tom: good morning from bloomberg's european headquarters in london. i'm tom mackenzie. this is "bloomberg: daybreak europe." japan is set for a new leader. the prime minister plans to resign after just one year in the job. the nikkei jumped. opportunities in china are too big to miss despite the

crackdown, we will bring you our exclusive conversation. it is jobs day, another banner report could push the fed closer to tapering. the dollar is mixed after another record on wall street. the fed and jobs are in focus, but the political story of the hour is this news that the prime minister of japan will be resigning. he will not be running come september and not in the general elections later this year. the reaction on japanese equities, a leg higher, the belief that the unpopularity of mr. suga and any placement could prove positive. fiscal support is something we will dig into shortly. let's check in on the markets broadly. mse i asia-pacific is up after a

positive close. -- msci asia-pacific is up after a positive close. the nikkei up 2%. the yen is at 1.10. a broadly negative weaker data playing out, president xi jinping outline plans for the stock exchange in beijing. futures in the u.s. are positive. the political story front and center out of asia, japanese prime minister suga has said he will not run in the election this month. he will effectively resign his prime minister at the end of his term, setting off a succession race. steve, your reaction to the news flow out of japan? steve: my reaction is this is like groundhog year.

it was a year ago were we went through this with shinzo abe. that shocked the markets and the world stepping down because of health issues. all the political bigwigs were jockeying for position because of that surprise announcement. suga came out from behind the back door, the right-hand man, caned out tar -- came out of came out of nowhere and took that leadership role as a continuity candidate. a year later and japan is in the throes of the delta variant and the covid problem. 70% of japanese public thinks the government has failed them on covid. suga, in that brief press conference in the last hour, essentially said he cannot do

both. he cannot handle the covid crisis and run the country. he is going to step down. he will focus on covid issues going forward and serve out his term. he will hand over the heavy lifting to someone else. the jockeying begins now. tom: who are the lead contenders? and what are the prospects of fiscal spending in tokyo? steve: that will probably be needed, and you will have candidates who are looking to the leadership election later this month. he had a press conference yesterday, and he usually is soft-spoken, but he was fiery, saying we need to spend trillions of yen in pandemic response. we must do many things that the

suga government has not done. he has his own faction with 47 others. he was the chief rival to whomever might be the suga replacement. the continuity replacement could be taro kono. also a foreign foreign and astir and an official candidate along with suga was blasted by the finance minister last year as being a good leader for peacetime, but not in troubled times. we are in troubled times in japan. we will see how this plays out. we have not heard from taro aso or shinzo abe. they will likely be the powerbrokers controlling the levers of whom they will back as the successor to suga.

tom: i want to tap into your expertise across the region, and get your view on the implications for the broader region, notably japan's relationship with china. but other relationships in the region, the implications of this change. steve: geopolitically, it is important, but right now it is covid and domestic issues that will sway the election. if you look at these candidate, they have different opinions. potential candidates, i might say. you have ishiba, the former defense minister and defense agency head. he is quite the hawk, and considered a military geek. also taro kono, he has called

for greater relations between japan and south korea as allies to counter the bigger geopolitical threat and superpower battle in china and the united states. it will be interesting to see who rises up geopolitically, but that will not win the premiership. that will be won by who has the best support of the leaders in the faction, who has the best covid response, and who can rally the party. tom: stephen engle breaking down the implications of that political change coming in japan. let's get the first word news. angel: in the u.s. senator manchin potentially derailing the $3.5 trillion spending

package. he is a key vote in an evenly divided senate, says rising inflation and national debt make a smaller approach necessary. the faa has grounded virgin galactic's space plane after a deviation threatened public safety. it went outside the area it was cleared for during its descent. the shares are down nearly 3% at the close in new york. three doses of a covid vaccine may become the standard according to the white house chief medical advisor, anthony found cheap. he -- anthony fauci. he said more data will be presented to the fda. 40 people are confirmed dead in the united states after the remnants of hurricane ida.

