shery: welcome to "daybreak asia." i am shery ahn in new york. haidi: i am haidi stroud-watts in sydney. we are counting down to it has major market opens. u.s.-china ties plummeted -- plummet to new depths. president trump will not rule out closing more diplomatic missions. --al coronavirus cases

california surpasses new york. the numbers are also rising in asia. late trade after smashing expectations in the second quarter. profits coming in at $.50 a share, confounding forecast. breaking news out of south korea. second quarter gdp numbers, preliminary numbers for south korea. quarter on quarter, a contraction of 3.3%. bigger than expected. the year on your number also worse than expected, contacting 2.9%. when it comes to that quarter on quarter contraction number, this would be the first back-to-back quarter on quarter contraction on record, pulling the economy essentially into a technical recession. of course, we have seen the second quarter in south korea being affected by the coronavirus pandemic. domestic economic activity has been largely muted. we have seen the jump in unemployment really weighing on spending, not to mention weak external demand leading to double-digit declines in exports

over the quarter, and we have finally the numbers showing south korea's economy has now fallen into a technical recession. the year on your number also now looking great, a contraction of 2.9%, which is a much larger contraction than what was estimated of 2%. we will break down those numbers in a few minutes. angela.clays economist let's get a quick check on how markets are trading at the moment with sophie kamaruddin in hong kong. sophie. sophie: asia and futures are mixed going through session gdp numbers.their confirming the economy falling into recession. we are seeing the offshore spotn won pricing in 11 97 35 -- 1197.35. we are waiting on earnings also on tap. s&p e-minis little changed after u.s. stocks camped a four-day again and heads up the japanese markets are closed through the weekend.

check out hang seng futures a settling marginally lower after the benchmark slumped into the wednesday close as chinese companies tested in the city fell on u.s.-china tension, led lower by tech. switching out the board, a rally in precious metals remains in focus. jp morgan closed the recommendation to sell silver at $21 with a breakdown in prices potentially seen topping 24 or 25. rsi looking overbought. we are seeing spots over stall slight -- spot silver stall slightly. switching out the board for the case for the dollars decline looking intact and your pricing happening in the options market. that has kept the aussie above 71 despite disappointing retail sales data. australia expected to amass the biggest budget deficit since world war ii. the euro holding at a 21 month high, above 115 on momentum and dip buying.

holding about 76 after a four-day event, signaling that sentiment might not be overly concerned by these renewed u.s.-china tensions, with the emphasis from traders on commitment to the trade deal, but as for the offshore yuan, we did see it turn lower with the latest flashpoint posting its biggest two-day drop in two months, about seven. as some traitors have pointed out, this selloff was likely exaggerated by physicians after a buildup in bullish yuan that's . knauf -- yuan bets. that could soothe anxiety. switching out the board one last time, traders expecting -- implied vol climbing, haidi. haidi: of course, particularly with the absence of trading in japan. we will be focusing heavily on the side of trading in china and hong kong with these mounting tensions. we are getting more reaction from the chinese side. the embassy in d.c. is slamming the u.s., saying in a twitter post that the relationship as a

vehicle. the u.s. is taking it onto a wrong path where it is hitting the accelerator. it is time to step on the brakes and return to the right direction. this after beijing vowed to retaliate swiftly after the u.s. forced the closure of its consulate in houston. the state department has given beijing three days to close the office in a move to protect americans intellectual property and americans private information. >> we are setting out clear expectations for how the chinese, this party is going to behave, and when they do not, we will take actions that protect the american people. us now is the former u.s. ambassador to china. great to have you. fairly sweeping rationale given by the state department as to why this action was taken, so swiftly. does this indicate to us that the hawks are firmly in charge in the white house now? >> it does. this is probably very -- this is

likely electioneering. fbile like pompeo, the director, and others, are very hawkish towards china. it is a mistake. clearly, china creates a lot of problems for the united states, but this is the wrong way to handle it. if pompeo thinks this will change chinese behavior, he is gravely mistaken. statements like his and others very much we can the hands -- of reformersweaken -- weaken the hands of reformers in china and hard in the hands of hard-liners in china. those in the administration are two voca -- too local. ocal.etter -- too v it is better to have quiet diplomacy, figure out ways to solve it. if we cannot find a solution,

then we take action. much less rhetorical way. what is also interesting is we have seen this war on china which up to about the spring had been pretty narrowly focused on tariffs. it has now opened up across at theights abuses, national security law and hong kong, intellectual property, technology. it's going to be pretty hard to wind back, even if we do get a change of leadership in november. wind will be very hard to back. that is if we were down in the abyss, so deeply down in the abyss, it would be very hard to climb up that we will have to try to climb out. president, iis think conditions will not deteriorate. i think it will be -- they will level off and reach the bottom, i hope. it is going to be difficult, very difficult, to negotiate our way back to some kind of normalcy. don't forget, joe biden's hands will be tied by hawks in the

united states who are looking at 2020 congressional elections, 2020 for presidential elections. they will be very heated in the rhetoric against china. it is going to be very tense next several years. it will take a lot of leadership on both sides. you have to step up and be a moral leader. shery: shery: ambassador, you say the diplomacy should be more quiet and not rely on such harsh rhetoric from both sides. how will that differ from what past administrations have tried to do and yet they have failed to really change china's behavior, whether it is on ip theft, stealing trade secrets, on really not becoming transparent enough and market oriented? max: it's a good question. i think past administrations have been -- it is both republican and democratic administrations. you can still be quiet and strong and firm. you just lay down your marker

privately and do not cross the line because if you do, there will be consequences. they can indicate what some of the consequences might be or say they will surprise you. if it is done quietly, it is tough and firm, but quietly, there a greater chance of success. that is what the next administration has to do. be more firm than prior administrations. willina has found they take firm countermeasures and we are now hearing from the editor-in-chief of the global times. we have heard some of the insights really signaling to beijing's thinking, and he is now saying the u.s. has made preparations for withdrawal from the consulate general in wuhan, but he thinks that is a small price for the u.s., and he thinks that china's target will be more likely unexpected, causing the u.s. to feel real pain. what are your thoughts? so far, china's countermeasures have been pretty measured and proportionate to whatever the

u.s. has done? max: you put your finger on the problem because china's reactions so far have been measured. i am surprised how measured they are. there will come a point where the hawks in china will prevail, say enough is enough, say we are going to respond in kind. i don't know that that will happen. i tend to think the chinese leadership will do what it can to soften retaliation. still retaliate enough to show it's not going to be pushed around and to save face. you put your finger on a real problem. get to the point where chinese leadership is going to say we are going to be much tougher now. this: it is always diplomatic dance between understanding that you are opponents or the u.s. leadership is balancing three months out from an election, so as you say, there's electioneering, and that play but going on, and also having to save face in china and not be seen as taking this just lying down. what is the sort of nuanced

