welcome to "bloomberg daybreak: australia" >> here are the top stories. u.s. stocks extend a global selloff as investors question whether washington and beijing will strike a trade deal. negotiations are said to resume with china warning it will retaliate if the u.s. hikes tariffs. expectations.

shery: the s&p 500 fell for a third consecutive session. utilities and communications sector were the biggest losers. the communication sector was one of the biggest losers. we saw a very bumpy ride in the session. there was initial optimism from the white house over a potential trade deal with china. that was raised later on in the session as per the news from china. that they were planning to retaliate if the china -- the u.s. height the tariffs. the nasdaq is down three tens of 1%. u.s. futures down to tens of 1%. volatility is rising in the market. let's see how we are shaping up for the asian markets.

paul: we have one market open. new zealand is open and up a very slightly. futures here in australia are up. we have one specific story for you to watch. the a triple see, the -- thetion watchdog whole announcement was a bit of a mess. will have a little bit more on that story later on. futures are traded out of chicago for the nikkei weaker. get a check of the first word news. >> u.s. secretary of state mike pompeo has slammed the u.k. warning the government not to go wobbly. his words on national security in china.

and to hurry up and deliver brexit. his remarks threatened diplomatic ties between to close allies and come just one month before president trump is due in london for a state visit. this raises the question of what margaret thatcher would do if faced with the challenge of china trying to boost its global influence. >> the u.s. and eu cake walk rate a great deal on security in asia as well. that cooperation will be all the more necessary as we try to shift the global balance of found -- power. hallway says the her constitutional rights were denied when she was held at the airport in december. says her team attention amounted to -- she in the company are accused

of the company -- u.s. and she is fighting washington's demands for extradition. the trump administration is stepping up the pressure on iran . the ban on the purchase of iranian iron, steel, aluminum and copper is intended to prevent them from raising funds to develop nuclear weapons or ballistic missiles. earlier, iran said it would abandon limits. unless the eu can find a way for their trade despite u.s. sanctions. the u.s. house judiciary committee is holding william barr in contempt of congress. withfor failing to comply a subpoena for the redacted mueller report. this is a clash between the trump administration which is forsing democrats demand documents and testimony. the president is using executive

privilege over the subpoenaed items including the council's full report. 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. the u.s. and china are sending mixed signals about trade with china. the beijing warning is ready to retaliate if he follows through on a threat to raise tariffs. eye can't even see eye to on where they stand with these negotiations. what are the chances they can get an agreement by friday? >> there is a bit of gamesmanship going on heading into high-level negotiations. the trump administration has

been and when up its rhetoric. they filed notice that it was going to raise tariffs on chinese goods. now, the president is saying that he is being told that the chinese are coming to washington to make a deal. the chinese are threatening to retaliate if the u.s. goes through with these additional tariffs. that is going to be setting a tense tone for the negotiations that will be taking place over the next 36 hours or so. if the new tariffs are set to go 12:01 a.m..t but does not give a lot of time. trump in the past has pulled negotiations -- if negotiations are going on. the chinese could be willing to soy hardball with the u.s.

there is a lot of dealmaking that will have to go on to avoid a wider conflict. the president looks to be tightening the screws on iran as well. this seems to be counterproductive right now. what is the objective? tothe u.s. wants to continue hobble the iranian economy. it has not been revealed what for of end game this is iran's nuclear program or some other types of negotiation. iran for its part has been coming back and threatening resuming enrichment of uranium unless the eu countries who have signed on to the nuclear deal can find a way to bypass the sanctions that the u.s. has been placing on the iranian economy.

