paul: you are watching daybreak

asia from new york. shery: we are counting down to the major market open. asian stock and bond investors brace for a rough start to the week after a record high u.s. inflation which caused a fed to increase monetary tightening. jay powell faces a tough choice and may have to push the u.s. economy into recession to regain control of prices. china issues what are the strongest warnings hit on taiwan as beijing stand on the taiwan strait worries washington. we look ahead to the open in japan and maria, new zealand

training, but of fed asking for the fed to add. japan futures are up 3.5%. this is a banking group in japan saying we could reach the ahead of the week. looking at the bonds market as well, we see the treasuries, particularly in the shorter duration, pulling out this morning. the q. week 10-year above 4 -- the kiwi 10 year above 10%. shery: that two year treasury yield popping through through percent level. we have the five year yield, the highest since 2008. burning and signaling that the economic soft landing may not be possible. we see the pressures futures in

the asian trading session after the s&p 500 saw the second worst week this year. we had data showing the consumer sentiment fell to a record low earlier this month. we watch oil prices as well, given the inflationary pressures we have seen already, seven weeks of gains. given the engine a session we are seeing the translate as a into an oil prices selloff. paul: let us get some more analysis. mark, what is asia's biggest take away? >> the two year yield is a big wake-up call for the whole of asia. around the region, that is a real shocker. short-term yields are at the highest for a long time, it

seems like prices would suggest that asian central banks have gotten a lot more work to do for themselves. they are increasing interest rates and a a lot of pressure on the federal reserve, powell saying that 75 basis points has to become a discussion point. even at the meeting, they have to think about as a possibility that 50 basis point hikes is not enough, they need to get more aggressive. that is what the yield curve is telling you. the 210 year has gone inverted. paul: it slowed it. kathleen, what are we expecting? >> we are expecting to affect underscore it will do everything it takes to bring down inflation. the big question hanging over markets is are you doing enough? what are you going to do to show us you are the relief?

food, energy, shelter, even used car prices jumped back up. we heard from larry summers, bill dudley, months ago saying that they fed was risking falling behind the curve and having to tighten more to bring down inflation if they did not get going. we have heard from someone on the dovish side, saying the same thing. we are we showing you this chart about the consumer sentiment? this tells us how important it is it is to bring down inflation. consumer sentiment fell to a record low in may. it is the worst, suppressing the financial crisis. inflation expectations are at the highest since the latest financial crisis. even though it shows pressure on the economy, consumers getting more worried, that may increase inflation risk as well. you have to do something about

it. a federal reserve board economist, he says the fed is already signaling a 50 basis point rate hike. the same thing in july. he does not think that they will bring a 50 basis point hike on wednesday, they may start talking about it. jerome powell will be asked about the in the press conference. the balance sheet for an office starting and it will get more aggressive, the fed considers that a certain amount of tightening. the federal reserve board governor is a hawk, at a conference in may he said that our impact since 2021 when we started singling to get more aggressive already pushed up a two year note yield by a good margin. look what happened on friday. the fit is considering something that will help fight inflation. we hope to see what happens there.

it will get revised from march. will we see more rate hikes and bigger hikes reflected in those for june? that is another big question. paul: we have to talk about the yen. it is falling. was this week the week? are we taking out the low? >> there is a good chance we will see that happening this week. this is coming out on the japanese authorities suggesting that they are not taking this as an urgent situation. they are not ready to defend the yen just yet. that is the kind of zone where the japanese authorities get more aggressive and we will see them intervene with stronger language. possibly, the bank of japan changing the yield curve situation. we are meeting this week, it is a bit early for any changes in policy. if the yen is above 135, that

could get them to speak about the yield curve control policy is getting outdated. 0.25% for a 10 year yield does not make a lot of sense. they may hit they are ready to shoot their yield curve to a higher trajectory and that would be -- a shift their yield curve to a higher trajectory and that would be making sense. we are not quite ready for it yet. the chance is that two years are up 3%. the yen going higher are pretty strong this week. -- the chance of the yen getting higher is pretty strong this week. shery: taiwan took center stage in weekend talks. beijing says it would fly to the end of taiwan made a move towards independence while the u.s. accused beijing of trying

to unilaterally change the status quo over the island. steve, a pretty tough message coming from beijing? >> taiwan was one of the main regional flashpoints that came up in many discussions. the shangri-la dialogue held in person for the first time since the pandemic allowed the united and china to pitch their competing visions for stability in the region. the taiwan issue is a divisive issue between china and the united states. it is an geopolitical tug-of-war. it is a decision that many asian nations do not want to have to make as far as support. that was something that came through as well. u.s. messaging with the defense secretary who is meeting with his counterpart on friday.

they had constructive military talks but the issue of taiwan is central. the u.s. has taken a different approach than the trump administration. lloyd austin is saying that asian nations are free to choose and chart their own path. both china and the united states following that meeting on friday had competing speeches, essentially the united states and lloyd austin did attempt to seize on the shock of russia's invasion of ukraine. china said that the united states is the destabilizing force in the western pacific as well as in eastern europe. it is a he said she said kind of thing. i want is the flash point the potential flashpoint. the united states, sources are telling us that united states is hearing behind the scenes from top-level chinese officials that

the taiwan strait is increasingly becoming a no go for u.s. naval vessels. it is not necessarily international waters. it has been beijing's assertion that the taiwan strait as part of china's exclusive economic zone. we are hearing from military sources that it is rarely brought up in military talks as a a main talking point. the taiwan strait is increasingly being called on as a no go zone for the united states by beijing authorities. it is alarming defense officials. paul: let us get to vonnie quinn. >> after the shangri-la dialogue's, richard says that they need to prioritize the pacific island nations as competition with the china grows. chinese counterparts ways on singapore, ending the two year

diplomatic freeze. continuing to divorce the one china policy. >> let me be clear that the policy in respect to taiwan and china has not changed. we have a one china policy. we do not support taiwanese independence. we do not support any unilateral action on either side of taiwan's strait which would change the status quo. >> china's behavior is concerning, they highlighted what they termed beijing as an appropriate test. beijing fighter jets are buzzing canadian fighter planes. >> we are concerned with the level of chinese military activity in the region. it is building the relationship

with the taiwan is important, continuing to ensure the peace and stability of the region with like-minded partners is also important. >> u.s. senators have reached a new gun legislation safety package. red flagged laws, allowing courts to remove guns from particularly dangerous owners and more funding for mental health services and school safety. they must agree on details but the agreement is a significant breakthrough after years of little progress. the french majority is at risk, polls suggest his party is allied with individuals who may not secure at the majority in the national assembly. whoever gets the highest, second-highest number of seats. could force him to compromise on his ambitious reform agenda. the second round of voting happens on june 19.

global news 24 hours a day, on-air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. shery: as japan actually reopens, we speak about shift in the business strategy during the pandemic. a preview on another massive week ahead on the economic front, followed by a big fed decision.

