>> very good morning. i am haidi stroud-watts in sydney. we are one hour away from number eight open. -- from the market open. shery: i am shery ahn. welcome to "daybreak asia." our top stories this hour, the u.k. prepares to go to the polls again over brexit. prime minister boris johnson finally winds his bid for -- wins his bid for an early election. dennis muilenburg faces tough

questions in the senate. the strain of the trade war. we will bring you an exclusive with the company ceo. let's see how things are shaping up in the early part of the asian session. not much of a guide to what happened on wall street overnight. sentiment down after a report that the trade deal between the u.s. and china may not decide at aipac after all and that kind of took a dent out of the s&p after seeing earlier record highs. the asx just going online. we are seeing a flat start to the trading day. flat to the downside. new zealand seeing upside. a mixed picture when it comes to asia futures. we have the nikkei looking lower and the kospi pretty much flat we are looking at a mildly positive open. well.d decision week as we are expecting a cut this week when it comes to december.

not so much certainty. we are also on bank of japan watch as well. let's get you the first word news with gritted. -- with ritika gupta. ritika: lebanon's prime minister has resigned. demonstrators were attacked by supporters. in a televised address, he said he reached a dead-end and that it was time for what he called a major shock to confront the crisis. protesters in beirut are calling for other top officials to step down. boeing's ceo, dennis muilenburg, defended the company's ability to sign off on aircraft designs. he admitted mistakes have been made. he testified before the committee, where he faced tough questioning over the steps that lead to deadly clashes involving 737 max 8 jets. he said the company would review reports but declined to endorse

specific messages. >> this is not going to be timeline-driven. we are committed to answering every question that regulators have and the airplane will fly when everyone is convinced it is safe. that is the most important thing here. ritika: blackouts are set to continue in california as the wildfires worsen. the state governor says more than 300 fires have been put out in the last one he for hours alone and around 130,000 people cannot return to their homes or utility companies across the state may cut power to as many as 2.5 million people to prevent power lines from sparking more fires. 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 ritika gupta. this is bloomberg. haidi. shery: -- haidi: thank you. let's get more on the u.k. election. boris johnson finally won

parliamentary backing for the vote on his fourth attempt. he is hoping it will help resolve the brexit crisis which has dragged on since 2016. annmarie hordern is with us in london with the latest. he'srie: he's finally -- been pushing for and wanting it. he got the date he pushed for. a lot of the debate was on when the day of the election would take place. either monday, december 9 or thursday, december 12. boris johnson is hoping he can keep up this momentum, cash in on his promise to leave the european union after the 2016 referendum, and he is winning right now in the polls. 10% to 15% ahead of labor, but it is a risk for him. be need to say the polls have not always been right and we did see theresa may make a similar gamble, leading 18% in the polls. that dropped to 2% and now, we

are in the brexit impasse we are today. brexit will be put on hold in the sense that they are not going to debate the withdrawal agreement and politicians are going to be squarely looking at campaigning ahead of this christmas vote. shery: what did the prime minister have to compromise on to get the snap election? annmarie: he had to introduce the bill to parliament in a different way that made it easier for him to get the bill through. he only needed half of the comments to vote for it. mp's were allowed to make amendments to it, so there were three amendments we are likely going to see. to vote.lds able another was whether e.u. were able to vote. the one thing that did make the amendment was the changing of the date, so really, it is a shell of politics regarding the debate, weighing the pros and cons of each. the government won it anyway.

it was a clear win for boris johnson, and now, he's going to be really just taking it in high gear towards this campaign coming up on december 12. shery: annmarie hordern in london. thank you so much for the latest on brexit. bloomberg has been told the trump administration wants to dictate how and where global auto companies made cars and car parts in a bid to secure duty-free treatment under the new nafta. let's get the latest from joe sobczyk. does this have any implications for the usmca, which has now been ratified in congress? joe: destocked are going on in parallel. is trump administration seeking to use what are called transition plans for the aremakers, primarily, that going to be operating in north america. the usmca, the trade deal among

canada, mexico, and the u.s., set some fairly stringent terms for the content of cars and bets that are made and will allowed into each country duty-free. the transition plans allow each manufacturer by manufacturer standards on these and this would allow the administration to more or less toect the manufacturing politically advantageous areas, by giving one manufacturer precedent over another, so they withtill negotiating this the companies and u.s. trade representative. they have been considering negotiations along with congress to work through some of these issues as this moves forward. getting more

parameters around the next phase of the impeachment inquiry or inquiries in the meantime? joe: in the house, democrats have released a resolution that they are planning to vote on thursday which sets down a bit of a roadmap for how the investigation proceeds ahead. legislation to begin impeachment or drop prticles of think -- draw u articles of impeachment but it sets out what they plan to do over the next coming weeks, including public hearings led by the intelligence committee, witnesses called, the ability of republicans to request subpoenas , witnesses, or documents. while the rest of the inquiry still goes along by other house committees, such as financial services, foreign affairs, conducting their own aspects of the inquiry, this will ultimately lead to a

recommendation to the judiciary committee which tends to run these sorts of things. whether or not to go for an , articles of impeachment against trump. this is setting out a roadmap that is not really -- has not really satisfied republicans, who complain that much of the investigation being conducted by the democrats has gone on behind closed doors and they complained that they have been limited in their questioning and their ability to call witnesses. this point,ing, at this resolution does not solve those issues, and they are going to continue resisting and probably will vote along party lines against this resolution. with democrats in the majority of the house, it is sure to pass. haidi: thank you so much for your time. bloomberg congress editor. sales fell, china short.

we will look into the third quarter results. shery: as we close out october, could there be more scarce ahead in the markets? we should expect some short-term swings. this is bloomberg. ♪

haidi: this is "daybreak asia." i am haidi stroud-watts in sydney. shery: with a fed rate cut later wednesday, it is seen as a done deal. the biggest question for investors is what comes next. kathleen hays is here with some insight. could this rate cutting cycle be over? kathleen: that is the big question. the whole question about what happens in october, the fed has done nothing to push back against expectations that it will cut its key rate by 25 basis points. but when you look out to december, that is where you see a difference jump into the bloomberg library with me for a chart to sear the expectations are now. people are talking about the

odds of a cut in the next 24 hours. it is nearly 100%. nobody is worried about that. when you look at december, you can see what was once looked at more in the 80% odds scum 80% chance this entity, is back down to under 30, so let's see what's going on here. let's start with the meeting tomorrow. jay powell, when he enters the press conference room again, as you see him doing in september, he may hit the pause button via a signal, not a statement, that the tradenames is getting better, the yield curve has been inverted. it is getting a bit steeper. rising risk appetite. look at the stock market. it is hitting records after day after day. but he can also show that he and other fed members are tilting towards another rate cut. the trade war is not over yet. maybe get a mini deal. job growth, gdp, they are both slowing. let's take a look at the bloomberg chart as we left ahead to the meeting.