the u.s. is definitely wanting to play hardball here again in addition to the sanctions. these new sanctions, they are setting a carrier task force into the region. went to a rock the other day and that was said to be a warning of iranian influence there. there are a number of things coming to a head. to hishis is leading still unclear from the u.s. standpoint. paul: thank you, joe. let's get that investors view of the tensions now. our guest joins us from san francisco. we have seen markets whipping

around in the past few days following president trump's initial tweet which reignited the u.s. china trade war. when you really boil it all down, for equities, it is about earnings. to what extent is all of this dispute going to weigh on that? >> is a longer-term consideration most definitely. if you are looking at equities and purely valuation right now, q1 earnings are better than expected on lower expectations. some or a surprise to confirmation that some of the rally that has occurred in the first quarter was justified. going forward, it will be a continuing story on earnings. the u.s., absent the trade have potential long-term damage, you have a very low unemployment. corporate earnings that continue to grow. consumer spending and benign inflation and a fed on the sideline so the cost of capital and interest rates are reasonable. you don't sete recessions start

with that fact pattern in mind. things can change quickly but the reality is at the moment, the u.s. economy appears to be in decent shape moving forward. what are the risks to that story? global growth, geopolitical issues. investors have to be careful of those and weigh them but also take into consideration that based on purely economic data, the u.s. is in good shape. the equities market. what is the treasuries market telling us? seen a weak auction for the 10-year note. what sort of a signal is all of this sending? while the option today was not great, that tells you that

the demand for u.s. treasuries was not strong today. i am not sure what it tells you in the longer term. so far this year, interest rates across the curve have come down. the curve is flat. three month to 10 year is relatively flat. it is slightly inverted by a few basis points. in and of itself, that doesn't mean anything. it does bear watching in terms of historically when you have a flat and negatively inverted curve which can result in a plot curve eventually, that is not a good indicator looking forward for economic activity. while it doesn't mean anything at the moment, it probably reflects the benign environment. it is something to keep in mind. the other thing i think is that the indicator -- yield curve is not the indicator that it once was. it still matters, but maybe not the significant indicator that

it was in the past at least in my view. u.s. yields compared to the rest of the world are strong. they are positive and reasonably positive. and, you have the underlying the strongerath of u.s. economy that is occurring in most of the rest of the world. interesta reason why rates have come down this year and people are buying u.s. treasuries. what: let's listen to jamie dimon had to say. he prefers no deal rather than a bad deal. proper trade you going. it may take more time but we should do a proper deal. i would rather not do a deal then do a bad deal. shery: how prepared are markets for a bad deal? is it better in the long term to have a good deal rather than a bad one? perceivek the markets

it is in everyone's best interest to get a deal done. if there is discussion and evidence of progress, the markets dismiss any real issues with respect to it. theke maybe many others and market reaction, i am somewhat optimistic with this behavior in the last couple of days. the issues we are dealing with our substantial on both sides. the fact that they are playing hardball as people have indicated on both sides means that they are talking about serious issues. i am encouraged by that for a long-term deal. the u.s. has a lot at stake. intellectual property, openness of markets over there. i have said if this does nothing morethan create buying cars or selling more soybeans, this is been a complete waste of time. i still feel that way. on the other hand, there are real issues and we do not have fair and balanced trade with china at the moment.

we subsidize trade for them for years. there were reasons we needed to do that. i don't know if those reasons are still relevant. yous to some degree like are a lenient parent with your children then suddenly, you become the hard parent and the rules-based parent and you try to convert their behavior. we have been behaving like this for years and now suddenly we are telling them the old rules don't apply. they are going to get their backs up with respect to that. it is a big change for them. there is significant risk to us. i would agree with jamie dimon's comment that no deal is better than a bad deal at this point and it matters in the long-term health of the u.s. economy and its position in the global economy going forward. i am all for the short-term pain for longer-term gain. please stick around. we going to look at what to expect on the markets amid the

terrorist threats. even as streaming wiped out nearly $400 million last quarter, we will have more on that just ahead. this is bloomberg. ♪

ibm has just sold $20 billion in bonds. we have the busiest week for corporate debt and months. at a time when investors are spooked by the trade war. our guest joins us. the corporate debt market does not care about the trade market. are they just trying to get the deals out of the way before the summer? >> there is definitely a seasonality factor. may is typically a busy month in the bond market. things slow down in the summer. if you have these deals, things

were really dicey in the fourth quarter of last year. out theo wait to test waters in the first quarter of this year. now, it looks like a good window to come forward. how is the demand? are investors prepared to buy? >> we saw them come out strong yesterday for bristol-myers. today seems like it was soft for ibm. they got a little less than two times over subscription rate. woman look at these big deals, you like to see three times or more as an indication of demand. there could have been a bit of indigestion from the market. we have plenty to come on the pipeline. what are we expecting? >> t-mobile which may be coming as soon as next week. for the sprint acquisition. also, fidelity national.

