♪ sherry: you are watching "daybreak: asia." i am haidi stroud-watts in sydney. annabelle: i am annabelle droulers in hong kong. we are counting down to asia's

major market opens. haidi: the top stories this hour. china signals policy continuity. by tapping a technocrat as that likely next pboc governor. bond traders are bracing for a wild week. the 10 year treasury could be pushed towards 4%. market watches over and rba pause or hike. tesla tops expectations as price cuts lift second-quarter deliveries to a record, 83% from last year. shery: u.s. futures muted early in the session. we have the fourth of july tuesday. this, after the s&p 500 already rallied to the highest since 2022. we had the rebound in tech stocks. inflation data coming in softer than expected and that led the milestone for apple as well, reaching the $3 trillion mark. we have seen u.s. treasuries a bit mixed. the ten-year yield holding at

the 3.84 level. this is we try to digest a softer than expected inflation data and consumption numbers. oil prices at the moment, wti holding around $70 a barrel after three sessions of gains. in the broader context, we have to say that the wti has still seen the first back-to-back quarterly losses for the first time since 2019. a lot of it to do with the potential for global demand really falling, faltering, given what is happening in china. annabelle: i was just about to say, given what is happening in china, especially that weakness in the economy, it is something we will be tracking again in the private pmi reading that is due out this morning. it is expected to show that the recovery is still faltering. and it will also underscore the need for further stimulus there. in the session today, we have more pmi data from other

countries. and also the tankan survey is due from japan. it is expected to show sentiment picking up among japan's biggest companies. today will largely be driven by what came through in the wall street session on friday. most teachers are pointing higher here, essentially italy the expectation from tech stocks. supply stocks also in tesla. haidi: china has named pboc deputy governor pan gongsheng is a central bank's top communist party official. let's bring in bloomberg's chief north asia correspondent stephen engle in beijing for us today. this is following the succession plan that we know. is he very much the continuity candidate here? stephen: i think so, because he is pretty well-known and respected both internationally and domestically. it is a continuity candidate because he is similar to yi gang because he has the similar

economic background, extensive commercial banking experience. he also is the head of the state administration of foreign exchange, the currency regulator. he has that in his credentials. he was also architect of the three red lines of the property sector, so he has the finger on the pulse on the problems of the chinese economy and also the owner terry policy as deputy governor for quite some time. the speculation is that with you gon -- with yi gang likely being pushed to the silence because of retirement age mandates, perhaps pan gongsheng, who is 59 -- the late 50's is the new 30's, i have been told -- he will likely take over the dual role of party governor and economic chief, like what we saw from 2002-2018. they split up more recently with

guo shuqing who is 66. he is the outgoing party chief. he will basically be -- speculation at this point -- be in that dual, consolidated role. he has a central banking experience, he has commercial banking experience, he has a foreign-exchange experience, in property sector experience. so to answer your question is he the continuity candidate? absolutely. shery: does that mean we will not see the massive stimulus that markets have been expecting ? stephen: it doesn't look that way. we just came back from the world economic forum in tengion that was held last week. was it thursday? , we had the former deputy governor of the pboc, former deputy managing director of the imf saying, fiscal stimulus is not necessarily in the cards.

china has very high debt already. we also heard from the sidelines, and economic professor from the london school of economics say that there is enough room obviously for stimulus in china as the economy has been spidering. but the problem, she says, is you need massive stimulus, and the trillions over maybe or more to have a moderate impact in today's large chinese economy. the return on the stimulus is much lower. how much are you going to throw at this problem? besides perhaps using some more tried and true measures like fiscal, shovel ready infrastructure projects question mark right now the property sector is heavily indebted. the local government level is indebted because of their pandemic response expenses. so it will take a lot of stimulus with all of those problems. what you are likely to see with pan gongsheng as the pboc