measures that are available to beijing to be seen as retaliating at the moment? max: that could close wuhan. be the same as the closing of houston. there are other things they could do. they could have fewer american diplomats in china now. there are more american diplomats in china than there are chinese diplomats in the united states. the main point is this, u.s. and china have to work together. china is not going away. china will always be there. china is a proud country. united states is not going. it is a proud country. we are all proud people. we know we have to work together. people around the world are all basically alike. all people care about and whatever country is to earn income, put food on the table, take care of your kids, decent water care, get air and

pollution under control. the more leaders remember that, and work together to help peoples and their own countries, the better. sometimes, i think the politicians cause more problemss than they solve. -- problems than they solve. shery: to your point on working together, we have seen secretary pompeo calling for a coalition to resist chinese threats, this after meeting with dominic raab in london. could this be the turning point for the trump administration to realize in order to work against china that they actually need their allies help? shery: -- max: pompeo and the they areorking with -- a club. it will be difficult to get other e.u. countries to be as closely tied to the united states as the so-called other five eyes. this is the first step for pompeo. get the five eyes working

together and then we will see. leaders in all countries are little bit nervous about the escalation they see. escalation in the deepening tension between the u.s. and china. they know it is not their interests. they don't want to have to choose sides between china on the one hand and u.s. on the other. that is the case of the old cold war between the former soviet union and the u.s. they will look at their whole heart, look at their country, look at their people, see what makes sense for them. shery: ambassador, always great having your thoughts. max baucus, former u.s. ambassador to china. still ahead, bill ackman's reaction to the houston consulate closure. highlights from our interview with the pershing square founder and ceo. plus, tesla is now more valuable than entire segments of its industry. we will review its fourth consecutive quarterly profit. up next, we will break down korea's latest growth figures are barclays original economist, angela.

this is bloomberg. ♪

karina: i am karina mitchell with the first word headlines. global coronavirus cases now stand about 15 million with the u.s. remaining the focus of the pandemic while infections surge in the asia-pacific. california surpassed new york in total infections as countrywide cases increased almost 2%. fatality rates hit a daily record in indonesia with australia also setting a new high. brazil reported a record 67,000 new cases in the last 24 hours. worldwide confirmed covid-19 deaths are now close to 620,000. pfizer's $2 billion deal to

supply an experimental vaccine in the u.s. set a price ceiling .f $20 a dose pfizer and bio intact say their $19.50 price takes into effect public health requirements and claims their overall virus treatment would be 30% less than what other companies charge for a flu vaccine. 105 kong reported a record new local virus cases as what is being called the city's most severe situation fronting health officials to expand the text and measures. more than half the new infections are not linked to previous cases with untraceable spikes signaling that hidden transmission is widespread. food and health secretary sophia chan says the epidemic has reached its most severe moment. the governor of tokyo this morning said the people said should prepare for a second wave of the pandemic. he wants residents to refrain from leaving the city as japan enters a four day weekend rate.

of cases hasber topped 10,000. wednesday's count is the capital's highest since the pandemic began. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am karina mitchell. this is bloomberg. shery. shery: let's turn to south korea. it slipped into recession in the second quarter after its no lockdown strategy and stimulus failed to offset a slump in exports. the contraction was much worse than expected. joining us from singapore for more analysis is barclays regional economist, angela. the south korean finance ministers speaking right now, saying it is possible to achieve economic rebound in the third quarter. give us first of all your reaction to these worse than expected numbers and your forecast for the optimism we are seeing with the finance minister there. is that possible? angela: thank you. today's number was indeed much

worse than our expectations. we expected the largest sequential contraction compared to the first quarter while perfect consumption improved. tax reduction posted retail sales. we also think the relaxation of social distancing laws, things may have provided some support. it seems like it is still not large enough to offset the weakness coming from exports, which were down double digits. having said that, we do believe that q2 should mark the drop of the current crisis at high frequency indicators confirmed domestic equities as well as export performance -- that is why we feel the policymakers will prefer to look through their weakness in q2 and focus on reviving growth momentum in the second half. to seeyet we continue indications that exports are again headed into another monthly contraction in the month of july according to the 20 day trading members that we saw already.

is it at all possible for the south korean economy to veer away from these exports and try to diversify its economy given that the global demand may not rebound as fast as expected? angela: our base case for recovery is the uneven recovery pass but we do acknowledge things are not going to be smooth. we expect in china recovery as due to semiconductors the structural demand in the 5g from homeorking and learning from home to provide support to export recovery. concerns that get memory chips contract prices may start to correct in the second half, and as you mentioned, the re-arching global -- surging global coronavirus

cases -- it will be a bumpy ride. haidi: what do you expect from the bank of korea? monetary policy front, we are not expecting bok to cut rates further, given the policy rate is already approaching the effect of lower policy bond and i think at the july policy meeting, governors made it clear that even if it were to rise, they prefer to use unconventional policy tools rather than traditional policy rate cuts. even though we do not think the concern will be a big policy priority at this moment, it does increase the past for further easing. members may start to worry about the effect from an extended period of low policy rates, abandoned liquidity, keeping inflation -- keep inflating asset prices. haidi: what are your expectations for a domestic

recovery in terms of any kind of rebound we can see in confidence, retail sales? the high frequency indicators, we have started to see domestic activity show improvement. some activities related to domestic tourists and even returns to january's level, it is very encouraging. the labor market will still continue to be a concern so even though we started to see the number of job losses have come down, but the quality of job creation -- this could potentially be addressed. shery: talking about uneven recoveries, we have seen encouraging members when it comes to jobless rates for the month of june. how problematic is it that it looks like the bulk of those gains came from temporary employment? yes indeed. i mentioned the quality of the job creation remains quite poor because a lot of the addition is coming from temporary workers or

job creation. it is not going to be very sustainable unless we see a broader base recovery. we are just getting breaking news from sk hynix, reporting operating profits for their second quarter that beat the highest estimates out of analysts we surveyed. the second quarter operating profit coming in at 1.9 5 trillion won, much better than expectations. second-quarter net at 1.2 6 trillion won as well as second quarter sales of 8.6 one trillion won, up 33% year on year. do you expect the momentum that we see in chip demand continue, even as the world eventually emerges from the work from home theme that has fed into that demand? angela: we think the tech momentum should continue, even though we see some uneven recoveries.

that there are structural demands coming from 5g commercialization, we think semiconductors will drive that recovery into 2021. haidi: barclays regional economist angela hsieh. still ahead, the outlook for australia's economy amid the later.outlook due out we will be speaking with the finance minister. plenty more to come. this is bloomberg. ♪

shery: let's get a quick check of the latest business flash headlines. the apple software holder sword 50% on its trading debut after an expanded ipo that raised $470 million. he makes tools for managing apple devices. it's based in minneapolis and owned by vista equity partners. shares have been marketed at

$21.23. ofgives them a valuation $4.5 billion. chinese simtech giant move tax -- a chinese simtech giant is looking for a share sale. bank of america, ubs, and goldman sachs are among banks preparing the offering, which could happen as early as this year. they have previously explored a listing in hong kong and geopolitical tensions between the u.s. and china. it could still affect its final decision. softbank semiconductor unit arm is said to be attracting takeover interest from the graphics chipmaker nvidia. they want to sell part or all of -- $32ke in arm which is billion in 2016. it made an approach in recent weeks. the sale of u.k. based arm could become the biggest ever deal in the semiconductor industry. up next, global coronavirus infections past the 15 million

mark amid record spikes across the asia pacific and brazil. this is bloomberg. ♪ hike!

