, what has happened is they become more intertwined. the risks of that are high. we are living at a time when debt is quite high. what are you watching very, very closely and 2019 -- in 2019? gita: we watched many different indicators. we certainly watch what's happening in the financial markets and some of the sovereign spread. sentiment, market there has been a change in terms of the more president some. -- of more pessimism. so these have to be results. paul: that was the ims chief

economist speaking at davos. goldman's chief equity strategist sees 12% upside to the s&p 500 this year. david kosten joins us from the conference in hong kong. that's next. this is bloomberg. ♪

the risks ranging from trade tensions, geopolitics, and the u.s. government shutdown, investors are being advised to choose stocks with individual stories. davos is being held in hong kong is there foralamat us. there is so much to talk about. rishaad: absolutely. who better to talk about it than the chief u.s. equity strategist

of goldman. they are asking what the mood is like. being that we were in europe last week for a series of global macro investment conferences, and we are here in asia today, the mood is sanguine right now. people are concerned about the uncertainty on the geopolitical front. corporately in the earnings season for the fourth quarter results in the united states. some of the companies have had high-profile -- some have had some high-profile comments about uncertainty. theirf the executives in conference calls. it is a focus about the trajectory for 2019, and even year,or the part of the the stock market has done well, and it is reasonably optimistic in terms of economic growth. a are unlikely to have recession and 2019, and as a result, most companies grow their revenues at nominal gdp. if real gdp is approximately 2.5%, inflation is 2%, your nominal gdp will grow at around 4.5%. most companies will grow their

top line at around those levels. margins are roughly flat. you have the benefit of around 1.5 percentage points of accretion from buybacks. that is basically the trajectory of how you think about the nature of u.s. equity market this year. paul: absolutely. interest rate hikes perhaps being put on par us. that is the feeling you are getting. does that mean buybacks continue at the same pace given the flood of cheap money still? >> most buybacks are funded out of the cash flow of most companies as opposed to raising capital in those markets. the high-quality problem is that companies are generating a lot of cash. the margins for u.s. corporations are around 11%, and that translates into spending of around $3.2 trillion, and more management are basically looking at these questions and saying we are going to fund capital

spending, research and development, emanates, and dividends. debt, orpaid on you can buy back stock. rishaad: it is very early on in the earnings season, but are you seeing any themes develop? david: the big thing is an -- theme is uncertainty. in an economy which is likely to grow but at a decelerating rate, it's important. we find some of the revenue in the software business is appealing. the economy is growing or the economy is shrinking or growing at a slower pace. the revenues are somewhat immune. you look at 50 years, 50 years of data since 1970, and there -- has been only one year of negative growth, real spending on software in the united states, one-time and 50 years. we are looking for a sense of where you get stability and

revenue growth. rishaad: obviously software. david: is it hardware, semiconductors, and software. , i dotributes of software not like or dislike anything. it is the attributes we are looking for and the recurring revenues. it had 40% of its revenues. now, it is 60%, growing to 70%. that has value as a portfolio manager, that characteristic. there are other industries where you have more recurring revenues, and that is an attribute that we look for. rishaad: the thing is, you look at that and then you see what happened to all but stocks last year. what do you make of that? uy?the valuation scream b david: today, it is around 15 a long-termch is average, and interest rates remain extremely low. the treasury yields are around 2.7%, and the environment, your

yield gap, the equivalent, as a practitioner, what is your risk premium, is extraordinarily higher. it is much higher than the long-term average. not as high as it was in the debts of the financial crisis, but much higher than the long-term average. your entry point is reasonably attractive. but again, there's modest upside in the sense that you have higher volatility, a lot of uncertainty on the policy front, which is why the recurring revenue that you are looking for -- rishaad: you can actually have the valuations of where they are and they can remain at those levels for a long time. this is the problem. we have so much uncertainty. how does that trade the game? ford: 70% of the revenues u.s. corporations are domestic. at the end of the day, what is the most critical driver's u.s. consumer confidence and wage growth, and the ability of the consumer and willingness of them

