>> welcome to "daybreak australia." asia are counting down to 's major market open. >> here are the top stories we are covering. stakes again.e tehran says it will no longer be bound by the 2015 nuclear deal. protests continue over the killing of general solar money -- soleimani.

back.esident trump hits he says that his tweets are enough of a notification for congress. we had a volatile day on the oil market on friday. result as this is the the reaction. what you seeing as asia and markets get ready to open. areathleen, stock futures pointing to london across the board. on the radar, we will have react to be from japan and hong kong. very muchts in iran set to dominate the picture. al at 2%, saudi

since at the lowest level selling its kuwaiti stock. performinge best gulf market of last year. jumping in to check in on the yen. we are seeing a continuation of friday's advance. it is trading at the highest .evel since october the aussie dollar being weighed against the yen. the flight to safety very much continuing. it edges closer to a six-year high. the 10-year yield under pressure. the aussie bond reacting, curve flattening in australia with the 10-year yield off as much as 10 basis points. is where traders

are bracing for more volatility. let's get you live pictures. we are straight to tehran, where casket haseimani's arrived. he will be buried tuesday afternoon in his hometown. we are seeing an escalation and rhetoric continue with president trump. iran says it no longer considers itself to be down of the limitations of the 2015 nuclear agreement that was negotiated with the u.s. and other world powers. u.s. president trump pulling the u.s. are be packed 2017. canceled ine of and

honor of the slain general due to overwhelming demand and turmoil on the streets. we are seeing these live pictures of tehran and his casket there arriving. let's get the very latest on the mounting tensions in the middle east. our washington editor joins us. , notwhat is the latest just from iran, but around the world? we are seeing increasing reaction from iran as well? z: yes, it has been a whirlwind of reaction. we had iran coming out with a statement saying it is no longer bound by the the team nuclear deal. of course, our president donald trump pulled us out of that todayand iran's comments say that that is a death knell for the deal. iran a process foreign minister came out and hedged

around that. is to be sad and possibly what is not lost. but iraq's parliament bowing to kick out u.s. troops. the u.s. as it is seeking clarification. the state department spokesman says they are looking at the legal basis and whether it is really from real. and i think the u.s. has said consistently they would like the u.s. troops to stay in iraq. is 2000 or more u.s. rapid response troops on the way to u.s.iddle east to protect interests. there's a lot of tension and moving parts. kathleen: it does seem that president trump was loath to have any escalation around iran. how much does this have to do with the contractor that was

killed in the region? how much does it have to do with the rioters outside the embassy? that is a very good question. president donald trump watches a lot of cable television. he would have seen those images are again and again. he would remember the attack on the u.s. consulate in benghazi. it seems like it really toughened his stance on imani.ating general sole trump had a statement at mar-a-lago that the u.s. did this to stop a war, not to start a war, but his commentary on and sunday wasy very inflammatory. it was almost like someone flipped a switch in the administration and change the tone. even mike pompeo, secretary of state, he was tweeting about

de-escalation. he mentioned that tweet several times. he stopped saying it very yesterday. there could have been a messaging unit that went out in the administration. and as we saw overnight, president trump tweeted about culturalstriking targets in iran, and just within the last hour saying that the u.s. could act in a disproportionate manner. definitely the rhetoric is being ramped. we don't know what the in game is. we have thosese, tweets from president trump from his florida resort. he's back in town. how does this set of the week for him? he is find back from mar-a-lago. we mayor may not hear from him when he lands. he will have a lot of things on for this week. we are keeping an eye out for on impeachment machinations

capitol hill. i suspect even though that is still going on and there are , there willements be a lot more focus on this foreign policy developer in the next few days. this probably the main thing to what child for, further commentary from trump and the foreign-policy team about what the next steps are with the islamic republic. all right, roz crosby rasny, thank you. our guest is joining us from washington. george, a lot has happened in the last couple days -- excuse me, from houston. my mind is in d.c. i got a little further south now. voting toarliament

