paul: good morning. i am paul allen in sydney. we are an hour away from the australian market open. shery: good evening. i am shery ahn. sophie: i am sophie kamaruddin in hong kong. welcome to "daybreak asia." paul: our top stories this wednesday, asian stocks look set to follow wall street lower. a protracted u.s.-china trade war. a risk-off rally in 10-year treasuries sees the yield curve fall deeper into inversion.

apple's earnings could plunge by .25 if china retaliates by spanning the iphone. shery: let's get you started with a quick check of how markets closed in the tuesday session after coming back from a long holiday weekend. we saw the s&p 500 fall towards the 110 level with 10 of main groups falling. we are talking about utilities and consumer staples leading the declines. we continue to have concerns over the ongoing trade tensions between china and the u.s. sectors on the s&p 500 also reflect that. the nasdaq falling .4%. we saw theing treasury rally accelerating in the session as well. s&p futures at the moment are not doing much, standing at the 2805 level. sophie: stock futures lower at

the global bond rally. it is likely to keep going. the tech space is in the spotlight as analyst calls turn apple.ssimistic on a potential alibaba listing in hong kong is putting the focus on chinese tech listings. we saw -- rallying despite it saying it will delist in june. nissan is in view with the ceo saying there may be possibilities with the renault deal. surprised that south korea was kept on the watchlist while china was spared being labeled a currency manipulator. its biggestolds advance in more than a month. we are seeing little reaction in the aussie dollar. there may be pressure ahead for the currency has more rate cut calls will weigh on yields. paul. paul: let's get the first word news with jessica summers.

jessica. trumpa: the administration has again refrained from labeling china a he manipulator. the decision leaves one of the campaign promises unfulfilled but avoids further escalation in the trade war. the foreign exchange report to addsess ads vietnam, -- vietnam and other countries to a list for manipulation. new zealand's annual budget has been thrown into disarray after the opposition national party released parts of it are really -- it early. the nationalists say they acted appropriately. is over shattering the well-being -- overshadowing the well-being budget. plans haveel's fallen apart. official told bloomberg that she has decided her heir apparent

may not be up to the top job. the woman has seen her popularity slide since taking over as a union leader in december. she oversaw the cdu's worst ever results in a national election. politicians from around the world have threatened representatives of facebook, google, and twitter with stricter laws in a wide-ranging hearing in ontario. lawmakers from countries according canada, the u.k., mexico, and singapore participated. much of the conversation centered on the fact that mark zuckerberg did not show up as requested. global news, 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am jessica summers. this is bloomberg. shery: thank you. the apparent breakdown of the u.s.-china trade talks and

president trump's's declaration that he is not ready to make a deal with china kicked the u.s. government bond rally into high key gauge ofs the the yield curve to invert again. kathleen hays is here. it seems the yield curve continued on a down trend. kathleen: if it is a new normal, that has to say something about the abnormal that the u.s. and global economies could be headed for. this is what is driving the bond rally again to accelerate, to push yields down quarter. it is not just donald trump and president xi. it is also the e.u. parliamentary elections over the weekend that saw the decline in power for the legacy parties, the rise of populists and nationalists, including nigel farage,'s party is ready to go for a no-deal brexit. his victory may strengthen him to be the next prime minister after theresa may steps down. all of this is the kind of

things that really concerned about where the economy is going. take a look at this particular chart, which shows you the yield in, now down to 2.26% m trading at a 19 month low. -- and trading adam 19 month -- a 19 month low. people are now changing their mind. maybe this has gone a bit far. maybe it cannot go much further. it is interesting to see it is not just the u.s. german bunds extended their rally today. worries over not the e.u. elections broadly, but italy. they have a very strong victory in those elections to say we will increase our budget deficit to get our economy going. south korea's bond market hit its lowest since 2017. so exports are suffering.

people think maybe the bank of korea have to cut its key rate. a lot of people saying it cannot because it will hurt the currency more, but this will become a global move. paul: when you step back and take a look at this, is it sending a signal to the fed that maybe it is time to cut? kathleen: one thing they have to be watching is the following. the yield curve. from three-month bills to 10 year notes. and it has inverted again. eight basis points. it is not a lot. they say it has to last longer like it did and go deeper. what happened when it did that? the red bar recession. that is why this is a concern. there's global economy fears and then economic reality. it hit a six-month high as we move on to this story. and this is something that defies the chart because it says maybe things are not so bad.

and the fed is waiting to see, waiting for a second-half rebound not just in growth but inflation as well. the fed is in a wait and see mode. we have to wait and see whether jay powell can change that to them but we have not heard it just yet. shery: kathleen hays, thank you. the decline in yields, the 10 year yield at the lowest level since september of 2017. consumer and health care stocks were also under pressure. su keenan joins us now with more on this. at the beginning of the session, we saw there was this disconnect between the bond markets and the stock markets because we saw stocks gaining ground but that did not last long. su: we saw the yield start to drop and it accelerated towards the close. let's go into the snapshot. thewill notice the banks, bank index, one of the big decliners, down more than one percent.

with all the futures down earlier but it looks like we are coming back to even as investors assess the day ahead of us. let's take a look at some of the banks as i said that were affected. that is a regional bank. regional banks affected as much as some of the big financial firms that were down pretty much across the board. of course, if we go into the right abovee closed within two points above 2800. the s&p likely falls into a correction. if we fall below 2800, what is important to point out, it was not just the yield story out there. as trump says he is not ready to thethe deal, he solidifies reality that has been donning on wall street in these past three weeks of declines for the s&p 500, and that is that there is not going to be a quick fix. that is going to drag on. we have a lot of companies warning that the tariff fallout

is that they are not going to be able to pass this on to consumers, and that is going to affect their bottom line. a lot ofhave spent time discussing that yield curve story today, but there's plenty of other members as well. tell us about the so-called trade war stocks and the bounce back we have seen in oil? su: this is a basket of stocks. i have a couple of them that are tied to huawei or in the bull's-eye of a lot of these tariffs. you can see significant declines in a lot of these. see the general decliners on a mix of news. much bigger declines for kraft heinz, a food company, and a tobacco company. they are all declining. was one of the exceptions on a new chip analysts really love. aftericed a lot of gains

what has been a series of declines. a lot of analysts saying two things going on. there is an opportunity here. look at the picture to buy on these tips. -- dips. we are seeing that affect the after our trade that could be a push or bullish impact on oil short-term in addition to many of the other factors. paul. paul: su keenan. thanks very much. plenty going on after that long weekend. still to come, we will be live at the morgan stanley china conference in beijing, speaking exclusively to the chief economist. shery: up next, a managing director joins us in new york to talk about the sectors catching his eye. this is bloomberg. ♪

paul: this is "daybreak asia."