importantly, you can see gdp was up nearly to 3%. now, it went down to 2%. in the third quarter, estimated at 1.6%. when you look out over 2020, some more weakness. this is why a lot of people think the fed will keep that door wide open. bloomberg economics, haidi, is saying the fed still needs more insurance cuts. they are looking back to 1995 and 1996 and the 1998, when the fed also did three rate cuts at 75 basis points. the fed was looking at an economy that was in better shape when they started cutting rates. certainly, there was no trade war they had to deal with to say, no, it's not going to prove to be enough. they will do more. again, every reporter asks jay powell at the press conference if it has anything to do with that. that is where we will see the big news made. boj.: watching the

they may want to add more stimulus this week after the inflation numbers yesterday, and the fed should be able to help with that? kathleen: the consensus right now is that, yes, they are far from mere inflation target. the key phrase to remember is price momentum. as long as governor kuroda says the price momentum is being maintained, that's boj speak for saying we are not ready to move on that just yet. bloomberg economics is pointing out that, so far, the impact of the consumption tax hike has been muted. you don't see a big one yet. risks are made and that is something the boj could talk about. strategists, analysts, all kinds of people in japan are saying maybe they will do something to alter what they are doing with etf's. not change the target, but start lending shares in etf's to brokerages, so some of the liquidity has been removed from monetary policy and will be back in the market.

the strong stock market, the fact that the 10 year jgb yield has risen a great deal since the last meeting, the fact and the yen has gotten weaker, all of these are reasons for the boj to hold tight. what people are really saying morenumber of survey shows than 70% of economists say, by january, the boj will cut that negative rates. the odds of doing it tomorrow do not seem very high. shery: no halloween treat this time around. and policyeconomics editor, kathleen hays p or our next guest says it will not just be halloween that makes the final week of october speaking for investors. joining us now to tell us why is carol schleifer. with us.eat having you should we be fearing a hawkish cut by the fed? carol: i think one of the things to keep in mind relative to the prior cut period is the fed starting from a much lower rate so there a lot less room for the fed to continue to cut, but we

are cautious but constructive on markets in general. shery: in this environment, we see this interesting rotation into value. this chart on the bloomberg showing the s&p 500 value index is outperforming the growth index. when you have so many factors, including the potential fed rate cut, not to mention perhaps a truce in the china-u.s. trade tensions, is this the right time to balance the portfolio? carol: it is always the right time to rebalance. we are up 15% to 20% in many of the equity indices around the globe here today. that, in and of itself, would be the right time to rebalance, but also the right time given all the potential risks on the horizon to be looking at rebalancing a bit more conservatively. what you get at the end of the cycle is not quite there. like market

participants are finding it really hard, particularly with a tweet from the president here or a late statement out somewhere else. to be pessimistic or optimistic on where we go from here. carol: that is why it makes a lot of sense to get past the feeling that you can be all or non-and it is very important to take a deep breath, take it all in with a grain of salt, if you will. the potential for for this economy and the markets to continue to crawl along. we are climbing the wall of worry. there is the status where -- the fear of making out and being all the way out. that makes it push and pull between value and growth. shery: even if we get a mini trade deal signed next month, there may be good news when it comes to phase ii or phase three of a trade deal between china and the u.s., does that change the outlook for what the fed

does? carol: i am not sure it changes the outlook necessarily for what the fed does but it is important to remember, even if we get a mini trade deal or signature for the first portion of a major trade deal, we still get an awful lot of tariffs in place and we have new tariffs going on september 15. we have not even see in those fully work their way through the system yet. that bears watching, especially in terms of how it impacts companies. the key will be, can we forestall the tariffs in december? those are the ones that will likely hit consumers the most. shery: we are already seeing the impact on consumers when it comes to sentiment. should we be more wary about consumer facing stocks? carol: we have to watch what consumers are doing because of the fact that they have been the backbone in the economy. even while the numbers are still up in healthy territory, they are down over 12 points over where they were a year ago and that is something definitely

worth watching. shery: we have seen the earnings coming in. more companies have beat estimates from analysts. what are you watching for? carol: it is definitely not the numbers. those are looking backwards. we are listening to what the companies are saying about how margins are being impacted. shery: what are they saying? carol: a lot of companies are pointing out headwinds, trade war headwinds. they are pointing to a lot of things at the margins, but they are by and large pretty constructive. haidi: if they don't see it, what is a reasonable amount of cash holdings? carol: it depends on your timeframe and what you have going on. within the next few years, if you have kids going out to college, big expenses, it hurt to pull not

hurt to pull that out and at least it allows you to sleep at night with the comfort of knowing you have that provided for. even if markets do continue to go up. historically, people have been afraid to have anything in cash, and letting some cash build or being cautious about if you trim stocks and waiting to try to figure out where you are going to put it back in, having the asymmetric stance to when you sell and when you buy, it makes some sense, too. we have seen bond markets elsewhere, particularly in asia. is it time to start getting a bit wary about how much is going into bond holding? carol: the key differentiator is to considered to you on the actual bonds or do you own bond funds? they are likely to behave very differently in terms of holding, and your potential to get payback from them. it is important to keep in mind that bonds in general have not just had the 10 year bull market. they have had almost a 40 year bull market from the peak in 1981.

haidi: always a pleasure to have you. deputy chief investmentories yot your day going in today's edition of daybreak. bloomberg subscribers go to dayb on your terminals. 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. ♪ ♪

haidi: we are counting down to asia's first major market opens this morning. japan looking unchanged now. seoul looking pretty flat. australia pretty much a lackluster picture. we have not had much of a positive handover from the u.s. we had another record high before stocks backed away from

that level after one report suggesting that china and the as soon ast -- president trump alluded to. he said things were progressing ahead of schedule. ,e are waiting for the fed almost fully priced into cut again. a rate cut in july and september. the way forward looking at bit more uncertain and we are watching for that bank of japan monetary policy decision this week as well. this is "daybreak asia." i am haidi stroud-watts in sydney. shery: i am shery ahn in new york. vowed to continue cost cuts as a slump continues to cloud its recovery. profit in the retail division fell 57% from the previous year. japan's biggest brokerage managed to post its highest quarterly profit in 17 years. boosted by one timeshare sale gain and positive results in its

wholesale and asset management businesses. our assessment is we did fairly well despite tough market conditions and us being in the middle of undertaking structural overhaul. more than 60% of cost cutting been completed. we will continue our effort to reach our target moving forward. haidi: tesla's surprise third-quarter profit came despite a drop of almost 40% in revenue in its largest market. u.s. sales plummeted to just over $3 billion in the latest quarter. down from $2 billion a year earlier, according to a securities filing. tesla's shift to expand in markets overseas. shery: nestle is reportedly weighing a sale of units after years of trying to turn them around. a local confectionery brand is said to be under review as well as a company best known for its ready-made porridge. nestle is seeking more than $1 billion for its controlling

stake. biggest electric vehicle maker reported an 89% slump in the third-quarter net income as demand -- the warren buffett backed automaker saab revenue declined by around 9% through september. sales of electric vehicles have been falling for three consecutive months after the chinese government scaled back subsidies. shery: let's get a quick check up on how markets are trading at the moment. we are seeing pressure for the asx 200, which is falling for the first time in 80 days. we have tech and consumer discretionary declines. we heard from philip lowe yesterday reiterating that the rba is prepared to cut rates again if needed but also saying negative rates are extraordinarily unlikely. crude is down for a third consecutive session. same thing goes for gold ahead of that fed rate decision.

