paul: welcome to daybreak australia. i'm paul allen. kathleen: i'm kathleen hays. sophie: i'm sophie kamaruddin. we are counting down to asia's major market open. ♪ paul: the top stories we are covering in the next hour. president trump facing formal impeachment proceedings with house speaker nancy pelosi saying he has violated his oath of office. the president also moved markets with critical comments about china and iran. investors are weighing another change of tone.

no more work for wework boss adam neumann, he is quitting a ceo saying it is in everyone's best interest. kathleen: let's get a quick reminder of how u.s. stocks ended the day. it was all about politics. geopolitics. the dow jones losing a half percent. s&p 500, nearly a full percent. drop pointl, the 10% in consumer confidence in the u.s.. our people worried about the trade war? yes. donald trump increasing the downward pressure on stocks when he gave his speech at the u.n. general assembly and started talking about wanting free trade, reciprocal trade with china. criticizing him for heavy state subsidies and more. social media platforms -- that hit the tech stocks, stocks across the board. bonds down sharply. tuesday's market

volatility came to a head when news of nancy pelosi would launch a formal impeachment inquiry as she made that official moments ago. speaker pelosi: the actions of the trump presidency revealed of the president's betrayal of his oath of office, betrayal of our national security, and betrayal of the integrity of our elections. therefore today, i am announcing the house of representatives is moving forward within an official m's -- impeachment inquiry. paul: congress editor anna edgerton joins us from washington. we are awaiting word from house minority leader kevin mccarthy at any moment. as we wait on that, what is the latest and what has been a very busy day of developments? anna: the latest is the announcement from nancy pelosi. we are trying to figure out how different this will be from what they were already doing. there are six house committees already invested getting different aspects of the trump

residency including his personal finances, business dealings and associates. now that speaker pelosi has said they are doing these formal impeachment hearings, it is unclear if that will be a continuation of what committees are already doing orbit moves into a new phase. we will be looking for if this ends up in a house floor vote. the house will be gone for two weeks for a two week long recess. when they come back, some movement on whether or not the full house will vote on articles of impeachment. kathleen: this gets tricky to watch if you are not in washington and not doing what you do because we know the dish very chairman in the house jerry nadler has said his panel's inquiry is an impeachment investigation. what has nancy pelosi done to really step this up and move it forward? anna: it was confusing to watch in washington as well. some of the semantic parsing has been difficult because they have been giving mixed messages. nadler has been calling this a

formal impeachment proceedings. other saying it is an impeachment inquiry. the basic line of reasoning is you have to conduct the investigation to know whether or not you have the material to backup and impeachment. the real movement is a political position for nancy pelosi. she is getting out in front of this in a way she has not before , for she was urging caution saying we have to follow the facts and bring public opinion along as we proceed. now she is saying this is a formal investigation like chairman nadler is already saying. we expect to see a bit more political support for this process from the highest ranks of democratic leadership. kathleen: one of the reason she held back, they look back in history and see when impeachment proceedings against former president bill clinton that it seemed to help republicans in their subsequent races? anna: when pelosi first started talking about appeasement, she had aligned that you should not

impeach for political reasons but you should not impeach for political reasons. kathleen: that is a good reason for me. anna edgerton, thank you for joining us. we are now hearing from house minority leader kevin mccarthy in washington. they have been investigating this president before he even got elected. they have voted three times on impeachment on this floor. word they voted before one the mullah report came back -- mueller report came back. our job is a serious job. our job is the focus on the american public. our job is to make tomorrow better than today. our job is to legislate, not to continue to investigate something in the back when you cannot find any reason to impeach this president. this election is over. i realize 2016 did not turn out the way speaker pelosi wanted it to happen, but she cannot change the laws of this congress.