>> has a inflation herbals through the economy and reeks --

the inflation ripples through the economy and wreaks havoc. >> secure and at a much higher level. >> clarity from the fed is needed. >> more to do it the coming weeks and months. >> significantly higher. >> between 50 and 75 basis points. >> can the fed pause in september? >> i do not think anybody thinks we are going to get out of this without interest rates being higher than they are right now. paul: some of our guests reacting to the u.s. inflation print. some of the most influential central banks have to acknowledge the current pressures. let us take a look at the major event in the week ahead. jerome powell facing more hawkish and is after the cpi data.

the bank of england follows on thursday with a 25 basis point hike expected. in japan, the policy under scrutiny as the yen tumbles against the dollar. data from china likely to show activity picking up after a of april. virus fears only going after a spike in cases over the weekend -- increasing after a spike in cases over the weekend. thank you for joining us, i want to start in china. we have locked down fears persisting. another locked in beijing at the moment. retail sales contract again, what will help the chinese consumer against this backdrop? >> the entire outlook is an outlook which is wholly dependent on how covid goes. if you have a strong view on

that, you have a clear idea of where the chinese economy is going to go. we are thinking that we are going to see renewed lockdowns. renewed outbreaks. continued series of negative shocks coming through as if that happens. lockdowns can work to a point. there are benefits that are temporary. it does not mean you will have another outbreak or lockdown. the chinese news flow and what happens after that. if nothing else changes, i think that remains. paul: the divergence in lockdown policy between the tine out of the west at monetary policy as well, another cut to the medium term facility this week. is china going to revise the growth target at some point? >> these growth targets are

aspirational. it does not matter that much if you miss them. there will be policymakers within china who would take a different view on this. the nature of the it -- the nature of it gains some force. you can hit any target. is it the right thing to do? does it bring any sort of social benefit to the economy rather than the accountancy work to make sure the i've hit a numerical target. i am not that worried about the target. i think we should have to sit down and see that they are important. shery: we could see the capitulation at the bank of japan when it comes to their yield curve control. considering the weakness of the yen! ? >> it is one of the better

performing currencies on friday. it is a slight risk safe haven. amongst the detent on the -- g10 , it is the worst-performing currency. we see appetite continuing to slump. it does get a bit of benefit from that. it doesn't look that that the policy is off from the rest of the world, theyen comes under a new selling pressure. i think it is a question of when and not if. the yield curve control widening the band and we considering. just to get it less out of kilter and in line with reality. shery: when do you expect them to intervene given that they continue to warn about this weakness but we are seeing about wrist bite when it comes to the currency?

-- respite when it comes to the currency? >> typically what you would expect to happen is that there would be an agreement and the g20 levels. most of the g20 would say to japan, it is a policy that is the problem, under currency. your policy does not make a huge amount of sense at the moment. as underlying cause which is a 0% target. you are going to return to this problem sooner or later. rather than let that happen and throw some money around. paul: we are keeping an eye on sri lanka's gdp, contracting 5.7%. to anticipate anticipate much in terms of policy to prevent an economic catastrophe there? >> are we not already there?

we need assistance, we need some supranational bodies to come in and provide support. think about the sri lankan outlook does the fairly perilous from an economic perspective. shery: good to have you with us. head of asia-pacific research with his new so what do expect this week. -- on what to expect this week. it a today's edition of -- in today's edition of daybreak, you can see it in tv . this is bloomberg. ♪

paul: we are cracking the fallout of the global supply chain crunch. nuclear energy institute says it

supports giving up russian supplies of rhenium -- of uranium. this comes as the biden administration on a plate slapping a sanctions on uranium and enriched uranium. the covid-19 outbreak is proving more difficult to control than previously -- previous clusters. china's lockdown altered global supply chains and invited global giants from sony to tesla. -- impacted global giants from sony to tesla. air-conditioners coming across his second-most popular state, surpassing records since august 2019. shery: we are seeing some downside pressure for oil prices , given the risk off sentiment we are sitting across the board in the asian session.

this is after seven weeks of gains. a high supply market, sustaining the bullish fundamentals there. given the outage that is going, gasoline topping the five dollars per gallon in the as for the first time. we continue to see high demand. look at our newsletter, supply lines. here is a quick check of the business flash headlines. injection should ease as new container vessels are delivered. i enough to restore global supply chain close to pre-covid levels from the virus restrictions. slowing the movement of goods and pushing container shipping rates to record highs. a spin off of the asian market could have a market value, the

commission was made by an insurance company could be the biggest shareholder. i guess at the idea of suiting up, it has begun their own analysis to push back against arguments. shares are said to be trading on the over the counter market in the u.s.. two weeks ago shareholders voted to to delist the company from the exchange for $4 billion last year. shares have fallen around 80% since the debut, erasing more than $50 billion in market value. we have plenty more to come on daybreak asia, stay with us. this is bloomberg. ♪ another crazy day? of course—you're a cio in 2022.