i am paul allen in sydney. shery: i am shery ahn in new york. u.s. stocks fell to the lowest since march and the u.s.-china trade war tensions continue to weigh on investor sentiment. we have the latest lines out of the china daily news saying the u.s. should not underestimate china's ability to fight and the u.s. is reliance on china's rare earth for tech and defense products. joining us now is the management executive, john. given the uncertainty out there around the trade tensions, are you surprised we are seeing this bond rally continue? >> it is crazy to see the 10 year, let alone below the 230 level. it seems like there is a disconnect between stocks and bonds but that has been the case for a while. there is a lot of uncertainty in the world. it seems like the longer we go along, the more the trade solutions seem like it is becoming a little more elusive.

talk about the disconnect come this chart on the bloomberg shows that because we are seeing this huge move when it comes to the bond volatility, this is a move index that is highlighted right now, the line in light -- the line in white. the blue line right there, you're not really seeing it that much when compared to bond volatility. which way is this going to converge? how will this get results? traditionally, it will resolve. if you look at the u.s. and you looked at the strong employment numbers, gdp growth, even quarterly s&p earnings, they have been very strong and you strongerimate one much than it is. there's all these exogenous affects going on globally that are causing this flight to safety and probably not -- it is probably not a perfect in

-- perfect comparison. it is an unusually low number and that will rectify itself. shery: you say that -- paul: you say that the 10 year long recovery we have seen since the global financial crisis remains intact but when you look at some of these factors, is this bull run starting to look pretty old and creaky? how much longer can i go for? -- it go for? john: things changed quickly. i think the bull market, earnings are strong. the consumer is still strong. unemployment is still in good shape. there are a lot of fundamental factors and we are seeing that in the companies that are reporting earnings. a couple of the names we may get to later in the energy infrastructure side and the real state investment trust. very strong, very stable. i do not know that we can

measure this bull market in terms of years. i think we need to look at where we are in the cycle and maybe we are not quite as far as we are the newsically, but the last week, as i mentioned, the china trade deal seems more elusive. that will have an effect on gdp. absolutely. paul: and how about the effect on earnings? you say the earnings season was pretty good. how about the next quarter? that is monti straddled this period of escalating trade tension. what are your expectations? john: it depends on the sector. if you look at semiconductor stocks and some of the more economically sensitive names, they have definitely been hit disproportionately. it will be more specific. we tend to paint with a little brush. broad of a i think it will be more specific. if that becomes self-fulfilling in the quarters to come, you broad-based.ore initially, i think it will still

be fairly targeted. if you look at some of the energy infrastructure companies reit stocks,cks -- they have been fine and we do not anticipate there will be any problems there. shery: how much diversification have those stocks provided when we have the latest market turmoil? john: they were great in the fourth quarter and then they actually came back in the first quarter, so lately, meaning in the last week, they have done well. i think we will give it a little bit more time to see how these market forces worked out, but they have done great. they provided the protection you wanted and now they have this visibility. the interesting place we are in right now is you want some economic sensitivity. if you get too much thicker cloud -- cyclicality, you will go around the markets. we want to find predictability,

reliability, finding transparency in a good set of earnings while having some economic sensitivity but not too much so you can protect on the downside and i think you get that from energy infrastructure. shery: when you look at the global real estate market, how much demand are you seeing out there? john: a lot and on the private and listed side. in both respects, we are seeing greater investor appetite for real estate. longer-term leases, owner operators, good predictability in earnings. income streams and dividend streams, higher than a local tenure bond equivalent to matter what country you happen to be an, so we are seeing continued appetite and continued demand by investors. shery: when it comes to the energy sector, and we saw this huge drama revolves recent -- revolving recently, how are they exposed? john: there is a lot in that

question. definitely the permian basin is the place to be, and you have had a lot of capital expenditures into that region to try to exploit it. what we are focusing on is theng to not be as tied to commodities. that is why we are focusing on names like energy transfer and people who are taking the lng away overseas, people -- we have plenty of resources but it is not always at the right place. we are focusing on the transportation and the pipelines that distribute that. longer contracts, less sensitive to commodities, a little bit more visibility in earnings, and we think that is a great place to be. shery: thank you so much for joining us. executive managing director, and of course, you can get a roundup of the stories you need to to get your day going in today's edition of daybreak.

-- you need to know to get your day going in today's edition of "daybreak." bloomberg subscribers can go to dayb on their terminals and it's also available on mobile in the bloomberg anywhere app. you can customize your settings so you only get the news on industries and assets you care about. this is bloomberg. ♪ about. this is bloomberg. ♪

shery: this is "daybreak asia." i am shery ahn in new york. paul: i am paul allen in sydney. apple has unveiled its first updated ipod touch in four years. it has a new chip and a way to tap into apple's new services and a new price tag. $199. our resident apple guru, mark gurman, joins us from los angeles. why is apple revamping a product that is 20 years old? the ipod last time touch was updated was in 2015. four years ago. next week is their annual

developers conference where they roll out new software, and in order to get the newest features, you need the newest hardware to make it work. some of these features are very processor intensive and require a lot of speed. because they have not been some of the latest apps from developers. it makes a lot of sense they would update it. they went to a faster chip. there is nothing else new going on here. shery: is there really still demand for ipods? we all have iphones. why do you need ipods? the: at the lower end of market, for kids, 13 and 14 and below, the ipod touch still is a seller. i think of it as a competitor to what was a game boy many years ago. or right now, you have the nintendo switch and you used to have it until it was discontinued, the sony psp. this is a $200 device with no

cellular plan. it is not especially lucrative to apple. but it is an important product to keep around because it can drive people into the apple ecosystem. kids getting an ipod touch for the first time when they are nine years old can become iphone customers in five or six years. paul: elsewhere, we had an analyst warning it could -- how do you see the fallout if something like that would happen? mark: i would say it is beyond very unlikely. i do not see how there can never be a situation where apple gets completely banned from china. it would be completely unprecedented given the relationship apple has to the world and china specifically. they have over 300 million in the supply chain. china banning apple from china would hurt china may be more than it would actually even hurt apple.

in the political climate today, that might not, you know, shake you. it might not be a difference maker, but it is a big deal and i do not think it is something that will happen. shery: mark gurman in los angeles with the latest on apple. let's get a quick check of the latest business flash headlines. nissan ceo says he is interested in learning more about the proposed merger between renault and fiat chrysler. he says the tie up may present opportunities. he was speaking ahead of wednesday's meeting of the board governing the current alliance. under the terms of the proposal, nissan will gain voting rights. ceo, jamiegan's dimon, has publicly criticized the leadership transition. he said it was irresponsible to announce tim sloan's departure without a succession plan in place. is isleft after public

him over the banks scandals. a recruiting firm had not been hired to conduct a search. shery: amazon is poised to begin its long feared verge of small suppliers. in the next few months, thousands of so-called mom-and-pop businesses will lose orders from the world's largest online retailer. sources say amazon's aim is to cut costs and focus wholesale purchasing on major brands. smaller suppliers will have to win customers one by one. ating up next, we are live the morgan stanley china conference in beijing, speaking to the chief economist. we will get his thoughts on the escalating trade fears and the impact on the global economy. this is bloomberg. ♪