kick u.s. troops and anyone having to do with the u.s. out of the country. is this an issue for the an issuer is it more for the citizens? >> it is an issue, i think, for both. you a market standpoint, see a number of incidents, developments over the past that have come and gone. and the market, perhaps incorrectly, has become somewhat in urge, does not react greatly. risk,s a market risk off that the longer the rhetoric continues, and really, to some irant, the less

retaliates, the more injurious it will be to the market. whom i talkedh yesterday said iran does not have to do anything immediately. they can wait and wait and wait. but even the best intelligence cannot watch everything forever. so, a waiting game could wear on the nerves, on the endurance of in markets and be a negative the weeks to a month ahead if nothing happens, which is paradoxical, but it's quite possible. kathleen: george, we are waiting to see how the crude oil market opens, how it trades. in analyst who spoke to bloomberg news over the weekend -- oilsically, with rent a $70 ceiling.at do you think this peters out any kind of oil rally here?

and would not be a place to put more of your money? since i am in houston rather than washington, at least at this moment, i have, like everybody, of view on oil and there are three parts to it. , as is quite possible, the iranians will attack saudi or other major petrochemical complexes. that could cause a spike. is a somewhat unrelated, but very strong phenomena and that i think bodes well for oil over the year ahead. on one hand, clearly opec has floor for oil in iran should be around $50.

oil trackers, they can replace a on shortl of shale oil notice. one thing that has not been talked about much, banks are not toling to lend for -- loans fractures. bankers want to keep their jobs. so, the availability of credit to the shale and fracking il, andty is virtually n i think that takes the $70 ceiling off wti oil 2020. you can talk about that being the upper boundary. that would be quite possible, particularly coupled with the political and military risk today.

haidi: if we look at this as one more bump of unpredictability the markets have failed to you point out in your notes that iran has the ability, the choice to retaliate how and when it wants and that makes it ethical for u.s. militant -- difficult for u.s. military to preempt an upset that. how does that factor into how businesses price in this risk? are probably three levels of risk. one is the iranians and our current administration are difficult to predict. they can be 10 past u.s.. they can be erratic. there isn't really the normal set of policy progressions.

risk probably pushes against the market rather than on the upside. the other is increasingly during 2020, the u.s. election is going to weigh very heavily on the u.s. domestic markets, but all of the markets worldwide. it has been talked about, but it has not been the central focus of investors. passing week and month, i think that will be a much more important factor in terms of do prices go up in terms of equities, or down, up in interest rates that have been the case of 10 now. politics will take over is a major factor in the midterm in direct things stock prices. in that, probably, on balance is not a plus. does this change?

one number you throughout was we ave a 25% chance of successful democratic presidential candidate and democrats returning both houses. does this change that likelihood , the levels you are looking at? george: no. a very respected u.s. to called rollgazine call there is a 35% chance that there will be a democratic split house, 30% chance there will be republican president and a split house, trying 5% chance there will be a democrat president and senate -- house beingng democratic. 10% chance all branches republican. for's not a good scenario

the corporate level or the taxes paid by people who own the stocks and bonds. the probability of waiting it that way, you will be more cautious about the u.s. markets and assess it for them, i'm afraid. haidi: george, i'm going to leave that with you. i'm going to leave on my favorite part of your notes. own assets that make you happy. chairman and ceo. right, let's get you to our fastbreak news with su keenan. australiart with which is suffering the worst fires since the bush fires broke out last year. strong wind and high temperatures are fueling the flames. milder weather and light rain improvement, but conditions are expected to worsen again. half a billion animals are

estimated to have been killed. to hong kong now. dozens were arrested on sunday amid a process that the china order. marched against so-called parallel trading where can buy andnese sell at a profit back home. there is growing resentment against the practice as it drives up prices. .taying with china it is bowing more support for small businesses while sticking its small economy. to focus on aim long-term regulations for internet and real estate lending. tokyo's famous tuna auction has a sale.se to