record rainfall caused catastrophic flooding. it left transport services paralyzed. in new jersey and maryland, the storm triggered tornadoes. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: coming up, we discussed the latest on china's regulatory crackdown, targeting the entertainment industry. we discussed the impact on the chinese economy. this is bloomberg. ♪

tom: welcome back. this is "bloomberg: daybreak europe." now to a bloomberg exclusive,

hsbc is committed to never getting the increasing complexities of operating in china. in his first broadcast interview since being named hsbc ceo, noah quinn said the bank is expanding hiring in the region. >> we have been around 156 years. we have faced political tensions in the history. if you want to be an international bank, serving the world, serving 60 markets at times, it can be difficult. i will not deny that. our clients tell us, whether they are consumers who want to invest elsewhere in the world, or businesses wanting to trade with the world. the demand we have seen even in a crisis like the one we have faced, the demand of our customers to serve them globally still exists. >> are authorities asking you to

choose between one or the other? >> no. we have to comply with the laws and regulations. that is a complex task. i will not pretend it is easy. francine: when we hear china say they want a fair society, what does that mean for wealth creation, and for your pivot and focus on china? >> let me talk about wealth creation from a china concept. think about the number of cities in china with over one million population. it is around the 75 to 90 mark. many of those cities have gone through reorganization and the past 15 years. we are starting to see those cities turning to strong consumption markets. developed consumption appetite, when they get gdp in the double

digits, $12,000 per head, that is when they think about wealth products. insurance. wealth management. investment products. that is where the huge opportunity is. urbanization has not finished. there is more to come. we are on a long transformation in china where the creation of wealth, not super wealth, it is wealth for the middle class. it is wealth for the urbanization taking place. that is why everyone is interested in china as an opportunity for wealth. do not think about wealth and china as the super rich, it is also wealth for everybody, and it can be as simple as an insurance policy. francine: with the crackdowns, you do not think that will vary you off?

>> it is an important market opportunity, an important market to serve, and it will not change our plans. francine: what does it mean for the financial sector? >> we have been around 156 years, one of the jobs is to comply with complex laws, sanctions, wherever they are implemented. that complexity has increased. we will navigate that as we have so far, and continue to do so going forward. you have to stay close. it is a complex situation. tom: that was noel quinn, ceo. subscribers can watch the full bloomberg "front row" interview on the terminal.

china will ban film stars with incorrect politics, and cap salaries to rein in celebrity fan culture. it is the latest crackdown by xi jinping, targeting tech companies and the property industry. in a separate speech he vowed to set up a new stock exchange in beijing to provide financing to support innovative smaller businesses and the economy. joining us now is eleanor taylor jolidon, co-head swiss & global equity pm, unnion bancaire privee. thank you for joining us. there were multiple different crosswinds through the chinese economy and the equity space, whether it is support by the pboc or this announcement of xi jinping for this stock exchange in beijing. the economic data shows fragility. and that record tory crackdown. how is that feeding into your

view of chinese equities? eleanor: we tend not to invest in a geography as much as individual companies. we have been seeing more opportunities in the small mid-cap chinese companies at the moment because they are less under the radar. less faced by regulation at the moment. those activities are more attractive to the regulators, the government at the moment in terms of how they serve equality for everybody in china. we invest on a stockpicking basis, and the regulatory parts of china keep us further away from china. tom: i do not expect you to name individual stocks, but give us a sense of the sect or's you are looking at in china -- sectors

you are looking at in china? eleanor: one of the success stories we are not invested in but will be more important to us is the health care sector, and notably the way in which china has successfully improved the regulatory framework when it comes to health care. they are faster in terms of regulating drug. they have interesting research and development in china and strong capabilities of custom manufacturing. chinese companies are becoming valid competitors to their western counterparts, and more investable. tom: how important is the stability of the yuan. ? is that a support for you and other investors as you look to those opportunities in china?

eleanor: it is more of a question why would a currency be unstable. we would be cautious investing in a country where we felt the economy could have a negative effect on the macroeconomic backdrop. we come back to the regulatory framework in china. at a time when we think other macroeconomic moves, we take that into consideration. tom: we want to get your views on the u.s. shortly, but on japan and the political headwinds, there is a view from investors that with suga stepping down you may get a stronger fiscal response. is there anything in japan of interest at this point? eleanor: the problem with japan is the metric, we look at return

on investment, and japan has not been able to generate above the cost of capital for most of its recent history. a fiscal stimulus, if it comes through, how would that lead companies would be less considerate and respectful of the cost basis and the way in which they can improve product but he. it could have -- can improve productivity. interventions are often not activity for long-term investors. tom: the opportunities around mid-caps in china, we will break down the views around the job space later today. eleanor taylor jolidon stays

with us. coming up, we will discuss what to expect from that all-important august jobs report. this is bloomberg. ♪