jessica: this is "daybreak asia ." i am jessica summers. beijing could be gearing up -- dominance of rare earth and its trade war with the u.s. according to commentary with china. president xi jinping visited a rare earth plant last week. peoplecial says chinese will not tolerate products made with exported elements being used to suppress china's development. italian bonds rose after e.u. economic and financial commissioner p or muska vinci said he does -- moscovici said he does not --

the deputy prime minister said he will devote all his energy to changing what he calls old and obsolete rules. his anti-immigrant league party got a decisive win in the e.u. elections. president trump's son-in-law and senior advisor jared kushner is in the middle east to drum up support for his as yet unveiled israeli-palestinian peace plan. he will join in morocco, israel, and jordan this week. the palestinians have rejected the plan and are urging arab nations to avoid the conference. has -- andie bezos mckinsey bezos has agreed to give up her -- she is one of 19 new signatories to the giving pledge. people have0

committed to donate more than 50% of their wealth to philanthropy or charitable causes. global news, 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am jessica summers. this is bloomberg. thank you.ery: let's head back to hong kong for what to watch in markets this morning. sophie. to what wen it comes are watching him stocks, i want to keep an eye on form of players -- watching stocks, i pharma keep an eye on players. regulators cantered the license for gene therapy -- canceled the license for gene their people. we are watching stocks exposed to the rare earth story. we get more signals from china that rare earth could be used in the trade war. paul.

much fornk you very that. morgan stanley's china conference is getting underway in beijing with trade sure to be high on the agenda. morgan stanley is one bank latest out hope that the surge in protectionism will prove temporary. let's cross to tom mackenzie, which is at the conference with our next guest. tom. yes, it is morgan stanley's fifth annual conference in china, and as you say, we are pleased to be joined by the chief economist at global head of economics and we were talking about a century the view from the bank that we could be in a position where these protectionist noises we are hearing between the u.s. and china get resolved. but you think it is a window of opportunity that is closing. what is the timeframe? >> another three to four weeks before you can prevent any damage to global economy. if it continues for more than that, some damage will be inevitable.

tom: in terms of the picture where we get the u.s. imposing tariffs on all chinese exports, across the board, which president trump threatened, what does that mean for your growth projections? >> the global economy will be hitting recession. either it will go below 2.5% year on year -- it could easily get below that to 2% by 2020. that is what we're watching. by 2020. in terms of how this plays out for both the u.s. and china, which country is going to be most impacted and across which sectors? chetan: we think it is going to be both, but in terms of the levels of growth rate, the u.s. has lower buffer than china. recession, it is the u.s. going through a proper recession. if you see that scenario, there will be a reaction from china. will probably be hitting something like 0.2% in

2020 in the us and our you where you see global recession and china will probably lose 1.5% of growth. tom: we get tariffs across the board? chetan: the recession numbers will come through by the first quarter of 2020 itself. we: in terms of the lines have heard in the treasury's saying we are not going to a ball china as a currency manipulator, do you that as of positive in terms of the trade dynamics? is this the u.s. giving a nod to china and saying the door is still open? chetan: it is sending a positive message but we also have to see what china is doing in reaction to whatever measure the u.s. have taken. is not reallyhina importing a lot from the u.s. so we are watching what they are doing on on terror barriers. there has been talk about some constraint related to rare earth materials being sent to the u.s. we're watching right now whether

china will take additional measures on non-terror fronts which could escalate -- ariff fronts, which could escalate it. we do not think that positioning is such -- that is we think that if trade tensions get escalated for a longer period come on the global economy, it will be present to -- pervasive, nonlinear, and it will be coming through as a reactive measure and its impact will lag. all the factors together, we think that the investor's are underestimating the impact of trade tensions on economic growth. tom: and the impossibility or inevitability that u.s. companies will have to pass on price rises as a result of the increased tariffs as well? chetan: there are two ways we

think they are underestimating the nonlinearity. it was not the direct impact of trade. it was really the indirect impact of capex and corporate confidence that got impacted. that is one should consider is trade tensions get escalated. the corporate sector -- hitcorporate sector will be in terms of corporate margins. there could be problems. also the fact that consider that financial conditions tightening and because growth is slowing, margins are depressing, you will see credit spreads widening. you do not know which company will get locked out in terms of its ability to fund. nonlinearity will come through in the u.s. as well. tom: are you able to break down

of sectors are most likely to see those? chetan: what we have done is we have looked at the segments in terms of what is a credit rating and whether they have taken more leverage, and that is true. the segment which has had a massive increase. if you look at it not in terms , it has goneerms up from 5% to 6% of gdp to right now. that is a big leverage pickup in the weaker corporate sector in the u.s. paul: what would you be looking at in terms of corporate earnings? chetan: the corporate earnings estimate that the u.s. consensus forecast is billing and is optimistic. a possibility of a recession in earnings continuing not only in the first two or three quarters but for the full year. you will see a problem and which will be different from what the consensus is building in.

i am sure you have that data on bloomberg. the u.s. corporate sector is showing consensus. it is a sharp acceleration. we do not think that will happen. tom: you are painting a pretty bleak picture. presumably, the banks come to the rescue. will they put a floor under this? chetan: in terms of trade tensions, there are two key economies that are at risk, the u.s. and china. both countries have the tools to defend the problem they will face on account of trade tensions. typically, policymakers will react with a lack. -- lag. and then policy actions will lag. an effect with the it will not be able to prevent the downfall that will come through if trade tensions escalate from here. tom: where does the fed and up if we get a full-blown trade war?

chetan: if we get a full-blown terror increase, you will see them taking rates down to zero and we think that is what happens sometime by the spring of 2020. we are forecasting the u.s. will hit recession. tom: what is a more aggressive response from china looking like? chetan: implementing something like fiscal stimulus which is 1.75% of gdp. we think if you have a full-blown trade tensions escalating, then china could on gdp inake up 3.5% that scenario. tom: in terms of the u.n. -- y uan, is a lot of focus on the dollar-yuan cross. with the pboc want to support the yuan above that level? chetan: in a full-blown escalation that we discussed right now, it would not be difficult for us to imagine it will cross seven. we think they will try to manage

the pace. we don't think they will have a level in mind. they will ensure there is not extreme volatility in the market. it affects the capital flows in terms of the expectations for markets and currency moments. try tok they will just slow down the pace. a full-blown trade escalation, it will have to go about seven. tom: the 10 year yields below the 2.3% in version with the 10 year and the three-month yields, do you expect continued support for u.s. treasury? chetan: we as a team have been quite bullish on 10 year bonds and the base assumption behind that is we have risk for growth outlook. market isat the bond

pricing in. it is going back to what is the outlook of the trade tensions. if you have further escalation and global economies heading towards recession, you'll see a decline in 10 year bond yield. , speaking to us at the morgan stanley annual china summit. painting a picture of caution for the markets and investors. the on the lookout -- be on the lookout. markets have not quite priced this inserted shery: thank you so much for that. we won't -- quite priced in. shery: thank you so much for that. do not miss our exclusive conversation with james gorman. he will join us tomorrow on bloomberg tv and radio at 8:00 a.m. hong kong and 10:00 a.m. from sydney. nissan pot ceo says the renault-fiat deal may present opportunities. the board governing the alliance