largest fish ever was bought for one point $8 million. the sale makes this fish second only to a similar bluefin, also bought by the company last year. day.l news 24 hours a 2700 journalists and analysts in more than 120 countries. i'm su keenan. this is bloomberg. haidi: thank you. we will have more on the ongoing tensions in the middle east and the repercussions. kathleen: and another big story. the dow is down slightly. but not out. we will look at the year ahead. haidi: this is bloomberg. ♪

haidi: i am haidi in sydney. inhleen: i'm kathleen hays new york. you are watching bloomberg. the signing of a so-called phase one trade deal chamber 13 -- our correspondent tom mackenzie's joining us from beijing. come, this keeps to really busy. what is the latest we can be sure of? the latest reports, kathleen, chinese were once again taken by surprise by president trump in particular that he was planning to sign off on this phase one deal in the white house january 15. the chinese delegation have in planning for earlier than that. they discussed this over and .fternoon

they came to the decision they would do that. they will be flying out on genworth 13th. the chinese will fly back on january 16. and of course, what we know in terms of details, broadly, is there is a commitment from the chinese side on purchases, currency, and keeping the currency in the spotlight for both sides. and of course, changes to things like intellectual property. we do not have the exact details . president trump suggesting he might fly over to china to negotiations. those may be the really tricky ones.

but so far, it seems like january 13 will be the time when the chinese delegation will be in d.c. china has replaced the top official in hong kong. he is a strong land character. what is the significance? >> yes, a yes man, a strong man, as you say. he was, until recently, party secretary. is seen as a man who will effectively take the orders from beijing and implement those. as an order to them that beijing is really intent on trying to restore law and order and they will not be giving into those demands. they will not be deterred by the

installation of this "yes-man." they were particularly damaged by those november local elections. he is seen as someone who will be tried to implement those orders from beijing. that's our china correspondent there. us withinteract with the tv function, that is tv , on the bloomberg. you can also join in on the conversation and we do send out this -- instant messages on the show. this is bloomberg. ♪

haidi: i'm in sydney. kathleen: i am kathleen hays in new york. you're watching "daybreak australia. -- you are watching "daybreak australia" tesla is predicting fast growth in china. it says it will soon be able to triple production at a shanghai plant at 3000 cars away. that ross -- that brought their stock to an all-time high on friday. it is more than double that of ford motors. lunch --msung will launch new events at an event. there is speculation of a new galaxy s series in the clamshell foldable smartphone. insung launched its galaxy 4 february, but it only went on sale in september due to design

defects. coming up, more massive actuations across the country and australia with one of its worst week's. more on that coming up. this is bloomberg. ♪

haidi: the market open is 30 minutes away. we are looking at a dismal start to the trading week. future showing a bit of downside . the s&p falling the most in about a month but also middle eastern markets trading on sunday, plunging yesterday over concerns tensions escalating in the middle east continue to leave investors on edge. locally the country is increasing -- and the rest of theworld is watching bushfires across australia. multiple states have seen around 1500 properties destroyed. the death toll is up to 23

people killed. we will get more detail on that as we have seen higher temperatures, record temperatures and the response from federal and state governments. authorities in australia are continuing to count the cost of the devastating bushfires after one of the most of a stating weekends. hundreds of properties were destroyed across the southeast. firefighters are still working to extinguish 200 fires before the weather conditions worsen again. that is expected later this week. what is the current situation on the ground? of a turna little bit to the weather. it is cooler but there was no rain. it will not do anything to really make a substantial dent in the fires burning. sydney, 135les,

burning and more than 50 of those contained. the expectation is the weather is going to worsen near the end of the week. it will get hotter. there is more potential outbreaks. to give you a sense of scale, 5 million hectares are being burned. making this unprecedented and one of the worst fires on record anywhere. though you are on the other side of the world from these videostch and read the stories and feel the photos, it feels like what the country experienced in california and maybe worse. after all of this hardship, what is the outlook? >> we are nowhere near out of the woods yet. we need a huge dump of rain to stand any chance of winning this crisis behind us.