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camp tonsafun. it's like summer camp, but minus the poison ivy. unless you own poison ivy. in which case, why? just say "summer camp" into your xfinity voice remote to join. haidi: to some breaking news crossing the bloomberg. the chinese pharmaceutical biotech company in the middle of developing its own coronavirus vaccine is set to sell 24.8 million shares in a shanghai ipo. nono biologic -- cansi biologic. their experiments coronavirus vaccine showed promising results ana midstate study, showing immune response really reiterating the companies status as one of the non-western contenders in this race to develop the first effective

coronavirus vaccine. let's get to karina mitchell for the first word headlines now. toina: china is bound retaliate for the u.s. decision ordering the closure of its consulate in houston. emergency services were called to the building after the order amid reports that papers were being burned. beijing denounced the move, saying it plans firm countermeasures against washington. it is protecting american intellectual property and personal information. pres. trump: as far as closing additional embassies, it is always possible. you see what is going on. we thought there was a fire in the one we did close and everybody said there's a fire, there's a fire, and i guess they were burning documents, burning papers, and i wonder what that is all about. karina: the u.k. government says it will protect the company as a result of expanding of huawei from next generation 5g networks. the decision lowers the number of potential suppliers to just the two scandinavian companies, leaving the u.k. vulnerable to any downturn.

the government says carriers must remove huawei 5g gear from networks by the end of 2027 after years of u.s. pressure. the european central bank is said to be leaning toward asking banks to delay dividends a bit this year, weakening -- could resume in the next quarter. members of the supervisory board do not see enough clarity on the single market economy to justify lenders returning capital. no decision has yet been made and the ecb declined to comment officially. south korea fell into recession in the second quarter for the first time since 2003. exports plummeted and businesses cut investment because of the coronavirus. gdp contracted 3.3 on the quarter through the end of june which was worse than estimates. manufacturing fell 9% while experts felt double digits for each of the three months as global commerce collapsed under lockdown. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am karina mitchell. this is bloomberg.

shery. shery: the world has marked another unwelcome to milestone. 15 million coronavirus infections as australia, hong kong, japan, and california report daily records. yvonne man has the latest, and hong kong now imposing some of the strictest restrictions yet. athong kong's epidemic is the most severe moment. the city hit a record, 105 new local virus cases, more than half of which are untraceable. it has now prompted health officials to expand those restrictions affected today. you must wear a mask in indoor public venues including malls, shops, supermarkets. that has been expanded from beyond just public transport. they also extended the quarantine for visitors with travel history to china, taiwan, and macau to september 7. the u.s. and kazakhstan are

added to a list of high-risk regions. travelers who have been to those countries in the last two weeks must pass a test before boarding their flights. the government saying they may have to tighten rules further if cases -- but for now, the city is avoiding a lockdown. grim also with a milestone. nationwide cases hit a record. at least 747 cases on wednesday. 238 of which came from the capital, tokyo. and the governor there, as we have been reporting, now urging residents to stay-at-home during this long holiday weekend with cases in tokyo now topping 10,000. it has gone beyond tokyo as well. osaka had 120 cases on wednesday, the most in a single day. the government upgraded its outlook for the economy for a second month, saying that conditions are picking up, but the situation is still seen as severe, so the economy looking less bad.

haidi: in the meantime, indonesia is the worst virus hits southeast asian country. the government has, despite that, used social distancing measures. there is sort of some confusion. they were not exactly restricted in the first place. yvonne: that's right. that is what we continue to see, that the confirmed cases have also tripled since those measures were relaxed in early june. we saw yesterday indonesia reporting record daily virus deaths at 139, and we see a record surge in new cases from jakarta. it is interesting. according to one poll, more than 60% of the public say no more lockdowns. instead, the government should actually revive the economy as a priority more so than putting more strict social distancing measures. it is no surprise with the

country heading into the first recession in more than two decades. the outbreak has left millions with less jobs and may plunge more people into poverty. in fact, at this point, the government's approval rating has risen to 60%, the most satisfied with the performance of the president. haidi: yvonne man in hong kong with the latest on the virus for asia. pershing square capital founder and ceo says china is making good progress on a virus vaccine. bill ackman spoke with bloomberg about what authorities in beijing are getting right and how the u.s. could have tackled the pandemic differently. this if we mishandle crisis, let the virus run around the world, we end up in a very dark place, every business goes bust. we cannot allow that to happen and we should not. we should shut down the country. i have made a pretty bullish case. had we taken a hard shutdown, we

would have had a better outcome both economically and from a virus perspective. the good news is we are going to get through this. there will be a vaccine, reasonably high probability. we are on the cusp hopefully. colleagueom a trusted -- it isd company with on the board of one of the state owned enterprises in china. he was recently vaccine along with 45,000 other -- 40,000 other chinese vips. the chinese government vaccinating the high-profile citizens. they are clearly pretty far along on developing a safe and effective vaccine. to --as actually going you said 1000 people have become severely sick. at the end of that quote, you said we must learn lessons from this. i was going to mention that you

called it in many ways. obviously, that quote did come for 150,000 people. can i ask you just a few questions about the environment now, very briefly? we are almost out of time. are you thinking about relations with china and does that concern you? bill: of course. look, i think, you know, a globally connected world is a pieer world and a bigger for all to share. the breakdown in relationships with china is obviously not a good thing. at the same time, i do think i respect the administrations, you know, china has been pretty aggressive on issues of intellectual property, for example. i don't know the specific details of the issues concerning the consulate. read aboutw, you document destruction, burning documents in the courtyards. the consulate, it does not look

good for china. i have enormous respect for chinese. they built an incredible country. economy. like all of us that are not perfect, i think the trump administration has been stronger with china than any other previous administration in many years and i think that is very important to be demonstrated. >> just because you have a history with the hong kong peggy, i want to ask you about reports lining the administration is very concerned about hammering the hong kong peggy. do something like that happen in our lifetime still? bill: i really have no idea. shery: pershing square capital founder and ceo, bill ackman. you can get more on the intensifying tensions between the u.s. and china in today's edition of daybreak. bloomberg subscribers can go to dayb on their terminals and it's also available on mobile in the bloomberg anywhere app.

next, tesla extends its streak, paving the way for inclusion in the blue-chip s&p 500. we will get details of the carmakers big quarter. this is bloomberg. ♪

shery: we are just a few minutes away from the major market opens across asia. let's turn to sophie kamaruddin for a check on what to watch. sophie.