meet. this is bloomberg. ♪

paul: this is "daybreak asia." i am paul allen in sydney. shery: hong kong may begin its edge as a global ipo help with potential alibaba homecoming. that could, little over a year since the financial hub changed market rules to attract more tech companies. sophie is taking a look at this. after the rules -- xiaomi debuting. they have not done great. what can we expect in terms of more listings? sophie: in alibaba listings, that would be well received. retail investors likely to provide a boost at the time when the market is littered with high-profile tech ipo's. xiaomi among those, lost about 40% since its debut and among

the chinese names that make up half of the worst 10 ipo's over the past 12 months but there may be room for a turnaround when mainland investors are granted access to dual class shares like xiaomi by the stock connect, especially since plans for -- have been derailed. kongibaba listing in hong could pave the way for more secondary listings which the local exchanges trying to make easier to do. the trade waraul: concerns, have they affected the landscape at all? sophie: as the traits that escalate, we had steve bannon calling to ban chinese businesses from u.s. capitol markets as well as from technology. a senior vp at the nasdaq has dismissed these comments. he said 2019, they see over 40 ipo's from china. we have already seen tencent delay its u.s. ipo after trump renewed terror threats. iffterror threats -- tar

threats. that could be an opportunity to hong kong to flex its muscles as a financial hub. tory: if china is expected launch in shanghai, how will this affect hong kong's listing allure?e -- listing sophie: it is proving more onerous than anticipated with the first batch of candidates going to a very rigorous vetting process. the board is targeted at smaller homebrewed companies, so missing are noticeably from the lineup with the majority of applicants seeking to raise less than one billion yuan. the reform pushed by the hong kong exchange, that could prove enticing for issuers. especially with other revisions like a shorter ipo settlement process potentially under consideration, which speaks to the pressure for hong kong to

stay competitive while balancing the interest of shareholders. i will be discussing all of this and more with charles lee in an exclusive chat with the hong kong exchange chief executive at 8:30 am hong kong time and 10:30 for viewers in sydney. paul: a little bit of breaking his right now. the new zealand tenure bond yield falling now -- 10 year bond yield falling to a record low. some declines in the bond yields in new zealand as well. we have been seeing a similar thing happening here in australia are you shery: nissan -- australia. nissan's ceo -- stephen engle is in tokyo this morning. he says there could be opportunities. this is yet another headache for nissan. seems to be roiling from the

carlos ghosn saga. stephen: there could be opportunities for nissan but there could be also plenty of headaches as well for nissan. keep in mind, you know, they have been rebuffing the merger attempts with renault that carlos ghosn started and subsequently after the post carlos ghosn era at renault, may have been trying to lure in europe to set power -- for it hiroto to consider the merger. he was a bit blindsided, hiroto saikawa. he is on his way to a meeting where the chairman of renault is going to brief is japanese partners, nissan, and mitsubishi , on the merits of this proposed merger with your chrysler. again, nissan is not involved in

this merger, but we are hearing from sources that perhaps they could be asked to join later. he is likelyg that to seek a renault board meeting as early as next week to get preliminary approval for this merger with your chrysler, which they -- fiat chrysler, which could create savings of more than 5.6 billion u.s. dollars. shery: hiroto saikawa blind-sided, as you said, so what options does he have now? stephen: it is a tough one because do you join and do you get the favorable terms that wants?saikawa he wants an equitable partnership with renault. that is one reason he has rebuffed the overtures for a merger. under the terms we are hearing, they could possibly take a 50% stake in renault without voting rights. he does not like that because

renault has a 43% ownership of nissan with voting rights and the french government has a 15% stake in renault with double voting rights, so it is in equitable according to hiroto saikawa. this new arrangement could give nissan a 7.5% stake in the new entity with voting rights. so you are getting -- so you are getting closer to a better situation for nissan with its partners. however, when you look at the separate entity, it would have n nissan bytha itself. look at the numbers. nissan sold 5.6 million cars in 2018, but sales and profits are sliding. this new renault-fiat chrysler merger would be $8.7 million. you're going to flip the balance. we sell more cars, we sell to china, we sell to the united states, we have better profitability than renault.

if you flip this around, he says our new merger entity will have more sales, more profit, or say -- more say. paul: stephen engle, thanks very much. and do not forget. interactive tv function tv . , you can watch us live and dive -- catch up on past interviews as well as dive into any of the securities or bloomberg functions we talk about. you can also become part of the conversation by sending us instant messages during our shows. this is for bloomberg subscribers only. you can check it out at tv . this is bloomberg. ♪

shery: this is "daybreak asia." i am shery ahn in new york. paul: i am pol allen in sydney. let's get a quick check of the latest business flash headlines. apple's earnings in the fiscal

2020 could fall by 26% if china bans the iphone. this is the latest device reaching eight a dramatic picture of the tech giant's risk of trade tensions worsened. gained urgency after the trump administration blacklisted huawei, raising the path of reprisals. shery: columbia sportswear says it is ready to pass the trump tariffs on to consumers. tim boyle told bloomberg television the trade war has left them spending more time on managing the supply chain than it feels operations. he told us colombia will pass on what he calls taxes, calling the trade battle a very disruptive event. distributiont projects on hold. we have moved them around the world to take advantage of where we know business is going to be to have more certainty than we have in the near term in the u.s. has raised its

full-year guidance by $138 million after bringing forward consultation with staff and unions on proposed job cuts. around 6000to cut jobs by the end of this financial year and says it is on $1.7 billion by the end of 2022. shery: the markets get underway in japan, south korea, and australia. let's get a preview. look at howng a futures are faring so far this morning, we are seeing declines potentially with the nikkei and the topix looking at a potential drop of 1% this morning. and checking in on how bonds are faring given the move we saw in treasury yields overnight, we are seeing bonds in australia and new zealand under pressure. the kiwi 10 year yield falling to a record low while aussie benchmark yields are nudging closer to the official cash rate

of 1.5%. in tokyo, we are watching reaction to more buybacks, this time from citizen wants, which is to buy back up to ¥3 billion of shares. was hit with its first business improvement orders since 2012 by financial regulators, adding to the ceo's struggle as he tries to turn the company around from it first annual loss in a decade. suzuki executives will be taking pay cuts including the chairman and the president in response to improper vehicle inspections. the nissan ceo is to take a significant pay cut for fiscal 2018 for failing to prevent the carlos ghosn scandal. hiroto saikawa earned about ¥500 million in fiscal 2017. paul: still to come on the next hour of "daybreak asia," sophie will be speaking exclusively to charles lee. the market open, coming up next as well. this is bloomberg. ♪

paul: good morning, i'm paul allen in sydney. asia's major markets are about to open. shery: good evening from a number of's global headquarters in new york. i'm shery ahn. sophie: i'm sophie kamaruddin in hong kong. welcome to "daybreak: asia." paul: our top stories this wednesday. asian stocks set to follow wall lower, with pressure growing on assault and bond yields. atna has back, and hinting weaponizing a rare earth commodity and warning washington not to underestimate its resolve. shery: a new setback for nomura

ordered by japan's financial regulator to bolster control after information was leaked. let's get straight to the market action with sophie in hong kong. off with theng it mood intel tokyo. the nikkei and the topix opening lower. for the best run in five weeks. our trading year, a two-week high. plenty to watch today, including nomura and nissan. 10 year yield closing in on the 1% level. ospi is up. the korean won is losing now. currency reacting somewhat to the u.s. treasury's foreign-exchange report. over in sydney, checking in on the asx 200. by 0.10%. the aussie dollar could be facing headwinds with more rate cut calls from jpmorgan. four cuts in 12 months.