there is the expectation of a cut. coming up next, a chinese service provider feeling the strain. we will hear from the ceo. this is bloomberg. ♪

ofwe have sort of run out effectiveness from blowing interest rates. negative interest rates really make no sense. we have a downturn, and it's going to be challenging. it will need a lot of fiscal stimulus. i think, in the next 10 years, we have a risky situation. very risky. period, weyear time will probably have an economic downturn, almost certainly. while there is a large wealth gap and while there is not effective monetary policy, so that's a scary situation. ray dalio and stephen schwarzman with a warning for

the global economy from the future investment initiative conference taking place in riyadh. let's take a look at how markets are setting up for a big week when it comes to monetary policy decisions. the fed expected to cut again for the third time this year. we are watching the bank of japan adding further stimulus after pretty poor inflation numbers coming in earlier this week. this is how we are faring. losses for aussie shares, trading .4% lower d. inflation numbersue in just -- inflation numbers due. phil lowe,ing from not giving much of an indication as to what the central bank's next move might be. new zealand seeing moderate gains at .25%. nikkei futures have turned positive ahead of the market open in half an hour's time. seoul looking flat. we are looking at a positive picture when it comes to the start of trading in hong kong and mainland china. markets pretty much meandering

as we have expectations of a cut from the fed, but will it be a hawkish cut or potentially even a dovish hold from the central bank? let's get you caught up-to-date with the rest of the first word news with riddick in new york. -- ritika gupta in new york. ritika: prime minister boris johnson finally managed to win backing in parliament to trigger the snap vote and get the election date he wanted in an attempt to resolve the brexit crisis. it will be the third time the u.k. has gone to the polls to choose a new government since 2015. we will have a live report from london and just a few moments. house democrats have released the text of the impeachment inquiry resolution ahead of a full house vote on the future of the inquiry that could come as soon as thursday. it's a signal that the public will soon get to look at the witnesses and evidence assembled to build the case against the president. republicans have complained that the inquiry is illegitimate.

germany's she says huawei cannot only be -- germany's chief says huawei cannot be fully trusted peer they want to keep the chinese tech giant out of the country's 5g network. the president of germany's federal intelligence service says it is difficult to trust a company that has "a very high level of dependence on the communist party." arechrysler -- exploring a potential merger. we have been told that under one proposal, the ceo would become ceo of the combined company whilst john alcon would become overall chairman. sources tell us the board is due to meet wednesday afternoon to discuss the options. 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 ritika gupta. this is bloomberg.

shery. shery: thank you. the head of asia's largest online travel company says the firm will continue its international expansion even as the trade war and economic slowdown and protests in hong kong put a squeeze on profits. the ceo spoke exclusively with bloomberg's china correspondent, tom mackenzie, who joins us from shanghai. how well are they weathering all of these challenges? challenges are fairly acute for what we have said is and no is the region's largest online travel company, one of the world's largest. they own sky scanner in the u.k. , so they are very significant in the travel space, in the technology space as well, but they are facing these headwinds from the trade war. we spoke to the ceo. they have seen a drop off in terms of chinese travelers to the u.s., but countries like

australia and new zealand are taking up some of that travel as chinese tourists look to other destinations, but also the impact of the hong kong protest as well is starting to weigh on topline growth. the decision by beijing to restrict travel to taiwan is another factor that see trip are having -- that they are having to contend with. they are trying to push ahead with their international expansion but also growing out their market share domestically, particularly in lower tier cities. take a listen to what he had to say about the economic impact. people probably still will travel, but instead of traveling four times a year, they might reduce it to three times a year. maybe instead of traveling long haul, they might be traveling to asia or within china, but i think travel for midland to -- duringustomers

their golden week holidays, chinese new year, or summer break. is topline growth being weighed down by this near weakness in the economy? >> hong kong, yes. it has a negative impact for the top line. think of these as a one-time kind of thing. we will make investment in the long term. you characterize the broader impact of the trade war on your business? >> i am hopeful that the leaders from both countries will focus on our shared interests, and there's so many things we share together. then, i think, both will be benefiting from our collaboration. and out ofg kong

hong kong has been under significant pressure. can you quantify for us how it has played out for ctrip in terms of the demand from mainland tourists looking to travel and stay in hong kong? jane: the impact we roughly estimated is around 5% of our total revenue. tom: about 5%? ok. when do you expect that to turnaround? jane: hopefully, the area will be stabilized very soon, so the government and the people will look into the future, look forward to what hasm: a big focus recently been to grow in lower tier cities, so smaller cities in china. how much success have you had there, and what is your target for growth?

additional 50% of revenues coming from that. are you close to meeting that target? 80,000e have about offline stores, and the growth and the growth empowered by these offline stores is tremendous. efforts,so putting in further penetrating into the fourth tier, fifth tier cities. it is working out very well. the year-over-year growth is more than 50% year-over-year, so we are confident, in fact. tom: and you expect those kind of numbers to continue in terms of growth? jane: as long as we keep up with our execution, we will be able to gain more market share. has outbound travel as well been a clear focus for the business and it grew between 20% and 25% in the second quarter. what is the target for you for the end of the year? jane: we try to see indexes.