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>> commodities are very likely to remain supportive because demand is still strong. combined exports of crude oil -- 10.5 million barrel per day range. that will make the u.s. the largest liquids provider in the world. bigger than russia, bigger than saudi arabia. >> the longer end of the curve is where the opportunity is. >> oil at 120. it doesn't seem that expensive. >> we had everything related to food, corn and wheat. >> it is in short supply. >> we are planning for continued inflation for the foreseeable future. >> the supply and demand

imbalances that were already in place before the war began, especially in energy will really push up bass levels and energy together. >> we expect industrial metals to eventually have a bounceback towards the latter half of 2022 as well given the fact that now we see the rebound in china. >> we don't think it is going to be the best. >> the pressure is going to continue. >> we are not at the peak yet. >> some of our guests showing their views on the outlook for commodities. let's take a deeper look into the results and one of the key takeaways from that is most respondents -- prices rising higher by the end of the year. we take a look at which of the commodities they are expecting

to see with the biggest gains and wheat is topping the list. that will contribute most to the rally. the war in ukraine putting pressure on all of the supplies here and that does not really bode well for food inflation heading into the year-end as well. oil is a little bit weaker. covid lockdowns resuming in china. more mass testing. we have seen a gain for the past seven weeks. commodity linked currency. this is the aussie dollar, one of the ones we are watching against the yen, that are saying some strategist, including credit agricole, saying we could reach ¥100 for the first time since 2014, around a seven-year high. a little bit further as we see more rba hikes moving ahead, a dovish boj in turn, and hopes for a recovery from china. >> let's get over to vonnie

quinn for a check of the first word headlines. vonnie: china issued one of its strongest warnings yet over the risk of war over taiwan. speaking in singapore, the defense minister repeatedly -- formal split by taipei. bloomberg has learned the chinese military officials are disputing washington's stance, telling u.s. counterparts that it is not international borders. a covid-19 outbreak linked to a popular virus will be more difficult to control. the weekend saw mass testing and rising infections. authorities have delayed the reopening of most schools in the capital. outbreaks have reemerged. hong kong on sunday reported more than 800 new covid cases for the second straight day. authorities warned that numbers continue to rise. more than 230 infections have

been found in the city's central district. 16 a new cases were found to be the bs 2.12.1 variation. it looks to reset relations with france. the prime minister says he had cordial discussions with the french president and accepted an invitation to visit paris. ties between the two countries soured. sources told bloomberg that goldman sachs was facing an investigation into whether two of its mutual funds were in breach of the metrics. an earlier report from the wall street journal said it may focus on whether goldman's disclosure -- practices. the fcc and the bank -- s.e.c. and the bank both the client to comment. 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 vonnie quinn. this is bloomberg. -- i am vonnie quinn. this is bloomberg. shery: china's defense minister said china's behavior needs to be re-examined, calling its aggression worrying. fighter jets enforcing sanctions on north korea. anita spoke with us at the shangri-la dialogue in singapore. >> we have to step back and examine china's behavior writ large concerning behavior in diplomatic relations, concerning behavior in terms of intellectual property, in cyberspace as well as in actual airspace, in terms of coming close to our planes that are monitoring you intentions regarding north korea. these are all very worrisome and

concerning behaviors. >> president biden said that the u.s. will help to defend taiwan should china attack taiwan. would canada come to taiwan's defense? >> canada has a very strong relationship with taiwan in terms of trade, in terms of a large chinese diaspora in canada itself to canada will continue to build those relationships in the short-term and the long-term. >> would canada defend taiwan if it were -- anita: we remain committed to a one china policy. at the same time, we are concerned with the level of chinese military activity in the region. continue to build relationships with taiwan. it's important. continuing to ensure the stability in this region with

like-minded partners is also in per -- important. >> u.s. ambassador to canada has said canada has lived up to its defense pledges. anita: canada's commitment to our -- a 70% -- will see a 70% increase in defense spending over a nine-year period in 2017. in addition to that, in budget 2022, we committed $8 billion in spending. >> it is over five years and it is way short of a 2% gdp that nato has targeted. when will you get there? anita: we are on an upward trajectory for sure. the previous government allowed defense spending to dip below 1% and we will continue to ensure the canadian armed forces have the equipment and resources that

they need to defend our country and participate in our multilateral alliances. >> you touched on the ukraine war. it is pushing ukraine to make compromises with russia. is there fatigue and is it willing to go long in terms of the war as long as the ukrainians are willing to -- anita: canada stands shoulder to shoulder with ukraine in the short, medium, and long-term. we have a very close relationship with this country and we are deeply committed to its sovereignty. the broader international order and the principle of territorial integrity. >> anita not anant -- any to a nonspeaking in singapore. -- anita speaking in singapore.

tourists are hoping to visit and say there's a number of restrictions. trip.com gives us a heads up look in japan, ahead. this is bloomberg. ♪

>> it's time for japan ahead on

daybreak asia. let's take a look at how markets are shaping up to start the week after their dramatic close on wall street. nikkei futures are currently weaker to the tune of about .5% and we are keeping a close eye on the japanese yen now. just short of that level and that is significant because that is the weakest the japanese yen has been in the 21st-century. we are keeping an eye on jgb futures ahead of the open as well as the bank of japan meets this week. shery. shery: paul, japan allowing an unlimited number of foreign tourists to enter the country but japan's prime minister is under pressure to open further. -- resume individual tourist travel and eliminate a caps on daily international arrivals as well. that's bring in the japan general manager and online travel platform -- at online

travel platform tripp.com. give us an overview of what the travel situation is like in japan and if you have seen any object given the resumption of foreign tourists travel into the country? >> thank you for having me. we are seeing positive impacts on the data. -- compared to the same period of 2021 if you look at the outbound and the number of mobile users. it has increased nearly five times. all-time government policy is -- behavior. we are very glad, seeing that

data. shery: how much of that has to do with a weaker yen attracting more interest to travel to japan? >> the weaker yen is definitely an opportunity but i don't think -- it is not directly impacting the level of interest in japan travel. japan is the favored destination, especially for their neighboring country. it is natural that japan is opening the border and a lot of people are interested in coming to japan. there is not a single factor of it. paul: we hear a lot about tough travel restrictions faced in japan versus other destinations. hotels, airlines, other transport companies change the way they service customers during the pandemic?

hironori: yes. i think japanese domestic limitations on travel, in the peoples mind -- they are very cautious. it is going to impact them heavily. in 2020, governments spent nearly $2 billion and get $11 billion on customer spending. that industry is going to heavily ease limitations on japan and they are expecting to do that. paul: obviously, it's going to be sometime before things get back to normal.

what is your expectation for inbound demand this year in which nationalities, which destinations do you expect to perform best? hironori: by looking at data -- korea, thailand, philippines, vietnam, u.s., and vietnam already showing the strong recovery, particularly on the searching data. there is a neighboring country that is going to grow in this year and next year. shery: japan continues to slowly open up to all these travelers. what is the one change japan needs to see the most right now, most urgently for the country to succeed? hironori: we will be making the japanese people -- welcome the japanese side industry.