sophie: taking a look across asked ask -- nasdaq, momentum surging this week as we saw tech plays staying hot, pushing the valuation to the highest in over 15 years, and here in asia, the tech rally running hot with the msci aipac i.t. index at a record high underpinned by hardware makers and sk hynix in focus with its earnings beat operating profit tripled to 1.6 billion dollars on chip price and demand recovery, reflective of economic activity picking up and that the second quarter may mark the bottom of the downturn with the economy sliding into recession. flipping out the board while the u.s. dollar remains on the back foot at a march low, the aussie dollar holding above 71 while the yield curve is flattening before the government's fiscal up to it, and the offshore yuan staying above seven after the biggest drop in two months, and traders are bracing for more yuan volatility with another u.s.-china flashpoint emerging. after slipping to a two month low last week, the hong kong

dollar back to trading near the nd despite the carry trade appeal the ipo pipeline providing a. jumping into the terminal, the daily news has pushed shares to a record high, up more than 40% this year. as you can see by the chart in the terminal, malaysia's stock exchange is top dog, outperforming, jumping 60% as the stock rally has boosted trading volume and the frenzy we are seeing in the space is making tesla's year-to-date rally look like it is underperforming with super max up more than 1000% this year, haidi. haidi: let's stick with tesla. reporting earnings after the bell on wednesday, posting a fourth consecutive quarterly profit. the milestone paving the way for the electric carmakers to join the ranks of the blue-chip s&p 500 index. let's get over to bloomberg's ed ludlow who joins us in san francisco. how did elon musk pull this off?

ed: they pulled on every lever they had at their disposal. he was underwater because he kept his client open during the coronavirus pandemic despite authorities telling him that he could not but you know, in the end, it paid off. teslatory credits, which sells to other automakers, also refused -- were a huge contributing factor. more than 400 million dollars of regulatory credit revenue, and reading the buzzwords, fiscal recorder, where there was supply chain disruption, where the factory in california and shanghai were shuttered for a limited period of time, the execution is something talked about in the call. the team went through hell this quarter again to execute, to get the vehicles out of the door and

estimated to customers. according to elon, there is no question over demand here. demand is outstripping supply, but they were able to adjust that supply chain in shanghai. they are increasingly sourcing a lot ofhat supply chain locally rather than flying in components from around the world. basically, the underlying message is they are bringing the cost down of production and they are getting better at building their electric vehicles. about ae also got news new tesla factory. what did we learn? ed: the factory is going to be in texas. it would be outside of austin. we had a statement as well from texas governor abbott that he expects tesla to invest $1 billion and it will bring 5000 jobs. it's interesting because they were talking about building not just this futuristic pickup truck in texas but they are also going to build or they plan to build the semi-truck which was the big rig heavy duty truck as well as the model three and model why, and -- model y.

that is tesla's biggest market. recorder with new factories popping up in berlin and the u.s. and also making improvements expanding capacity and shanghai to start bringing the model y out of shanghai next year. he has ended the quarter from facing a quarter where profit was a question to over the course of a couple of hours to being in a pretty strong position. shery: the other big takeaways from the earnings call. ed: the other big takeaways are that elon is very focused on the breath of the business. he had a lot to say about the battery and soda business, a lot to say about insurance products. when it comes to labor and workforce, the biggest concern tesla has right now is hisacting -- to build out insurance products. he's also talking about how they basically can just improve as a

company. they are not super focused right now on profit. they are all about growth, which is something investors were looking too. remember the context here. for the last few years, tesla's capex has been pretty low, it's been below target. they are targeting capex around $3.5 billion right now and that is something investors wanted to see going into this quarter. evidence that tesla would accelerate the pace of growth. we know that 500,000 units made him a bit tricky although they say that is still on target. andof these big projects new products, and the ability to take market share, that does take some capital investment and that was a lot of what elon was talking about on the earnings for today. haidi: thanks to bloomberg's ed ludlow with the latest on those blowout results from tesla. we will get more perspective ahead. the managing partner and cofounder will be joining us on bloomberg markets with his views a little bit later on. just an update from the state of victoria is under renewed period

of a six-week locked down in that state as well as australia, broadly seeing a record number of cases of the coronavirus. victoria seeing an 8.5 billion aussie dollar lower tax revenue versus their three pandemic forecast, completely expected that given with that lockdown, you are not likely to see goods and services consumed intact. the state government commenting on the virus impact on the economy. for context, victoria kan's for about .25% of national gdp as well -- victoria accounts for a quarter of national gdp. australia is set to unveil their historic deficit in the budget update later on today. lots more to come. this is bloomberg. ♪

haidi:haidi: let's get you a quick check of the latest business flash headlines. bhp is facing the biggest class-action u.k. history. claimants look to see over the deadly collapse of the dam in brazil five years ago. in manchester begins an eight day hearing on thursday to see if british judges have jurisdiction. 19 people were killed when the dam gave way. they are seeking $6.5 billion in damages. the former head of the collapsed german payments platform, wirecard, has been rearrested on

claims he and other executives. losses from as far back -- executives hid losses. gainconspired to fraudulent loans. they allegedly inflated the books with fake assets to make wirecard seem more attractive to investors. latesoft failed in trade in its cloud computing business as revenue rose 37% for the june period that missed estimates for a 49% gain, much lower than the 59% jump in the first quarter. that overshadows an otherwise strong earnings report with quarterly revenue rising 13% to $38 billion, beating forecasts. itsy: softbank is weighing options on whether to sell all or part of its stake in its chip unit arm in a private deal or take it public. from one company said to be expecting interest, the graphics chipmaker, nvidia, let's get the

latest from our deals reported. why is arm so attractive that nvidia and others are looking at buying it? >> absolutely. it's a very valuable company. it is worth as much as $44 billion in a potential ipo, analysts have said, almost 40% more than what softbank paid for it in 2016. this company dominates the market for chips used in gaming and they are getting into new markets such as artificial intelligence and dock driving -- self driving cars. the key product this company also has is they line since -- -- license designs and they are the brains of a lot of the wells smartphones pay or your iphone included in that, shery. why is softbank selling the business? is it kind of the broader story of how badly they have suffered with the likes of weowrk late --

wework lately? nabila: softbank is under so much pressure from elliott, the most feared activist investor in the world. they need a bit of a win after that tobacco with -- tobacco with wework last year. masayoshi son really needs the win here. he has been in cell mode -- sell mode because of that. shery: what are some of the hurdles that the deal could face? nabila: first of all, you can expect a lot of -- from rival chipmakers and customers like apple, which is partly why softbank actually tried to see if apple would buy at first but they declined to do so. buyer here, the regulators would have to get comfortable with another chipmaker having that much power ownuse it would compete and

that infrastructure, compete with the rivals as well. also looking at antitrust approval in multiple jurisdictions, including china, remember nvidia's last deal got held up for a long time. it took them more than a year to close because of approvals in china. in fact, it only closed in very recent days after a year. looking at immense regulatory scrutiny because of the base of arm. they are competitors and customers such as apple and qualcomm. haidi: the fact that we are seeing these approaches happen, are we seeing mna interest activity start to pick up again? nabila: that is what everybody is saying. we have the second quarter with the worst quarter in 20 years for m&a. july is looking like the first