6%, 2%gdp growth is higher or 3% higher than the gdp growth, and we will also add a couple percentage on top of the industry growth, so if gdp is -- we have been delivering two times the market growth for outbound travel if not more. that: that was the -- tom: was the ctrip ceo speaking to us from shanghai. we know that that is something under discussion. jane said they are evaluating their options. she certainly did not rule out a second delisting, which was interesting. the trade war is something they have asked to factor in

carefully. they are betting on the growth of tourism in a country where you signed 2018 a 10% rise in domestic travelers and 12% rise in domestic spending. haidi: tom mackenzie in shanghai. great conversation. coming up next, we are going to find out how much people went shopping in japan before the sales tax hike. this is bloomberg. ♪

haidi: this is "daybreak asia." i am haidi stroud-watts in sydney. shery: i am shery ahn in new york. young china shares fell after its third quarter results is appointed. su keenan has more on the earnings and the reaction.

so what happened here? su: we saw the stock dropped significantly after hours. the expectations for the adjusted earnings, is the outlook that really disappointed, and the shares have been down as much as 6%. they have erased some of that loss as the conference call is set to get underway. they did say that, looking ahead, we will focus on driving sales, managing costs, while making prudent investments. if you take a look at the big picture, you can see they have had a strong year but what was the story here, the pizza hut growth trailed the estimates. kentucky fried chicken remains strong. are very much under pressure. you also have some structural issues. lureare struggling to customers in. kentucky fried chicken does not

have that problem. you have rivals that are coming in strong with the delivery. in terms of same-store sales that have been in stores open at least a year. 1%.s rose total revenue was up, but again, it's the outlook and the adjustment to increasing competition that is an issue. keenan with a wrap on those young china -- earnings. yum -- yum china earnings. it is really about the forward guidance and the amount of y competition thatum is -- amount of competition that yum is facing. i want to introduce yum china 's growth strategy. they have the largest network.

of kfc and pizza hut is at its nearest competitor. looking for what we believe, yum tona will continue to expand catch up a larger, higher scale for the consumer class and to withte with competitors this area. thatrms of growth, we see they delivered 3% in the third in the first 5% half. year hut delivered 3% this after last year.

we are looking to the first quarter in 2030. we believe yum china efforts on food innovation, restaurant remodeling, and health -- right.right -- haidi: what about the broader impact of the economic slowdown? we were talking yesterday about haveome of the beer makers been struggling comparatively in the chinese market because of the lack of spending at the lower to medium and of the market. is that something that will affect fast food in the same way? jack: definitely, but we did not see a very crucial implant from the economy slowdown, because population.4 billion , so the demand still stands and the reason the income still drives consumption upgrades --

september staple consumer -- consumer sales growth still delivers generally lower, but still delivers 7.8% year on year growth. also, they outperformed all of the other factors in china. shery: what about the hike in commodity prices? as this gtv chart on the bloomberg shows, we have seen this massive spike on pork prices which has affected headline inflation. we are seeing raw material costs rising. hike the commodity price as cpi reflects -- that is what i am most concerned about. raising pressure from raw therial costs is giving

process of ingredients. livestock, vegetables, and fruits, they are increasing since the first quarter, when the price started to rock it. the end of september, the stock has declined by over 40% year on year. -- national average price implying year on year growth. risk? what about the well,see in the u.s. as consumers are more willing to go the healthy root and pay a little bit more. for an industry, for

western fast food, we think the is atial downside risk higher demand for healthy food. thinkinese fast food, we the harrowing is how to deliver and provide -- a longer distance. haidi: if margins remain under pressure, and not just for yum china, but for other operators in china as well, we will have consolidation in what is a very varied market at the moment. slowdown, the economy may help consolidate the market small oray make incapable players to exit. focus and havey

more preference with higher quality. the phenomenon is not only in consumer staples but also in the discretionary sector, led by some chinese brands. thank you so much. boc international. we have breaking news out of japan. we are getting the september retail members month on month, jumping 7.1%. this is much higher than the expectation of a growth of three point 5%. also, of course, much higher than the previous month of august. growth of 9.1%, again beating expectations. department store and supermarket sales up 10% for the month of september, beating expectations. this is not that surprising given we were expecting some

sort of impact from that sales tax hike that went into effect in october, so we could have seen some stockpiling that clearly is reflected on the retail sale numbers, month on month, jumping 7.1%. let's get some analysis with our asia cross-asset's managing editor, chris anstey. as i was saying, we were expecting a big fluctuation, given the sales tax hike in october. were we expecting this much of a jump? very: yes, this is interesting, because the narrative from finance minister o for many weeks has been that japan has not experienced the big surge in demand products for stockpiling reasons before the sales tax hike took effect october 1. and the implication is that, then, we are going to see a fairly significant decline in

october. now, again, the narrative from the government had been that, look, third time, lucky. we might have tipped the economy into recession in the late 90's with a sales tax increase. we may cause the economy to shrink when we did it again in 2013, but we learned our lessons. we calibrated these tax hikes so that they will not affect, you know, staples, and we will not see the kind of roller coaster move in retail sales. for 9% surge year on year september is, you know, not what the government expects us to see, certainly not what policymakers want to see, because the government has been saying that they are not prepared to go ahead with a big stimulus package at the tail end of the year here to provide any cushion should the economy

starts slowing rapidly because of the sales tax hike. the retail numbers today coupled with the inflation rate for tokyo yesterday, does it move the needle against building expectations that the boj will have to do more perhaps as soon as this week? tricky decision for the boj. that the board is going to play very close attention -- pay very close attention to the market reaction of the federal reserve tonight, and chairman powell's press conference may be particularly important. if there is volatility that, you know, is triggered by chairman powell, perhaps some declaration that they are ready to pause on rate cuts if we see the yen going up. that is going to feed into the boj. they will need to decide, do we want to hold our fire this

time around and provide some -- in the coming months when we see the impact of the slowdown from the sales tax hike? it is a very close call. cross-assets a managing editor chris anstey joining us. we will have more analysis on those numbers for retail sales and preview what they potentially mean for the bank of japan this week. mitsubishi's representative joins us in the next hour of daybreak asia. this is bloomberg. ♪

haidi: a quick check of the latest business flash headlines. saudi aramco will start trading on december 11 with the start of its ipo process to be announced on sunday according to -- aramco delayed the deal earlier this month to give advisors time to secure investors. we are told the oil giant earned

60 $8 billion in the first nine months of the year, cementing its position as the world's most profitable company. airbus jetst 30 faced being grounded after a series of engine failures. the biggest carrier, indigo, and its rival must update their a320 neo jets within 15 days. the government warning -- in-flightfered three shutdowns in the last week alone. they suffer delivery delays and previous groundings in india. haidi: samsung teased its next-generation galaxy devices. the company did not provide the details on when it would start selling the phone. the launch suggests samsung is sticking with foldable phones despite the troubled rollout of its first galaxy fold. coming up on the next hour of "daybreak asia," china's big

banks reporting results this week. she will be joining us with her outlook. in the meantime, the market open in korea and japan is next. this is bloomberg. ♪

haidi: asia's major markets of just opened. haidi: welcome to "daybreak asia." ahn in new york. ♪ spending splurge and japan beats retail expectations. we get analysis from tokyo's trading gets underway. the u.k. prepares to go to the polls again of a. prime minister boris johnson finally gets his bid for an early election. boeing goes on the defensive. the ceo facing tough questions