governor or at least as the pboc party chief, he has that foreign-exchange credentials. you might see more tools to stop the outflow of the renminbi, the weakening of the renminbi. but because he also has experience as architect of the three red lights and he was the man who put in place the guardrails to make sure that the debt stresses in the property market did not spill over into the broader economy, he has the expertise perhaps to engineer a soft landing of the property market right now. the last thing i will say here is, the one thing about pan gongsheng is he was left out of the 200-plus member central committee after the party shakeup in the autumn. that means he is not a senior-near communist party official. does that mean the pboc going forward with pan gongsheng as the party chief and governor, does it mean that he will have

less say over economic policy going forward? we know that xi jinping wants to put more party control over these state organs. let us see whether he will have less influence. shery: bloomberg's chief north asia correspondent stephen engle with the latest from beijing. let's turn top monetary policy in the u.s., a top fed official says incoming data will be the key for him and his fomc colleagues when they decide what to do at their july meeting. global economics and policy editor kathleen hays is here with the latest. we heard from austen gold after we saw the fed's preferred gauge of inflation easing, but perhaps not by as much as they would have liked to see, what do you think? kathleen: he said about what you said. and of course, austan goolsbee is president of the reserve bank of chicago. he was speaking on television on friday and notes that inflation is coming down, but well above the fed target. he is focused on goods

inflation. he says everybody should put their ion, in the immediate term, -- put their eye on goods prices. is it too high? when you look at used-car prices, they have been especially high. but that will go away, he says. is it more persistent? that is the key. he is talking about core services. housing which is something that fed chair jay powell emphasizes almost every time he talks about u.s. inflation policy. when he was at the ecb's meeting in central portugal. he is not giving imprimatur for anything yet. he says he and his colleagues are watching that data. sounds like what that officials were saying before the june meeting when they decided to pause. now the question is not so much about causing it seems, as it is so much as, should we start hiking again? jay powell said last week, if you look at the fed's economic

projections from the june meeting, there is a strong majority wavering at least two more hikes this year. we have six months left to go, so a lot of focus on this july meeting. haidi: update week four data. it could move markets around the world. the tankan survey is key, as well as the u.s. jobs report at the end of the week. stephen: bank of japan, this is their quarterly survey of small manufacturers, big manufacturers, small services companies and big services company. their outlook on where business is going. more of that is expected in the second quarter report coming out in the next hour. what is interesting in this one is that the yen forecast in the first quarter was for the dollar-yen rate somewhere in the 130 range. what has happened since then? the yen has gotten a lot weaker. the dollar has gotten weaker. the boj still isn't signaling a

move on tweaking policy. this will be closely watched, what it will mean for the bank of japan. again, they look at this as one of their ages of inflation expectations. very important. also the manufacturing pmi, seeming weaker on the manufacturing side. very strong pmi a nationally last week. and then we have the rba rate decision. big speech. will they hike rates again? most were surprised by 25 basis points a month ago. look where inflation is in the second quarter. very high, but still far out of the 2% to 3% range. phil lowe talked about a balanced decision. where will it be? wednesday, minutes from the june meeting, we will get what their argument was for causing and are they ready to hike -- what their argument was for pausing, and

are they ready to hike in july? 225,000 right now is our payroll survey from bloomberg. down from 330 9000. unemployment, by the way, might actually go down from 3% to 3.6. still indicating a very tight u.s. labor market. haidi: our global economics and policy editor kathleen hays in new york. let's look at what to expect. as we get into the second half, bloomberg's cross asset editor reporter richard henderson joins us now. there are lots of concerns about valuations and the narrow breadth of what we saw outperformer for the u.s. market. what are the expectations for the second half? richard: that is a great question. we have had such a powerful first half, the nasdaq 100 i think is at a record high in terms of first-half performance. the s&p 500, best first-half