we need to open their mind and start welcoming guests. they are a little bit conservative about opening up. the government is fairly conservative about the opening by looking up the people -- the people's behavior. opening up the country. once you get used to it, the government needs to fully reopen and we are expecting for that to happen at the end of the year. paul: hironori katsuse, trip.com japan general manager pete you can get more from this interview on tv and that's -- general manager. you can get more from this interview on tv . tune in every week to hear from the leading names of japanese business on mondays at 8:40 a.m. tokyo time on the bloomberg --

on bloomberg television. let's get a quick check of the latest is this flash headlines. they will introduce the first electric car in the country in 2026. it also reports that ev's will account for 20% of south korea's automobile market by 2026 and up to 40% by 2030. renault will maintain its alliance with nissan to support the process and strengthen ties with china. sources say -- broadcast rights to cricket got nearly $6 billion on the first day. -- disney and sony are the leading contenders. they are battling for a five-year contract for one of the world's most popular sporting events. bidding resumes on monday. tencent bought a .72% stake in a walmart owned retailer last year.

264 million dollars. that is based on flipkart's latest evaluation. authorities notified -- this financial year. shery: we are now getting the latest members when it comes to shanghai, adding 37 local covid-19 cases for june 12. we are watching the covid case and infection numbers in china very closely as we have seen shanghai now lift virus restrictions but then briefly shutting down most of the city on saturday to undertake mass testing just after coming out of that two-month lockdown on june 1 so right now, we are seeing 37 local covid-19 cases for june 12 and we will get you the latest beijing numbers as they come through as well. in the meantime, be sure to tune

into bloomberg radio to hear more from the day's big newsmakers and get in-depth analysis from the team in hong kong. listen through the act, radio plus, -- the app, radio plus, or bloombergradio.com. plenty more ahead. ♪

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>> i think you have got to be very modest about what we know about the process and i fear that it is still going to get worse. shery: bloomberg contributor, mohamed el-erian there. markets open in a few minutes after that shock u.s. inflation number. for more on what to expect, let's bring in our asian stocks reporter. we are seeing downside pressure on u.s. futures as well. is there no other way than down for asia today? >> good morning. we are about to see losses across the region in asia. futures showed japan and hong kong are set to open lower. they all closed more than 1% lower and this hot u.s. inflation is likely to slow with the u.s. consumer spending. it could accelerate the foreign funds outflow in asia. we have seen some easing of

outflows of global investors from countries like south korea and taiwan and that was in part because inflation expectations were peaking and the local currencies in asia have stopped falling against the u.s. dollar and that has helped the msci asia-pacific index to rebound from its lowest points in may and for the past three weeks, it has been on the gains were last week, we have seen the msci asia-pacific index fall to the first week after three weeks of gains and we are about to see the drop may resume when it opens later today because the u.s. may cpi data shows the expectations that inflation expectation has peaked and may have to be dialed back. having said that, the asian stock benchmark has been outperforming s&p in the past month. paul: which regions and centers

in asia are the most vulnerable to high u.s. inflation? youkyung: it seems that there are very few places for investors to hide. however, -- the tech heavy markets such as taiwan and south korea could be a lot more vulnerable to inflation and treasury yields. we have seen more than 100 billion wiped out of the market value of tsmc and companies like samsung electronics have seen more than 90 billion wiped out in market value this year and there seems to be little reason for investors for now to go by them as we see -- buy them as we see rising bond yields. there is a possible exception in china as we have seen some strong gains in chinese markets this month. paul: stock supporter youkyung

lee. here are some of the stocks we will be watching when japan opens for trade a few minutes from now. they may consider spinning off the chip business which generates $3 billion in sales. lot of war ragnarok is planned to release this november. we are keeping an eye on chip stocks. macron will reportedly be making memory chips by the end of the year. shery. shery: take a look at futures trading because it is downside across the board. we are seeing u.s. futures accelerating those losses, down 1%. nasdaq 100 futures down 1.5%. the nasdaq 100 lost more than 3% in the new york session and we are already talking about the second worst week this year for the s&p 500, dumping almost as much, through percent, all to do with the hot cpi reading and

what that might mean for the trajectory of fed rate hikes. we have data showing the u.s. consumer sentiment dropped to a record low so investors really have not taken the latest numbers very well last week and we will see what asia says about all of this. we are already seeing crude prices also down after seven weeks of gains. we know that that supply picture is not great but this risk-off sentiment is really spreading to the energy markets and we have seen nikkei futures under pressure despite the fact that of course we are seeing more weakness on the japanese yen which usually has meant pretty good upside for equity markets, which the nikkei, not surprising, has already seen four weeks of gains. we have those markets coming up in tokyo and seoul. australia is a way on holiday. this is bloomberg. ♪

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>> this is "daybreak asia." we are counting down to asia's major market opens and the reaction from that hotter than expect the u.s. cpi number, setting us up for the fed decision this week and of course, plenty of data from asia as well. paul: that's right. we have data from china retail sales, unemployment numbers out of australia this weekend, central-bank meetings aplenty and the yield curve which is getting very close to inversion. annabelle, what are you watching. annabelle: a pretty rough start to the trading week. we are just about to have the opens in japan and south korea. australia is shut for a public holiday.

a lot of focus will be on treasuries. particularly the two-year and the 10 year yield. we did see a jump to a 14 year high. we are continuing to see yields rise higher. we have the nikkei coming online to the downside, 1.6%. the yen continuing to watch that and some strategists saying we could reach 130 five point 15 as strategists continue to digest that inflation reading ahead of the fed meeting. check in on korea. we are seeing at the start of trade here for their losses for the kospi such as the fifth straight day of losses. we are seeing those losses as well, particularly in inflation sensitive tech stocks and the korean won under pressure so we did also does have covid numbers out from china and we are getting the export numbers now and we are seeing them to climb nearly 13% in the first 10 days

of june. these are some of the headwinds facing us. we had shanghai adding 37 cases and beijing, more than 50 cases in the past hour. equities closed today for the public holiday and we are keeping a watch on currencies here, particularly the aussie dollar snapping a three-week rally against the greenback for the strength in the u.s. currency. the aussie yen in focus. some strategists say -- as we see more rba hikes and the continued recovery in china and checking on oil declining here, still, traders focusing on covid cases in china and the u.s. inflation. shery. shery: to recap those numbers, south korea's export numbers, for the first 10 days of the month, a follow 12.7%. when it comes to the import numbers, a gain of 17.5%, not