month this year where activity is actually higher at this stage than july last year so people are really, really hopeful that we are seeing some early signs of recovery. obviously sold its classified business in a big deal this week, too, so people are hoping that this means a bit of a return to mna. haidi: our deals reporter, nabila ahmed, in new york for us on speculation that this arm deal for softbank. let's take a look at how we are setting up for the thursday session. it will be a holiday in session because japan is on holidays for today as well as tomorrow going into the weekend. liquidity might be sin on the ground. we have upside when it comes to trading in new zealand. it is about .25% higher. sydney futures looking a little bit more negative, .2% lower ahead of the upset we are

expecting later on today. we have got the update when it comes to victoria. those are not looking great as a result of the lockdown in terms of tax revenue. kospi futures after we had the growth data out of little bit earlier, showing the slippage into recession, .25% lower. when it comes to the futures contract in the u.s., s&p active futures looking also just mildly negative, shery. shery: take a look at what currencies are doing. we saw it falling to the lowest level since march, holding at around that level. we have seen broad weakness for the u.s. dollar. the aussie not doing much at the moment, this holding steady near the april 2019 high. the japanese yen had fallen. it has seen its biggest fallen for weeks and is holding at that 107 level. same thing for the offshore renminbi where we have seen significant weakness and it is past the seven level. have more on will

the escalating tensions between beijing and washington including the risk of retaliation with united states institute of peace , senior policy analyst patricia kim. this is bloomberg. ♪

♪ haidi: welcome to daybreak asia. markets have just opened for trade. our top stories this hour. u.s. china ties face new tests. beijing promising retaliation. a greg miles ghosn -- grim

milestone. california surpasses new york for confirmed infections. the numbers are rising in asia. historic deficits as the pandemic devastates the economy. business investment is expected to plummet over the next 12 months. japan is on holiday. south korea and australia coming online. here is sophie kamaruddin in hong kong with the markets. sophie: starting with the open in sydney. downside pressure, being led lower by bhp group. the aussie dollar holding four day advantage. we saw the currency top 71.80 overnight. we are seeing the aussie yield curve flattening hat -- ahead of the fiscal outlook. the open in south korea. moves to the downside for the kospi. 2/10 of 1%. the korean won on the back foot

after a four-day advance. we are moves higher for sk hynix, gaining ground after it delivered an earnings beat, offering a profit triple. we are seeing some optimism for chipmakers. confirming gdp data that the korean won fell into recession. let's check in on what's going on with the commodities space. we want to highlight precious metals. silver stalling. silver futures extending gains at a 2013 high with etf holdings at a record. gold futures continuing to advance for a fifth straight day. the offshore yuan holding a biggest drop. yuan traders are bracing for volatility. check out the greenback come extending losses.

positioning right for investors to jump into bed against the dollar with the u.s. seen as a laggard in controlling the virus. haidi: that theme of the dollar. equity investors have shrugged off these escalating tensions between the u.s. and china. the question is whether the currency might be a target. let's take a look at sentiment going forward. we were just talking in the break about the direction of the dollar and impact on equities. i want to throw up this chart, taking a look at the two-year trend line that has been tested so far this year. so far, every bout of weakness we've seen in the greenback does manage to escape unscathed. going forward, do you see stronger signaling for selling of the dollar to continue, particularly as that yield

advantage continues to disappear and as we get into election season? how does that feed into weakness inequities? the last selloff was really supported by dollar weakness. sean: you're right. one of the things to bear in mind is that we've come off a overboughtness for the dollar. credit problems in march. we are seeing the other side of that in terms of quite significant selling pressure as money market funds in the united states start to unwind. like 1.5d something trillion going into global money market funds between february and may, during that bout of risk aversion. that has been slowly unwound. if that continues, we will be in period of dollar

index. the vix index has been elevated in comparison to previous post credit cycles. normally, it corrects quite quickly. this time, it has been relatively elevated. if that were to come down, perceptions of risk appetite will change further. weakness in the dollar could turn into a rout. the potential for that going into the election is quite high now. one less thing i would say. the chinese currency has been surprisingly strong. that strength over the last hass weeks hat -- vix weeks been a lot of offshore money coming back into china as the chinese economy starts to grow faster than its peer group. haidi: despite the u.s. china tensions and the great uncertainty as to what post november continues to pose for

markets. you would be more inclined to look at that domestic recovery in terms of risk assets? sean: that's right. what has been leaving the global economy was very much china's stimulus measures from march of this year. that has reflate at the commodity complex. it has done that against the backdrop of a relatively strong dollar. now, you've got everything aligned for emerging markets and china in terms of either -- even further inflation is the dollar which we can. bear in mind that a drop in the dollar of 1% generally means an increase in global trade of about 0.75%. as a reflation tool, the dollar is incredibly impactful, certainly for this part of the world. it would have a significant reflation for the equity markets and underlying economies. shery: let me ask you about this

resurgence in secondary listings we are seeing in hong kong. not to mention that listing in hong kong. what impact will this have on the hang seng index? let's start with hong kong first. off a gainlly, we, in hong kong from an incredibly low base economically. we will have two years of an economic recession. we had a fantastic tailwind of not just in improving chinese economy but also the qe from the united states. so, a perfect scenario to come out of a very difficult time for hong kong. on top of that, the texture and granularity of the hang seng index itself will go through an evolution, revolution in the next 18 months as the secondary listings are incorporated into the indices. you need to watch for mid-august

on a couple of those companies, whether they will actually be entered into the index. 18-24 monthsnk from now, the hang seng index will be an international index for investors to invest in china. that will really mean that the broader response to the hang seng index versus the chinese economy is almost going to be equal. on the mainland, we will probably see the starboard become a nasdaq for china. each city with its own to find index representing different parts of china. clearly, you will have three hang seng index, the star board, the csi 300. that's a very domestically focused china index. shery: quickly. let me turn to japan.

closed on holiday today. how do they compare to their northeast asian peers? sean: it's a very good question. one of the most interesting and overlooked stories is that japanese money supply is growing at its fastest pace since the late 19 -- late 1990's boom. that is really reflationary for japan. every time the boj has to intervene to keep the yen from strengthening, they have to print money. that will mean that liquidity conditions in japan really first over the next 12 months. shery: always great having you want. sean darby. still ahead, we discussed the risk of retaliation by beijing against washington. can says relations are likely to get worse before they get better.

the impact of the tensions on fx with goldman sachs zach panel later this hour. this is bloomberg. ♪