in the senate. ♪ shery: quick check of the markets, japan back online, the nikkei under pressure, down 1/10 of 1% while the topics gains ground after japan equities gain for the past seven sessions, so are the nikkei and topix in overbought territory. when it comes to the japanese yen, just a touch below 109. we have seen significant weakness for the japanese yen as we had more optimism over trade, little strength at the moment. the 10 year yield at one point to the highest level since june, right now holding at this level. look at how the south korean market is coming online. we have seen pressure for the south korean market, we are seeing that continue with the inpi, but the korean yuan the previous session was the biggest gain or in asian emerging market currencies, and

we are seeing downside pressure at the moment. the asx 200 unchanged, at the moment. but we continue to see this rally in the ax s 200. a little pressure today, especially for the consumer discretionary and tech sectors. kiwi soft down for a third session. are seeing meandering action on the markets as investors await the fed. expected to cut rates when they meet wednesday. let's look at how it is likely to play out in trading action. mark joins us from singapore. mark, looking at the pricing, we are not expecting a surprise, but is it the tone of what powell says at the fed that will make all the difference? are very concerned about forward guidance the fed will give. this time there is more weight

on that than usual, because there are indications, the fed has been saying these rate cuts have been insurance cuts, we expect another today, but then for them to give the signal that with all that insurance already provided, they would like to take time to see how the data plays out in the month ahead -- in the months ahead. that would be a strong hint they don't want to do anything in december. the tricky part for the fed is they don't want to cause a tantrum in the markets, neither do they want to see a big selloff in treasuries or equities. they somehow want to give the message they are still watching things very closely, but think they have done enough for the time being and that should leave the economy going pretty well and keep markets satisfied. you see the backup and treasury yields over the past couple of weeks, that partly anticipates where the fed is going. the path for traders here, trying to see how the fed threads that needle, whether they want to be too bearish or

too dovish. you have got a nicely balanced position in the market here where, if the fed doesn't get its message and quite right, we could see a nasty selloff in treasuries, or we could also see a nasty reaction in equities as well. the fed will be hoping that by the end of the day, markets are almost unchanged from where they were at the time of the meeting. that will be seen as a very good result from the fed point of view, but a tricky day ahead for jerome powell and his friends. shery: we are seeing the u.s. budget deficit balloon, potentially $1 trillion worth of deficit in the latest fiscal year. is this going to have an impact on the treasuries market? mark: absolutely. and traders have been getting used to this for a while. the fact therise, u.s. treasury is issuing more bonds. that has been clear for some time. the u.s. government is running a sizable deficit, and that deficit isn't getting any

smaller. the question for traders is, which part of the yield curve do they target the most? the curve is relatively flat at the moment, and there will be a temptation for the u.s. treasury to target shorter-data maturities, get those short-term rates down a little bit further. there certainly will be some reason for the treasury to frontload their borrowing and go for the short end of maturities. that will probably affect the curve, flatten the curve a little further. there is also been talk the treasure we would like to do long-term bonds, maybe 50 year bonds or something longer. they bring the argument back onto the table that they would like to target the long end of -- the long end, and the market isn't prepared for that. the 10 year to 30 year sector would be hit the hardest. there is a lot of data to digest, but initially it could well mean more flattening of the

curve, but people will be on the lookout to see if the treasury wants to issue very long-date wants, which other countries trident haven't been completely successful. so there is a lot resting on where, which sectors of the curve the u.s. treasury is going to target. certainly in terms of large issuance, people are not surprised the ms will be very big. they have gotten used to that. shery: that altra long bond conversation, popping up here and there. mark cranfield, our strategist in singapore. let's get first word news with riddick a group to -- with -- for an the u.k. prepares election december 12, prime minister orest johnson finally triggering a snap vote in getting the date he wanted in an effort to resolve the brexit crisis. it will be the third time u.k. has gone to the polls to choose a new government since 2015. we will have a live report from london in a few minutes. ♪

the boeing ceo has defended the company ability to sign off on aircraft designs while admitting mistakes have been made. he testified before the senate commerce committee and faced tough questioning over steps crashesd to two deadly involving 737 max 8 jets. he said the company will review reforms by congress but declined to endorse specific measures. >> the airplane will return to service when it is safe. this is not timeline driven. we are committed to answering every question regulators have, and the airplane will fly when everyone is convinced it is safe. that is the most important thing. ♪ fiat, chrysler and the persia group are exploring a potential merger. onere told that under proposal, the psa ceo would become chairman of the chrysler

company, while there would be another person as overall chair. a meeting is set wednesday afternoon to discuss the option. ♪ global news, 24 hours a day on air, on tictoc and twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. earlyi: let's look at movers in tokyo, numerous -- numera holdings posting its best quarterly result in 17 years, extending the quarterly gain after the company vowed to continue cuts, the ceo saying they are 60% done but still booking pretax profit in all three segments of retail, wholesale and asset management business, even though we still have that shrinking in their domestic retail business. that beat was better than expected when we saw quarterly net income as a result climbing to the highest in more than 17

years. they have a mixed bag but certainly after resuming trading, investors like that set of results from nomura holdings and perhaps put the best behind them after a rough couple of years. still ahead, sticking with japan, recapping stellar retail numbers. -- a lookok at head ahead at the implications for the bank of japan. aramco tells ipo bankers it made nearly $70 billion in nine months, details ahead. this is bloomberg. ♪

♪ "daybreak asia." i'm shery on new york. haidi: i'm haiti stroud-watts in sydney. sendingurge in retail

-- spending in japan. joining us now is naomi muguruma , senior market correspondent for mitsubishi. these numbers are out of wack with market expectations, is it something we are not likely to see repeated? that was a likely frontloaded demand by consumers to purchase goods before the consumption tax rate hike. naturally come there should be some decline in demand from october. coupled with tokyo cpi numbers yesterday showing there is next to no inflationary pulse, even if you take into account they should have seen the impact of the sales tax hike in those numbers, that did not trickle through. the implication for the bank of japan is increasing pressure that they will have to announce more measures. are we likely to see more stimulus now? expect the boj will

decide additional easing tomorrow. boj committed to take stronger easing action if the momentum would enable them to reach the 10% target. most recent cpi numbers show in japan, momentum has already been lost. ie nationwide core cpi, expect it to slow down further by the end of this year, excluding the impact of the tax rate hike. it all makes sense for boj to take additional preemptive if they keep what they have promised. shery: but you are seeing domestic demand hold up and the potential that some uncertainties like the china-u.s. trade tensions or brexit could be fading this

the boj risk would all the negative side effects this could cause? domestic demand so far is falling, partly because of frontloaded demand just before the consumption tax rate hike in the retail numbers. we expect industrial production in japan will deteriorate for two consecutive quarters, exports from japan continued to slide, and we have plenty of uncertainty ahead, so it is time for the boj to take a cautious step to stem further risks to the economy. yeny: even if the japanese is still quite weak at the 109 level of are not, really touching its 200-day moving average, so you are not seeing the japanese yen, which a lot of economists think is one of the

