♪ >> you are watching daybreak asia coming to live from new york, sydney and hong kong. we are counting down to asia's

major market open. the top stories this hour, a global stock rebound and soaring inflation may make central banks risk-averse. china is set to report covid lockdowns still threatening the recovery. and in japan, gdp this hour. a return to growth unlikely to derail the commitment to policy. >> take a look at u.s. futures under pressure. this of course after the s&p 500 rallied on friday. shery: tech lead the gains. four consecutive weeks of gains for u.s. stocks. the longest rally this year. and that is taking the s&p 500, the 14 day rsi to above the 70 level, which would signal bonds, so we are watching closely.

as treasury yields also felt for the first time around the 283 level. it's all about traders expectations of where the fed goes here. we are seeing pressures on crewed prices in the asian session. we've seen a week of gains for oil prices. this is about the global demand outlook. there is a recession coming in the u.s. while supplies are still tight. >> the moves were mentioning from u.s. stocks are setting us up for a stronger start as well as futures trading like this for japan and australia last close in positive territory. new zealand on the upside here. a couple of headwinds facing traders. this is from china specifically. annabelle: d listings on friday could have a short-term impact and trading loans are thin for those adrs. we are getting chinese trade numbers as well as we could see the economic recovery continuing to take a little longer.

speaking of recovery, we've got another big data set out this hour, japan gdp numbers. these are per living area numbers on a quarter on quarter basis, when it is annualized for expected growth of 2.6%. that would take us out of contraction territory, but also to the levels of that the japanese economy was at before the pandemic. what drove that of course was during march, we saw lockdowns lifted. we are seeing more return to consumption really from businesses and also from consumers, guys. shery: we are going to get an update on where chinese economic activity is headed. we are getting data out of china today. that should indicate perhaps gradually improving activity, but the recovery continues to be tested by fresh covid outbreak's and of course, ongoing property sector pain. for a preview let's bring in our chief north asian correspondent stephen engle in hong kong. what are we expecting? stephen: a lot of data coming

out today and what we have seen it since the shanghai lockdowns were lifted, a pickup in economic activity. a lot of pent-up activity that we saw in june. how much of that is carrying over into july is one question, but then going forward, in particular as we saw export orders, there was pent-up demand there. but is that going to last? it is likely according to most economists we surveyed. it is going to be waning. in fact, looking at a number of export managers at factories in china, it indicates that many overseas buyers are starting to slow. they are starting to work off their inventories that they built up and bulked up in 2021 because a lot of the shipping delays and if a structure issues, supply chain issues. so now those orders are starting to come down. if you look deep down, this is granular data from bloomberg. like orders for buttons, zippers, sewing thread, down 30% in july and august year-over-year according to these export managers at

companies in china. so, that is just one snapshot of some pain we might start seeing. i mean, industrial production probably held up fairly well. in july. but again, its export orders we have to look at. it is ominous. obviously, for global demand. now, domestic demand is another thing we need to be looking at today with retail sales coming out. auto sales, yes, those were robust. favorable policies came out. but you outbreaks of covid have hammered places like hainan province, which is a big tourist destination. so that will give us a good pulse check on the risk appetite for travel in china and those services and spending that comes with the travel and retail sales. i-9 province is a small proportion of retail sales in china, but it could be a barometer. -- hi nan promise. vence.

jobless rate is coming out today. there is a lot of data coming. it is supposed to be about 5.5%, that is the same rate in june, jobs is a big issue for social stability. we are also getting property investment here today, not surprising. likely to be down 5.7 percent here today. haidi: what are we expecting with the medium-term lending facility today? stephen: according to surveys, economists were expecting less cash to be pumped into the system. then previously, essentially the median estimate is for 400 million you want injection. and that is excited to be the first time that they are going to be withdrawing cash through the mlf for the first time this year. they are basically -- if that happens, it is likely to show that beijing through the pboc is prioritizing the limiting of financial risks that kind of stoking the low rates and

liquidity to support growth. that being said, we have to look at the new loans, aggregate financing, as well as of course m2. m2, the broadest measure of liquidity, money supply in the chinese economy, shows that there is of liquidity at the banks. but the new loans and aggregate financing dropped off precipitously in july. those numbers came out friday. that indicates there's lots of liquidity, but not a lot of lending. there is not a lot of confidence because of the property woes, the potential for covid lockdowns and the like. so there is liquidity, but people are not borrowing. that is a bad harbinger for the economy. shery: classic sign of a liquidity trap. stephen engle, chief north asian correspondent in hong kong. of course we are very much looking forward to trading in the chinese markets. five of china's largest state owned companies have announced plans to do from u.s. exchanges as the countries remain at odds over allowing inspection of chinese businesses.

greater china senior executive editor john joins us from beijing. this is not necessarily surprising but how significant is this? john: this saga has been going on for two decades now. so this is the latest step obviously. it recently is linked to the head of the fcc, who said there is real risk that chinese companies will be delisted from the u.s. because they are not allowing the pca ob, the u.s. audit agency to have a look at their audits. companies that have delisted, petrochina, the aluminum company, these are all big, state owned injuries. -- industries. one of the issues that u.s. and china regulars of how to deal with is what is going to happen. china fears that there are state secrets in those audits and they do not want to give the u.s. agency access to those audits. haidi: could that deadline for

delisting be moved forward? john: there is a lot of -- there is a wide-ranging calling congress and u.s. lawmakers to move the headline forward. obviously, we have had examples, most recently london coffee, a chinese company listed in the u.s. which had an auditing problem and resulted in american investors losing money. so there has been a call for moving forward. and it is very possible it could be. arcata china senior executive editor john with the latest. let's bring in cheap rates correspondent garfield with a look at china risk and the credit market collapsing. we've really got activity and the data dump, the delisting story as well. it does not take the shine off the rally we have seen in riskier assets?

garfield: it underscores how extraordinary in a lot of ways that rally is. and the doubts about this being a bounceback. we've had appallingly bad first-half from investors so it is risky and supposedly safe. now one of those have bounced back. amid expectations that conditions are rough. various central banks will either stop being quite so nasty or start to be a little bit nicer in the case of china. but that is not be case. china remains an ongoing concern. especially the futures between the u.s. and china, which, by the way got french impetus over the weekend with those u.s. lawmakers arriving in taiwan. just without the concerns that had been raised after nancy pelosi's visits were calming down, we got the potential for

fresh turmoil to hit from sort of both sides of the pacific. shery: which is why it is so interesting that some investors may be looking to emerging-market assets, given that developed economies right now face the risk of recession. but i mean, they have to be able to stomach the volatility. we are still talking about ems. garfield: well, the problem is there's been plenty of volatility to spare across so-called safer assets, you know, and developed markets also this year with treasuries, for example, have had the sort of swings in yields that have been very rare outside of major crises. the other thing with emerging markets that some investors are pointing to is that a lot of them have more experience fighting elevated inflation. they did not have long-term low inflation that developed markets had for much of the past two

decades. latin american nations as well as eurasian and europe, they have been more active in getting ahead of the game. they have carried out the rate hikes that the fed and others were a bit reluctant to do at the beginning. also, remember, most of them did not initiate cost easing. and as the fed and others have stopped bond purchases, putting the bank of japan off on its own corner, they still have the impact in their economies, to try to wrangle with. so emerging markets look like a high-yield play. they look like a play on economies that might be ahead of the game, when it comes to dealing with inflation. haidi: chief rates correspondent for asia garfield reynolds here. you can follow more on that story and today's trading actions on our markets live log. that's on am i -- mliv .