♪ >> a breakdown in relationships with china is not a good thing. >> looks like an exceptional move by the u.s. administration. you don't normally do these things unless you have good grounds. this is something pretty concrete to base it on. >> we have moved from repeated cooperation with china to a time of significant strategic competition. that's on every front. >> looks at the moment as though china is in the process of losing its most important external relationship if it hasn't lost it already. we will have to see what happens

after the presidential elections in the united states in november. hashe trump administration been stronger with china than any other previous administration. i think that strength is very important to be demonstrated. >> we expect decoupling to accelerate, regardless of which party takes control of the white house. be sure that our own house is in order. we keep pointing the finger china. we've been naive in terms of how we protect ourselves. he voices on bloomberg television after the u.s. gave china three days to close its consulate in houston. .hat's only the latest says it will get worse before it gets better. she joins us from washington. really, the relationship looks

gloomy at the moment. let me ask about the latest salvo here. it's interesting that they decided to go after an entire consulate instead of targeting specific individuals. we've seen specific sanctions against chinese officials. we've seen chinese citizens being taken to federal court. why go against the whole consulate? patricia: yes. many of us are asking the same question. as of now, very little specifics have been released on why the entire chinese consulate in houston was shut down. other than the state department's remarks that the move was made to protect american intellectual property and private information. why the u.s. government chose to shut down the entire consulate instead of expelling or arresting the specific individuals. what is concerning to me is what will happen in response. beijing has announced that it will respond, it is likely to

close the u.s. consulate in china and expel u.s. diplomats from the country. this is very worried some -- worrisome. shery: you say that we will see a worsening of the relationship before it gets better. what will happen after the november elections? we have the former china ambassador -- the former u.s. .mbassador to china if joe biden takes the white house, perhaps we will not see a worsening. well, i think the u.s. upcoming election has something to do with the worsening of relations. there is certainly a domestic to this hardment tone on china. having said that, the u.s. china relationship has been growing downward over the last several years.

it reached one of the lowest point in decades. this doesn't just have to do with the election. it has to do with the fact that china's domestic and foreign policies have to come -- become much more authoritarian. this has generated a strong bipartisan consensus in washington that it's imperative for the united states to check beijing's behavior and correct long-standing and balances in the u.s. china relationship. on top of this, the covid-19 pandemic has only exacerbated the mutual mistrust in the relationship and accelerated the downward trajectory. i don't think we will see a return to the old age of u.s. china relations even after the election. what's most concerning -- yes? haidi: continue. patricia: what i was going to say is that what is most concerning is that currently,

washington nor beijing have any incentive to soften their respective stances or extend an olive branch to the other side. haidi: is it increasingly dangerous that president xi's push into a corner? he feels like he can give the usa free pass just because it's an election year. maybe some of this is posturing. when something like this happens that is so high profile and sudden, he's been looking to consolidate power. we've seen that with the actions on hong kong. what kind of reaction to we expect from beijing? could it be harsher than the restraint that we've seen in the policy to this point? patricia: that's right. xi jinping dealing with a full plate. he's been facing a lot of global issues,m for a host of from the initial mishandling of

the coronavirus outbreak, to the repressive actions in hong kong. at the same time, xi jinping has a lot to do with at home, including historic flooding that has killed dozens -- almost 200 people in china. it has displaced thousands of people. an economicsh forth recovery after china's economy suffered due to the covid-19 pandemic. there's a lot going on here. there's little incentive for him to look weak or refrain from responding to the united states. when options are available to beijing to respond now? saw with again, as we the rapid closing of the chinese consulate in houston, beijing has announced that it will respond in a similar manner. we are likely to see a shutdown of the u.s. consulate in china. we may see sanctions on more

u.s. officials as the united states has rolled out a series officials andn companies in china for various human rights abuses. these are the types of reciprocal moves that we might expect to come from beijing in the coming weeks. kim, appreciate your time. let's get to karina mitchell. karina: thank you. global coronavirus cases have race past 18 million. the u.s. remains the focus of the pandemic. infections are surging in asia-pacific. california surpassed new york in total infections. dailyty rates hit a record in indonesia with australia also setting a new high. brazil reported 57,000 new infections in the last 24 hours. worldwide confirmed covid-19 debts are approaching 620,000.

hong kong reported a record 105 virus cases. the city's most of your situation. health officials expanding protection measures. more than half the new infections are not linked to previous cases with untraceable spikes, signaling that hidden transmission is widespread. the epidemic has reached its most of your moment. the governor of tokyo is warning that people should prepare for a second wave of the pandemic as infection rates continue to climb. he wants residents to refrain from leaving the city as japan enters a four-day weekend break. the total number of covid-19 cases has topped 10,000. wednesday's near 300 count is their highest since the pandemic began. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm karina mitchell. this is bloomberg. shery: more on the virus and the

latest findings on antibodies, coming up. this is bloomberg. ♪

♪ shery: quick check of the latest business flash headlines. linux has posted second-quarter numbers atop the highest estimates. 1.6 billionofit was dollars. meetordered memory chip to surging demand from people stuck at home. despite the big numbers, high next has yet to fully recover from a difficult 2019 in the chip sector. tesla reported a fourth consecutive quarterly profit, paving the way for it to join the blue-chip index. profit was $.50 per share, beating forecast of a loss than

more than one dollar per share. estimates more than of 5.4 billion. results will boost teslas lofty share price which has convert -- quadrupled since march. cathay pacific is delaying new airbus planes for as much as two years as it struggles with the virus led collapse of air travel. deliveries of the jets are being deferred to 2023. deliveries may wait until 2025. cathay is talking to bowling about delaying reception of new 777x raft. -- triple seven aircraft. the world tops 15 million covid-19 infections, the global race is heating up for a treatment. anti-bodies fade rapidly, raising concerns over the durability of any vaccine and the risk of lost immunity.

what they know about anti-bodies so far. >> we are working hard to understand the difference between the antibodies created by a natural infection and by some of the vaccine candidates. in past vaccine trials in other viruses and infections, we see immune response, we see ante bodies were produced in phase one and two. it doesn't always mean that we confirmed protection. on collectingwork data around these neutralizing antibodies in particular, we will understand better, particularly when we get into phase three. whether or not these antibodies me people are protected. >> can we be protected from covid-19 with t cells even if an individual does not have the antibodies? >> there's a lot of work that's happening right now on t cells

versus antibody response. normally, in a traditional vaccine landscape, you would sense -- spend several years trying to figure out if the vaccine needs to be good at producing antibodies or if we have to induce t cells or some combination of the two. right now, we don't have that timetable. we are going forward with these .pproaches that the astrazeneca we will find out, a lot of people are working on the t cell experiments to understand what role they play. we need a little bit of time to understand how they both work in the body. >> there was a lot of hype about these vaccine trials that were successful. how far away are we for making sure these vaccines are safe and usable, and knowing how many doses? >> we have a few candidates that

are incredibly promising and fast. vaccines in other infections be immunogenic. ,hen you get to phase three that space where you are saying, does this probably protect the population? can we move this into large-scale production and get a vaccine out to the world? sometimes, in that phase three, we don't get that broad protection that we need to have a successful vaccine. i think everyone is very positive on the results. i think the safety data looks good. there is still some adverse events in these vaccines. three, we into phase have three promising vaccine candidates right now. that's incredibly good. was the johns hopkins university assistant professor of emergency medicine.