aussie bond yields are under pressure. on oneyear rate closing point 5%. a similar move in new zealand. the kiwi tenur yield sliding. -- 10 year yield sliding. paul: let's get the first word news with jessica summers. jessica: the trump administration has begun to refrain labeling china a currency manipulator. it leaves one of the campaign promises of the president unfulfilled, but avoids further escalation in the trade war. the semiannual foreign-exchange vietnam, congress has singapore, and malaysia on a watchlist for manipulation. india and switzerland were removed. new zealand's annual budget has been thrown into disarray. that's after the opposition national party released parts of it early, and the treasury department said computer systems had been hacked. nationals said they acted

appropriately. the budget is due on thursday. it focuses on metrics just beyond economic growth. german chancellor angela merkel's succession plan has fallen apart. officials have told bloomberg she decided her heir apparent may not be up to the top job. has seen her popularity slide since taking over as christian democratic december.er in earlier, she oversaw the worst results in a national election. italian bonds rose after an economic and financial commissioners said he does not favor sanctions over breaches of a blocked that rule. he said an exchange of letters was more likely. the interim deputy prime minister says he will devote all of his energy to changing what he calls old and obsolete rules.

the anti-immigrant league parties scored a decisive win in the eu election. news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers, this is bloomberg. gearing upa could be to use its dominance of our earth in its trade war with the u.s. that's according to commentary in china, including hints from the state planning agency. bureaurg's beijing chief joins us. am i wrong to think it feels like a very nicely choreographed event? especially following president xi jinping's visit to that rare earth facility? >> that is how it looks on the surface. a coordinated effort. saying chinaicial is not going to let the u.s. use the products it makes from its rare earth to contain china.

we had commentary today echoing that same line. it's hard to tell if it was coordinated from the top, or whether it is state media echoing what was on tv. not doubtful is that china is sending the signal that it is ready and willing to use this rare earth as a tool in the trade war. that would be a nuclear option, just like what the u.s. has done with huawei. it is yet to be seen whether that will actually happen, or whether china is just wielding that threat right now. paul: that is a good point. can china afford to take the trade war nuclear, as you say? seen industrial , retail sales and exports are also weaker than expected. better sense of

china's economy friday, when we get pmi numbers. china's economy is also slowing. the trade war hurts both sides. relies heavily on stimulus. at a certain point, that will be insufficient. china will have to figure out how far it can go with the u.s. shery: a couple of hours ago, we got the report from the treasury department in the u.s. they refrained from naming china a currency manipulator. morgan stanley's chief economist says that is a positive message to china. is it true, given that the u.s. keeps tweaking this criteria in order to be able to name china a currency manipulator eventually? isron: i don't know if it a positive sign. for now, it is not a negative, not an escalation. i think it is too soon to say it is positive in this conflict.

paul: bloomberg beijing bureau chief, sharon chen, thank you for joining us. u.s.actor sent the treasury yields to the lowest level in 19 months. asian stocks are poised to continue the global flight to safety. mark cudmore joins us from singapore. how is the rally in treasuries set to play out in asian markets? it might worry the asian markets. we see this extension of curve flattening, yield income is lower. it shows the fear creeping into the u.s. bond markets. i don't think it will extend further in asia. nothing to do with time zone. we have probably seen a limit of the 10 year move for now. willll this year, we probably see the curve continue to find, we will see further inversions. that's because the fed has signals they are not ready to that thee fact

economic outlook will rapidly deteriorate with the escalation of the trade war. we will get a much more difficult economic situation, equity situation. that means the market will look for the rate cuts, but the fed will not deliver them immediately. that means we will get curve flattening. shery: i just asked sharon, but i want your take. what do you think of the treasury department not naming china currency manipulator? this is a very different situation from decades ago, when they were, but it seems the u.s. is now tweaking the criteria to cast a wider net. we have more countries now under their monetary lid. is itthe initial takeaway is marginal good news. the immediate reaction that they did not take this opportunity to escalate the trade war, did not name china a currency manipulator. it would be odd if they did. but they avoided it. they have lowered the bar. they have made it easier to name some countries currency

manipulators. the other side is this report is getting a slightly more mocked reaction in the market. ireland and italy adding to the treasury report as having manipulated currencies, even though they do not have their own currencies. this is used as a tool for the u.s. to threaten countries. trump has shown he is willing to to raisese tweets stakes with countries if he wants to grade he does not need a treasury report. in the area of -- in the era of trump tweets, the report as a direct signaling message is perhaps diminished. paul: you mentioned a couple of european countries that do not have their own currencies. the dust continues to settle in europe after the eu elections. wrangling forthe the head of the ecb and what it may mean going forward. the latest favorite to be the kind of ecb head, i don't

know who it is, but overall, they need fiscal stimulus. keyecb will not have the person to change that. whoever comes in next will necessary completely change the game. it is likely to be a marginal negative. draghi, whatever people think of him, has credibility from the markets. time ofis famous whatever it takes to turn europe around a few years ago. whoever comes in will not be able to apply the medicine, fiscal stimulus, that europe needs. is a risk they will not have the credibility of mario draghi. from trading off this week. shery: what is happening with the european economy? i am getting different views from everyone. some say assets are bargain at the moment. when you see data coming out of europe, it seems to be pretty conflicting whether it is survey data or hard numbers. overall, what we see any

europe is a very sluggish economy. this has been the case for some time. wasecb said a slowdown transitory. that was not the case this year. european growth was because we saw a slowdown in china. the european economy is a derivative of china's economy because of trade links. this european sluggish growth is pretty entrenched. one of the issues is that story known. well everyone in the market knows it. there has been this long theme of under waiting european assets. investors are nervous and looking for that turnaround, the hope that assets have priced to the bad news and europe can banks. given that i'm overall more bearish on the broader global economy in the wake of the escalation of the trade war, and i have turned bearish this month, i am worried across all global equity markets. there's a chance in europe will have a major risk and risk on scenario because the pessimism has been well entrenched. it will not be a fresh story. shery: how are you feeling about

the chinese equity market? we have worries about issues including heavy insider selling. it seems regulars are taking more action, they just he listed 4 stocks. mark: i think the chinese stock market will always be higher than the u.s.. in theore vulnerable short-term headline. as the trade war stories plays out, i am less worried about china than the u.s. not because the u.s. market looks much more overvalued, it's much more expensive, comparing them on metrics, price-to-book metrics, the u.s. is much more expensive. the u.s. market is also much more expensive compared to its own history. it will was have a premium over china because it's a more liquid and developed market. even compared to its own history, the u.s. market looks exceptionally expensive. the chinese market is not exactly cheap, but not expensive.