it has our team of expert editors, so you can infect what's happening your investments at any given point. let's get you to vonnie quinn with the first word headlines. vonnie: thank you. a u.s. congressional delegation led by senator ed markey landed in taiwan on sunday for a two day visit. their meeting with taiwanese president and other lawmakers according to the american institute of taiwan. discussions include global supply chains and climate change. risks keeping tensions with china higher after house speaker nancy pelosi's region -- recent visit to the region. chinese officials have signaled that thousands of tourists could return home. frustration over covid lockdowns sparked protests over the weekend. authorities say commercial flights for domestic passengers should resume monday, however travelers can only fly out of there are no new cases in their tour group and hotels within the last seven days. salman rushdie is starting to

recover two days after being stabbed at a lecture in new york. he is quoted as saying the author is on the road to recovery. he is said to have been removed from the ventilator sunday and was able to talk and joke. the author of the satanic verses suffered serious injuries after being stabbed multiple times after taking the stage. the chair of the house intelligence committee, adam schiff, says he has not seen evidence that materials the fdic's from donald comes home were properly declassified. everything taken was declassified or covered by executive and attorney-client privilege, trump says. adam schiff says the argument is absurd and he is asked u.s. intelligence to do a damage assessment of seized records. global news, 24 hours a day. on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm vonnie quinn. this is bloomberg. shery: right then. still ahead, on watch for china's second quarter gdp due later this hour. the world's third-largest economy is forecast to return to

pre-pandemic size. we will have more, but first the lockdowns in china are set to wait on earnings. we will expect the lingering effects of covid zero lockdowns on the health of the economy png's chief economist sarah hunter joins us next. this is bloomberg. ♪

shery: you are watching daybreak asia. here is a look at the week ahead. markets are watching for any clues in the july feds meeting minutes on how big the move could be. that's on the size of a september hike have swung between 50 and 75 basis points on the recent inflation reports. meanwhile, in asia, we get central-bank decisions out of the philippines and new zealand. australia's latest on employment figures come out thursday and coming up this hour, we will be breaking japan's second-quarter gdp.

later, activity data out of china. haidi: yeah, and of course big earnings week ahead as we hear bloomberg intelligence and chinese companies may be set to report the worst earnings performance in two years, due to the lockdowns during the second-quarter to our next guest says that until china's economy shakes off the lockdown issue it will be hard for the economy to stabilize. sarah hunter joins us now. as you can see in that chart, 12% downside to chinese earnings, probably unsurprising, given the train on productivity and output that we continue to see. sarah: absolutely. we have already experienced the lockdowns and the damage to economies. they have closed parts of the system and restrict others, so it is not a surprise that we will see disappointing numbers for q2, because we know what happened. more interestingly going forward is the fact that they have not moved away from zero covid. there is the threat of lockdowns hanging over the whole country. there are actual lockdowns in place right now. until we get beyond that it is hard to see steady danes,

sustained momentum coming through the economy. haidi: the banking system awash with liquidity. take a look at this chart which shows aggregate lending slowed to the lowest on record. less than half of what economists were expecting. rb in a classic liquidity trap now and what does that say about the structural challenges of so many years of being debt reliant for growth? sarah: it is probably a signal coming out of the property sector, which has its own challenges on top. haidi: infrastructure. lockdowns. sarah: you cannot do it. you don't need to be looking for the funding. it also for me signals adding in the economy going on top of tackling the covid challenge. it is also going to be a question of physical response from the government. they are going to have to get china on its feet and build momentum, exactly what happened in western countries and other parts of the world. it probably does not look very different in china's case. shery: how long will that take

to the economy? can we expect a monetary policy to curb on it in the economy? sarah: well, i do not think we are likely to see a monetary tightening. i do not think that would necessarily be particularly useful. i think what we are going to see is authorities in terms of direct spending, through the economy, some of the movers they can hold that look more like fiscal policy. even if they are not straightly fiscal policy. those are likely to be more effective. i think we will start to see those being pulled i expect from now on, through to the end of this year and into 2023. in terms of when it starts to get into the numbers, q3 should look better than q2, because widespread lockdowns are ending, but in terms of sustained growth, that will be a story for the back end of this year, but coming through the numbers next year. shery: really, the chinese pboc relate sending in contrast to the rest of the world -- really standing in contrast. especially in asia because we are expecting rbc rate decision. the philippines by 50 basis

points. tell us what central banks across asia face and the divergence of piercing with the chinese economy as well. sarah: so, this is for me a very different position of china's economy fundamentally in terms of the recovery piece moving forward through the pandemic. capacity restraints are right now across many asian countries. as you see it with the meeting this week, they are running very hot right now, particularly new zealand, australia, other developed economies throughout the world. they are running really hot. central bankers are battling inflation coming not just from supply-side constraints, but really strong demand, domestic demand. unemployment rates at record lows. the economy is looking like they are operating at full employment. this is an environment where central banks have to be tightening policy and exactly what were seen. i think they will go again today, although perhaps becoming more mindful of where the cycle

is going and looking ahead to a time where they will not be raising rates every meeting. china looks a bit different. it is a slow-moving economy, in recovery mode. inflation is lower. it just requires different policy settings and that's exactly what we are seeing. haidi: is the recession risk changing for new zealand and australia? the true resilience of the household and the consumer. you can see the yield curve and version in new zealand potentially suggesting it will look pretty complicated. sarah: i think that is the goldilocks outlook that central bankers are looking for. we have been saying it for a while but we are getting to the pointy end of those decisions. rate rises through the first half of this year, very necessary. absolutely appropriate. going forward from now, further rises yes, but how far, how fast and the challenge is not going to hard and ending up in the recession outcome. haidi: always great to chat with you. sarah hunter here in sydney. you can get a round of of some of the stories you need to know to get your day, your we going in today's addition of daybreak.

you can get that at dayb . it's also on the mobile. customize your settings as well, you get the news on the industries and assets that matter to you. this is bloomberg. ♪

haidi: a quick check of the latest business flash headlines. sony aramco has posted the biggest profit of any listed company. $4 billion after 25 and a half billion a year earlier. the company expects oil demand to continue growing for the rest of the decade. aramco follows rivals in reporting a surge in prices driven by high prices and production. chinese developer group is receiving a 400 million dollar loan which would alleviate

market concern about liquidity. a source says the company has reached an agreement to sign a contract with state owned banks as early as this week. wells fargo is planning to shrink its mortgage empire, which wants turned out one out of every three u.s. home loans. sources say the banks leadership may begin by reviewing ties to outside mortgage firms. they generated roughly one third of $205 billion in new home loans last year. the strategy shift follows changes in the executives and years of costly regulatory scrutiny. shery: take a look at how asian markets and futures are trading at the moment. vstoxx are -- kiwi stocks are up 7/10 of 1%. we may be seeing some upside in asian markets today, but this of course as u.s. futures are under pressure. although we do have a tail wind coming from wall street, because we have four weeks of gains already for the s&p 500. nikkei futures unchanged at the moment, but this of course after gaining ground in the previous session.