and even when that happens, looking into february before actual rain is forecast. until that happens it will be a huge job of trying to rebuild. the outlook is in great. to come: you will have back and update us. now we get back to first world news. su: we start with the middle east where tension is rising in iran, saying it won't be bound by the 2015 nuclear deal on enrichment of uranium. this comes amid the fallout from the killing of general solid money. with iraqi lawmakers calling for all american forces to be expelled from the country. the state department said it is disappointed in the reaction and it is awaiting clarification. reports from beijing say the vice premier is preparing to

lead a trade team to washington next week for the signing of the so-called phase one deal. the south china morning post said he will fly to the u.s. next monday ahead of the ceremony january 15. china wasn't expected -- expecting trump to make the announcement about the date. ghosn nissan boss carlos shared his escape plan with two americans who worked in private security. one of them is a former green beret with extensive experience in extracting hostages but who also served time for fraud. name carlosoesn't ghosn but passengers of michael taylor and george antwan. arrest, harvey weinstein is finally facing court. his part -- terminal trial

including predatory is a group -- sexual assault and rape, expected to begin later monday in new york city. jury selections could last two weeks with the trial itself at least six weeks. accusations triggered the #metoo a torrent of similar claims against other men. global news 24 hours a day on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am su keenan. this is bloomberg. markets are likely to face a volatile start to the week. sophie is looking at the set up area sophie: futures are sliding across the board and the yen trading up, forming against the greenback. the 200 day moving average. amid this haven demand we are

seeing a pickup in yen calls as supply falls are rising. now in -- go to the largest bearish skew in nearly two months on the front. i looking at oil prices closed on friday. traders braced for a choppy week ahead. brent and wti at one point jumping more than 4%, closing at the highest levels since september with aramco's facility back under attack. looking at gold as well while we await contracts to trade, gold was posting higher, closing in on a six-year high. we also see options pointing to gains for olein. thei: let's get more on how tensions are moving the currency market. we expecting? our previous guest said this sort of uncertainty is almost something the markets are

certain about. >> that is right. it hasn't taken much to dissipate the euphoria from 2019. we had sort of scene the mood turn as investors have been piling into the safe haven assets. the yen is higher. it had a rally on friday. .old was up and treasury also we also saw middle eastern markets sinking on sunday. there is a lot of unknown where this is going. the focus is on emerging-market assets. we ended up with analysts and strategists positive on the return in developing markets this year, seeing them outperforming especially the u.s. where they are seeing valuations quite stretched. it will be interesting to see how this legal -- latest

development impacts the forecasts. volatility will creep up. we have got a chart showing implied volatility on emerging markets currencies, the highest since august. it shows pressure to the downside on the assets that have benefited from that enthusiasm on the trade deal, that lifted risk assets in december. we are probably in for a volatile start to the week. investors are waiting to see how in the middleents east will pan out. risk assets, probably under pressure as the week gets underway. kathleen: while some funds were cut in the back by the christmas rally, they are probably reading a sigh of relief as the currency is turning down and watching key data. how are you scoping it out? >> the aussie dollar was up three .8% in december.