looking to really get ahead of those windows here with the trade war rhetoric heating up. for the bond market, they are shrugging off. shery: thank you. portfolios michael is still with us. what is all this about? we're seeing an abundance in issuance and corporate debt markets don't seem to care much about the trade threat. >> it is mostly transactional. withof these are involved m&a activity. you need to finance those deals. this is a reasonable time to come to market to get that done. it is a benign interest-rate environment at the moment. it makes sense. unlike a year or two ago where people were getting corporate debt cheap for general corporate purposes and funding buybacks and expansion etc.. here it appears to be more transactional in nature.

be ifher thing also would you have an extended trade war, that can be inflationary to some degree. that could have rising pressure on interest rates going forward down the line. that is something to keep an eye on. when: do we need to worry the fed and the boe says we should be more mindful of the growth of corporate borrowing? >> yes. no question. how risky it is, i think even more so in a situation when you have anemic global growth and challenges to u.s. growth down the road. especially if you have trade issues that begin to chip away at u.s. growth. i think especially less than high-quality credit would be something to keep an eye on no question. environment, are you surprised the gold is not

catching more of a bid? >> yes i am. i think it makes sense right now regardless of whether we get a have economicwe uncertainty. when you look at gold, gold should increase in an inflationary environment that would be a byproduct of growth here and abroad. it makes sense from that standpoint. it also makes sense from the uncertainty standpoint if you at risk to the system due to potentially lower growth, quantitative easing or central bank rate cutting. i was a little supplies -- surprise by the selloff in the last month or so in gold. i would expect it to trend higher from here given the overall environment we are in. gold moves in crazy ways sometimes. i think it is a reasonable price point for an investor that is looking to hedge risk. much more than it was a month or two ago when it was much higher.

if you aren't piling into gold, where is the best place to put your money to work? have aefinitely significant stake in gold as we always do. we are diversified. we are a low volatility defense of product in our permanent portfolio. we tend to hedge our bets. equities andu.s. debt. commodities, natural resources, real estate, and precious metals. any a lack of conviction in one area specifically, it makes sense to hedge your bets in a number of ways. to increase your odds of having some success and maybe mitigate the risk of a drawdown. paul: thank you very much. there is plenty more to come on

daybreak australia. this is bloomberg. ♪

shery: we are hearing that novartis is expected to buy cedro. that is the i drug. they were planning to sell -- sell this asset in order to cut debt after their shire deal. now we find out they are planning to buy for free $.4 billion in upfront raiment. they will take on 400 employees associated with the product. drugis a prescription i for adults with dry eye disease. that is the latest we have. for now, let's turn to walt disney.

earnings beat estimates. profits fell 13% in the second quarter. analysts were expecting a deeper drop after disney's expensive move. let's bring in our guest. -- they have spent a lot of money on these new streaming platforms, some of which they have yet to watch. they turned in a result better than analysts expected because they are doing strongly in their themepark business. the cable tv and traditional growth engine did well. there is reassurance for investors that streaming was going to be costly. >> it still would be. there was an almost $400 million loss in their streaming business this year.

asia, they said the parks there were doing well. did well after additions bell. -- there. they are continuing to make investments. news utopiahted a land they are building. also, marble attractions. avengers end game did $600 million in china alone. there are a lot of parts of the disney business that are doing well. shery: what about the outlook for 2020? thisey are facing prolonged drag as they continue to invest in disney plus and espn plus and blue. businesses they are rolling out all over the world. paul: thank you, chris. still to come, shares are slammed and a battle looms as australia's competition

regulator blocks. we will update you on all of that in a moment. this is bloomberg. ♪