we are seeing a little bit of weakness for the japanese yen holding at 133 level, so we will see how that really filters through the markets. of course, we are waiting for second-quarter gdp, likely rebounding. we will be breaking this. we are seeing futures up 6/10 of 1%. this of course as we continue to watch for really tons of economic data this week and today as well, with china's medium-term lending facility operations, not to mention activity did later in the day. still ahead, aramco posts the biggest quarterly adjusted profit of any listed company globally. a deeper dive into those numbers, next. this is bloomberg. ♪ millions have made the switch from the big three to xfinity mobile. that means millions are saving hundreds a year on their wireless bill. and all of those millions are on the nation's most reliable 5g network and most recommended wireless carrier.

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>> the much-maligned 60-40 portfolio. >> the portfolio generally speaking for most investors would make sense, because bond markets. >> we need to give it more time. they made a better ways to go than 60-40, but i think is a best case mix a lot of sense. >> 40% in bonds as close to five or 10. and i actually think they are increasing it you're medically at the moment as they are looking for secure yields. >> going outside into other assets, real estate, private credit can be a healthy addition to the portfolio and diversify returns. 60-40 as i mentioned as been a challenging portfolio distraction. shery: just on bloomberg tv weighing in on whether they think the 60-40 portfolio is dead. let's bring in annabelle for

more on this. the reason were looking at this is because we saw big losses this year already. annabelle: it is not been a great start to the year really. for what has traditionally given us some decent returns, low volatility. but as you said, the 60-40 portfolio coming with a near 12% loss year to date so is it really time to put the strategy to rest? you can see results from our survey. the vast majority of people saying that no, it can be sustained. let's change over, take a look at these results in more detail. we have more than 1000 investors wanting to this and they say over the next decade, the portfolio can perform above inflation here. the vast majority saying yes to the question. of course, as you said, we have seen the worst start to the years since 1988. and a lot of this also comes down to those changes in historical correlation as well. because bonds and stocks have historically been negatively correlated. the relationship has now changed. morgan stanley says the bonds do

offer some good returns. if you're looking to replace bond holding, the vast majority of people saying real estate is an option and commodities another pic as well. a crypto, really not many people sticking with that one, but if you are also looking at your stock holdings as well for the next six months, most people saying to put your money into the u.s. mega caps. haidi: let's get more on that. we did see momentum and inflation data. progress toward an upgrade for ethereum in september. all of that is fueling the rally across the states. let's get more as our team editor joanna ossinger joins us. there's a separate story, but what is the broad outlook? do we expect to see this continue? join a: it looks a crypto is gaining momentum. we are really off the lows

around 19,000 from a couple months ago. and there is some relief because of the lower-than-expected inflation data and people are saying you're starting to see chain activity. joanna: you might be seeing more people looking to get back in at this point. overall, the momentum picture at least is looking pretty good for crypto right now. we are off the highs from earlier, from the weekend, but we are still -- bitcoin at 24,000 is still higher than it was a couple months ago. shery: and yet, looking past the momentum, what is a long-term scenario here, given that of course, we have seen cryptocurrencies really being supported by the risk rallies with easy money all across the world. and we now have very aggressive central banks all around. joanna: right. well, it is going to be pretty dependent on the central banks and how, for instance, risky

stocks are doing. bitcoin has been so correlated with the nasdaq 100 in recent months, so it is probably going to fluctuate with the outlook for central bank tightening or easing. and it is going to -- it is a volatile space still. of course, you have things like whether institutions will want to adopt, whether people will be taking cash from the sidelines. whether you get adoption from retail generally. there are a lot of overall factors playing in, but central banks and their direction will be pretty key in coming months. haidi: does the upgrade to proof of stay for a theory him create a greater definition between the role of ethereum in the role of bitcoin, perhaps making bitcoin even more akin to gold? joanna: yeah, it will definitely change things. and actually, it is starting to make people say that i theory him could come up and flip

bitcoin as they say, where it could actually become the dominant cryptocurrency. that's not the base case at this point, but there is a lot of enthusiasm around the theory him with the fact that the upgrade looks likely in the middle of september, so we have a day before. looks like things are on track. there is really a lot of enthusiasm right now about its potential to perform in the coming months. shery: finally, after so many delays. joanna, bloomberg's cross asset team, watching the crypto space. now we get to vonnie quinn with the first word headlines. vonnie: thank you. u.s. capitol police say a man crashed his car into a barricaded fired a gun into the air several times before fatally shooting himself. police say the 29-year-old man may have set fire to his own car and was being approached by officers when he shot himself. it is unclear why he chose to drive to the capital. according to the police it does not appear he was targeting members of congress.

opec and china life insurance are among the chinese giants set to exit from u.s. exchanges. five of china's largest firms announced their intention to do list on friday as the spat over audits continues. about 200 chinese firms are facing possible delisting in the u.s. as soon as 2024. unless beijing grants access to american auditors. water levels at a key waypoint and the rhine river expected to study at an extremely low level this week as the climate crisis adds to europe's crunch. many barges cannot get past the marker west of frankford. the water level is about 35 centimeters at the moment. it is below 40 centimeters, passage is almost impossible. the rhine is western europe's most important river for transporting fuel and other goods. tributes are pouring in from wall street where the fitzgerald president and deutsche bank ceo james death was announced after

a five-year battle with cancer. he has been credited with building the investment banking business and turning the german lender into a global trading powerhouse. global news, 24 hours a day. on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm vonnie quinn. this is bloomberg. shery: the recent rally in oil prices helped saudi aramco break in another record. it boasted the biggest preferred test profit of any company, $48.4 billion. su keenan joins us with the latest. and this is quite a windfall, but at the same time, overseeing oil prices easing. su: this could be the peak for saudi aramco and what a peak. the profit blows away anything they have ever produced and it is also the biggest profit of any listed company in the world. 84 -- 408i should say, 48.4 billion in quarterly profit. company said castro rose by 52%

from the prior year and they are taking this windfall. they are going to use it to reduce and invest in a huge expansion of production paschi. it is betting the demand for its oil and chemicals are maine's high, even as we know the rest of the world is transitioning away from fossil fuels in a terms of outlook, the company's ceo expects oil demand to grow for the rest of the decade. that is despite downward economic pressure is on the short-term global forecast. now, i should mention, we have seen this kind of huge profit for other energy companies as well. exxon and shell posted record second quarter profits. it all how to do with russia's invasion of ukraine. sending oil prices above the hundred dollars a barrel and causing a buying margin to soar. what there is a view that may be the best of the profit margins is behind these big oil companies at this point. haidi: we are seeing oil prices extending losses in asia. su: we are seeing west texas