surprising given the higher energy prices and the weaker -- not helping. we are seeing a current account deficit for the first time in two years because the trade surplus has significantly -- getting tougher. this means it's rate hikes will get more aggressive. our global economics and policy editor, kathleen hays, is here with the latest. the potential of 75 basis points moved this wednesday. paul: in march, we started hearing talk of a 50 basis point rate hike. jim bullard was the first to talk about it. we heard jay powell starting to say maybe we could look at them well and then we get to the point where 50 basis point rate hike occurred in may and we are going to get another look this week that has been widely advertised. probably one in july and markets are expecting one in september but the problem is now after the report on friday is that food

and energy prices have gone up so much. don't they have to ease? rent and mortgage payments higher in the u.s. and used-car prices, they were down and now they have popped up again. we heard since late last year, bill dudley, now a bloomberg opinion writer, larry summers saying the fed was getting behind the curve and inflation was not going to be transitory. they waited until the taper was done, etc. the former fed vice chair saying the same thing. another number on friday, u.s. consumer sentiment as measured by the university of michigan. that number fell to a record low. a big surprise, bigger move to the downside than expected. inflation expectations are the highest since 2008. that was the beginning of the great financial crisis. is that another negative signal

for the economy? what are we going to focus on? the dots. what is the fed looking at when it comes to the rate hikes they expect this year? they thought the median would top out around 1.9% to like jim bullard got over 3%, the highest, when other people catch up with him. one more point to make, saying a former fed economist -- they are going to stick with the 50 basis point rate hikes as well. jay powell after the meeting is going to have to answer some questions about that. shery: kathleen hays, our global economics and policy editor there. let's bring in jeffrey holly, senior analyst. it is good to have you with us. not to mention all of the uncertainty, we continue to see the u.s. dollar rally for the one month high. on the other side of things, the japanese yen weakening. how does this bode for asian

markets overall? >> is going to be a challenge for asian currencies going up because they are not hiking at the same pace. they have started the process of monetary normalization. definitely stockmarkets as well. markets are genetically predisposition to try to buy the depth these days and they are still trying to do that but these establish an area challenges -- great environment for stocks. i'm see more pressure ahead. -- i'm seeing more pressure ahead. >> the korean won slumping paid we are seeing losses of more than 1% against the u.s. dollar. it is risk-off sentiment fell across the board and even the japanese yen. it will usually act as a safe

haven. we are talking about 130 4.90. do you expect the boj to do anything anytime soon? something with yield curve control to stem this weakness? jeffrey: the bank of japan does have a policy meeting this friday so i am not really expecting them to change because they have been saying quite vehemently in the press that -- 10 year jgb asia is going to remain in place. it would be a huge -- if they did not do that. i can see a huge reaction lower by dollar-yen possibly down to 125. it is definitely not my base case and it is a risk for friday. i think the other risk in currencies around asia, won, aussie, they are going to have a tough first half of the week

into the fomc meeting. paul: yen affecting the appeal of japanese equities for you? jeffrey: we look at the stock market, they seem to be quite liking it. the logic being that a weaker yen makes the japanese exporters more competitive on the pricing basis. their energy bill is also going to soar as well because brent crude is $120 per barrel. i think it is sort of cutting both ways. the bigger concern right now is if the yen continues to weaken as aggressively as it has, china may feel the need to be devaluing the yuan, setting off a cascade across asia. paul: jeff, -- shery: let's talk a little bit about the broader treasury space

as well and the global bond selloffs that we are seeing. what impact will this have across asia? jeffrey: again, the most noticeable impact will be weaker asian currencies as their interest-rate differential widens with the u.s. yield curve. a slowing u.s. economy will mean weaker export numbers from some parts of asia, particularly value-added parts. perhaps taiwan, south korea, japan, and china to a lesser extent. i don't think the impact on indonesia and malaysia will be as notable because of course we are getting high prices for those commodities. paul: jeffrey halley, senior aipac markets analyst be a thank you for joining us. annabelle, what are you watching? we have been open for a few minutes now in japan. annabelle: japan and korea.

we are seeing losses across the board, particularly in tech stocks. following the inflation. nasdaq futures pointing to a lower open of around 1.5%. clearly a lot of pain in this sector. it is very insensitive to any sort of inflation meetings. shery: higher gas prices not sitting well with truck drivers in korea. are we going to see a fallout given the ongoing strike? annabelle: this is the latest we just heard from cosco. we now understand that they plan to halt operations at some steel mills in south korea from monday and that does -- for inventory. we are seeing it come online around 3% and these are some of the logistics names that have been associated and we are seeing losses here as well.

paul: thanks. let's get to vonnie quinn for a check of the first word headlines. kathleen: thank you. -- vonnie: thank you. china has issued one of its strongest warnings yet over the risk of war with taiwan. the defense minister repeatedly expressed beijing's will to fight a formal split by taipei. bloomberg learned the chinese military officials were disputing washington's stance on the taiwan strait, telling their u.s. counterparts that it is not international waters. >> if anyone dares to secede taiwan from china, we will not hesitate to fight. we will fight at all costs and we will fight until the very end. this is the only choice for china. vonnie: beijing's local government says the covid-19 outbreak from a local bar is proving more difficult to contain than previous clusters. rising infections in beijing and shanghai and authorities delayed the reopening of most schools in

the capital. outbreaks have reemerged just days after the two cities -- more than 100 new covert infections for the second straight day. authorities warned the numbers could continue to rise with the easing of social restrictions and travel curbs. more than 230 infections have been found this month in the city's central district. 16 cases were found to be the ba.2.12.1 subvariant. the centrist party and allies may not secure the seats needed to form a majority in the national assembly. the alliance looks set to get the second-most seats. the results could force macron to compromise on his reform agenda. u.s. senators have reached a tentative deal on a new gun safety legislation package that is giving grants to states to

implement red flag laws, allowing courts to remove them from the dangerous owners and more funding for mental health services and school safety. negotiators must agree on the details but the agreement is a breakthrough after years of little progress. 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 vonnie quinn. this is bloomberg. paul. paul: thanks. still to come, despite chinese regulators denying reports of a revival of ip or talks, the university of hong kong says it is likely to happen as chinese policymakers seek to gain more investor confidence to boost the market. up next, tensions over taiwan as china's defense minister says the country will fight at all costs against any move from the -- for the island's independence. more on that next. this is bloomberg. ♪