it was up at a five month high. that was after the u.s.-china partial trade deal lifted risk assets globally. it did catch leveraged funds by surprise in the week of december 17. a lot of them piled into short positions on the aussie dollar and it happened to coincide with the trade truce. they are probably a little bit theeved this morning to see aussie pullback. it is down almost 1% after u.s.g as high as 70 dollars. -- thatask risk assets is as risk assets are being sold off with the middle east situation. investors will be looking at retail sales for confirmation on whether there is pressure on the aussie dollar. consumption is something the

reserve bank is watching closely in the monetary policy decisions. thank you. you can go to gtv to take another look at the charts she was talking about. let's get more on the tensions. we are joined by meghan o'sullivan from the harvard kennedy school. she advised george w. bush on national security matters for iraq and afghanistan. great to have you with us. were you surprised by how these events have played out? know. i would say the speed with which things are unfolding or even unraveling is a bit shocking but none of the developments i think are a big surprise given how cataclysmic, how dramatic the killing of general solo money -- general soleimani was.

we have seen three things which hugehuge -- which would be news stories. you have the u.s. announce it is isisng operations against in order to focus on attacks from iran and you had iran announced it was ceasing compliance with elements of the nuclear deal. those are huge stories if not one day after this event. the speed at which things are unfolding i would say is unsettling but the fact it is having major ramifications is of no surprise given this individual and his role in the middle east. can you look at it from

the point of view that to take a step back and say they are not bound by the boundaries of the nuclear agreement, is it that the more we are moving away from direct military retaliations? >> i would expect -- no one is clear how iran will react but i expect it will react on many different fronts. it will react politically and diplomatically. we are already seeing that today. it is urging the iraqis to take the steps many of them took today. but that doesn't rule out that there will be retaliation on other fronts, cyber or economic. don't see these things as mutually exclusive. the iranian leadership has to

figure out from its perspective, how can it take retaliatory measures that will satisfy the desire for revenge for the killing of a man who was viewed as a national hero, but at the same time not be dramatic enough to really invite all out war with the united states which iran would surely lose. there is calibration going on. but the regime plays a long game. say, we have seen what it will be. it is on the political front. we are starting to see the beginnings of the consequences and implications of the assassination. the iranians will take their time. they will figure out what is in their interest to do, where the vulnerabilities are and the ramifications i expect could play out over weeks or months.

defense: iran's minister said those siding with facessassination could far-reaching consequences. the foreign minister said the end of america's presence in west asia has begun. those who plight -- supply support for terrorists will pay for it globally and regionally. they are setting aggressive signals and some of the responses from other nations in the region including saudi arabia are nervous about this. >> and they should be. it is clear that countries that are partners with america in the region are also well in the sights of iran and are targets for its retaliatory attack. we will see more attacks on american interests. those are likely to happen by proxies or groups that might not be directly controlled by iran. one group in iraq announced it

would attack places where americans live in iraq or operate, beginning tonight. but then you have the retaliation that might come from the regime itself. that could be different. it could be focusing on americans or kidnapping, assassination. the rules have changed. onalso could really focus the energy infrastructure of the gulf. iran doesn't have the capability to win a conventional war but it does have the capability to do damage in the gulf. that would have far-reaching applications for countries in the region and the global economy. kathleen: i read a comment from a former iraqi president who said the u.s. has been our ally and now iran will force them to choose between the u.s. and supporting the u.s. and what

they did. they have already voted to kick out u.s. forces. is this the beginning of the end of a u.s. presence in iraq is not a big part of the middle east? .> it could be that is one of my great concerns. you suggest the iranians are forcing the iraqis to do this. but the reality is over the last 16 years, every iraqi government has had to balance iran and a partner in the u.s. every government has really tried to figure out a way to maintain as much independence as possible while acknowledging these two countries are quick -- deeply invested in iraq itself. an with this action we see enormous shift in opinion just over the span of a few days.