factors that affect the boj decision. naomi: financial stability is a good thing, but this could be temporary given the remaining uncertainties to the economy. secondly, the most apartments thing is that the yen and the nikkei is stable, but the real economy is deteriorating. if you just monetary policy -- judge monetary policy decisions, just watching the markets in front of you, that is policymaking, not a preemptive judgment. what does further action from the boj look like beyond this week's meeting? how much more can they do into the end of this year? naomi: to avoid misunderstanding, i'm not a big fan of negative interest rates. i think monetary policy has

approached its limit to spur demand. nonetheless, nobody can say this is the end, so boj has been striving to come up with a fresh idea to keep the economy in crisis going. if the boj foregoes a rate cut they continue to promise if needed they will take cautious steps. so it is to provide some relief but fort participants, too long, the boj's coming up empty. that first error has been sustaining the economy for quite some time. where are we in terms of the second errors? the the first is

aggressive monetary policy and the second is fiscal policy, partly because of the big damage of a thai phone -- a typhoon which hit japan recently. the prime minister's most likely form ana an -- to additional stimulus package later this year. what we like is the deregulation and the growth strategy. many market participants and investors in japan hope that will be revived. shery: will this help in avoiding recession? expect a don't recession, partly because of the strong job market. but the growth of wage and income is very mild, so what the government has to do is encourage more full-time employees to be on the paycheck.

a large growth in japan's improvement is part timers, and the wage level of part-timers is only 60% of what a full-time employee receives. so i think the government should encourage and deregulate existing roles to encourage companies to hire more full-time employees. shery: naomi, thank you for joining us, naomi muguruma, senior market economist for mitsubishi morgan stanley. coming up, bowing faces congress and says there is no rush to get the 737 max back in the air. this is bloomberg. ♪

♪ >> the airplane will return to service when it is safe. this is not going to be timeline driven. we are committed to answering

every question regulators have, and the airplane will fly when everyone is convinced it is safe. that is the most important thing. ♪ haidi: that was boeing ceo dennis muilenburg, his commitment to safety before the senate commerce committee. our reporter joins us with more. you thought he did well. relatively. striking a contrite tone. what we saw was someone defending that process by which faa delegates authority to the companies to sign off on various elements of aircraft design. but i think in his testimony, what is critical is his tone and the words of being contrite, not appearing arrogant -- arrogant and defensive and submissive. . tone, theytake that don't tend to last very long. it is avoiding those traps and coming through relatively unscathed, and it looks like he

managed to do that on his first day of testimony. boeing shares rose 2%. that's an indication investors think no more oppressive restrictions will come in place after this. ofdi: is that due to a lack commitment and making changes? how did he go on that side? angus: he said boeing is committed to this, the line boeing has always taken, the plane will fly again and is absolutely safe. and they are working through those changes to that mcas, the flight control system at the heart of these two crashes. until the faa signs off on those changes, the plane is unlikely to get in the air again. today we know was a fiery grilling at times by the senate committee, ted cruz in muhlenberg.gainst so he is in a difficult position in these two days are critical. tomorrow could be a harder day potentially. we have seen a prehearing

statement from to fazio -- defazio about a line he is going to take, further safety concerns aired even before the first crash. it will be easy to see how dennis muhlenberg goes tomorrow. shery: we have new allegations about a bowing manager that tried to halt production of that 737 max. how did he do in fighting these allegations? angus: this is a new allegation, and an indication of what this transportation committee has dug up during these months of investigation before tomorrow's hearing. a boeingation is manager sought to halt production of the max, raised this to the 737 manager right before the first crash came down, the lion air plane came down. it was 18 months before that

crash. it is not clear what safety boeing'swere or what response was. boeing hasn't commented on the allegation, but we can expect questions specifically on that allegation tomorrow, and no doubt there will be other stuff that the committee has unearthed during these months of investigation. stay tuned. tomorrow could be even harder for the chief executive. whitley, thank you, our asia is this reporter with the latest on boeing. let's check business flash headlines. post their highest quarterly profit in 17 years, boosted by one-time game -- one-time gain in positive results in wholesale and asset management businesses. profit in the retail division 57% from the previous year.

♪ haidi: tesla's surprise third-quarter profit came despite a drop of almost 40% in revenue and its largest market. u.s. sales plummeted to just over $3 billion, down to billion dollars from a year earlier, but according to a securities filing, the sales fall in the u.s. shows the extent of the tesla shift to expand overseas. biggest electric vehicle maker, byd, reports an -- slump -- reports a 39% byd reports an 80% slump. sales of electric vehicles have been falling for three consecutive months after the chinese government scaled back some cities. ♪ staying in the auto industry, we are learning of a potential megamerger, fiat chrysler and group areker psa

exploring a tie up that could create a powerhouse with a $47 billion market cap. bloomberg editor dave mccombs joins us from tape -- joins us from tokyo. dave, how compatible are these auto makers? certainly some compatibility. fiat chrysler is strong in the u.s., they have a big selling suv there, still the fastest growing market for suv's, whereas peugeot does not have that. that would be a good combination. the estimate for synergies for the company is about $7 billion from ever core. they said because of synergies in latin america and china, and also europe, they would be saving about $7 billion from a merger like this. at the same time, this is a deal that came up in march, we learned they were in talks for such a merger but it was rejected, because of the overlap

in europe is pretty significant. thei: in terms of the fact french government is among psa's biggest shareholders, how did that play out for the deal? that is a wildcard. there was talk of a merger between red no in the conglomerate, and that didn't happen in part because the french government can be brought to the table for this. when you talk about synergy, you talk about shared production that can mean job cuts and closings of some factories when companies combine. if the french government is a shareholder, it makes it harder to do that in france at least. at the same time, you have to think that because these companies are restarting these talks, remember they shut down the idea in march, that is a sign the french government is probably on board this time. ♪ bloomberg news editor

dave mccombs. up next, latest third-quarter inflation numbers from australia. this is bloomberg. ♪ the game doesn't end after that insane buzzer beater.