paul: taiwan took center stage between global defense chiefs at the shangri-la dialogue in

singapore. beijing says it would fight to the end if taiwan made a move towards independence while the u.s. accused beijing are trying to unilaterally change the status quo over taiwan. let's bring in stephen engle in hong kong. what is the take away here? stephen: obviously, it is good that these military chiefs are talking. lloyd austin, the u.s. defense secretary, meeting with his counterpart from beijing. that is on friday. they had -- on friday, they had constructive dialogue but of course sticking points around taiwan and security visits in the western pacific, but also of course, he did meet with australia's deputy prime minister and that was the first ministerial level talks in more than two years between australia and china. there was progress and has been progress, but again, there are main sticking points but we heard the sound bite from him

saying they would fight to the very end if they saw any signs of independence moves by taiwan. lloyd austin, after meeting with mr. wade, later on saturday, essentially, he's had a few things. he said beijing was unilaterally attempting to change the status quo regarding taiwan. our policy, he says, has not changed, but unfortunately, that does not seem to be the case for the prc. we are seeing growing coercion from beijing, he said. steady increase in provocative and deep stabilizing military activity -- destabilizing military activity near taiwan. china for their part essentially saying, according to sources, that they are increasingly asserting that the taiwan strait is not international waters and that is a growing concern of the united states as of worst taiwan -- taiwan strait has been viewed

by beijing as part of its exclusive economic zone. that issue is not necessarily regularly brought up in dialogue between the two nations but increasingly, it is. their tolerance for u.s. naval vessels is growing thin and they have raised it with the united states on multiple occasions and at multiple levels and that is alarming u.s. fence officials. shery: we have seen the global geopolitical backdrop changed significantly since the last shangri-la dialogue. with russia's invasion of ukraine, how did that factor in? stephen: the war in ukraine, russia's invasion of ukraine, is at the backdrop of a lot of these discussions as well as how the united states and china make their pitches to asian nations for their narrative for regional and global stability, obviously.

we all know china's position towards russia, not condemning the war in the ukraine, of course, lloyd austin, the u.s. defense secretary, using the war in ukraine as a cautionary tale, obviously, and it comes back to the taiwan issue. i want to bring up a comment from the japanese prime minister, fumio kishida. ukraine today may be east asia tomorrow. ukrainian president zelenskyy did speak to the shingle dialogue on saturday by videoconference. he said the future rules of this world are being decided on his country's battlefield. so absolutely, the war in ukraine is at the backdrop of all discussions. taiwan as well as north korea. shery: stephen engle. of course, we are watching the latest developments over australia and china's relationship. the australian -- that was the highest level meeting between the countries in more than two

years. he told us more about the china policy and australia's new labour government. >> that may be really clear that our policy in respect to taiwan and china has not changed. we have a one china policy. we do not support taiwanese independence. we do not support any unilateral action on either side of the taiwan strait, which would change the status quo. the resolution of the people of taiwan is something that should happen by consensus, by agreements, and that is the way which we see it. >> you have labeled china as australia's biggest security anxiety. how are you working to counter china's specific ambitions? >> we want to be engaged in the pacific in the way that australia should be. you see the emphasis of that in the new government.

she is visiting the countries in the pacific and the numbers intend to be out there as quickly as we can be. in my experience in the pacific, if we engage with energy, if we seek to place the interests of the pacific people first, and there are lots of challenges that countries of the pacific face food in terms of development, australia is in a unique vision. if we do all that, we would be -- it is not something we get by right. >> it paid $600 million. does this reset relations with france? >> we certainly hope it does. yesterday, i met with the minister who was a very warm meeting. there was gratitude expressed for the fact that we have moved very quickly. to try and draw a line underneath what was an episode that did get in the way of our

relationship with france. france matters to australia that we don't think about it enough but france is in many ways the closest for the populations. sydney, canberra, melbourne, france. the longest border that france has is with australia. it underpins the fact that france is a pacific country. we share strategic interests in this part of the world. >> there are concerns from some nations that this is going to fuel an arms race. >> it is important that people understand that it is not a security alliance. that is something we are keen to do. it is very important from an australian point of view in delivering the submarine to our existing -- that has nuclear

propulsion but it is not -- we remain committed to building security relationships with the countries of asia. >> the prime minister said the ukraine of today could be the east asia of tomorrow. how worried are you about instability and potential war in this region? >> the point that he makes is that the rules-based order is important everywhere. what we are seeing in ukraine is a challenge to the rules-based order. the behavior by russia in a completely unprovoked way, crossing the border and seeking to -- invading ukraine and other sovereign states, totally contests the rules-based order and undermines it. totally unacceptable in 2022 and it's really important that we stand with ukraine. paul: the australian defense minister, rich old --

richardmarles, speaking with juliette saly. we have stock futures at the moment of 3.4 percent. mci futures in negative territory as well. off about 1% so stock futures up about 1% as well. it looks like we will see a fair bit of selling. >> take a look at what is happening. the nikkei down 2.5% with tech and materials leading the declines. the only sector that is advancing in japanese equities markets because they are trading like havens but this as the kospi is at a november 2020 low and kiwi stocks are also down. this is bloomberg. ♪

>> let's get a quick check of the latest business flash headlines. didi bankshares are set to start trading in the u.s., pending distance from the organization. shareholders voted to delist the company. the listing had angered beijing. shares had fallen 80% since their debut. a study has revealed that a spinoff of hsbc's ingenuity could unlock $6.5 billion or 1/5 of its current market value. the research was commissioned ping an insurance, hsbc's biggest shareholder. shareholders have begun their own analysis to push back against ping

>> this is daybreak: asia. i am annabelle droulers with a check of the markets, 30 minutes into the trading session and a rocky start to the week. japan and south korea are both trading lower. u.s. futures also pointing to a slower start after that shock u.s. inflation print. this rising in assets is unlikely to be transitory despite some strategists say otherwise. now for a check at the fx market , this call that the fed will have to stick with its aggressive pace of timing. that is a 16 month low for the yen against the greenback. not acting as a haven currency. some analysts say we could see 130 5.15 ahead of the fed meeting.