trade below 92 and that is after a two and a half percent drop on friday. even the west texas posted a gain for last week. it is very difficult, traders say, to predict what is ahead. there has been this mix of irish and bullish headlines that is causing -- bearish and bullish headlines. demand this winter against the potential for supply to return. iran could accept and eu brokered nuclear deal if the guarantees were correct. that would put more oil on the market and also, you got cooling inflation, which could ease the pace of rate hikes by the fed. that has been supporting commodities across the board. meanwhile, as you drop it in the bloomberg, you can see gas prices of dropped in the u.s., just falling below four dollar mark for the first time since march. in the past few days, the u.s. energy secretary says u.s. gas prices should continue to fall and the trading statistics from

last week show that most money managers, get this, have caught bullish vests on west texas to the lowest in two years. a lot of the options activity is showing bearish bets going forward. so that gives us an indication of what the view is, in terms of short-term direction of price. but this is a very difficult when to call, even veteran oil analysts and traders sacred shery: su keenan with the latest on the oil prices. and of course as we watch the energy crisis in europe unfold, the climate crisis also not making it easier for european countries. and we just heard vonnie quinn telling us about what was happening in the rhine river. when you're watching the water levels there, haidi, this entire past week, we saw that level really fall to the lowest since 2018. when they had a big drought across europe. now, the levels are expected to study at an extremely low level.

at this point, this is such an important river. it is running into the north sea from switzerland or germany, france and the netherlands. and we know that is a key route for oil products. and this of course makes it difficult for barge operators to really be able to pass through this route. and this is just another indication and example of what is happening with the climate crisis, the heatwave across europe continues. now we're hearing that the u.k. is officially in a drought. haidi: yeah, and honestly, if you told me that we would have been watching for water levels in our river, every day, with such close scrutiny, i probably would have said we need better things to do. but honestly, there is a camera that shows you the water levels in the rhine river did you can see these extraordinary numbers. we're hearing from so many companies that use this to transport everything from people to cattle that they had to revise operations, breakdown

production and some are using alternative transport routes like rail for example. all of this is going to continue adding to the supply chain. in the cost pressers. and you said in terms of the u.k., we are seeing this extraordinary situation where drought is being declared in england amid extreme levels of hot weather. we've got parts of the west, south, central england being affected. families of stuffed watering gardens. they are officially in a drought, as we see this intense heatwave. water companies imposing restrictions on household use. and really, these huge pressures just adding to so many different fronts, where the u.k. is struggling. surging energy prices. millions of households cannot afford to pay the prices. we know that conditions for re-inflation, it is just a whole cost of living crisis and we are heading into of course peak energy demand this winter. coming up next, we will stick with the global economy. japan's gdp numbers are a few

minutes away. they're expected to show a rebound. we will discuss recovery with norihiro and applications if any with the bank of japan. this is bloomberg. ♪

haidi: you're watching daybreak asia. some stores ahead in japan, counting down to the countries second-quarter gdp numbers. pre-pandemic levels of growth, although unlikely that that will sway the governor from his memento policy easing. you've heard from japan's prime

minister, expected to cement plans for importing week, even after october to mitigate inflationary impact on households. and the newly appointed trade minister says japan must restart more nuclear reactors to ensure stable power supplies for next summer and beyond. shery: let's take a look at japanese assets. we are seeing a pretty muted start of the session although we are expecting asian stocks to be able to get that with u.s. markets closing, the s&p seeing the fourth straight weekly gain there. dollar-yen holding pretty steady as well. singapore futures trading up by six times of 1%. topics futures up by 3/10 of 1%. we do have a market looking to come online in the green. let's bring in our next guest, sherry. shery: he is maintaining gdp growth expections for japan. he has interestingly cut projections for 2023. with us now is gina --norihiro

yamaguchi. did you happy with the spirit we are expect to see pent-up demand after the lock up has been lifted or restrictions have been lifted across the country this year. but why wouldn't that be sustained until next year -- into next year? norihiro: thank you so much for inviting me. this pent up demand is still one shock. it is nothing to do with growth rate or after the -- it is highly likely that going back to the tapered stagflation. haidi: what does that mean when it comes to business investment, household spending as well? are we going to see the much needed pent-up demand? norihiro: yes, so it is highly

likely that the second quarter and also the third quarter right now is going to see the pent-up demand from the households and also investments. given that in terms of the household spending, you know, service consumption during this period, an emergency like that. so we are seeing pent-up demand of services, luxury goods -- i'm sorry, recreations, in terms of the investment what we saw during 2020 and 2021 was that the robust investment plan was not destroyed with the separations, disruptions and restrictions. so this is pent-up demand and we

are seeing some of that. haidi: what sort of growth do we need to see to get through to the kind of emotion -- that governor kuroda will want to see before he changes policy? norihiro: what is lacking is inflation. right now, the rates are way lower than the cpi growth rate. it is not likely to catch up. and the deterioration of the household income is going to be that way on the recovery. that top chain consumption. haidi: do you think we are going to see a difference in monetary policy path when governor kuroda steps down in april? norihiro: i don't really think so. you know, given that the high

inflation is going to be transitory. well, it is kind of longer than i had expected before, but with inflation, you know, it is going to return, so i do not think the achievement of the target. shery: tell us about wage inflation. when can we expect some of those price pressures to translate into actually employees getting paid more and salaries rising across japan? norihiro: well, not in -- also, you know, it is essential to see that to achieve the 2% inflation

, you're going to need a higher rate of wage increase. not the 2% inflation. shery: just give me a second. were getting breaking lines out of japan. it second-quarter gdp numbers growing at an annualized rate of 2.2%. the estimate was for growth of 2.6%, so this is really missing to the downside when it comes to those annualized numbers. now, the quarter headline number rose have a percent, again missing expectations. still worth pointing out that we are going from contraction territory in the first quarter two expansion territory. although much lower than economist had inspected. the nominal quarter on quarter growth of 3%, the gdp year on year contraction of .4%, the smaller contraction was expected. i'm also looking at private consumption. one point 1% growth. business spending, quarter on quarter, 1.4% growth.

interestingly, private consumption is coming in lower than expected for business spending, which is a little higher than expected. that leaves us with a second-quarter growth of an annualized basis of 2.2% quarter on quarter, the estimate was for two point 6%. so when you look at the numbers and you see it really the annualized number of missing to the downside, give us your reaction and also, what you think of private consumption and business spending as well? norihiro: well, my initial reaction would be that consumers started to fear the increasing prices. this was shown in the indicator of the consumer confidence index in june. that was more than i had expected to, but at the same time, i would like to point out that the largest drop went from the inventory investment. which drop the numbers by 0.4%

quarter on quarter. so, yeah, it was kind of weaker than we had expected, but given that, you know, inventory, i am not too pessimistic about the headline numbers. haidi: very quickly, what changed you think japan needs most right now? norihiro: the opening of the borders. because we have some kind of restriction on the inventories. we have a weaker yen and one thing we can do is open to boarded private tourism. haidi: norihiro yamaguchi, senior economist at oxford economics. more to come on daybreak asia. this is bloomberg. ♪

haidi: we are watching the market open in tokyo. energy and focus as japan, one of the world's top buyers of lng rushing to supply for winter. in focus, tokyo electric power as well. the energy chief saying they must earn a public trust before they are allowed to restart efforts. briefly surpassed when he $5,000, watching crypto related

sales in the session as well. shery: coming up in the next hour, investors are supposedly watching how the biggest companies are weathering tough global macro conditions. who manages the fund is looking at the next few months which may be tough for retailers. we're going to watch key economic data from china. jp morgan and a solid recovery in the third quarter. the market opens in sydney and tokyo are next. this is bloomberg. ♪