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♪ haidi: you are watching "daybreak asia." breaking news, third-quarter pricing numbers for australia just out, beating expectations when it comes to quarter on quarter numbers of a half a percent. the year on your number also meets expectations of 1.7 percent as expected, a pickup from 1.6% in the second quarter. let's bring in jim thornhill. jim, no surprises. but is it surprising we haven't seen a bigger pickup, given the australian dollar has been weakened then we have seen a recovery in housing prices? i'm putting up a chart on the bloomberg that shows the struggle to meet that 2% to 3% range. jim: it is hard to get too

excited about these numbers. its a continuation of that theme. we haven't been inside the 2% band to 3% band on a consistent basis in the past five years. no real surprise we undershot that. it is indicative of the fact that we will continue to see subdued wage inflation and generally inflationary economy. we have seen a pickup in property prices. it might ultimately seep through at some point, but not really showing up in this stage at the moment. what we had last night was the governor and philip lowe giving update on where he sees policy, and he seems to go for further rate cuts. i think they are coming, if not november than certainly pretty soon. we are already at .75%, so the obvious question is, can we go negative? he was clear yesterday, he doesn't see that scenario. but with prices still remaining subdued, it would be probably wrong of him to completely rule it out. haidi: hiring in the labor

market has been robust. we are seeing the housing market pick up, so there is room to do more. he has also in recent times talked about a limited scope for monetary policy. jim: exactly. we are already at record low and unprecedented levels. once he get to zero, -- wants you get to 0 -- can you get to zero, what you do? you might have to look into your toolbox. there could be some of that action next year. the rba would like the government to do some heavy lifting and they haven't done much. we had an announcement on an extra $1 billion in investment in the energy sector, much-needed, i would say. that is a start, but i think that would like to see more of that kind of thing to give the economy a bit of a shove. shery: the australian dollar is trending losses, data largely cpi at thetimates,

end of the day not getting close, and we expend a potential rate cut this week. with this force the rba's hand? rate cuts are definitely in the cards. the australian dollar continues today on its weakening path and that kind of plays positively for inflation as well. but you have yet to really see that feed through. and of course in a bigger context, philip lowe is worried about the international context and the trade war. --tralia is very much on very much dependent on commodity exports, huge driver for the economy. if the global economy does slow as many predict, it is a stiff headwind the economy faces going into next year. so i think we are going to see more rate cuts. shery: jim thornhill, bloomberg reporter with the latest on australian cpi numbers.

let's look at the market reaction on the australian dollar, erasing most of its losses. 6850, now airing back those losses and unchanged at the moment. this comes after that cpi data largely matched estimates, and at a time when the asx is under pressure we have seen a huge rally on the asx 200, op the past seven sessions. but for the past two days, we see an impact on and consumer discretionary stocks. the nikkei, down 2/10 of a percent, another stock market that had a huge run-up. pixare talking about the to and nikkei in overbought territory. one place bucking the trend is highestoldings, the level in 11 months after posting its highest quarterly profit in

17 years. let's get first word news. havea: house democrats released text of the impeachment inquiry resolution ahead of a full house vote on the future of the inquiry that could come as soon as thursday. it is a signal the public will soon get a look at witnesses and evidence used to build a case against the president. republicans complained the inquiry is illegitimate. ♪ blackouts are set to continue in california as wildfires worsen. the state governor says more than 300 fires have been put out in the last 20 four hours alone, and around 130,000 people cannot return to their homes. utility companies across the state may cut power to as many as two point 5 million people to prevent live power lines from sparking more fires. ♪ -- spyman spy chief kaz chief says huawei can't be trusted. hardssigned security

makers in angela merkel's government want to keep the chinese company out of 5g networks. the president of the german intelligence service says it is difficult to trust a company that has high dependence on the communist party. ♪ the lebanese prime minister has resigned after two weeks of antigovernment protests turned violent, as demonstrators were attacked by supporters at the -- supporters of the iranian-backed hezbollah party. in an address, the prime minister said he reached a dead end. protesters thanked prime enernoc calling on other top officials to step down. ♪ global news, 24 hours a day on air, on tictoc and twitter, powered by more than 2700 journalists and analysts in over 120 countries. gupta.ika this is bloomberg. shery: thank. the u.k. goes to the polls for the third time in four and a half years after prime minister

boris johnson one backing in parliament to trigger a snap vote in an attempt to resolve the brexit crisis. schneidertor jodi joins us from hong kong with the latest on brexit. finally, the prime minister was able to trigger this vote. why was it important to him? he finally won this vote and it is important because he hopes it becomes a proxy vote on brexit, basically that he can then say, i won the vote, people want us to get out of the e.u., and we are going to do it now. there is a january 31 deadline on that, the deadline has been extended. he wanted actually to do a brexit before a snap election, but now it is going to be the other way around. if he wins that. to there always risks prime minister in doing this, a bankingisks, but he's on the fact this will be a proxy vote on brexit and the public

will go along with his decision get to his desire to get the u.k. out of the e.u. as soon as possible after that vote. isry: how much of a gamble it, going to an election? does this become a second proxy referendum on how the public feels about brexit now? : that is certainly boris johnson's hope, that it is that proxy vote and goes in his direction. there is the risk for him that it doesn't. first of all, the last elections, in 2017, 80% of the vote combined was won by labour and conservative parties. that could change. there are other parties that are on the upswing, and also you risk that if there are other issues that come up as well. the main risk to boris johnson right now is from nigel faraj and his brexit party, his newly

formed brexit party, and he can make the case boris johnson did not deliver on his promise to take the u.k. out of the e.u. are in october 31, no matter what. so that is a risk for boris johnson as well, coming from euro skeptics. we never know when it comes to this brexit roller coaster, but what are likely outcomes at this point? and is that january 31 deadline likely to be met, or will be a -- or will there be further kicking the can down the road? those of the questions and its hard to make predictions given the upheaval we have seen in the u.k.. it is really anybody's gas. it is boris johnson's hope that good things go his way on december 12, that gives him plenty of time to get the u.k.

out of the e.u. by january 31. but these deadlines keep moving forward and that is always a possibility. the e.u. has signed off on that deadline and signed off on his plan. the question is now, can he make that happen before january 31? schnieder, bloomberg's senior political editor. bloomberg subscribers, the latest is on a be go on the bloomberg. you can customize the settings, so you just get data on industries and assets you care about. this is bloomberg. ♪

♪ this is shery: -- shery: this is "what'd you miss?" -- global news, 24 hours a

day on air, on tictoc and twitter, powered by more than 2700 journalists and analysts in over 120 countries. energy reporter joins us from tokyo. saudi aramco, $68 billion in the first nine months of the year, one of the stellar numbers we keep learning about the company. what does it tell us? this cements saudi aramco's status as the world's most profitable company. 68 billion dollars in the first nine months of this year. we don't have a lot of other financial figures from the company. they reported last year they made $111 billion. clearly this makes them more profitable that a lot of others, a lot of the world's other profitable companies, including apple and exxon. one thing is interesting to note during this nine months in which they earned $68 billion, it was a turbulent time for oil markets. in fact, saudi aramco had two

key oil facilities attacked by missiles in september. and theyduction, supply about 10% of the world's oil, their production was cut in half for a couple of weeks until they were able to restore production. it shows strong earnings despite a turbulent time for oil markets, and specifically for saudi aramco. shery: and yet investors have been unwilling to accept the valuation mohammad bin salman has put on the company. what can we expect on the ipo that has been delayed repeatedly? right, i think the valuation is a big question. local media reports shares will lift in saudi arabia -- will startingaudi arabia december 11. the crown prince said the company is worth $2 trillion. a a lot of analysts say it is a lot lower, around 1.5 trillion dollars.