checking in on the two-year treasury yield, that has been the major trust, now searching again. traders are pricing in the possibility of a 75 basis point move. the kiwi 10-year meanwhile is above 4% for the first time since 2014. the australian cash market is closed today for a public holiday but we are pointing to a selloff at the open. paul: let's get vonnie quinn for a check of the first word headlines=. >>. >> australia's defense minister says his country needs to prioritize its relations with pacific island nations as competition with china grows. he spoke at the shangri-la dialogue in singapore. on the question of taiwan, he says canberra continues to support the one china policy. >> let me be really clear that our policy in respect of taiwan and china has not changed. we have a one china policy. we do not support taiwanese

independence. we don't support any unilateral action on either side which would change the status quo. vonnie: canada's prime minister says china's behavior is concerning. she highlighted what she calls beijing's actions in intellectual property theft and military provocations. her comments follow recent reports of chinese fighter jets buzzing median planes -- canadian planes. she also voiced concerns about taiwan. >> we remain, or to a one china policy. at the same time we are concerned about the level of chinese activity in the region. therefore continuing to build relationships with taiwan is important. continuing to ensure the peace and stability of this region with like-minded partners is also important. vonnie: china has issued one of its strongest warnings yet about the risk of war with taiwan. speaking at the shangri-la

dialogue, the defense minister properly expressed beijing's will to fight a formal split with taiwan. in chinese officials are disputing washington's stands, telling people in meetings that it is not international waters. goldman sachs is facing investigation. an earlier report from the wall street journal said the inquiry may focus on whether goldman's disclosures to clients accurately describe its investment practices. the sec and the bank both declined to comment. 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 vonnie quinn. this is bloomberg. shery: beijing's local government says the covid-19 outbreak linked to a popular bar is proving more difficult to control than previous clusters. it's all raising infections in

both beijing and shanghai. our senior medical reporter michelle cortez joins us. what does this mean for china's covid zero approach? michelle: we have learned that you cannot get the situation under control, you cannot go back to zero unless you wipe out the amount of virus there is entirely in any given location. and what we're seeing in china and beijing and shanghai as they release some of those curbs, the tiny number of cases out there do spread. one person infecting two or three others and then those numbers growing. so officials they are trying to decide how strong of an action they will take in order to get this resuming of the outbreak. we are talking 50 cases. that 50 cases can grow into 200 and continue unless they take action. both cities are so battered at this point, that there is

resistance to going back into a lockdown but that is what people fear may be happeng. paul: tell us about the latest outbreak in beijing. white is this potentially going to be a difficult one to control? michelle: the situation in beijing is that it is coming from a bar cluster and that is seemingly more difficult to get under control, to identify all the people exposed and put them into some kind of quarantine or isolation situation in order to cut off transmission. of course beijing did not go into the serious type of lockdown that shanghai did, but that is the fear that they will have to take additional strong measures. we also don't have a lot of clarity into exactly what is happening. they say that it is difficult for them to get this particular cluster under control. we don't know if it is because it is being triggered by a more difficult to contain variant, or if something else is happening on the ground there. paul: bloomberg michelle cortez

there. still to come, china's denies plans to revive the ant group ipo that it squashed a year and half ago. but analysts say it is likely to happen although possibly with increased state involvement. more to come. this is bloomberg. ♪

shery: a bloomberg's group has revealed any obstacle for wall street banks operating in china, regulators warning them not to pay their top people too much. let's get details from our senior editor. it has been a rocky road for wall street banks in china. what is the latest about pay? jonas: they had several meetings this year discussing with other top wall street banks, don't pay your top bankers to lavishly, that could stabilize the chinese financial industry. and it is just one of many issues cropping up for them as they try to expand into china, which is seen as one of the biggest banking place in a generation. including pay, they are also having issues getting licenses,

they are concerned about data security issues among other things, but this is at the top, the biggest issue which is the slowing economy in china, and the lack of dealmaking after the broad crackdown in the tech sector. and china's pursuit of zero covid. it is fair to say that no one thought it would be easy to do business in china, but nobody anticipated so many issues cropping up. paul: if you pull those issues together, do you think there is a danger that wall street banks could be forced to pull back on their plans? jonas: we are already seeing some signs of a tentative pullback, or a reassessment if you will. credit suisse for example is delaying plans to form a locally corporate bank. it had the most ambitious, one of the most ambitious plans to triple its branches in china in

recent years. others are delaying hiring as they are stuck in limbo. outwardly, though, many are still saying that their plans are intact and this expansion in china will bear fruit in the decades to come, but not over the next quarters. paul: bloomberg's senior editor for greater china finance, jonas bergman. staying with chinese regulation, authorities are dialing back a crackdown of the tech industry, that is what people are betting. the nasdaq golden dragon index is poised to rise for the fourth consecutive week. let's ring in angela, i work director -- a director at a university in hong kong. let's look at some of the relaxation we have had so far from regulators. we have new videogames

approvals, the ban for u.s. dd-listing is gone. how far are we from things becoming better? angela: these are clear signs that regulation is easing. since march of this year, we have had a lot of positive news. the vice premier convened a meeting where he emphasized that regulatory authorities need to better coordinate with the financial departments before taking regulatory actions that are expected to have an impact on the market. from my reading, that is a very clear sign of revelatory easing. it shows that regulators need to return to their routine enforcement rather than continuing with the law enforcement campaign. but i think they were cautious earlier, investors, because they

were looking for more concrete actions. we finally got that last week. the first videogame to be approved, and then rumors that the didi probe was ending soon. paul: let's talk about the potential revival of the ant initial public offering, how likely is that a? angela: i think it is likely to happen. chinese companies to improve western -- they want to improve sentiment and boost the market at the moment. bear in mind, the regulation is an important level for the chinese government to manage its economy on top of the fiscal and monetary policy that people often talk about. and we have heard a lot from experts saying that it is nearly impossible for china to achieve its 5.5 percent growth target this year.