she cannot unilaterally decide wan impeachment inquiry. what she said today makes no difference on what has been on.g it is no different than what nadler is trying to do. it's time to put the public before politics. thank you. on. it is no different than what kathleen: house minority leader kevin mccarthy responding to house speaker nancy pelosi's decision to move ahead with impeachment proceedings against president trump. mr. mccarthy saying we have already voted on this three times. once even voted before the results of the mueller report came out. nancy pelosi, saying the election is over. anna edgerton, our washington congress editor. very brief statement. he made a point did not care to elaborate. is there any reason? anna: exactly like we were

discussing before he came on. we are trying to parse the semantics about this. what about pelosi said today is different from what the house is already doing? they have these committee investigations open. pelosi even set in her remarks that we have these six committees working on this. that is mccarthy's point. they have been dragging out these investigations, as he characterized it. until they have an actual vote on the house floor, this does not count as formal impeachment proceedings. he seemed to hone in on the procedural element of what counts as impeachment and what is not quite yet and impeachment process. paul: all right, congress editor anna edgerton in washington. we will have plenty more on that developing story throughout the morning. for now, let's see how things are shaping up for asian markets. let's go to sophie kamaruddin in hong kong. sophie: we are bracing for a down day for asian stocks in u.s. futures are dodging with parliament text politics in

play. -- with politics in play. looking at the u.s.-japan trade agreement when trump and abe meet on the sidelines of the yuan general assembly. auto terrace remaining a point of contention. after the overnight jump in treasuries. the u.s. 10 year yield jumped as much as nine basis points. the yen this morning eyeing the 1.07 handle. the u.k. parliament reconvening on wednesday as boris johnson disagrees with the supreme court ruling. in asia, it is a busy day on the calendar. we will get prices from japan and the boj july meeting minutes which comes after governor kuroda expanded the virtues of negative rates. we have figures from new zealand and inflation for malaysia. and thailand expect it to hold on rates after last month's surprise.

paul: thanks very much. let's check in on the first word news now. ritika: thanks. stocks and oil fell as president trump took a hard-line stance against china in his speech to the u.n. futures felt in new york as he ruled out accepting a bad deal and accused beijing of manipulating the u.n. out of stealing intellectual property. his pessimism comes less than two weeks before trade talks are due to resume in washington. the u.s. had earlier welcomed positive comments from china. president trump: the american people are absolutely committed to restoring balance to our relationship with china. hopefully, we can reach an agreement that will be beneficial for both countries. clear, ihave made very will not accept a bad deal for the american people. president:incoming of the european central bank says he is confident the global

economy will dodge recession, although there are still substantial threats from protectionism and the trade war. christine lagarde takes the reins of the ecb at a precarious time for the single market and the wateider world. growth estimates were weakened to the lowest pay since the financial crisis. >> it is not in the baseline to have a recession. mediocre, it is growth. at risk because of, essentially, one major threat which is the trade war that we see. minister.k. prime boris is bowing to deliver brexit next month, remaining defiant in the face of the country's top judges. saying his suspension of parliament is unlawful. the supreme court said the advice johnson gave the queen to shut the legislature down was wrong and prevents elected

politicians from doing the democratic duty. johnson says he disagrees and will deliver brexit next month regardless. >> let's be absolutely clear. we respect it is very in our country -- fiduciary -- the judiciary in our country, we respect the courts. i think it was entirely right to go ahead with a plan for a queens speech. ritika: brazil is dismissing what it calls media lies about the fires in the amazon, saying the rain forest is not burning down. the president told the united nations the fires occurred naturally in dry weather, although he agreed some have been set intentionally. last month, the brazilian space agency said the number of fires in the amazon increased 84% in the first seven months of the year. >> the amazon is not being devastated, nor is it being

consumed by fire as the media misleadingly says. ritika: global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. paul: thanks. still to come, wework founder adam neumann steps down as ceo, vowing to take pressure off with an ipo on the line. what happens next? kathleen: the drama in washington since stocks lower as political turmoil. president trump's criticism of china affect the market. this is bloomberg. ♪

kathleen: i am kathleen hays in new york. paul: i am paul allen in sydney and you are watching daybreak australia. let's get back into what was a wild ride for u.s. stocks. the impeachment drama was only one issue to pressure the

markets. faang stocks slumped on president trump social media comments and weak consumer confidence added to the gloom. su keenan joins us. about 24 hours ago, markets are looking for a catalyst. they got one. su: they got a lot of catalysts. big was one of the areas that took a big hit. trump appeared to be in the middle of all of it. let's go to the snapshot. the bonds had a wild ride. we have the dollar lower. energy taking a big hit. energy related stocks. if we go into the bloomberg, trump impeachment odds surge. that was one of the big stories hanging on the market. let's go to one of the big movers because several comments throughout the day that led to gyrations. one of them was about his criticisms of big tech. you saw the faang stocks take major hits on a lot of the tech stocks. you also had the wework