bloomberg reported saudi aramco is going to rely on a lot of local investors and wealthy families to invest in the family -- to invest in the company, so we will have to see how investors value it. there is still international ipo that is a possibility next year, but if saudi aramco goes that route, they are going to open themselves up to a lot more scrutiny and transparency that is required from other exchanges, like in a place like new york or london. but for now everyone is focused on the domestic ipo in those shares list december 11. shery: thank you so much, our bloomberg energy agent reporter. itsung teases next-generation galaxy full design, a clamshell that. to bottom rather than from the side. the company did not provide on when it would sell the device, but the tease stickingsamsung is

with folding phones, despite the troubled rollout of the galaxy fold. sale of twoing the ailing chinese units after years of trying to turn them around. a local confectionery brand is said to be under review, as well as a company best known for ready-made porridge. is reportedly -- nestle is reportedly seeking $1 billion for its controlling stakes. google is being sued by the australian consumer watchdog for allegedly misleading android consumers about location data. accuses google of userring information about whereabouts even after they turned off the devices. google says it is reviewing the allegation. ♪ in the wake of the wework debacle, the word now is that wework is expanding into video gaming.

awork has applied for trademark in the u.k. under the name played by we. el, we thought wework was streamlining its assets and getting rid of biz -- streamlining its business and getting rid of assets. what is happening? pavel: this is coming out of the trademark listing as well as some of the listings on linkedin. asbasically describes wework transitioning to online gaming, maybe hosting tournaments and events. competencyk wework includes community management, there is some adjacency between a hip, young workforce that gravitates toward this. gaming.in video uber eats worked for uber and ride-hailing.

it is one of many ideas that at one point seemed like a good one. rise by we, we, grow for education. the question is whether any of these things will go forward, but it is probably up to owner,k, wework's new whether to push on or ask these. shery: now that they have committed to that $9.5 billion rescue plan, what comes next? already been as round of management purge at the very top, but still more job cuts are coming. intentionally thousands of people will lose jobs. but there are also signs the company may pare down its presence in markets where it is losing the most money, reports it is considering shuttering offices in china, but we don't know what is going to happen. softbank has appointed an

executive chairman at wework who is known for turning around sprint in the u.s., another company that was in dire straits, losing a lot of money, but so far they have been pretty mom as far as plans to -- pretty mum as far as plans to turn the company around. we might get clarity next week when soft bank reports earnings. there will be questions. vel, thank you. our bloomberg tech reporter with the latest on wework. up next, can the biggest chinese banks fend off the slowdown? predictions up next. this is bloomberg. ♪

♪ this is "daybreak asia." i'm haidi stroud-watts in sydney. shery: i'm shery ahn. watching bank stocks, after a big state owned lender reported stable third-quarter earnings. bank of china and china construction bank are both new to report later today. aremore on the outlook, we

joined by the head of fitch .atings, grace wu you revised higher the operating environment of the chinese banks when you would actually think the chinese economy is slowing down, and trade tensions. why did fitch do this? grace: let me clarify, we didn't upgrade the operating climate, we have revised indeed the outlook to stable from negative. and that is more to reflect that while there are still operation challenges that remain in china, we think our assessment of the chinese operating environment will be a plus, it is adequate in terms of capturing the level of systematic risk we see in the system. surely there have been more examples of vulnerabilities reported at chinese banks since

the beginning of the year, but that is not to say that these risks have not subsided from the earlier levels. at fitch, we first discussed smaller cityks on commercial banks back in 2017, and progress thus far in terms inthe tightening effort terms of scaling down some of the shadow activities, also tighter mpo recognition and reducing the level of interbank wealth management holdings is as banks, that to us sign that, while these risks are high, we don't see signs of these risks further escalating. so at this point we think a stable outlook on that operating environment at this point is more appropriate. shery: the deleveraging campaign going on in china, now the dtv

chart on the bloomberg shows shadow financing has fallen below $3.5 trillion for the first time since 2016. as you look ahead to earnings from big banks, what are key measures you are looking at? onee: as rating agencies, key thing we look at is asset quality, but also that of capitalization. in terms of asset quantity, yes, postlowdown in china will some pressure, -- will pose pressure, but i think the banks are buffers, and more importantly to our reading assessment is whether the kind of growth that is going to be sustainable growth, and the fact so far authorities have not of aggressive, bank-led stimulus, that gives us more confidence that the

regulatory commitment in terms goingtaining financial is to be sustained as china faces increased pressure far as tariffs and overall economic slowdown. one of the pressure points going forward, is interesting because if you look at the numbers, industrial profits fell for china the most since 2015 in the most recent time that we have data for, and yet corporate bond defaults in china continue to fall compared to last year. is this an indication of backroom dealings? and do we expect further defaults from china inc.? quality is at the heart of credit analysis at fitch. to me there are still pressures on asset quality. if we look at the state banks, asset quality has been fairly stable relative to the rest of the system.

also, the state banks relatively have stronger positioning buffers to help offset near-term economic headwinds. so yes, there is going to be near-term pressure on the asset quality, that in terms of our broader assessment on the operating environment, we feel all those concerns are ouruately reflected in stable operating environment at this point. shery: i want to get a final point on bank of china. it is unique in that a quarter of their first quarter pretax profit comes outside the mainland. i wonder if we will continue to see pressure when it comes to protests and the situation in hong kong for the bank of china? overseasong that contribution to the bank of china, roughly speaking about half of that comes from bank of china hong kong. so the hong kong banking system as a whole for now is still well supported by the level of

buffers, whether that is capital or liquidity for the hong kong banking system. of course, the disruptions locally over the past couple of months are going to exert pressure on the overall economic outlook. but for now we still expect the the kong banks to maintain risk appetite and maintain adequate buffers to sustain operating levels. ♪ of fitch ratings on chinese banks. that is it for "daybreak asia." this is bloomberg. ♪ whether you're out here on lte.

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>> it is 9:00 a.m. in singapore and shanghai. welcome to "bloomberg markets: china open." stories today -- investors stand by for unlikely fed rate cut, but will it deliver, and what comes next? the worst may yet be to come for china's sovereign bond market, about to hit a wall of maturing debt. byd is in need of a recharge after quarterly profit fell nearly 90%. largest online travel company is feeling the strain of the travel worn and hong kong protest -- war and hong kong