however, they may have underestimated the potential impact of regulation. in this case, it is the regulation that could be used to revive the economy. shery: what about the potential of a golden sharing. we have heard talk about that. what would the impact be on valuations were that to happen? angela: that is a great question. i don't know to what extent it might affect a firm's valuations. so far, there are reports that bytedance and others have this kind of share arrangement. although it remains to be seen whether the chinese government will take a similar arrangement in some of the largest tech firms. we are talking about didi, tencent, alibaba, et cetera. you can see it on both ends. on the one hand, having a government representative on the board of directors of these

companies might facilitate communications between the firm and the regulator. one example that people would think of is the didi sample. we had didi heed the advice of its regulator and held up its ipo in july. it would not have resulted in such negative consequences afterwards. shery: so all of these regulatory challenges we have seen, what has been the fundamental change we have seen from the crackdown in the past few years in beijing? angela: this crackdown held in very significant institutional changes that are going to be long lasting. first is the laws promulgated, new laws like personal information protection laws, the data security laws. real teeth. second, there are a few very chilly precedents that were set

by regulators. the findings that were imposed on alibaba and meet one as well as the cybersecurity check into didi. they will make tech firms take legal compliance very seriously so that will definitely change their business practices. although to what extent that will affect their business fundamentals remains to be seen. lastly, regulators' capacity has been elevated. the chinese antitrust authority has been its budget dramatically expanded. so these kinds of changes will have far-reaching impact on future tech regulation in china. shery: could this mean that we could see some meaningful upside for chinese tax -- tech

stocks? or have markets priced in this easing of the regulatory landscape? angela: good question. i predict that for the next six months, because of policy, we have clearly shifted and i think regulators will give these firms in a reprieve in the short-term as they return to their regular routine enforcement. you will not be expecting a very high-profile investigation or a kind of sudden announcement and surprise inspection in the next six months. however, in that medium and longer-term, i expect regulation to tighten. and that is certainly not unique to china, we have seen this dynamic in other jurisdictions. i expect quite sweeping regulatory changes to the whole regulation landscape in the coming years. that is what is happening in europe and in the united states.

it will have an impact. shery: good to have you with us, director of the center for chinese law at the university of hong kong. despite the improved regulatory landscape in china, when it comes to asian markets and u.s. futures at the moment, it seems that we are factoring in a complete overhaul of change when it comes to the fed tightening. >> trade is -- traders are pricing in a possible 75-point move. nasdaq futures are in the red. bitcoin is highly core related with how we see tech trading. so into its third day of losses, concerns around inflation and also fears that china is perhaps starting to remove some of its covid restrictions. we saw mass testing resume in beijing and in shanghai over the weekend.

in the bond space, all the attention this morning is on the 2-year yield. we are seeing yields rise to an eight year high. the 10-year yield is also raising as well. in asia, more focus on the kiwi tenure, above the 4% level for the first time since 2018. australian markets are closed for a public holiday, but we are seeing futures pointing to a selloff. paul: still to come, chinese talks may be a rare bright spot. equities outperformed the s&p 500 so far this month. we will look to the open. this is bloomberg.

paul: let's get a quick check of the latest business flash headlines. sources say that bids for broadcast rights to the indian premier league cricket. nearly $6 billion on the first day of auction. amazon pulled out of the last minute leaving mukesh ambani's reliance industries, sony and disney as the leading contenders. bidding for the world's most popular sporting event resumes on monday. a south korea unit will introduce its first electric car into the country in 2026.

retinol says evs will account for 20 percent of south korea's automobile market 2026 and up to 40% by 2030. renault will maintain its alliance with nissan. microsoft has revealed dozens of new titles for its subscription service, xbox game pass. they include several from big publishers such as bethesda which was purchased in 2020. microsoft is betting big on game pass. it has 5 million subscribers who pay at least $10 a month. shery: taking a look at markets across asia, we are seeing markets exhilarating. the nikkei is down 2.6%. tech and materials leading declines. utilities is the only sector gaining ground. the japanese yen continues to move towards the 135 level. goldman sachs saying there is a rising risk of changing

china's policy mix. the kospi in syria november 2020 low. the korean won also seeing weakness against the u.s. dollar. clearly we are in a rough start to the week, this after the u.s. inflation shocker that we got on friday as well. markets trying to digest what that means the federal reserve policy. the question may be, can chinese stocks show resilience question mark equity gains in the mainland have had a good june, backing the global trend despite lingering covid concerns. let's bring. i am skeptical that china could be resilient especially with the new covid concerns and renewed restrictions. sofia: selling chinese assets as a haven is always a problematic thing to say. the key thing is when global markets start to panic and it is a risk-on sentiment, people sell what is most overvalued, what is

owned by everyone. chinese stocks are not that. so what we have seen in june is a rebound, a rebound that most on wall street have been calling for for months. but we have seen a sustained move, the hang seng index in hong kong nearing a technical bull market. onshore stocks also doing better. we could get a softer start to the week with china not immune from boys happening to the rest of the world, but we could get some signals from the pboc and from policymakers throughout the week and i could be more important for onshore stocks and onshore sentiment. i do think what china is doing, walking back the toughest restrictions on covid, that is problematic for sentiment, but onshore, things are looking better. it is a balancing act now for chinese markets. paul: don't fight the fed is the popular saying. could we put don't fight the pboc to it?

as the pboc continues to ease, are we at an inflection point here for chinese markets? sofia: china is the only major economy in the world that is actually listening policy, where inflation is not a problem. inflation is extremely low in china even though costs for factories are coming up. wednesday is the key day, because we are getting the data dump for may and industrial production, retail sales. those are key numbers for investors. let's see if we get a better number than the previous month. and also we get the pboc's liquidity operations, a chance for them to either add more cash into the financial system, or make a move on interest rates. the pboc has not done this since january. it has been very careful about adding more stimulus. so we will see what we get on wednesday. this could be another catalyst for the chinese markets. shery: we are seeing incredible weakness in the asian currencies at the moment given the strength of the dollar. what does this mean for the chinese yuan? sofia: we had interesting

comments from jim o'neill. he says it is a race to the bottom in asian currencies and we should see what china does with the yuan. the yuan is a tightly managed currency. with the signals so far from the pboc that it is comfortable with the current moves of the yuan. but if they won weekends significantly, the key is they don't want the currency to move too quickly. a weaker currency is good. chinese exports are still resilient. but if all asian currencies start a race to the bottom, china needs to stay competitive, and a weaker currency will be part of that. paul: our chief china markets correspondent, sofia horta e costa. coming up, there is still a lot of uncertainty around chinese equities, but there will be more stimulus going forward. ubs has downgraded china's growth in 2020 23%. we will discuss that i had with

our next guest, thomas fang. this is bloomberg.

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