charismatic but big spending ceo moved to the sidelines. interestingly enough, goldman sachs and jp morgan the big investment banks that have a lot to lose if an ipo does not happen took very big hits as well. very big story on wework and bank ties. kathleen: totally different side of the spectrum, great news for nike today. su: nike apparently not taking any hits from the trade war surprisingly. take a look at how it is moving after hours. they come out with strong numbers. double-digit growth in china. take a look at some of the numbers that are impacting their earnings. really came out, beating analyst estimates. sending the stock to an all-time high and extending trading that will likely go into the regular day. it puts it in the rearview mirror. how the trade war will impact things and seems to be dissipating and china growth

continues gangbusters. kathleen: it is a mixed bag. thank you so very much. joining us now is managing director of capital markets, sylvia. you are a new mom, just a couple of weeks old your baby so thank you for taking time out from junior to come in. i know you are watching everything happening so closely. some of the trade you are looking at our semiconductors, robotics. we had president trump come all he had to say was tightened up on some of the big tech companies and that is one of the things that the nasdaq fell about 1.5%. sylvia: su gave us the doom and gloom of today's comments earlier. the reason why i like some of the sectors is also a frame of reference. i like these sectors for short-term trade. overall, a lot of investors are looking to diversify portfolios and loan-to-value and late cycle performers.

there is somehow foot to be made so semiconductors, look at the top stocks. macron up to 60% year-to-date. it fell off a little bit today but the story is the same. data center is growing, gaming is going. dram memory trips are growing. that is a massive performer that will continue to grow whether or not we have a deal with china. kathleen: tech stocks for years, think back to the nasdaq bubble of the 1990's. tech was impervious to oil, central banks. now people see tech is very cyclically sensitive. are certain tech sectors or companies immune to the trade war? sylvia: i don't think they are completely immune but i do think there are spotlights within indexes. you look at the tech sector as a whole, look at a name like microsoft. microsoft did a $40 billion repurchasing. they have this 365 commerce dynamic growth where they are

getting a lot of amazon's cloud business. that is a name that is poised to grow well. do i think the faang's are at risk? they are risky and volatile.if you look at the top names in the sector, some of those things are millennial trades, a.i., global robotics. i think there is some memento and good names to look at for alpha. paul: just turning to politics for a moment, nancy pelosi seemed to give markets a favor by not making her announcement until after their close. are you expected to see much of a reaction when things get going again? sylvia: for me, not being a political analyst or expert, just looking at the markets and what happened before when came up with president nixon. there was a bear market, we continued with a bear market. with president clinton, we had a bull market ended continued. we have a bull market.

it is a bull market that is often affected by headline so i think that will continue. for me, the biggest issue is whether or not we get a trade agreement and what happens with the fed. the fed would like to sustain growth in the bull market and we would like to enter looking forward to some kind of optimism around the china trade deal. maybe this pushes the president to get that done more quickly. for me, this inquiry of impeachment is something that will add volatility to the market in the short term but not long-term in the markets. paul: there is no shortage of uncertainty around. we take a look at this chart, we can see investors have been piling money into gld. i know you see gold as a short-term trade. how short? do you have a sense of optimism through all of this? sylvia: i think investors are nervous. i mentioned it before. i think globally on a macro level, investors are starting to de-risk their portfolios.

they are starting to add some value overgrowth. in the short-term, i do think investors react to what is happening in the market. looking for alpha, tech semiconductors, robotics. i think in terms of positioning for a hedge, gold tends to be the safe haven. we have seen a lot of flow into the gold etf's and into energy. down today but also the reduction of the saudi oil supply. i think there you got an alternative asset class as well as gold. we have seen a lot of flow into there right up because of uncertainty. it is a safe haven for investors that tend to deliver when bonds right now are returning next to nothing, 2% right now. equities in gold. kathleen: we had such a big run in the bond market as stocks traded off today. you mentioned the fed. the federal reserve is effected maybe to do another cut this year. global central banks cutting rates. is that a little bit more

background for stocks now or when you look at the s&p 500, once again all-time highs, is it a necessary ingredient the federal reserve maintain an accommodative stance and maybe makes it more accommodative? sylvia: if we look at the s&p 500 now, we are hovering around all-time highs. minus the volatility today. i think the trade war with china is a major issue. many of the stocks in the s&p 500 have a lot of exposure to china. they manufacture a lot of their goods in china. some of their products are purchased in china. not having that essentially affects global growth and global gdp aground the world. if we don't have that, we sort of need the fed -- i would say we need the fed to essentially help the bull market going. the more the fed cuts right now is sort of what the market is looking for, what the market risk appetite will depend on. kathleen: that is why they call it insurance rate cuts. sylvia: exactly.