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-- thehe market opened open is 90 minutes away. we saw a weak finish in the u.s.. you are watching daybreak australia. let's get the first word news. >> we started with the u.s. which has confirmed it will increase tariffs on $200 billion of chinese imports from 10% to 25% on friday. the higher tariffs have been made official by a filing from the trade were presented its in the official register and will take effect one minute after

midday in beijing on friday. china says the move is deeply regrettable and is warning it will have to retaliate. issaudi arabia which planning to meet all requests for deliveries of oil it has received for the month of june including from countries forced to stop buying iranian crude because of the u.s. sanctions. sources say production will remain below saudi's agreed ceiling under the opec deal. we're also told that experts -- exports will be lesson $7 million per date next month. china and india have been leading buyers of iranian oil. haveand lift bank drivers turned off their meters in protest. companies are raking in billions from investors. in 10trations happened u.s. cities including new york, chicago and los angeles but disruption was minimal and users

said they could hail a cab with ease. oversotests come ahead of ipo on friday. att may value the company $90 billion. now to south africa. counting is now underway in their election with opinion polls pointing to the ruling national congress extending its 25 years in power. the current president needs a majority to push through economic reforms in the face of opposition from within the party. a victory could hamper his efforts. 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. paul: let's look at asian markets.

it is pretty flat at the moment. look at the futures in sydney. aey are higher despite tolerant they on wall street. >> it was a bumpy ride with conflicting signals on the trade tensions. we are seeing futures under tension. these two markets have been under significant pressure after coming back from holiday. japan a lost $160 billion of value. paul: let's take a closer look at what we should be watching. the kiwi dollar got slammed. understand about the thinking of central banks following this? >> it was an interesting move in the way that the currency

markets and bond markets reacted. it was 10 basis points at one point. the currency loss, the best part of 1%. what that tells us is a market that thinks at the moment it is one and done. end ofnother cut for the the year or the early part of 2020 but they see that at the bottom of the cycle. 25 basis points below where the rates are now in new zealand being the low point of the cycle. this chart shows you put it well -- pretty well. the worries around inflation were big enough yet to work a cut. indeed the market is pricing the fact that we might get another

one at some point over the next 12 months. the kiwi will be in focus especially with some of the buildup of those short positions having got fleshed out after yesterday. shery: was a $1.4 trillion in market value globally being lost. what does the presence of fast money or lack of tell us about what could come next for stocks? >> in a sense, it is interesting how concerned we have been about the pullback in equities especially u.s. equities this week. those recordff highs. there has been a certain repricing of risk premium around a delay of the trade deal or a further escalation if the tariffs to get ramped up by the u.s. tomorrow. of the cautious signals of this equity market rally in the u.s. has been is the lack of presence from hedge funds and some of the ctas.

height of thee rally, we reached a record last week, that equity exposure didn't get back to the levels that we saw in 2018. there was a case to be made that as some of that money does want to come back in, it doesn't want to incrementally add to equity positions, you can see another leg higher in u.s. equities. if some of that hedge fund money that stayed on the sidelines in the early part of this rally of 2019 does indeed want to come back into the market. shery: thank you so much. you can find these charts on the gtv library on the bloomberg. when it comes to all of this market turmoil, was a concern that the trade talks could go off the rails? beijing even have been firing a shot at the u.s. by boycotting the 10 year note sale? our editor is here with what went wrong. the u.s. held a sale and nobody

came or at least a very few people came. >> it was eye-catching to see the u.s. 10 year note sale. it drew such weak demand. came inasure of demand its weakest 2.17 in 10 years. in theth me now bloomberg library, the number of bids offered relative to the -- biz they go up to buy the bonds relative to the amount being sold. 2000 nine.ch here is today. this is such a low level of demand. come back out with me for a second. as the demand dropped in the middle of the u.s. trade war tension building, reuters running a story that the chinese had backed out all of the things they agreed to the donald trump tweets we are going to get a trade deal. a lot of back and forth. that is one of the factors. it will me go back to the

library, the key metrics. a lot of people are saying the chinese did this on purpose. bidders is the white bar. those are foreign and international monetary authorities. their demand dropped to 53%. that is considerably weaker. barct bidders, the green held in a steady. that is where china is understood to always be an aggressive buyer. tom simons at jefferies said don't worry about the chinese. one thing i would like to say about the chinese and u.s. treasury market, they own 1.3 trillion of all the u.s. bonds. owns 22 trillion. this towards the amount of bonds the chinese holds. they could sell all of theirs and move the market but not much.