tom: this is "bloomberg: daybreak europe." i'm tom mackenzie. yesterday u.s. jobless claims fell to a fresh pandemic low. later today we will be watching for the august jobs report which is forecast to show 725,000 new jobs added. still with us is eleanor taylor jolidon, co-head swiss & global equity pm, unnion bancaire privee. your views on the nonfarm

payrolls coming up? the markets have been rallying into this number that will be informative as to the timing and nature of the fed taper. is there a sense there is complacency in the markets? eleanor: i think what the markets are reflecting are extremely good earnings numbers we saw in the first half result. when you look at a very important metric for the fed for tapering and a further out interest rate hike, if you have too good of a number, that could have the opposite effect on the markets, because they would consider the potential risk of an earlier tapering. central banks over the various economic surprises we have seen in the last decade have become

much wiser in the way they communicate with the markets in terms of preparing for what activities they may have, and what timescale. clearly, labor is an important metric for mr. powell and his colleagues. jackson hole did not change any views. tapering is still a little way out. very strong numbers might boost the markets a little bit, but i would argue probably the continuing relatively high levels of infections in the u.s. mean it will be a balanced approach, whatever number comes out. tom: there is focus on wage growth and whether that starts to pressure margins. how closely focused are you on

the wage component, and which areas in the equity space could be vulnerable to a sharp move? eleanor: we see some wage increases coming through. when you consider how little wage increase their has been for a long time, it is very much an area you would expect that to be. there are clear shortages of qualified personnel. on the other hand you are seeing preparedness of company to deal with shortages as opposed to thinking the only way they can solve the problem is to accept higher links to wages. we continue to see shortages more so in europe than the u.s., which probably is linked to less willingness to increase wages

across-the-board. labor today has very little power. labor's power is linked to whether or not there is a shortage in a given area. it will have less of an effect than one would expect on inflationary pressure. tom: do you have a view on cyclicals versus big tech? eleanor: we have seen the recovery of companies, tech companies in the second quarter of this year. we might see a short period where more value as opposed to the value created jobs come back to the fore. you find less quality cyclical stocks. there will be good value created . tom: we appreciate it.

thank you very much. plenty more ahead. stay with us. is bloomberg. ♪ (announcer) back pain hurts, and it's frustrating. you can spend thousands on drugs, doctors, devices, and mattresses, and still not get relief. now there's aerotrainer by golo, the ergonomically correct exercise breakthrough that cradles your body so you can stretch and strengthen your core, relieve back pain, and tone your entire body. since i've been using the aerotrainer, my back pain is gone. when you're stretching your lower back on there, there is no better feeling. (announcer) do pelvic tilts for perfect abs and to strengthen your back. do planks for maximum core and total body conditioning. (woman) aerotrainer makes me want to work out. look at me, it works 100%. (announcer) think it'll break on you? think again! even a jeep can't burst it.

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bloomberg's european headquarters in london. i'm tom mackenzie. this is "bloomberg: daybreak europe." japan is set for a new leader. prime minister suga plans to resign after one year on the job. the nikkei jumps. opportunities in china are too big to miss despite the crackdown, according to hsbc. we will bring you more on our

conversation with noel quinn. another banner report could push the fed closer to tapering. the dollar is mixed after another record on wall street. the big little story of the hour, of the day, is the resignation of japan's prime minister. the move japanese equities, a sharp leg higher. the nikkei is seeing gains of close to 2%. across the asian region we are seeing up ms. him. the view from some investors is that the unpopularity of suga removes some concern. there is also a debate if you will get a stronger fiscal response depending on who takes over from suga. that is the story out of japan. in china, a little uncertainty after services data. president xi jinping announcing

plans of a new stock exchange out of beijing. the yen is softer on the back of a slightly stronger dollar. let's focus on the geopolitical stories beyond japan. we are tracking what is happening in germany. we are three weeks from a historic election, and the three democrats are emerging as a possible kingmaker in any coalition. >> for us, it is the content that will be decided. there is nothing automatic. join one coalition model or another. there will have to be an attractive offer. tom: the german social democrats

currently at 25%. merkel's bloc, 22%. less crossover to maria tadeo, the expert in all things in german politics now. give us an update. maria: going back to that interview we played, interesting that they have projected the idea that they will decide who is in government. he was interviewing for an hour and was specific they are not shutting down any options. one could be the traffic lights coalition with the spd and the greens. he said tax hikes is a no vote. when it comes to the debt, he said we needs to invest in this country but we should not take

on major debt. one of the things this says is the coalition talks after the election will be incredibly complicated. there are many options on the table but is issue is that do not go together. we have three parties joining together makes it incredibly complicated. going back to the paul lang with the -- going back to the polling, that is a horrible result for angela merkel and armin laschet. this could go both ways. a center-right and centerleft government, and i wonder how much has fed into the markets and the perceptions going into the election. tom: a terrible number for angela merkel, and the potential messiness of negotiations after the vote.