>> this is "daybreak: asia." we are counting down to the major market opens. we are watching china closely. we have key economic data as we are seeing more signs. we could be seeing a liquidity trap in the nation. haidi: that is right. lending demand collapsing to record lows even as the economy and the banking session are washed with liquidity. we watch the domestic indicators very closely later today. let's get you a look at the market opening. annabelle: we also had that week of financing data from china, so another headwind facing investors, particularly in china. we are a few seconds away from the opening of japan and australia. korea is public for a public -- is closed for a public holiday. we have the 10 year coming online, now looking like this. bond traders are being conflicted by the mixed messages

we're are getting from u.s. economic data. is the peak of inflation over? can the fed be less or more aggressive? we are seeing mixed moves. the move in yields is weighing in on the yen. some strategists are saying a break down to that level could be insight. in terms of big economic data, we will recap those numbers with the japan gdp figures. that is the headline for us. we see japanese stocks moving higher at the upside. turning for the open in australia, korea is closed, so we see them coming online unchanged. a few minutes to get onto trading action. we have bluescope, beach energy, some of the big names. we will keep an on the yields. the aussie dollar below that 71 sent level. it is being closely watched. we could move as we see the reaction to the recovery data coming through as well as financing numbers. shery: we are looking at the

japanese economic numbers with the preliminary second-quarter gdp numbers expanding but still falling short of economist expectations. we are talking about a growth of 2.2%, when the expectation was 2.6% growth. let's bring in enda curran. we are talking about growth, but still missing expectations. what do you make of these numbers? enda: i think it reinforces the dovish outlook the bank of japan takes for japan's economy. it does look like the consumption side of things still softer than expected. there seems to have been a drag from inventory as well. the boj, we have been preaching for a long time that they are not seeing any animal spirits in the japanese economy. they point to ongoing week wage growth -- ongoing weak wage growth. it is transitory as it is due to energy prices. the hit might reflect that

consumers are not spending as much because prices are increasing. maybe it does reflect the ongoing restrictions around travel to japan area i would say the overall number is a soft gdp number for japan and does speak to the reason why the boj has been on the dovish side. haidi: the domestic indicators out of china as well later. the aggregate lender levels were ugly. there are concerns we are seeing the signs of a classic liquidity trap. enda: there are concerns in china at the moment that a lot of what is happening, or at least a lot of it, is not more money. the appetite for borrowing is not there because of what is happening underground. that is because of the structural shift in the real estate markets, given the crackdown the government has pushed through. now you have the ongoing disruptions linked to covid

restrictions. we are seeing the latest. it speaks to the idea that consumers are not willing to borrow and spend as they should, and that has been reflected at the corporate level as well. we will have some money market operations. they may take some money out of these financial systems. it will not be tipping extra money into it, that is not expected. the problem in china's economy is not a shortage of liquidity in the money markets, it is the parts of the economy that need money are not getting the funds they need. that is what the government is trying to crack at the moment. haidi: enda curran. rates are set to continue rising, earnings set to slow. a sharp rally across market under for performers -- underperformers will run out of steam. jun bei liu's joining us. how difficult is it navigating the in begin witty -- the ambiguity? guest: it is incredibly difficult at this point because

not many of us have seen high inflation and then a sharp increase in interest rate expectations. the economy is still recovering from the pandemic. there are a lot of moving parts at this point. the markets are trying to deal with that. i think what is interesting is if we look at where the share market is, the australian market has 18 times earnings. the markets are reasonably priced. over the next 12 months, we just talked about these uncertainties, but what we do know is the corporate earnings growth will slow, and we know the interest rate will go up, but we don't know how far, so all of that combined it does mean the overall index level, we only have marginal gains in the next 12 months. shery: it was interesting in the u.s. we are seeing the busiest month

in a few months already when it comes to m&a's. $13.4 billion of tech related m&a's here in the u.s.. with a more challenging environment and companies having a harder time finding growth, could we see more of this across the world as well? guest: that is a really good question because, as you mentioned, corporates are sitting on strong balance sheets. as the growth slowed down, that is a natural area to allocate. aside from her brits, we do have the private equities and other unlisted vehicles sitting on a lot of cash and waiting to be deployed. if anything, on the australian market, we saw another m&a bid for a small tech company. in the last few months, we have seen quite a lot of it. this will underpin the positive area of the share market in the next few months just as the markets are still revaluing some of those sectors being sold off

aggressively in the last six months. shery: i keep hearing the bear market rallies look similar to the start of a new full market rally. how do you differentiate where we are in the process, and what are some of the signs that you are watching out for? guest: honestly, i don't believe this is a bear market rally. we think the market on the overall index level looks reasonably valued. however, even though we are talking but the corporate growth slowing, they are still growing. some of the growth, if we look at australia, some of the corporate growth are up on trends. it is not too bad. we have big dividends coming through. we have the inflation peeking out. i think the share market would do ok. it is the return of expectations in the low to mid single digits instead of it is about to

crater. and we just talked about m&a. all of this will underpin the support for the share market. shery: we have seen interesting moves given the wide yield differentials between the u.s. dollar, given that they are both hiking and tightening, but the fed not as fast as the rba. how do you play these rate differentials across the world? guest: the interest rate differential will continue to narrow over time because australia is perhaps on a slower path compared to the u.s. and we do have to tighten quite quickly to really suppress some of the inflation that is coming through, whereas the u.s. perhaps, they have the expectations. but net-net, all of us will see inflation and keep fingers crossed the next few readings that it will start to talk about. but we have to wait and see. haidi: when you take a look at

structural growth opportunities, what stocks are you liking? i know you are still bullish on health care. guest: when we talk about these uncertainties out there for the share market that is more neutral valued, health care is a standout place because their growth is not underpinned by economic activity and the like, and they have the structural growth levers. it is fantastic as part of the portfolio. if anything, a lot of them have been sold off during that growth selloff period. they provide very good underpinning. at the same time, some of the other tech leaders, it is time to look at them as well because they do provide the structural growth. if we look to the next five years, growth will be slow. you do want those companies to grow your portfolio. cyclicals are looking a little tough, but we do think china at some point when it comes out of lockdown, it will -- the stimulus will fuel some of the commodity areas as well. shery: let me ask you a very broad question. it is our mliv question of the

week. it is recession necessary to rein in inflation? guest: i don't think recession is necessary to do so simply because some of the commodity areas and some of the bottlenecks for the supply chains are already coming through. we just need a period of absorbing and also allowing some of those mechanisms to work its way through. and in a way, it is perhaps good that china is slow coming back into its full capacity for its economy so that our supply chain pressure is not as bad as it could be. net-net, we think we could maneuver there, but we have to wait and see what the inflation readings will be. haidi: jun bei liu, good to see you back in our sydney studios. now we turn for a check of the big movers this morning. annabelle: very much focused on australia today because we have