they are supported by michael, founder of bloomberg lp. we will discuss the impact the virus is having on the food and beverage industry, with simon wong. this is bloomberg. ♪

shery: a down day for markets across asia. let's return to sophie for another of the. sophie: asian stocks are under pressure. japan closed for the long weekend. kospi is leading a lag in the region, losing 8/10 of 1%. a mixed bag when it comes to chipmakers in seoul. sk hynix marginally higher by one quarter of 1% after it delivered an earnings beat. we have the latest gdp data confirming the economy falling into a recession.

with economic activity picking up, that perhaps could mark the bottom. in australia, the asx 200 losing ground with financials among the big ones. we're seeing a bright spot when it comes to metals miners. morningers gaining this as we are seeing a rally in precious metals. let's check in what's going on there. have the precious metals rally losing steve. -- steam. above $23.ing check on the currency space. the biggest fall in two months on u.s. china tensions as the dollar extends declines at a march low. into the terminal. the case for dollar weakness seeing intact as we are real yields slipped further into negative territory on monetary easing. five-year treasuries have fallen to a seven-year low.

incentive toost buy precious metals even further. kamaruddin in hong kong. a message to chinese startups. his message will encourage smaller peers to race ahead with their own public debut plans, potentially avoiding long-term in amid the virus and you local tensions. lulu chen is online from hong kong. what does this signal for other startups >>? -- startups? this is the one we have been waiting for for years now. does it open the floodgates? lulu: his timing is usually spot on. what he's telling other companies right now is that the really where liquid is available right now, the economy has its own timeline.

right now is probably the time to strike, when the iron is hot. down the road, there are certain uncertainties coming from either the virus or geopolitical tensions. we don't know how that will affect markets down the timeline. also, if you look what is happening in the market, people are already making preparations. there's a flood of secondary ipos, chinese tech companies that are listed in the u.s., that are eyeing hong kong right now. abouthearing chatter other chinese tech companies planning to come to market as well. given everything in the pipeline, is there enough liquidity to support all these deals? lulu: that's a really good question. according to ubs, there's at least 42 companies that are traded in the u.s., chinese firms traded in the u.s. that are qualified to list in hong kong in the next 12 months.

billion ifraise $27 they only float 5%. that's on top of the 36 billion of shares sales that's here already in hong kong. the ipo is certain to push that category 5 billion. that's a lot of demand. mega alibaban how share so far, they are like the hollywood blockbuster that steam rolls all the smaller films. i think it's something that other companies need to take into account, even while they are trying to catch that window of opportunity. haidi: lulu chen there. says they are looking to tighten regulations for chinese firm listings on american exchanges. she spoke to bloomberg about those changes and the state of retail investing in the u.s.. think that the

environment for retail investing has really been pretty great over the last 10 years, frankly. the fees that retail has had to pay to enter the markets, the democratization of the markets by allowing them to have direct markets, has really been a key trend that has driven the u.s. markets. i do think that's a longer term trend. the fact that the commissions have gone to free has driven more demand within the retail environment and retail investors coming into the markets this year. >> is it a free lunch? this is the key thing. i go back to our relationship with arthur levitt and his respect for the individual investor 30 years ago. is this a free lunch? schwab says it's free. you can trade nasdaq shares and it's free. is it a free lunch? >> first of all, it is free for retail. i was at nasdaq with arthur levitt's during his tenure.

a mission tos on make it so we democratize access to the capital markets. he went a long way in that regard. the online brokers have done an enormous amount to create services that do benefit retail. at the end of the day, they are getting a good experience. the spreads in our markets are extremely narrow, they are getting good executions. they are not having to pay commissions against -- to those retail brokers to gain access to the market. for them, it really is free access. >> are there sufficient protections against losses in companies in china that are filing for ipo's here and trading without the same types of oversight that u.s. companies face? >> that is something we have been in active dialogue with the fcc about. we encourage them to have a roundtable recent we -- recently with the experts. we play a big role together and

making sure that we create the right disclosure regime for companies coming to the u.s., including china. there are some differences in terms of disclosure obligations that companies have coming from china as well as reduced oversight that the fcc has -- sec has. that's an area we are focused on and trying to create positive change. the sec is also focused on it. that requires diplomacy between the united states and china. it is something we have been encouraging them to focus on. >> you've been incredibly proactive about all of this. walk us through what you've done specifically. >> we have definitely had some concerns that we want to make sure that we can play our role in addressing. we've increase -- increased our oversight of the accounting firms that are being used as the chinese companies. we would normally rely on the sec for that. at the same time, we want to

make sure that we have some oversight over the quality of the accounting firms to being used. we are requiring one member of the management team or a consultant to have u.s. public company experience. we have increased the public float requirement for companies that are listing from china. those three things are things that we can achieve. it's a broader ecosystem issue that we are trying to make sure that the government is working with the chinese government to address. >> the backdrop for this is really important here. the uproar over grand cayman islands positioning. you have the recent wirecard train wreck in germany as well. this is really important. do you and your other markets feel that the fcc is aggregating its duty? has anink that the sec enormous amount of responsibility. they taken extremely seriously in terms of the disclosure obligations they place on companies that choose to listen

the united states. ofy do an excellent job managing this disclosure obligation and reviewing the companies, inc. very proactive in writing back questions and comments to companies. it's a huge part of their role. haidi: the nasdaq ceo there. up next, selling the greenback, buying the euro. we talk about the number one issue in macro markets and what it could mean for asian currencies. this is bloomberg. ♪

karina: watching daybreak asia. china is vowing to retaliate for the u.s. decision ordering the closure of its consulate in houston. emergency services were called amid reports that papers were being burned. beijing denounced the u.s. move, saying it plans for countermeasures against washington. the state department says it is protecting american international -- intellectual property. >> as far as closing additional embassies, it's always possible. you see what's going on. we thought there was a fire in the one we close. everybody said, there's a fire. they were burning documents and papers. i wonder what that's all about. karina: japan is raising its view of the economy for a second

month, saying conditions are picking up. they warn that the situation remain severe. the latest report sees improvement in 6-14 categories including consumption, production, and public investment. it describes overall conditions a severe. that's better than it's extremely severe description in june. south korea fell into recession in the second quarter for the first time and -- since 2003. exports plummeted and businesses cut investment because of the coronavirus. gdp contracted 3.2% through the end of june, which was worse than estimates. manufacturing fomite percent. exports fell by double digits. global commerce collapsed under lockdown. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm karina mitchell. this is bloomberg. shery: let's turn to the fx markets. the dollar is near march lows. it's been under pressure with a

resurgent coronavirus outbreak in the united states. the joint -- joining us now from new york is the goldman sachs cohead of global fx rates and e.m. strategy. great to have you with us. we continue to see the downtrend. a fourth week of losses for the dollar. is there still time to add to those short positions? zach: absolutely. although the dollar has had a bit of a move, we think it is closer to the beginning than the end of the trend we are expecting to develop over the next couple quarters. we will see what we get in the coming days. it's possible that the euro rally, as the dust settles on the recovery, we think there's plenty of room to go. investor positioning is really not fully behind this trade, despite it becoming a growing market consensus in foreign-exchange markets. shery: how much will you want to the paint in this broad dollar