paul: all right, direxion investments director of capital markets, thank you for joining us. we have plenty more to come. stay with us. this is bloomberg. ♪

paul: this is bloomberg technology global link. i'm paul allen alongside kathleen hays and bloomberg technology's taylor riggs. let's take a look at the top global tech stories of the day. taylor: starting with big tech, i high price for president trump's criticism at the united nations. the combined price of faang stocks tumbled by $56 million after president made negative remarks of the growing power of social media. investors took that as a sign big tech may face extra scrutiny from antitrust regulators. iaomi has launched its compatible phones in china.

speeds of almost two gigabytes per second and will start at 520 u.s. dollars. another big talking point at the launch was the concept phone call to mixed alpha which has a screen that wraps around the whole device. apple analysts are forecasting a bigger than expected drop in the average selling price for iphones as consumers move towards cheaper models. deutsche bank says prices will likely fall around 5% next year. concerns,lso raised saying there was limited excitement for apple's latest model. those are the top tech global stories i am watching. kathleen: thanks. let's go back to the top story. the care and medical entrepreneur adam neumann steps down as ceo is a plan to salvage the ipo. let's go to san francisco with tom giles. is this going to work? adam neumann has stepped down. his wife is really pushing her high payroll. two new ceos.

can they salvage the ipo? tom: it solves part of the problem. it solves the corporate governance issues that were raised as more people learned more and more about his self-dealing, about some of the choices he was making as ceo. to the investor who may not be as familiar with silicon valley, these are people who were going to be looking at this company as a real estate company. once it sells shares to the public, they are not used to silicon valley antics. if you are concerned about adam neumann and his leadership, these changes will address that. they don't change the underlying fundamentals of the business. questions about path to profitability, the long-term leases, questions about underlying fundamentals of the business still not addressed by these changes announced today. kathleen: ok, well, thank you so much. more questions than answers but at least that long-awaited move is done.

that was tom giles. we thank you so very much for joining us. that is bloomberg technology global link. don't miss bloomberg technology 7:00 a.m. in sydney, 5 p.m. in new york. keep it right here on daybreak australia. ♪

>> the decision to advise her majesty was unlawful. >> i welcome the judgment this morning. >> that have the effects of frustrating or preventing the ability of parliament to carry out its constitutional function without reasonable justification. >> i strongly disagree with what the justices have found. >> it demonstrates a contempt for democracy and an abuse of power by him. >> i don't think it is right but we will go ahead. >> today is not a win for any individual or cause. it is a win for parliamentary

sovereignty. kathleen: key figures in the brexit process given their reaction to the u.k. supreme court ruling. the prime minister born johnson's suspension of parliament was unlawful. the voices included gina miller, the business woman led the challenge of the court. parliament is set to reconvene on wednesday. johnson says he will not step down and vowed to deliver brexit next month. he will fly home early from new york where he is due to speak at the u.n. general assembly. now let's get to more headlines with the first word news. ritika: thanks. iran is sending out conditions for any potential talks with the united states but little likelihood of a meeting at the u.n. this week. president rouhani said the u.s. must and what he calls legal sanctions and return to talks on the nuclear deal abandoned by washington last year. president trump has hinted at eventual negotiations, but also struck a tough line at the u.n. >> no responsible government

should subsidize iran's bloodlust. iran's menacing behavior continues, sanctions will not be lifted. they will be tightened. ritika: germany struggling auto industry suffered a new double blow as prosecutors charged the top executive with market manipulation in the diesel scandal. daimler responded with a separate investigation. ceo,w case alleges the former ceo and the chairman were too slow to inform investors about the emissions scandal. bank of japan governor kuroda has been talking of the virtues of negative interest rates, triggering spec election he will act next month. he repeated the bank is closer to taking action than it was in july, but avoided committing himself to a move in october. he we iterated a 2016 policy

review that said short-term rates have a more powerful impact than more long-term ones. rba chief philip lowe says he agrees with a gentle pickup in the australian economy, seeing policymakers are ready to cut rates if needed. however, he stopped short of flagging limited move that some markets and economists have factored in for next week. the aussie dollar rose on its comments while a cut on the current cash rate of 1% fell. >> after having been through a soft patch, a gentle turning point seems to have been reached. we are not expecting a return to strong economic growth in the near term, but we are excepting growth to pick up a little bit. against this backdrop, the main source of the mystic uncertainty continues to be the strength of household spending. ritika: global news 24 hours a day on air and on tictoc on twitter, powered by more than