those big earnings coming out from some of the aussie companies. glucose steel is jumping higher. the four-year underlying profit beat estimates. there is strong demand for their solutions, given the recent macroeconomic headwinds facing many companies around the world. the board also approving an extension of the share buyback program to half $1 billion. in terms of the other movers, jb hi-fi. there net income meeting estimates. in terms of decliners, we are seeing moves to the downside, particularly for beach energy. it did see its annual net profit riving by nearly 60%, with the sharp price gains. we have seen commodity prices falling after russia's invasion of ukraine. then and adlai bank of into the

downside -- rendigo and adelaide bank falling. >> a group of chinese giants are set to exit from u.s. exchanges. they announced their antigen to do this on friday as the spat over audits continues. over 200 chinese firms are facing possible delisting in the u.s. as soon 2024 unless beijing grants access to american auditors. chinese officials have signaled thousands of tourists trapped in hotels could soon return home. frustration over covid lockdowns on the resort island sparked protests over the weekend. authorities say commercial flights for domestic passengers should resume monday. however, travelers can only fly out if there are no new cases in their tour groups and hotels within the last seven days. the chair of the u.s. house intelligence committee adam schiff says he has not seen any evidence that materials the fbi seized from donald trump's home were properly declassified. trump said friday that every

thing taken was declassified or covered by executive and attorney-client privilege. shift says that argument is absurd and has asked u.s. intelligence to provide a damaged assessment. u.s. capitol police say a man crush his car into a barricade and fired a gun into the air several times before fatally shooting himself. police say the 29-year-old man may have set fire to his own car and was being approached by officers when he shot himself. it is not clear why he chose to drive to the capitol. it does not appear the man was targeting any members of congress. water levels at a key waypoint in the rhine river are expected to study at a low level this week as the crisis climate adds to europe's energy crunch. the water level is about 40 centimeters or below, currently at about 35 centimeters. it is europe's most important river for transporting fuel and other goods. global news 24 hours a day, on

air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm vonnie quinn. this is bloomberg. haidi: still ahead, j.p. morgan chinese economist haibin zhu will join us to discuss china's economy policy outlook ahead of data. first, another american delegation visiting taiwan, risking more anger from beijing. we get more on what this means for the u.s. and china relations area this is bloomberg. ♪

shery: we are expecting a delusion of economic data out of china that could prove rallying activity. however, the rally continues to be tested by fresh covid outbreaks and ongoing property sector pain. let's bring in stephen engle in hong kong. what are we expecting in these numbers? stephen: a lot of numbers are coming out later this morning. we were likely to see the momentum of recovery continued. at least the headline numbers will show the factory output did gain a little bit of speed after what was pent up demand in june

following the relaxation of the lockdowns in shanghai and also elsewhere. there are pressures in the market in the chinese economy with fresh outbreaks in hainan, as well as the ongoing property sector. we have to dig deeper into the data we are getting today. believe me, we are getting a complete deluge of july data from factory output to retail sales to urban investment to jobless rates to properties, existing property sales. so much is coming from market participants to look at. let's look at industrial production, factory output had a recovery following that lull with the shanghai lockdowns. there was a lot of pent up demand as well for exporters to get their products out. we had a boost from exports demand. but we are talking to some export managers as a number of different manufacturers.

we are seeing perhaps export demand from abroad is starting to wane, including about a dozen export managers surveyed by bloomberg indicating that factory orders are shrinking, and that is an ominous sign for global demand. we get really granular here at bloomberg sometimes, but it gives a good indication. orders for items such as buttons, zippers, sewing thread down about 30% in july and august. a lot of people who are buying from abroad were buying heavily, bulk buying, in 2021 ahead of the supply chain constraints and the shipping delays. now they are starting to work off some of those inventories and the pent up demand we saw with a boost in factory output in june, we will see it a little bit in july. but going forward, there could be pain coming down the road. retail sales is also out today, a key indicator of domestic demand. if they are not going to be selling as much overseas, if

that weakness in exports, will they be able to sell domestically? retail sales might have some troubling signs as well. the number might be all right, about 5% growth, but again you are seeing lockdowns in hainan island. it does not contribute a lot, about 0.5% to gdp, as well as retail sales on a national wide basis, but could also indicate some risk aversion to travel right now, and that would hurt the services sector and overall spending in china. so much we are looking for coming down the pipe this morning. haidi: looking for the mlf as well, what are we expecting? stephen: you have to also look at the bank loans. the banks right now are flush with liquidity. the problem is they are not necessarily seeing a lot of loan demand because of the property sector woes and overall confidence in the trajectory of the chinese economy. new loans as well as aggregate financing really dropped off in numbers we got on friday, while

m2, the broadest measure of money supply, was considerably higher. banks have lots of money. what we are expecting with the mlf later today at 9:20 beijing time, we are exciting eight of 12 economists expecting the pbo c to withdraw for the first time this year. we have about 600 billion yuan maturing this month in mliv. the median -- they expect the rate to be kept unchanged at 2.85%. essentially with that loan data we got, and i want to give you before we wrap up a bloomberg intelligence take on this, a sharp retreat in china's credit in july which should put policymakers on alert, taking into account usually litt -- usual lull in the data was extremely weak. at 9:20, we get the mlf, at 10:00 we get the data dump. haidi: chief north asia

correspondent stephen engle. the nikkei two to on track to erase the year to date loss. it has been a challenging year for developed markets, but we have had a current the affect helping japanese assets -- we have had the currency effect helping japanese assets. they closed within one percentage point of positive territory as of last friday, which was a fourth straight week of gains for the asian markets and u.s. markets as well. but we continue to watch those gains continuing to the monday session despite that second-quarter preliminary gdp being softer than expected. u.s. congressional delegation led by senator ed markey is on a tour of taiwan. let's bring in our taipei bureau chief. this potentially adds to the

tensions when we continue to see the reverberations from the policy visit. reporter: it does, and the reason we are talking about this is of course because, as you mentioned, just 10 days ago, u.s. house speaker nancy pelosi made a visit to taiwan that triggered a whole range of angry reactions from beijing, economic measures against taiwan and taiwanese companies, and days of military maneuvers in the taiwan strait, including the shooting of a missile directly over the island of taiwan. but it is important to remember these types of visits happen all the time. if you look at the numbers in a typical year, more than 10 u.s. lawmakers visit taiwan in multiple trips. but of course, coming just days after nancy pelosi was here, this is the first visit since then. it's is getting more attention. shery: and chinese actions

around taiwan when it comes to sending war planes and war ships. is this a new normal around the island now? samson: that does appear to be the case. obviously after nancy pelosi's visit to taiwan, we were looking at the long-term ramifications for that. one of those does appear to be that china is taking a much more forward stance. they are sending many more aircraft around taiwan airspace, across the median line of the taiwan strait, which for decades was this informal barrier between the two sides. but over the past 10 days, we have seen much greater numbers of planes in and around taiwan. that does seem to be one of the key things, one of the key changes that beijing has made to