overall, the chinese market is likely to be more resilient, higher beat in the short-term, more volatile reactions. throughout the year, it probably has less downsides. the regulators are being particularly proactive, which is encouraging. shery: china's regulators and the government taking over a bank for the first time in two decades. what is that telling you about the financial strength of these institutions? worrying sign at one point, but it emphasizes the story that china is not only able because it is a one-party system and the lack of congress to process it, it is able to take many more steps than the u.s., but is willing to do those things. it is willing to take those steps to ensure the stability of the financial system. i think the trade war has yet to fully impact across global equity markets. there is probably vulnerability everywhere. china is at the center of that. you have policy in china that are very committed to avoiding

the worst case scenario. they are proactive, willing to take exceptional steps, like this scenario is taking over a bank. it shows overall that china's downside is probably limited on a longer-term basis. doing so well. i want to throw in another subject that you. in australia, we have had a call from jpmorgan that there will be 4 rate cuts from the rba in the next 12 months. that would take us down to .5% on the cash rate. we have seen other forecasters lowering expectations for what the cash rate will be by the end of 2019. what is going on? are things really that dire in australia? where is the aussie dollar hitting as a result? mark: as you said, we have seen this litany of forecasters upping their number of rate cuts, downgrading the rates forecast. jpmorgan is the latest in this line. in australia, we are getting to the debate of what the lower ground is for the policy in the

rba. many thought it would be around 1%, which would be a 50 basis point rate cu. now people are talking going below that in the next year or so. overall, the australian economy is struggling. it has this long housing bubble. supposedly it has been this economy that has avoided recession. the chinese growth slowdown last year, along with political tensions, it caused china to imports, that means china is starting to feel the impact. overall, the chinese economy is moving more domestic oriented. they are moving much more self-reliant. that is beginning to affect australia. australia has been struggling. the trade war will not help that. the is going to why investors like jpmorgan, i'm not sure it was 100 basis points, or 120 five, that they are calling for cuts, but it is a pretty extreme move. it does suggest aussie has quite a bit of downside. shery: thank you so much for

hanging around. we covered so much ground. we can call it a day. managingore, bloomberg editor. follow more on this story and the day trading on the bloomberg. you can get a market run down in one click. there is commentary and analysis from bloomberg's expert editors so you can find out what is affecting your investments right now. alibaba flags a possible 20 billion dollar investing in hong kong, we speak exclusively to hong kong exchanges chief executive -- hong kong exchange's chief executive. paul: up next, we are joined by olivia engel. she tells us how to navigate growing volatility in the markets. this is bloomberg. ♪

want to get you across some breaking news on the bloomberg terminal. australia's 10 year yield

falling below the rba policy rate of 1.5%. earlier, we saw the new zealand 10-year note sink to 1.71%. interesting declines for the aussie 10 year. in the context of that, we had a jpmorgan calling that we will see 100 basis point cuts from the reserve bank of australia over the coming of 12 months. that story globally is continuing to roll on. growing tension over trade is overshadowing expectations with the fed cutting rates by year's end, and the key slice of the treasuries yield curve is falling deeper into inversion. our next guest thinks the recent uptick in market volatility suggests they should be increasingly careful about risk exposure. olivia engel is state street advisor -- global advisor. she joins us in sydney. what is the money market trying to tell us?

olivia: that we need to be careful about the types of exposures in our equity portfolio. lifecyclesome at the part of the equity market, it can be tempting to pile into the defensive parts. we will see a lot of good reasons to be invested there. there is sensitivity to interest rate moves that have been buffeting around equity markets for much of the last six months. you really have to be careful and analyze every sector and position, in terms of exposure to these types of macro exposure. shery: this gtb chart on the bloomberg shows how we are seeing the volatility in the bond market spike. the blue line is showing you the vix. connect. been the vix what can you gauge out of what is happening? which way are we going to see this conflict getting result? resolved. result --

olivia: the index has risen a lot. the vix index has not gone with it. in most times in history, we have seen those moves in lockstep. maybe the market is telling us it is imminent in the equity markets. there is still fundamental around equities from an earnings consumption in many parts of the world. many parts of the nation are quite tricky. i think we just need to be very mindful of the exposure to the secular growth and not overpaying more in those parts of the market. paul: let's get more specific, in terms of getting defensive and where you have exposure. you are finding there's a lot of interest in tech, cloud, software, anything with a wide moat when it comes to the trade war. olivia: it is pretty tricky right now. there is so much in the internet and software area that is expensive. the extrapolation of earnings

into the future, regardless of what is going with the trade war, could bring you volatility. the valuations are too expensive to see it is a risk worth taking. the part of the market that is more attractive is tech hardware. i'm not talking about semiconductors, i'm talking about the boring part of the market, because you can find good value. it is still going to be a beneficiary to all of the secular growth and innovation that will be required to be used everywhere in the world. paul: can you tell me more about the boring part? you are not talking about huawei or apple products, are you? olivia: no, the tech that people don't normally talk about. the backbone of the tech sector, where it has the components, some of the traditional networking type companies. -- they are never as exciting, but they are a reliable source of future earnings. paul: in terms of contrarian

call, i want to take a look at this chart on the bloomberg terminal. this is an emerging market exit is. it shows everyone is getting out. that is not what you are finding? olivia: it is a short-term view, based on the risks of the trade war. there is a risk investors should take into consideration. but if you look at equities overall globally, we have seen investors take a real interest in emerging markets over the last one of months. it is continuing now. with these corrections, they are looking for a good time to get into that market. this latest trade war escalation n has not halted that desire. people are looking at this as an opportunity to get entry point into the market. shery: essential to your investment strategy has been value investing. we have seen partial recovery. are you still finding some attractive names? it is quite challenging.

i think because the volatility has escalated. if you are weighing up the return and risk, it is getting harder to find the attractive names because of the escalated volatility. positions in the health-care sector for that very reason. it is more of a political environment issue that is going to make market sentiment not isor health-care until there more certainty about what will happen in 2020 elections and the likelihood of policy outcomes there. we do find value in the health care sector, which surprises a lot of people. the fundamentals underlying that remain strong. the earnings are still strong in health care. paul: will have to leave it there. thank you very much, olivia engel. state street global advisors ceo of active quantity equities. get the stories you need to go

in today's edition of daybreak. bloomberg subscribers go to their terminal. it is also available on mobile in the bloomberg anywhere app. customize your settings so you only get news on the industries and assets you care about. this is bloomberg. ♪

shery: let's get a quick check of the latest business flash headlines. nissan ceo says he's interested in learning more about the proposed merger between alliance partner and cf chrysler. he says it may present opportunity. speaking ahead of wednesday's meeting of the board governing nissan's current alliance with mitsubishi. under the terms, nissan will gain rights of 7.5% to the new entity. paul: telstra has raised its guidance by $138 million after bringing forward conversation with staff on proposed job cuts.