2700 journalists and analysts in more than 120 countries. this is bloomberg. paul: thanks. for some more to watch and what to watch and markets, let's go to sophie kamaruddin in hong kong. sophie: after that low inspired rise, the aussie dollar pulled back as we get frustrated and political lines adding. bets on october easing now at 64% from 80% we had below the speech. increasing numbers of forecasters including j.p. morgan, city in the commonwealth bank of us really are exciting 25 basis point rate cuts. odds are likely for an rbnz move , with the qe rating staying at 1% after a cut this year. that has set the kiwi dollar on a weaker path. the currency could move at a four-year low in the coming weeks. looking ahead, considering the august forecast, the door has

been left open to further easing. paul: let's get some more on what we should be watching as trading gets underway in asia. us.ave adam haigh with a bit of a cocktail of negative news coming all that once. how much of that sentiment and how much more downside is there for risk assets? adam: this is a confluence of things coming together to put pressure on risk assets. the overriding change in the last 24 hours has been the idea and reports of the potential for impeachment which is adding some risk premium to the market. on top of that, trade tensions with china and a very poor print from the u.s. consumer which has area of last remaining strength in the u.s. economy. a lot of people thinking if you do get a bit of a pullback in the consumer sentiment then of course that does not bode well for the u.s. economy. those things together are adding

up to provide a little bit of a negative backdrop. asian equities looked like they are going to start the day reasonably weak. we are looking in the region of 1% or so for the open in japan, and also somewhat of that magnitude in korea and hong kong. there is clearly the sentiment has shifted quite significantly. it begs the question of whether this filters through and starts to firm up even more. moving in bonds even bigger. where the big move higher in treasuries. australian bonds moving higher as well. that will be the key thing for the session, whether we get any more headlines coming out either on the trade front or other development coming up other u.s. clinical situation. kathleen: a big corporate tax cut last week. stocks surging. some are concerned. that happen quickly. a warning sign of things to come. bond investors are worried about

the budget but some are positive in the stocks the brett indicator. adam: what we are looking at here is how many stocks are reaching 52 week highs and how many are reaching just one month highs or so. the positive thing to may glean from this as there are not actually many stocks that are reaching fresh one year highs as that chart shows. that circle at the bottom shows you there is still a lot of potential upside for indian equities even after this huge run we had since the surprise move to cut the corporate tax rate for the mess the companies of the end of last week. some of the data these folks have looked at over 17 years suggests there is very few occasions where you don't get further upside for indian equities on the back of these kind of moves on the 52 week high. want to keep an eye on that but certainly a positive signal. kathleen: thank you so much, adam haigh. you can check out the library

for some of the charts we have been talking about. it is on the bloomberg terminal. speech atdent trump's the u.n. general assembly. he continued to underscore his america first policies, setting a hard line on trade and border security. he also took aim at iran, insisting the u.s. seeks peace but the islamic republic must stop threatening other nations. president trump: no responsible government should subsidize iran's bloodlust. as long as iran's menacing behavior continues, sanctions will not be lifted, they will be tightened. security billonal faries joins us now covering all of this news. trump bloodlust -- donald has given very elaborate metaphors and statements. what do we take away from that speech and what he said? bill: it was generally a tough

speech. it was a very donald trump speech. he said the world does not belong to globalists, it belongs the patriots. he laid out what his agenda has been as president. he talked about on a lemon to immigration. iran was definitely a focus and it is an issue hanging over this u.n. general assembly. we know tonight president rouhani is still in town and do to speak at the u.n. later this week. president trump is still in town. we know french president macron has gone between the two leaders at some point this evening. we don't know if there is some sort of level, lower level set of talks going on but we are still continuing to chase this idea that perhaps somehow these two leaders to be brought into a room together before the week is over. paul: in terms of using that as a platform to talk about his agenda, he also touched on chinese trade practices. what did he have to say? bill: we heard a lot of what was