signal its displeasure, to really up the numbers. shery: or bloomberg taipei bureau chief. you can get around up of the stories you need to know to get your day going on today's edition of daybreak. it is also available on mobile. you can customize your settings so you only get the news on the industries and assets that you care about. this is bloomberg. ♪

haidi: here is a quick check of the latest business flash headlines. wells fargo is planning to shrink its massive business empire, which once turned out one of every three u.s. home loans. the banks leadership may begin the retreat by revealing ties to outside business firms that generated roughly one third of

its home loans last year. the strategy shift follows changes in the executive branch and years of regulatory scrutiny. an underlying full-year profit has been reported of 1.9 billion u.s. dollars, beating analyst estimates. the revenue of 13.5 billion dollars was up on the year. bluescope continues demand for products despite recent volatility. the board approved a buyback of up to 356 million dollars u.s. over the next 12 months. don't miss our interview with bluescope steel managing director mark vassella. coming up next, we discussed the latest on

vonnie: i'm vonnie quinn with

the first word headlines. japan's economy improved. gdp grew at an annualized space of 2.2 percent, below the economist median forecast of 2.6%. consumer spending, which accounts for half of japan's economic output, led the growth. fourth quarter gdp was expanded from a prior contraction. a u.s. congressional delegation led by senator ed markey landed in taiwan for a two day visit. they are meeting with the taiwanese president and other lawmakers. according to the american institute in taiwan, discussions including global supply chains and climate change. that risks keeping tensions with china high after a recent visit to the region. salman rushdie is starting to recover two days after being stabbed at a lecture in new york. the ap has quoted his agent as saying the author is on the mend and on the road to recovery. he was removed from a ventilator

on sunday and is able to talk and joke. the author of "the satanic verses" suffered injuries on saturday after being stabbed. rakesh jhunjhunwala has died. he was among the most influential oysters in the dutch influential voices in the market. he invested in some of india's most prominent names, including its biggest jeweler and airline start up a cause i air. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm vonnie quinn. this is bloomberg. haidi? haidi: let's get you a look at the markets. what are you watching? annabelle: we are picking up on the red line crossing the terminal. japanese stocks looking to erase their year-to-date losses. let's take a look at where we are sitting.

we are within a whisker of that move. compare that to what we see with the broadus msci asia index. quite a big difference and a huge outperformance for japanese stocks largely driven by the boj sticking with easy policy settings. the yield gap has been a supportive factor leading to weakness, which has helped to boost equities, particularly the exporting names. there is consumer confidence picking up in the country, some solid economic indicators as well. we had the gdp data out as well. let's change now to look at the broader market picture because we are seeing japanese stocks trading higher today. australia and new zealand in the green. korea close for a public holiday. u.s. futures looking weaker, but globally we have seen stocks rising to a three month high. the other factor we are watching as we get underway for trading in china in about an hour's time, we do have that activity, the monthly data dump, the credit data will also be closely

watched, and a big headwind facing equity investors. the headline that came through on friday, we saw aggregate financing slowing considerably in july. meanwhile, money supply increased. what that essentially means is there is a lot of liquidity in the system, but nobody wants it. really a signal here of the concerns we have around the economy, covid zero restrictions, property market issues, and that is weighing on businesses and households. shery: we are watching the reaction also perhaps from the u.s.-china tensions ongoing right now. five of china's largest state owned companies announcing plans to delist from american indexes. asia stocks managing editor joins us now. we have been watching this for a while now, so how much of it was already priced in? liangting: people are expecting

some kind of announcement, and the surprise on friday night was really a bunch of them coming out together, five as you mentioned, and now all eyes are turning to who else might be coming to announce delisting plans other than the five you mentioned. there are still a few listed in new york, such as china eastern airlines and china southern airlines. in terms of share reactions, we did not see much in new york on friday. some are exciting the shares to bounce in hong kong because new york trading has been big for those companies. there could be patriotic buying in china for those. haidi: are we likely to see more to come as there are voices within congress calling to move the deadline to 2023? lianting: i think what the

delisting plan signaled to us is that it is really unlikely that the two nations would reach some kind of significant agreement by that deadline. the idea is more than 200 chinese companies listed in the u.s. may gradually announce their plans to delist. all eyes will also be on the big tech giants with v i.e. structures. that would include alibaba and baidu. i think that is going to be the overhand of those companies listed in new york right now. haidi: asia stocks managing editor lianting tu. we get this ambiguity when it comes to oil supply and demand going into what will be a pretty complicated supply situation in the next few months. we see brent crude trading by

0.25% and new york crude softer as well. traders are trying to weigh in a mix of bearish and bullish headlines, the possibility of iran putting oil back on the market. it is just one of those factors. su keenan us now. what are the dynamics we are seeing at play now? su: a lot of headwinds in both directions, and the only thing traders are sure of is choppy trading going ahead. look at the five-day chart and you will see that in asia trading we are extending losses we saw friday where west texas intermediate was down by 215%. interesting that -- by 2.5%. interesting that they did post again for the week, even though the short-term direction appears to be lower. many fund managers have cut their bullish positions on new york traded oil to the lowest in two years. that is as we have this mix of news. you mentioned iran. iran said they could accept a

european union brokered deal if they received certain guarantees. there is the prospect of more oil supply, that is bearish. meanwhile, we have cooling inflation and that may ease the rate hikes from the fed. that has been supporting commodities across the board. you are looking at gas prices versus inflation. look at the blue line. it dropped off on the far right. that is the price of gasoline, which fell below four dollars

the u.s. energy secretary said gas prices should fall farther. there is the added benefit for the biden administration here in the u.s.. it is a political advantage to have lower gas prices because that has been a key concern of the white house. real interesting going forward, but we will see what the price direction, but the betting according to a lot of trading data and options activity is short-term we could take another one lower. shery: it was a couple month ago when we had oil above $100 a barrel, so not surprising why saudi aramco did so well. su: just blew out the numbers. this is breaking all records for profits, not only for saudi aramco, but any publicly listed trading company in the globe. 48.4 million dollars in profits for the second quarter. free cash flow rose by 53%. the windfall is being used to pay down debt, as well as to expand capacity. in terms of outlook, aramco is betting that demand for its oil will remain high, even as most of the world is starting to transition away from fossil fuels. the company's ceo expects oil demand to continue to grow for the rest of the decade. that is despite the downward economic pressure on short-term global forecasts. we had the iea showing a demand and increase, opec showing the opposite. it is interesting to see what saudi arabia's company

thanks. we are seeing other companies benefit from the boom in the rearview mirror. exxon and shell posted second quarter record earnings, all of it having to do with russia's invasion of ukraine that sent oil above $100. as we just saw, we are pulling back significantly from those levels. shery: su keenan with the latest on the energy space. chinese demand a key factor when it comes to oil prices. the country reports monthly activity figures with covid lockdowns and a property slump threatening recovery. this is bloomberg. ♪

haidi: china's authorities have signaled that thousands of tourists stranded in hainan can return home, but only after local approvals. let's get the latest with emma o'brien. what is the situation when it comes to china's covid outbreak? emma: it looks as though high non-, often referred to as china's hawaii down in the south, a very populist tourist location, it is turning into a mini shanghai.