seeing weaker demand because the u.s. government is borrowing so much of the treasury is selling so many bonds. the coupon on the 10-year note came in at two point 37 5%. it is still the lowest in the year. demand was still pretty good. thank you, kathleen. an interesting day on the treasuries market. we had an interesting event in australia. the australian competition and consumer commission blocking the proposed merger. tpg aftermmeted in the news was published on wednesday before the markets closed in sydney. they say a merger would further concentrate and already concentrated australian telecoms market. what does it all mean? our guest is here to discuss it.

what does this mean? do you go to court or is there another plan? >> we have announced that we are going to the federal court. we think this is an unbelievable decision. they are two entirely complementary companies. they don't compete to any extent with each other. why they could block it is inexplicable. the decision was inadvertently posted on the website an hour before the markets closed. that white $1.5 billion in value from tpg and one of our shareholders. it is an extraordinary decision released in an inexplicable way. >> that was interesting to say the least. there appears to be some kind of a mistake. further to their argument, if i could be devils advocate, the hope was the tpg would go out another mobile network. you don't see it that way.

>> i think you used of the right word. the hope was. fromovernment blocked them using their vendor, they needed to write off hundreds of millions of dollars of their investment in mobile and could not roll out a mobile network. they made it clear and announced that to the market in january. the how they can still have hope that tpg could roll out a mobile network in may is something we still don't understand. we think it is something a federal court judge will have trouble understanding as well. shery: if that case doesn't go the way you plan, is there still a future for you in australia? >> yes of course. we will continue to compete. we think the australian mobile market has delivered extraordinary results for australian consumers. all of the data says that. one of the best performing mobile markets in the world and the oecd.

delivering hise extraordinary. we will continue to do that and we hope to do more. quickerto invest in 5g and in a bigger way that will deliver more value to our consumers. it looks as though that will take a little longer but given how extraordinary this decision is and how it is pinned on the hope of -- the company has said it will not build a mobile network we will go and build it. we think that is a strong case in the federal court. when would you expect the merger to take place? >> it is now up to the federal court. we will apply for an expedited hearing. we think there is a very good case for that given the importance of this merger and the uncertainty that it creates for us to be able to invest and compete. we would expect it would take nine to 12 months to finalize. win, they do not have a terribly good record in

the federal court. what do you see as being the benefits for the australian public? >> you're right. the record in the federal courts is not good. what it will mean for consumers is that we can invest harder and faster in 5g. we can offer advanced mobile services quickly and offer more alternatives through advanced faster wireless networks. we will be able to offer greater choice and a step up competition . i want to return to the release of the decision on the website on wednesday. it had a profound effect on shares. have you had any explanation about what happened? >> not really just that they are investigating. they take it seriously as you would expect. the fact that it was released an hour before the market closed so

that we were not able to explain to people that we were quickly launching action in federal have, investors could reviewed that differently. we did not have a chance to explain. thank you so much for being here. breaking news we have right now from qantas. they are on track to fully offset the impact of a higher fuel cost. it is announcing third-quarter revenue of $4.4 billion. they had an interesting development this week launching zero wastever flight. they are saying they are fully on track to offset the higher fuel costs. shery: coming up, trade talks will resume in washington later thursday as president trump prepares to raise tariffs on chinese imports.