now to the u.s. were democrat joe manchin is demanding a pause on president biden's economic agenda that could endanger the white house's $3.5 billion spending plan. how significant is joe manchin's threat? >> he is a power maker because it is a 50/50 split in the senate. democrats cannot afford any defections. it is not a surprise that joe manchin would do something like this, saying the price tag is too high. i do not think this comes as a surprise. we have thought there would be a lot of negotiations to go on between the liberal faction of the party, the moderate

conservative faction, and that is what we are seeing now. tom: thank you very much. let's switch focus to china. president xi jinping has said china will set up a new stock exchange in beijing to provide financing for innovative smaller companies. what do we know about this proposal? >> we have scant details so far, but it is marked to change the national equities exchange in hong kong -- sorry, beijing. a lot of these stocks will be transferred to the new exchange. we will see what the new rules are, but it is designed to add

more financing for china's small enterprises, which has been a challenge, and also to reduce the debt load. a lot of these companies are financed right now. this is a play to try to solve those issues. tom: let's get the first word news. angel: japanese prime minister suga plans to resign after one year on the job, setting up a race to succeed him. his approval rating has plummeted. he plans on focusing on tackling the covid situation. >> huge energy was required to tackle the covid crisis, and i do not think i can handle running for election and managing the covid situation. i want to concentrate on covid

to protect the japanese people. angel: 40 people confirmed dead and the northeastern united states after the destructive blow delivered by the remnants of hurricane ida. in new york catastrophic flooding, and people stranded as a state of emergency was declared. in new jersey and maryland the storm triggered tornadoes. hsbc ceo says the growth of china's middle-class is an opportunity too big to miss, even as beijing cracked down the country's wealthiest people. the bank is piling billions into china, and plans to add 3000 wealth managers over the next four years. >> i cannot predict the future. has the world become more

complex? certainly. that is when we step up and help clients navigate that complexity. i will not pretend it is easy, but it is rewarding. angel: global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. tom: let's check back in on the japanese markets, gains of more than 2%. breaking 29,000 on the nikkei. the topics also up. this is bloomberg. ♪

>> when i think about crypto's, whatever the form, i look for two dimensions. firstly, transparency. secondly, convertibility or volatility. let me deal with transparency first. particularly with respect to cryptos, it is important to understand who the counterparties are. are those counterparties transparent to each other? are they transparent to the intermediaries like banks and regulators? in the world of high expectation on money laundering controls and sanctions control, a lack of transparency can get you into trouble fast. second dimension, convertibility or volatility. i look at that from the point of view, if somebody wants to hold crypto what is that

cryptocurrency worth? is that client suitable for that level of volatility? if i am lending money to a corporate, and their balance sheet is denominated in u.s. dollars, the sales ledger, receivables, cash balances, i am able to form a reasonable assessment on the value of those assets. if those assets are denominated in a cryptocurrency that can fluctuate 10%-20% in a day or a week, and i have to make a lending decision, due way than money to that company, how do i valley that -- how do i value that balance sheet? there were certain cryptocurrencies high on

transparency and convertibility, and central banks digital currency score high on that. and there are other cryptocurrencies that do not. i will not name any of them, but i'm looking at it from a theoretical point of view. there are certain clients who can cope with volatility, and others that i would have an issue if i encourage them into volatility. i look cryptocurrencies and say it is happening, so i cannot deny it. equally i have to assess the risk and the proposition two different types of clients, so i am more cautious at this point in time because i have those that are critical. francine: do clients want them? >> of course, they do. not all clients. at the end of the day, as a

financial institution, you cannot chase every piece of business going if you do not think it is the right business. just because a market is evolving, you have to make judgment calls on which business you go for in which you may not. tom: that was noel quinn, hsbc ceo, speakinrancine lacqua. you can watch the full interview on the terminal. let's focus on the semiconductor situation. qualcomm has reported record revenue in the third quarter, and in an up beat forecast. the ceo warns the supply of semiconductors is still constrained. so much focus on the semiconductor supply issues. what is the latest? >> some stellar results, but