to continue to buy and invest. that is the first story. the trade issue is a potential risk from an inflationary path to the cost of products, so most optimistic front, there will be a resolution, but it is very difficult to model donald trump as a portfolio manager. it is an uncertainty attribute. you can sort of look at where are the businesses that are may be more oriented, better earnings visibility. less sensitivity on the inflation front. rishaad: talking about equity allocation, and i know you just talked about the u.s. in particular, but what is the ideal way you allocate? about howwe think portfolio managers are currently positioned, and then where do you want to go, what you look at is households, mutual funds, pension funds, and international investors. those four categories control and own 85% of the u.s. stock market.

put them all together and they have 40% of their assets allocated to stocks. percentile, above average. they have an extremely low allocation to cash. asset strategy from the allocation point of view is to be a seller of bonds, look for the opportunity to increase cash, and then the opportunities to invest. so we look at the u.s., the opportunity in the equity market relative to europe, probably get a better return in terms of the forecast of myself and my other portfolio strategy colleagues around the world, better upside in our forecast to year-end targets for the s&p 500 of 3000. so we are basically very market, thefrom the market is up around 12% since

that time. very consistent with history in terms of rallies. that would lead you at around 2750 and rising towards -- and rising towards 3000. it is basically a story of earnings growth. nondramatic, but modest. what is known-unknown that you are concerned about the most? rishaad: the known unknown is probably the trade. it would be a definite positives in my opinion if there is a resolution to the dispute that is ongoing. probably unlikely to happen in the most immediate term, but maybe over time, that can be resolved. that would potentially support a higher valuation to the market, because right now, the market is 15 times effort forward earnings and it is long-term average that could be higher. potentially with a resolution. if you do not have that and the concern about, you know, the top will become more about downturn in the economy.

rishaad: he told me off-camera that the shutdown is not having a material impact for equities. david, so much for joining us. it.e you have please thousands of the s&p by the end of the year, and back to you. shery: thank you so much. rishaad salamat from the global macro conference in hong kong. plenty "daybreak asia more to come on "daybreak asia," including petrochina -- plenty more to come on "daybreak asia." this is bloomberg. ♪

shery: petrochina is shrugging off a $1.5 billion write-down from the disposal of some assets, estimating the full-year net income more than doubled in 2019. let's bring in our reporter. tell us what drove profits higher. petrochina, they issued a profit warning yesterday saying will be-year 2018 -- jumping to 33 billion yuan. that's a pretty impressive that isbecause the oil the benchmark, the brent oil jumped 31%, but petrochina 132% profiteliver a jump. that is impressive. they probably will write down $1.5 billion u.s. of impairments from the aging oil fields.

we don't have any details there. a lot of good time, especially when the company is making money. they tend to do the strategic write-downs. they are making profit to write down some bad assets. those kinds of details will be watching. they will announce the full details in march in their full-year press conference. petrochina is the first chinese company, oil company, really, giving the profit warning. and going forward, we are going player thatcnooc will give the strategic review for the year of 2019. we are expecting some very positive numbers out of the conference, and sinopec, they gave their operation data for this week. we'll keep watching them. shery: what is weighing on the share price? albing: the biggest after should be the --

they were asked by the to anment to bring access new company. investors have no idea how much the government will value of those assets. investors. mica uncertainties. that is one of the biggest reasons petrochina shares have been low so far this year. shery: albing guo. let's get a quick check on how markets are trading. demo pressure for major markets across asia. the nikkei falling 80% while the kospi is down .4%. asian stocks really coming down from the highest level in almost seven weeks. this is bloomberg. ♪ amazon prime video is now on xfinity x1.

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that's how xfinity makes tv... simple. easy. awesome. rishaad: it is 9:00 a.m.. welcome to "bloomberg markets: china open." >> asia-pacific stocks are muted. increasingly looming views of the world economy. rishaad: the imf had a warning. slowing further. >> increasing worry in china. president she talks danger amidst a trade war and the weak economy in three decades. rishaad: the u.s. government