we have seen cases over 1000 a day. hotels across the board and cities locked down. they are trying to ease the situation somewhat. we saw protests from people in hotels over the weekend, angry that they were being still charged for their room and board, and some people also upset that there have been cases found in one of the hotels and they were being moved. a lot of angst and chaos on the ground, but they are starting to try to move people out. the only people that can leave are those where there has not been a case for seven days in their building or hotel. and once they get back to wherever they are from, they have to do three days health monitoring. shery: we are also seeing a high number of cases in hong kong, a four-month high. where are we at now? emma: we have over 4000 cases a day in hong kong, but a very

different start compared to mainland china, even though hong kong is ostensibly still targeting dynamic zero, one of the names beijing gives for what it is doing with covid right now. there definitely is a higher level of comfort with a low level of cases. in this case, in hong kong. and still trying to seal off the border somewhat with the new eased quarantine rules. what they are looking for there is the hospitalization rate and it hasn't been picking up to the point where it is pressuring hospitals just yet. shery: emma o'brien with the latest on those covid cases across china. let's bring in our next guest, who is expecting a solid recovery in the country's economic activity this quarter. joining us is haibin zhu, chief china economist at j.p. morgan. good to have you with us. get us started with your expectations of today's activity

numbers out of china. guest: today we have the july number, particularly on the domestic front. we already have the numbers coming out last week, which were pretty solid. the key to watch out about domestic events, particularly for industries, we are expecting 3.3%, still roughly the same range, and we are looking at 0.6% month on month. that is solid growth. in the current global perspective, we are concerned about the deceleration in the u.s. and euro area. from that perspective, china is providing a lift for the global economy grows in the third quarter, for mainly two reasons. one is that china steel is not open yet. some momentum is going on.

also, the policy impact announced in the second quarter will continue to carry us through the current quarter. the question is, how sustainable is this momentum? we are concerned about the fourth quarter, but in the near-term, third-quarter, we are constructive. shery: we continue to see the monetary support in china, but there are now renewed concerns about a potential liquidity trap given that credit has slowed so much in the month of july while you have so much excess liquidity. is that a concern to you at all? guest: yes. i think if we look at the credit report last friday, you can see that the central bank's liquidity policy has been relaxed in the last several months. however, if you look at the long components and the disappointing headline number last friday, it is still pointing at -- the major issue is the domestic

events on the weak side. that is pointing to the weakness in the covid zero policy. before they see a clear exit strategy and more certainty, it is very difficult for them to go out and increase the new investments and for households to increase consumption. i think this is the dilemma we are facing. what has been driving the economic growth is mainly related to the fiscal policy support, more direct government support. based on our estimates, the third quarter will compared to the first six months, 2.1 shares. that is a big improvement and is where we see stronger growth. to add on that, it doesn't mean that in all sectors the economy

will perform strong. you will can see continuous diverging performance across industries. those tailwind sectors like manufacturing, new energy cars, they will perform much more strongly. however, at the same time we see the weakness in the housing market will continue and probably even widen in the third quarter. haidi: as a result of the excess liquidity roles are we seeing bank borrowing rates, the cost following a full 1% compared to five months ago. take a look at this chart which shows the seven day average falling. does this also tell you something about the productivity of lending and debt in china at this point in economic development? do we expect to see more fiscal to be able to make up for what this is clearly not doing? guest: if you look at the market rate, the seven day repo rate

versus the policy rate, the policy rate hasn't changed since january. but the market rate has come down, and now it is significantly below the policy rates. that tells us two things. one is they are on the policy intention side, the pboc providing ample liquidity into the system. they are listening to the central bank instructions. however, in terms of the relationship between the credit supply and credit demand, the weakness is mainly the credit demand. if the corporates do not have incentive to borrow and households do not have incentive to buy a new property, then it is very difficult for banks to extend the long-term loss. in may and june, when the number was much stronger, still the

high tsf number was mainly because of the short-term loans, which is more a short-term strategy for banks to pre-book the quarter, rather than provide a meaningful support for the economic activity. we are still waiting for the policy to spew over to the other industries. from that perspective, i think the question, how sustainable, how quickly the policy support is spilling over from this policy tailwind area to a broader economic activity? i think that is a big question. we have good reason to be more concerned in the fourth quarter. fourth quarter, we are facing several challenges. one is that the policy, particularly the fiscal policy support, will fade away. second is that global environment will become more challenging. we are talking about the euro area likely entering recession and the u.s. economy slowing. the global demand supporting china exports is weakening.

the housing market will continue to be very weak and without additional policy stimulus. china's growth will likely lose momentum very quickly in the fourth quarter. haidi: haibin zhu, always great to talk with you. you can tune into bloomberg radio and hear more from the day's big newsmakers and get in-depth analysis from the daybreak team reporting from our studio in hong kong. listen in via the app or bloombergradio.com. more ahead. this is bloomberg. ♪

haidi: a quick check of the business flash headlines. they chinese develop my group is set to receive a loan which would potentially alleviate market concern about its liquidity. the company has reached an agreement to sign a contract for the loan with state owned and foreign banks as early as this week. the world's largest fund managers, including blackrock, reportedly cutting pay and taking other steps. the financial times says blackrock plans to postpone hiring for more senior roles, while employee benefits dropped last quarter. the plans come as customers withdraw assets and to stay on the sidelines amid market

volatility. soros fund management had a sharp rally in recent weeks. george soros's investment firms -- they added a new $20 million position in tesla. the billionaire philanthropist investment firm managed more than $28 billion at the start of 2022. there is another big earnings week, not the least of which here in australia, but also in china as well. we are seeing the impact on the micro economy when it is coming to covid-19, covid zero strategy, and maintaining that strategy amid lockdowns. that is expected to feed through to the downside for chinese earnings as well. take a look at this. we are expecting 12% downside when it comes to this earnings season. stocks across the region are posting the worst results since 2020. shery: not surprising given that have had those -- that we

have had those downgrades. it is the steepest decline in eight quarters. you mentioned chinese earnings. we could see that drop of 12% in the aggregate profit, given of course the msci china earnings picture. we have seen the covid lockdowns, not to mention perhaps some positive surprises like we saw with alibaba's revenue, but still coming from a low base. we are watching what is happening with tencent this week as well. we are also watching top tv makers in china. they enter into this crucial earnings season. keep an eye on these airlines. the provincial authority of hainan announcing domestic flights for passengers out of hainan should resume today.

don't forget the gas producers, japan and russia supplying for winter worsening, driving prices higher. haidi: energy continuing to be a major theme this week. our guest joins us to tell us how they review japan equities as an opportunity to add exposure. as shery just mentioned, a big earnings season. but warren capital is pessimistic about the sector. we will be hearing y. that is it from daybreak asia. markets coverage continues.we are looking at the start of trading in hong kong and shanghai. the china open is next. this is bloomberg. ♪

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