that chip shortage continues and seems to be getting worse. this is the difference between when you order the chip and when you get the delivery. that is surging past 20 weeks according to latest research, a lot higher than 6-9 weeks. this could extend further into 2022. this will hit industries. they are forecasting there could be $100 million lost in automobile sales. big companies like apple unable to meet demand for their products. tom: what is happening with mna? -- m&a? >> i want to focus on the u.k. market. they were a leader with chip innovation in europe, but we are seeing them bought by foreign

players. you have firms sold to a chinese manufacturing firm. and semiconductors sold to a japanese company. u.k. selling about $42 billion worth of its chip industry. we will talk about this and a lot more will me have the ceo at 9:00 a.m. tom: they are prepared to sacrifice sales to avoid a future crash. what are the details of that decision? >> this is how they are trying to control all the demand coming in. the idea to sacrifice current sales to avoid a future glut. they will deliberately be suppressing earnings. they are tightly managing orders

, and this is focusing on supply discipline according to the ceo. tom: coming up, and exclusive interview, talking about the chip space. we will talk about the ongoing chip shortage. and we will have more from our exclusive interview with hsbc ceo, noel quinn speaking about hybrid work models and the return to office. this is bloomberg. ♪

tom: welcome back. this is "bloomberg: daybreak europe." hsbc ceo noel quinn says the bank is adopting a hybrid working model, and they have done a fantastic job working from home for the last 18 months.

the lender is balancing business and staff needs. his first broadcast interview since becoming ceo, he spoke to francine lacqua on bloomberg's "front row." noel: it would be a waste if we did not learn from the last 18 months. if i think about the future, do i want the future to be the way it was pre-covid? let me explain that in more detail. of 200,000 of my colleagues, 90% worked from home. not everyone could because they have to work in branches or trading floors. a lot from home. i trusted them last year to run the bank globally in 60 countries, and they did a fantastic job. will not turn around now when

covid is over and say i no longer trust you to work from home. francine: i feel every day we have a story about a bank paid 110,000, 120,000 -- noel: there is a market in investment, not just junior levels, at all levels. they go through phases. francine: do you have to increase prices? noel: we always have to adjust. we want to make sure we are competitive. we monitor the market pay levels closely. francine: will you and your executives travel less post-pandemic? noel: yes, undoubtedly. it is part of the learning

curve. it would be a shame if we go back to flying around the world for one-day trips. my expectation is i will do fewer longer trips. my expectation is that will translate probably into a reduction of our travel budget around 50%. tom: that was noel quinn, ceo of hsbc. subscribers can watch the full "front row" interview at bloomberg.com. francine joins me now. there was a lot that came out of this interview. let's start with work from home. he was nuanced on what he will tell his staff. we have had dogmatism from other executives. the impact on travel was fascinating. francine: it had a relaxed

feeling. he was humble in the one hour interview. when i asked about travel, i have not heard anyone say, i have trusted my staff. why would i force them to go back to the office? we have been getting a lot of feedback. it is a different twist on how he sees that relationship with employees. he kept coming back to the clients. we talked about china, but he kept saying we are coming here to service clients and to retain talent. when you look at his cost reduction program, he had to reduce, he closed down operations in the u.s. and france. he says travel helps me because i can pay 50% less if we change things around and keep people in the office. i think that would help him with the balance sheet.

tom: reallocating resources. hsbc is shifting a lot of focus to asia and hong kong, and it is a difficult balancing act. and he faces pressures in beijing. francine: we spoke 25 minutes about china. he said it is complex. but we are here to service the client. he said because the institution is 156 years old, it is used to bridging all this divergence in terms of policy. the thing that struck me, in the last couple weeks we have heard about crackdown after crackdown in china, celebrities, tech giants. i asked him if it changed his policy at the margin ongoing big on wealth in asia. he said they are targeting the middle class. if you look at the trajectory of

china, his strategy is going after the middle class which will grow by 30% quickly. tom: that is an important difference between the socgen of the world. there is a lot more to go through. his clients are keen on this. francine lacqua with that exclusive interview with the ceo of hsbc. the markets are broadly positive. futures in the u.s. are up. the nikkei is up more than 2%. topix is at a 30 year high. that is it for "bloomberg: daybreak europe." the european open is up next. the markets are positive. this is bloomberg.

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♪ anna: good morning. welcome to bloomberg markets, the european open. i'm anna edwards live in london. mark cudmore joins me in singapore. the cash trade is less than an hour away. here are your headlights. japan's separate new leader. from minister yoshihide suga plans to resign after just a year in the job. hsbc ceo says opportunities in china are too big to miss