president trump's harsher criticism. they were brought into the wto. he pushed his argument they have continued to take advantage of the trading system and manipulating the currency and things like that. they are not new accusations but it is interesting timing given that he is speaking before the world at the u.s. and just a couple of weeks before negotiators from the china and the u.s. are due to meet again in washington to try to hash out what has been a long drawn out process. process has taken on more and more facets as well, not the least of which is hong kong. did he have anything to say about that? bill: he said hong kong is an issue he is watching very carefully. he expects china to follow what he would say are generally accepted human rights practices and not inflame the situation. when you go back to -- when these hong kong protests started, this was something the president did not like to talk about quite a bit. it is something he has become

more comfortable raising in public forums and there is no more public forum than the podium at the u.n. general assembly. kathleen: i can only agree. thank you so much. national security editor bill faries. going from this very global and visible podium, let's talk about president trump, tweeting moments ago that ukraine has given permission to release the transcript of the controversial telephone call between the two nations. following all of these developments is charles myers, chairman of sigmund global advisors and joins us from new york. let's start with that news about the transcripts of president trump stocks with the president of the ukraine -- of ukraine. what are you accepting? charles: again, a preemptive move by the president and his team to diffuse what has really snowballed into a very large crisis for him and his reelection. i think it was a good move, a preemptive move but we pretty

much already know what is on the transcript or the call because the president and rudy giuliani have told us. the real issue for congress, and thursday is a very key day aside from obviously today with speaker pelosi's announcement being a huge game changer. thursday is the deadline that she and congress have given for the release of the whistleblowers complaint and all the information around it to congress. that is a much bigger deal than the transcript of the call between the two presidents. i think that is where perhaps more incriminating or concerning information will be found. kathleen: what kind of information could the whistleblower share that would be incriminating and potentially impeachment were the? -- worthy? charles: the fact of the white house and department of justice under direction of the white house has refused to allow any information from the whistleblowers complaint to be passed to congress, which is standard procedure and the

current law of the u.s., tells us there must be something quite incriminating. we believe it will be something bigger than just the president of the united states asking a foreign power to help him and his reelection by digging up dirt on his opponent, but could actually involve other quid pro quo type promises. the other thing on the whistleblower, this is very important for the markets, is asked to appear before the house intelligence committee this week. i think we are going to learn a lot over the next couple of days , including possibly from the whistleblower himself. paul: the contents of the whistleblower testimony might be enough to sway the house, but if this thing progresses, the impeachment progresses too much further, will it be enough to persuade the senate? to remove the president requires a two thirds majority and that seems rather far-fetched.

charles: exactly. everyone understands and knows, including the democrats in the house, that the senate is very unlikely will convict the president even if they are able to get it through the house. i think the intent of the speaker, speaker pelosi and the democratic leadership in the house today, which again was a game changer, was to say they feel they have enough facts to move forward with a formal impeachment inquiry. even though a majority of members, democratic members in the house already support impeachment publicly, many others were waiting for a green light from speaker pelosi which she gave them today. over the next couple of days, we will find many more members of the house coming together in favor of impeachment. we will have an impeachment vote in the house at some point, either any time from a week from now up to a month from now, possibly at most two months. that then puts the president on trial, a very public trial in the senate.

today, it would fail. i think the intention of the leadership, the democratic leadership is through compelling the release of information -- evidence that would sway popular opinion and enough republican senators. but today it would fail. paul: charles myers, thank you for joining us. coming up next, we explore china's growing military influence and ask what are beijing's priorities as we approach of 70th anniversary of the people's republic. this is bloomberg. ♪

paul: welcome back to daybreak australia. on october 1, china will celebrate 70 years as the people's republic. we are taking a closer look at its transformation during that time and the challenges it faces today. we will it's more what china's military rise means for both the mind -- mainland and wider region. , joining us in sydney. thank you for joining us. you gave us some interesting statistics. china's defense budget, 56% india than all of japan, combined. is that any reason to feel nervous or is that just normal superpower behavior? guest: it's both. it's causing a degree of alarm

in the region. at the same time, china insists it has the right as it rose economically to also invest in its military modernization. what we see is the people's liberation army has emerged from this very small outdated soviet era institution in the mid-90's and we saw its budget grow by 900% between 1996 and 2018. it is staggering. on the other hand, keeping pace with the staggering economic growth of china. paul: china does not exactly sure the track record of the u.s. when it comes to projecting his military power, does it? herve: that is right. one thing to keep in line is whilst china's rise as a formidable military player within asia, it is staggering relative to all of its neighbors. in comparison to the u.s., it is still only about a third of u.s.