participate inn this broad dollar weakness? >> not very much. we are not looking for a lot of short run you want appreciation, despite a pretty solid domestic macroeconomic picture in china. you can't take the politics out of it, unfortunately. for theo treading water short run. as we turn the page into next year, we think it would start to participate. we have a 12 month forecast of 670 for the dollar china cross. looking for some yuan per see asian. probably delayed until after the you know -- the november election. haidi: is the politics what keeps the dollar subdued for the rest of the year, both in terms of the election risk but also the handling of the pandemic? is it more of the dissipation of the yield advantage story that

is driving that? zach: it's primarily not politics, in terms of the broad dollar. it's quite a lot of things coming together here. they argue for a rethink of the broad dollar outlook. you have a very expensive currency. you had a decline in interest rates that have taken away the fundamental reason for that currency getting expensive in the first place. you have a global economic recovery in which the u.s. economy is in the backseat, lagging slightly behind due to worse fire is control. all of those things put together really are the primary reason why we are negative on the dollar here. politics domestic argue for some further dollar weakness, in particular. i higher probability of a biden victory, come november. it weighs marginally on the dollar due to issues like corporate tax rate increase.

those are secondary to things like virus control, the decline in rates, the dollar's lofty starting valuation here. haidi: you are closing your position when it comes to aussie qe. tell us more about the reasoning behind that. you are saying there could be .urther upside zach: i'm still optimistic about the australian economy and about the australian dollar. because of the pickup in the virus outbreak there, as the australian listeners will know. there's been a moderate outbreak that has emerged in australia over the last month. that has been a setback for the short term for the economy and currency. that's a shorter-term factor. we would be optimistic looking ahead. realistically, this is something we will have to be dealing with for a while now. repeated small outbreaks,

monitoring the authorities responses to that. it is handled pretty well in australia. you will see that appreciation trend restart before too long. shery: for our viewers, this gtv chart on the bloomberg showing how a measure of volatility in the japanese yen spikes around election day here in the u.s., around november. it persists into 2021. option contracts pricing in a premium versus october. what will factor into the japanese yen? you mentioned slightly the joe biden when affecting the dollar as well. zach: the yen has been affected primarily by japanese investors continuing to search for yield in oversized markets -- overseas markets. you've seen and the home by its. e bias.nd to hom

that is increasingly uncommon in japan. japanese investors continue to accumulate overseas assets. that has been keeping the yen relatively weak. what you are looking at in volatility markets is investors looking for a repeat of 2016. the japanese yen had a violet move after the trump victory that year. that's probably not correct, actually. we think other currencies will have a more direct impact from the election. maybe the chinese yuan would be a candidate for that, reflecting some different tactics on u.s. china issues under a biden administration. we are encouraging investors to look more at you want rather than the m this time around -- yen this time around. haidi: you see that volatility story playing out with the carefully managed way beijing approaches its currency?

will this be an offshore momentum you are looking for? pboc andould say, the beijing authorities generally are episodic and how they manage the currency. they like to prevent too much depreciation. if you were to see markets embrace the idea of lower tariffs on china or further negotiations on trade under a biden administration and that led to more optimism around asian growth, on the chinese yuan, we think is probably something that the pboc would tolerate. incould see a bigger move the weeks and months following the election in the lawn than in the yen. cohead of global fx and rate strategy. always a pleasure having you with us. australia is bracing for a historical deficit as the pandemic devastates the humidity -- community.

we look at the details, next. bloomberg. ♪

♪ shery: a quick check of the latest business flash headlines. a korean chipmaker has posted second-quarter numbers that top the highest estimates. operating profit was $1.6 billion as data center clients ordered memory chips to meet surging demand from people stuck

at home in the coronavirus. despite the big numbers, they have yet to fully recover from a difficult 2019 for the chip sector. chinese fintech giants are said to be looking to raise at least $3 billion in a u.s. share sale. bloomberg understands bank of america ubs and goldman sachs are among banks preparing the offering, which could happen as early as this year. will fax previously explored a listing in hong kong. geopolitical tensions between the u.s. and china could affect its final decision. the former head of collapsed german payments platform wirecard has been rearrested on claims that he has -- hit losses from as far back as 2015. prosecutors say they conspired to obtain the equivalent of $3.7 billion in fraudulent loans. they allegedly inflated the

books with fake assets to make wirecard seem more attractive to investors. yesterday in government is set to deliver an economic and fiscal update in the next hour. it is expected to show the biggest budget blowout since the second world war and a second wave of infections is likely to delay in any pivot. the treasurer made a few announcements ahead of today's updates, downwardly managing expectations. what are we expecting? >> we are expecting a pretty horrible number. in the treasurer's words, the deficits he will announce our eye watering. about $90 billion this year. it could go up to 200 billion the following year. that would be the largest since world war ii. the deepest recession in australia since the great depression. . lot of big announcements the key was the job keeper and job seeker programs, the side of

the weight subsidy and unemployment benefits. both those programs have been pushed out until march. that was welcomed by both the market and the rba. the really bad news we are expecting is huge hits to revenue. company taxes set to shrink by 13 billion. business investment forecast have been downgraded by more than 12%. -- personalle income tax. this is caused by the unappointed rate, 7.4% and likely to go higher before the year is out. it's not all dire. consumption appears to be holding up. mining investment is up as well. expectations management from the treasurer and government. we are expecting pretty ugly numbers. there will be a lot of interest in the forecast as to how long this will drag on for. shery: how serious is the virus

resurgence becoming now? paul: it's very bad as well. we have 500 cases nationally reported on wednesday here. 484 of those were from victoria. we've already got local media reporting that today's case numbers out of victoria are likely to be pretty bad as well. at the same time, the treasurer will beginning his budget update. we will hear from the victoria premier about the case numbers down there today. new south wales also recorded 60 new cases. that doesn't sound like a lot. you have to remember, this is the point melbourne was at a month ago. there's concern that things could take off here as well. knock on effects are obviously being closely watched. analysts are shaping up percentage points from the growth outlook. victoria accounts for a quarter of the country's gdp. there's fresh concerns about what happens with seasonal

workers, what will the impact be on crop picking? queens land through open its borders to tourists from other states. it's considering re-closing them and declaring sydney a hotspot. that would mean the end for tourism revenue for queensland. a lot of moving parts hinging on these fires numbers which are very closely with -- closely watched every day. there inul allen sydney. more perspective on the outlook for australia's economy ahead. the former prime minister joins us. we will speak with the finance minister. coming up, ubs head of china's equities is also joining us on the risks to china's equity rally. that's it from daybreak asia. our coverage continues as we look ahead to the start of trade in hong kong, shanghai, and shenzhen. the china open is next. bloomberg. -- this is bloomberg. ♪

♪ >> is 9:00 a.m. in beijing and shanghai. welcome to "bloomberg markets "the china open." i am tom mackenzie. >> we are counting down to the open of trade here in mainland story, beijing promising retaliation for the houston consulate closure. president trump says he may shut