this is bloomberg. ♪

you're watching daybreak australia. of the u.s. has confirmed it will increase tariffs on $200 billion chinese imports from 10% to 25%. the change will take effect at one minute after midnight beijing time on friday. china says they will retaliate immediately. our guest was president clinton's deputy chief during his second term. could this signal a real breakdown of the negotiations? what are your impressions? the dna of trade

negotiators to take everything to the brink. part of this does look like a typical let's take it to the sidesm and hopefully both will come to their senses and understand that these types of tariffs and retaliation are not in the best interest of either country. i think the market reaction yesterday which was pretty dramatic and again today, the perhaps the road -- white house is looking at this differently. they may pullback. took: president trump also the opportunity to take a shot at his challengers singling out joe biden was running for the 2020 democratic nomination. this is what he tweeted earlier. the reason for the china thatack is a sincere hope

they will be able to renegotiate with joe biden or one of the very weak democrats thereby continue to rip off the united states. 500 billion dollars per year for years to come. he follows up saying that's not going to happen. how much of the trade negotiations will play into the 2020 elections? up ton though trade makes does the u.s. economy, it rhetorically play a very big role in elections. the u.s. hasn't quite figured out how to manage the winners and losers of international trade. some countries handle it quite well. the u.s. has not figured out that paradigm yet. have a as we do not strong social safety net for people who are temporarily impacted net -- negatively

because of trade, i think it will play a role. that tweet was interesting in terms of rhetoric. as president trump made it a policy essential now heading into the 2020 campaign that if you are a candidate, you have to bash china. while trade has an impact because people understand that it has in some cases a negative economic impact on people's lives, international issues and bashing countries and china have never really played a big role in terms of why people vote and who they are voting for. it may work for president trump's base. causet think as a massive it works for the vast majority of the electorate. tariffs,terms of

eventually isn't it the u.s. consumer the pace a press of these anyway? >> absolutely. you both know that u.s. farmers have taken the brunt of the retaliatory actions as a result of the tariffs. theirave nearly lost export market. those markets are getting filled by other countries, other farmers and other countries like brazil for example. they are really bearing the brunt of these actions. yes, you are absolutely right. they are just pushed back down to the consumer in terms of increased prices. thatery sad thing here is while we have a robust economy and wages are finally taking a costsp, these increased

are going to hit consumers very hard. longerger they stay, the they are impacting the economy, the closer we are getting to a 2020 election. i don't think that bodes well for white house politics. shery: even so, it seems that washington is in a similar mood when it comes to china being a cheater in trade. we have heard from senator chuck schumer telling president trump to hang tough on these negotiations. this atmosphere in washington affect the negotiations? >> i think there is global agreement except for china that china is a bad actor in many respects. i think how the president is going about this, going it

alone, not having any allies in the process, pulling out of multilateral trade agreements, not filling the appropriate , ieals positions in the wto don't think the majority of people who are watching the trade process or who have been players in the trade process think that this is the right approach. agree,verybody does china is not playing by the rules that everybody else is playing by. thank you, karen. watch us live and see our past interviews. you can also dive into any of the security or bloomberg functions we talk about plus you can become part of the

conversation. you can send us instant messages during our shows. for bloomberg subscribers only. it check it out at gtv . this is bloomberg. ♪

shery: i'm shery ahn in new york. sydney.m paul allen in you're watching daybreak australia. it disney's dream of being a giant of the streaming world will be expensive but they are sure they can afford it. the latest earnings report topped expectations. profit fell 13% in the last quarter but that was better than analysts expected while sales also beat estimates. >> beijing signed a deal to build natural gas plants in a rock. giants will. out the work which will take two

and half years to complete. iraq will use the plants to generate electricity and reduce its reliance on gas from iran. and: a failure by the u.s. china to reach a deal -- they warn that steel orders will slump if there is no agreement in washington this week. bloomberg heold sees an 80% chance of a deal. plenty more still ahead. we are live from the jpmorgan global china summit in beijing. we will have an exclusive interview in the next hour. almost it for us. we have trading underway in new zealand. it is flat right now but in positive territory despite the

weak lead-in from u.s. markets. the kiwi dollar took a beating yesterday but has since recovered. more to come on daybreak asia next. this is bloomberg. ♪

paul: we are under an hour away from the australian market open. shery: welcome to "bloomberg daybreak: asia." our top stories this thursday -- asian stocks face another tough date as the global selloff rolls on. investors question whether a trade deal will be a great. negotiations are said to resume. china says it will retali