global defense spending annually and its capabilities fall well short of that of the u.s. which obviously has had 70 years to a globally dominant military force. that also seems to be a deliberate strategy on the part of beijing, which is to say it's efforts are on the near abroad. it feels it has increasingly favorable advantages relative to the u.s. by investing his military modernization on south china sea on what he calls the first island chain which ranges from china to the philippines. it hopes essentially to have a more favorable balance of power relative to the united states. kathleen: many people are not only hoping but making sure it happens. when you talk about japan and the disputed islands in the south china sea, where do you think that stands? do you think china will eventually keep pushing because

the japanese are pushing back hard? herve: well, that is the thing. militarys growth in capabilities have been pronounced, so too have efforts to produce a military and strategic counterweight with the rising keep abilities of china. what we see is countries like japan, australia, increasingly also india are in the game of trying to produce a balance to china's military might. that is something china has to be increasingly wary of because no country on its own can dominate the region. it is all about military diplomacy as well as military capability. if china has an achilles heel in terms of its military dominance in the region, it lies in its inability to form durable partnerships in the region at

least in terms of its defense. that is a reflection, i think, a fundamental distrust in china's intentions, particularly as its capabilities grow. kathleen: a big story now, vietnam pushing back against china particularly when it comes theetting oil out of the -- south china sea. vietnam is in a joint venture with exxon mobil, a very big one. exxon mobil is thinking of selling that off maybe because it is not there most profitable venture, etc. i think it is another kind of in the news example of a smaller country that is determined to hold onto its place in the south china sea and its right to extract some oil against china who is pushing back against that. same kind of thing. herve: yes. i think what china is trying to do is to test the limits of what it can get away with, short of

outright conflict. it did that very effectively a few years ago in terms of the militarization of the south china sea. i think the region has woken up and so has the united states. those sorts of will be more difficult for china to accomplish. is a lot more attention, a lot more wariness and a lot more joint training exercises taking place between southeast asian countries and the u.s. which really operates as a signal to china that it cannot just operate uninhibited in these contested spaces. kathleen: thank you so very much. i hope you can join us again soon. so many interesting issues. lemehiue. we will continue our coverage of the 70th anniversary of the people's republic of china later with a presser of asian security

studies. on friday, bloomberg takes a look into the hong kong protests in a special one-hour program. stephen engle investigates the cause of the unrest and looks for possible solutions with prominent players from all sides. hong kong on edge this friday at midday, 2:00 p.m. in sydney. ♪

kathleen: i am kathleen hays in new york. paul: i am paul allen in sydney and you are watching daybreak australia. a quick check of the latest business flash headlines. shares in china's tesla rival nio plunged after a less than excited quarterly loss, thousands of job cuts and concerns that a bubble may be bursting. problems include ballooning costs and major recalls and have prompted them to raise $200 million of extra funding. that made some analysts

analysts speculate as to whether the company can actually survive. kathleen: knocking on the other hand had all-time high in late trading after earnings beat estimates and signaled a previous period's rare miss was a blip. sales share rise, while grew 7% to nearly $11 billion. nike is relatively insulated from the trade war because while a quarter of its products are made in china, some of that is sold there rather than exported. paul: new management at hong kong airlines have agreed to cut salaries by 20% for four months starting in september to help reduce operating costs. the carrier is urging ground crew to take apart and a no pay leave program for a few days per month starting next month. the airline says travel demand is dried up and the long-running unrest in hong kong. plenty more coming in the next hour on daybreak asia. wealth management's head of economic research will give us

an interview on the latest geopolitical threats. that in all the days news, a check of the markets coming up in a moment. this is bloomberg. ♪

paul: good morning. i am paul allen in sydney. we are under one hour away from the market open. >> good evening. i am sophie kamaruddin in hong kong. welcome to "daybreak asia." paul: our top stories this wednesday, -- >> the actions of the trump presidency revealed the fact of the president's betrayal of his oath of office, betrayal of our national security, and betraya