they stick the cut at around 6000 jobs at the end of this financial year. they are on track to reach a previously net cost target by the end of 2022.

shery: this is -- jessica: this is "daybreak: asia." i'm jessica summers with the first word headlines. beijing could begin running up to use dominance of where earth in the trade war with the u.s. that's according to commentary in china, including hints from the state planning agency. president xi jinping visited a rare earth plant last week. an official with the national development and reform commission said the chinese people will not tolerate elements being made to press -- suppress their development. worlds from around the have threatened representatives of facebook, google, and twitter with stricter laws on privacy, think news, and hate speech in a

wide-ranging meeting in ontario. lawmakers from countries including canada, the u.k., mexico, and singapore participated. much of it centered on the fact that mark zuckerberg did not show up as requested to answer questions himself. trump's son-in-law and a senior adviser jared kushner is in the middle east into drum up support for his as yet undisclosed is really/palestinians ease plan. he will visit morocco, jordan, and israel. the u.s. plans to roll out economic portions of the planet next month at a conference in bahrain. the palestinians have already rejected the plan an. mackenzie bezos has promised to give half of the fortune she is getting in her divorce to jeff bezos. she is one of 19 sign to the giving pledge, started by bill and melinda gates and warren

buffett. more than 200 people have committed to donate more than 50% of their wealth to charitabley or causes. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm jessica summers, this is bloomberg. let's check in on the early market action in asia. one surprise you to see a lot of red. the nikkei off 1.5%. the kospi down 1%. in australia, down by 1%. this performing stock in australia -- best-performing stock in australia, linus court. it will just happen to be a rare earths miner. shery: surprising, given the headlines we are seeing in that choreographed dance coming out of china emphasizing its supremacy on rare earth. take a look at the bond market. this is where we see the risk off sentiment clearly.

u.s. 10 year treasury yield at the lowest level since september of 2017. this is after falling to 19 year lows and after seeing the three-month and 10 year rate dipping to negative again on tuesday. the biggest inversion since march. as much as 9.2 basis points at one moment. the japan 10 year yield also under pressure. we have seen the kiwi 10 year bond yield falling to a record low of 1.7 19%. standing at around that level at the moment. yieldstralia 10 year advanced one point 5%. this is around the rba policy rate, falling below that. this coming as jpmorgan forecast .5% byh rate falling to mid-2020. is getting ready to reveal how much it will charge for its made in china model

three. in the meantime, they are inviting people to have a guess. let's bring in bloomberg asian companies reporter angle slightly -- angus widely. >> we can do better than guess. i think we know. itreckon tesla can price between 300,000 yuan and 350,000 yuan. 450's a minimum of about thousand u.s. dollars. that's dearer than what you would pay for the same in the u.s., but less for the same car in china, because tesla has to export its cars to china. it does not have any local manufacturing capacity. equation tesla has to get right. it is pouring billions of dollars into its local shanghai facility, which it hopes to's dark production at this year. does not want to get the sums wrong or the price wrong.

it is really banking on this facility to help what is really the world's largest car market, certainly the front runner in electric vehicles in the world. shery: how many model 3's are we expecting at this shanghai factory line? if they do start producing this year out of the facility? what is demand like? it is difficult to say. much will depend on what people think of the price. capacity will be able to produce about 500,000 cars. it will not get there for some years. the price of this car will determine the success. it will not all go tesla's way. they are facing a lot of competition. planningedes, they are to make their electric vehicles

locally in china in order to and any chinese subsidies on electric vehicles. there's a lot hanging on this sum that they will sell this electric vehicle for. if you look at the backdrop, tola is under huge pressure produce. the stock is in meltdown at the moment, down 43% this year. it has raised just under $3 billion in sums and capital raising. have been bearish on the outlook. this huge pressure to deliver on the china project, this is the first step. shery: angus whitley, thank you so much. japan's financial regulator has ordered nomura to bolster internal controls in the latest setback for the struggling brokerage. we are joined by russell ward in tokyo. lead to nomura due to

this business improvement order, the first since 2012? russell: it is all about information leaks at no murder secure -- nomura securities unit in tokyo. information was about changes to the market structure of the tokyo stock exchange. was considering these changes on a panel, and leaked information about the threshold for the p companies to be on that section of the tokyo stock exchange, which is sensitive information. it could potentially have been traded on. the agency was quick to say it down not amount to insert data did not amount to insider trading, because it did not include information about a particular company. the impact on fairness on the market was similar kind of wrongdoing. it took quite a strict assessment of this.

and the the employee information systems were lacking. that ultimately undermined the credibility of the markets in tokyo. that's where they imposed this business order on that basis. paul: no evidence of insider trading, as you say, but what was the impact of this? russell: the first business order since 2012, when nomura was told to improve its business because of an insider trading scandal that brought down the ceo. these don't involve suspension of business, and he finds, but they have real ramifications. several deals. will they lose deals in the future?

will they lose more lucrative futures, particularly on the equity side? nomura is bidding for a role managing another sale of japan post holdings state owned by the government. that's a very lucrative deal that can have very real ramifications going forward. nomura posted its first for your loss on the year that was just completed. the ceo has been implementing cost cuts to turn around the business. tolly this action by the fsa get time for -- he came into the office in the wake of the trading scandal seven years ago, vowing to restore trust. now he has to do it all over again. shery: japanese banks faced a perennial issue of low rates. we see bond yields continuing to fall out of the moment. what is the picture looking like a cross the sector in japan? russell: it is not good right now. the low rates are persistent.

the boj is not budging on its policy. it looks like it is here to stay. it is fine for the brokerages, but for the commercial banks, the persistent low rate interest environment is very tough. the economy is slowing. the government has just downgraded the assessment of the economy. we have the lingering u.s./china trade war in the background. it is not a good time to be banking in tokyo. the financialre, technology and banks are also trying to revamp. shery: thank you so much, russell ward. the latest on japan's banking sector. many more to come on "daybreak: asia." this is bloomberg. ♪

nissan's ceo is interested

to learn more about the proposed merger between renault and fiat chrysler when they released their japanese partners today. stephen engle is in tokyo this morning. opportunities, potentially another headache for nissan, even after the carlos ghosn saga? stephen: absolutely, there will be more headaches to consider. he has been trying to build a more equitable partnership with mitsubishi motors and its partner. there is now this new entry, fiat chrysler, which would have a separate entity from nissan that would make about 8.7 million cars together, renault and fiat chrysler. that would be opposed to nissan, who made 6 million cars. 90 go from a relationship with renault, where you have better

sales, better markets, mainly the u.s. and china, and it gets flipped on its head. he is saying we need to explore these opportunities, it can be beneficial and positive if the greater car company had greater reach. against what he has been championing for, which is more say in the alliance. it is a convoluted, complex dealenge for nissan to with right now at a time when they are trying to restore confidence in the car company, given the carlos ghosn saga. that's what jean dominique sungard is doing today. at nissan, he will be pitching the merits of this merger with fiat chrysler to nissan and mitsubishi. doubt, psychology on will be listening. shery: does he have any real