two weeks ago the big story in monthss for three thousands of iraqis had taken to the streets to protest a number of things but a number -- among them, the dissection with -- dissatisfaction with iranian influence. now we are in the situation where actually they are voting to evict the united states from iraq. the most likely outcome is the u.s. does leave iraq. but i point out there are still opportunities to try and salvage this relationship which i think in their interest of both iraq and the united states. worked. and iraq have closely together and been partners for a long time. that partnership is still going to be vital to the fight against definitivelys not wrapped up, the stability in the

region, the economic prosperity of the world. all of those things are in our mutual interest so hopefully there can be a successful effort to salvage the relationship before we part ways in a dramatic fashion. uncertainin such an time, it is nice to have one note of optimism. we will have a lot more analysis, tensions ahead. our next guest joins us in the next hour on daybreak asia. this is bloomberg. ♪

haidi: let's get you a quick check on how the major currencies are trading as we continue to see markets quite really from the escalation of tensions in the middle east. we have heightened rhetoric from president trump in his tweets

over the weekend and the reaction from iran saying they are not bound by the confines of the 2015 nuclear agreement. we are seeing the risk off safe haven demand story playing out across markets. the bloomberg dollar index is trading up .1%. strengthening in the yen, 107. the aussie dollar shy of $70 u.s. we are watching pre-brexit weelopments and keep diaz -- are watching for brexit developments and keeping an eye on sterling. happy new year. we have barely sort of had time to step into the new year. is this a reminder or a test of whether in 2020 geopolitics is going to matter? >> yeah. last year was a lot of geopolitical risk. the macro evolved from that and

people got comfortable in the fact that the trade war truce had come through and the outlook looked better. now we have had another reminder over therough christmas break. it will be a big driver of markets in the short-term. now you have got brexit and the u.s. election at the end of the year. geopolitics is going to be a big focus, more so than monetary policy. central banks have done the work they wanted to do, although a few have more work to do. it will be around geopolitics rather than the monetary policy cycle this year. haidi: watching transmission and then tweaking. with the u.s. dollar, a lot of stories will be u.s. centric. where does it go? last year it was kind of the best out of a bad basket. >> it is the same kind of narrative. the fundamentals are strong.

consumption is ready solid. the housing market, the indicators are turning up in response to the policy easing. business investment might start to show signs of life, now we have a trade truce, and if you look at it as still the best of the bad bunch in terms of macro and the risks in the world, they also just the skew is to affirm dollar.r -- a firmmer if asia doesn't rebound, the u.s. will look even healthier. if there is a fervor, the u.s. gets a safe haven as well. andwill need to see europe asia picking up the slack. it is probably at least 12 months away. i always feel so sorry for the bank of japan because they can have the lowest inflation rate in the world and economy that is weakening and

when there is a risk on, risk off dynamic driving things, the yen can get a lot stronger. what is your forecast and vision for dollar-yen in 2020? we know the boj doesn't want their currency to get strong. >> fundamentally, the expecting it to be around 107 and 112 depending on how the rest of the world looks. if we get a sustained pickup into political tensions it is moving down towards 105 and aggregate the boj back into play. the eventual scenario is the boj will not do anything this year. theoes benefit from tensions in the global economy and markets because of the current account position and the international balance position is still quite healthy. a lot of the funds get repatriated back on shore once you get attention.

one thing, we have seen the yen strengthening a bit in the last few days. compare that to this time last year, we had a big strike -- spike in strength. you are not seeing that this year. shows you the markets are taking the u.s.-iran tensions in stride. kathleen: i agree with you. thank you so much. a lot more ahead on daybreak australia. this is bloomberg. ♪ loomberg. ♪

kathleen: now for a quick check of business flash headlines. the partnership with xerox at the end of march next year. they will turn to companies from our allies into rivals. they will rebrand operation for fujifilm business innovation. recallmercedes is to

three quarters of a million cars in the u.s. because of all the sunroofs. 2012 ands are from 2011 where some of the frame may deteriorate. this is bloomberg. ♪ rg. ♪

haidi: good morning. we are under an hour away from the markets open in japan and south korea. kathleen: good evening. i am kathleen hays. kamaruddin. sophie welcome to daybreak asia. haidi: our top stories, iran raises the stakes as middle east tensions soar. they say they will no longer be bound by the 2015 nuclear deal. protests continue over the