options at this point, in this conundrum he is in? stephen: it is a conundrum. a morebeen trying to get equitable partnership. he has rebuffed overtures from carlos ghosn and jean dominique's and not from a full out merger. up through the backdoor, guess who came along? fiat chrysler, as john menominee exciting odd -- john dominic son got blindsided him with it. under this new entity, nissan, because it owns 50% of renault, but no voting rights, it would get a 7.5 percent stake in the new entity with voting rights and one board seat. that's not necessarily good. as i talked about the sales numbers earlier, you would get more say in the new entity, but you would be a lesser part of if pie of the 4 part company you do and up joining the merger down the road. the possibility

of having less of a say. absolutely it is a conundrum. he will be looking at it to see if it makes sense. but i'm not sure. paul: you mentioned 4 parts. let's talk about that fourth part. has mitsubishi had anything to say? to discredit mitsubishi, but they are the lesser partner in the renault /nissan/mitsubishi partnership. this will be driven by nissan, absolutely. if you think a franco japanese has beenr alliance fraught with difficulties, and it has come a look at the carlos ghosn saga. we don't have the glue of his to put this together 20 ceos ago -- 20 or so years ago. now, you are talking about a

potential franco -japanese-american-italian venture. great in the time of the electrification. there's a lot of disruption, challenges, size, scale, scope, great. there will be integration issues. shery: stephen engle, thank you so much. let's now take a look at the bond markets. we are seeing the treasury curve steepening at the moment with the 10 year yield falling to 2.2%. mark cranfield joins us with more. we are seeing big moves in the treasuries market. we saw that part of the yield curve with the three-month and 10 year yield falling to negative territory. given all of that angst and nervousness about these trade tensions, is it going to be the new normal? ank: it is shaping up to be extremely ugly day for the markets in asia on wednesday. it was a poor finish on wall

street last night, anyway. it has been made worse. we have seen the s&p 500 e-mini future go below this key 2800 line in early asian trading. that helped kick off this huge bull run you are talking about in the treasury market and other bond markets, as well. we see the tremendous compression across the treasury curve. the five-year sector is only 4 basis points away from hitting a one hander, which is amazing, considering where we were a few months ago. a panicmost becoming move across bond markets. the 10 year australian yield actually dipped below the cash rate. in the very unusual australian market. the rba meets next week. we expect the first rate cut in a sequence. today heard from jpmorgan saying it could be as many as 100 basis points to cut in australia over the next year or so. it is an extraordinary situation

going across the rates markets and bond markets. it is all coming together in a huge risk aversion move in golfing everything across asia today. -- in golfing everything across asia tapered paul: i want to bring up another chart. -- in golfing everything across asia today. i want to bring up another chart. paul: we talked about yield curve inversion a lot over the past few months. it was foreshadowing recession. is this it? is the pressure finally building? is it the big warning? if there are large shorts in the treasury market, it will make matters worse. those people will have to capitulate, rivers those positions. it would drive the bond even higher, as people have to get out of that. inversion in an the curve, it does not guarantee a recession. it has pointed towards recession past.he

usually 18 months or two years ahead. certainly people will take that seriously. we have seen a general decline in the quality of data in the u.s. and the rest of the world. that's partly because people are worried that this trade conflict between the u.s. and china will take a long time to resolve. imf downgrading forecasts, as well. we know the global economy is slowing. whether it actually heads into a recession is unknown. certainly, the bond market is taking no chances. people don't want to be left out of this, just in case it turns even worse than they expect. the pressure for lower rates will continue. shery: you are talking about the potential recession coming up. we have heard, the last time we saw the curve invert, j.p. morgan and jamie dimon came out and said the landscape has changed, it will be different. they talked about central banks interference. how valid is this point? mark: the major bond markets

around the world are disordered -- distorted to some extent because of the last financial crisis. you have the bank of japan own such a large part of the jgb market, but can barely function properly. they just own too many bonds. there are not freely tradable bonds for other people to use. in europe, the ecb owns a substantial part of the bond market, as well. both have negative yields. in the u.s., the fed does not own as much as some of the other people, by proportion, but it is still a significant player. three of the major central banks in the world are heavily involved in the bond market. that does not leave room for the private sector to get involved. you do have distortion. it does not take away the fact that the message is very clear. somebody, a very large group of investors, are very clearly worried that interest rates need

to come lower, because growth is slowing. at the moment, money talks. people are throwing that at the bond market because they want protection. paul: could it potentially turn around very quickly? i'm thinking in terms of the fed turning dovish again, as they did towards the end of 2018, maybe even just a tweet from president trump saying "don't worry about trade, it is all fixed now." trumpcertainly anytime has something to say, we have to pay attention. the fed is probably the bigger factor in this. they just reiterated in their latest minutes that they are happy with their situation. they want to digest more data. they are very clear that the rates can either go up or down. as the drip of data gradually gets worse, even the fed will have to shift its consensus more towards the dovish angle. the will have to give into

fact that there will be no improvement coming. the g20 meeting coming up next month. we expect president trump or president xi to get together and talk about the situation between the 2 countries. it could well be that if there is no sign of improvement, no sign of a deal coming out of that g20, then after that, investors will drop their hands and say the rest of the year is a write-off, i have to be completely defensive. tot message will get through central banks, even the fed. even though the fed has said they want to be patient. they will be affected by what they hear coming out of the g20. that has become a very big meeting for the near future. people will be looking very closely to that to see if there is hope of resolving the differences between the u.s. and china. june,osaka at the end of shaping up to be a big moment on the calendar. mark cranfield in singapore, thanks for joining us. don't forget, tv .

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shery: we have breaking news at the moment. we're hearing from reuters that t-mobile and sprint could be

selling boost mobile. this is a prepaid wireless brand, an offshoot of t-mobile and sprint. this merger is coming on the heels of that approval from the u.s. fcc. in order to get that approval, they had agreed to sell part of wirelessiness and customers pay as they go, rather than taking out subscriptions. now we are hearing from media reports that the companies will be selling boost mobile for up to $3 billion. ofl: let's get a quick check the latest business flash headlines. amazon is poised to begin its long feared purge of small suppliers. in the next few months, thousands of so-called mom and dad businesses will lose both orders from the largest retailer. cut costs ands to focus wholesale purchasing on major bands like procter & gamble, sony, and legal.

smaller suppliers will have to win customers one by one. shery: apple has unveiled its first updated ipod touch in four years. it will cost $199. it will support new services, including apple tv plus and apple arcade for games. it was an instant hit when a came out into that someone. in recent years, it has been overshadowed by the iphone. tol: before we hand over "bloomberg markets: asia," let's look at how we are trading now. a lot of red. nikkei lower by 1.6%. the kospi up by 1.13%. in australia, up .9%. more to come. this is bloomberg. ♪

♪ to "bloomberg markets: china open." five beijing. -- live in beijing. david: your top stories. equities yielding the bond rally. concerned sending global stocks down, bonds higher. the u.s. sparing china, but keeps it on the watchlist. singapore, vie