since 2019. if you remember that year, it was a wild one because we started that year with a rebound from worries about the fed. this is ancient history now, pre-pandemic. 2019 ended up around 30% return for the s&p 500. the historical ledger suggests there could be further to go. but circumstances are different. the breadth is critical. it is megacap tech stocks that have been elevated in part because of all of that excitement around artificial intelligence filtering down across nvidia and other stocks, including apple, obviously, hitting a fresh high, surpassing that $3 trillion milestone last week. so the breadth is critical. will we see the breadth start to broaden out across the market, that is what investors will be looking for. there is a chance that shares

could drift higher from here, but everything is dependent upon what the federal reserve will do. this week being such a critical week for data, including implement data as kathleen was talking about, we are expecting a 3.6 on the unemployment rate for the u.s. still a lot of work for the fed to do. shery: and what that means for the treasury market, we saw the 10-year yield surging. will the 10-year yield get to 4%? what are the expectations of that? richard: highly likely. definitely within the realm of possibility. we saw the expectations for rate cuts, which the market had been clinging to for so long this year, that has turned over now and there is a capitulation in the rates market about what is in store for the rest of the year. and obviously informed by the data that we are seeing, including the jobs data. and this week we have the jobs

numbers. the non-front payroll. they are expected to show ongoing tightness which will just keep pressure on the fed. if you think about it, there are 1.8 jobs for every unemployed american. this is elevated in history. it really underscores the tightness of the labor market and how that filters down across prices in the economy and keeps wages growing higher. really does put a lot of pressure on the fed to do more. shery: bloomberg's cross asset editor reporter richard henderson there. coming up, ibm japan shares their outlook for the shipping industry as it moves back to andriy startups seen as vital to long-term supply. the vice president and cto joins us later this hour. but first we'll preview this week's keith economic event with natixis's who sees asia's factories struggling.

this is bloomberg.

shery: -- haidi: time now for a look at the week ahead. u.s. payrolls data on friday the day after job openings and jobless claims. and the feds minutes for the june meeting, mid-week. cooler inflation is bolstering the case for a pause in the 40 months tightening cycle, but the market is split on expectations for the rba. also getting aussie trade figures. the bank of japan of second-quarter survey is the first big data we get this week. we will be watching closely for changes to corporate expectations for inflation as well as the yen. we are also getting factory pmi

data across asia. economists expect the chinese survey to come in bang on 50 that is your week ahead. shery: our next guest says it is all about that diversion between the manufacturing and services sector in asian economies in the short run. joining us in hong kong is gary ng, a senior economist. great to have you with us. talk us through the divergence. whether it is the challenge to the manufacturing environment or the more resilient services sector. and who will be worst hit during this phase? gary: if we look at what is happening in asia, there is a great divergence between what the manufacturing-focused economies are performing, worse than the services-oriented ones. they are having a rebound. when we look at manufacturing-dependent economies here, we are talking

about those affected by the downturn in the tech cycle such as korea, taiwan and vietnam. if you look at export numbers, definitely we still see double-digit negative growth. however, at the same time, if you look at economies in asean and australia, such as thailand, they are the ones who benefit more. same when you look at the china economic environment. the divergence between manufacturing versus services. this is where we are. it is hard to see a u-turn in the manufacturing sector at the moment. therefore, this divergence will persist. shery: in your notes, you say that japan is at a sweet spot. why? gary: because if we look at what is happening in japan right now, you have this week yen -- this weak yet which has helped export, and also the tourism

industry. beyond this type of cyclical currency movement, we have structural reasons for many firms to relocate back to japan. especially old firms, because of geopolitical reasons. if you look at what happened in the semiconductor industry in the last few months, there is a strong improvement. so this is really what helped japan in achieving this kind of positive economic momentum. versus some of the other countries which are affected by this manufacturing slow down. shery: how much is the incredible weakness in the japanese yen playing into the dynamic you are explaining in japan? gary: indeed, if we look at how the yen has depreciated this year and last year, it has

definitely improved japanese firms' competitiveness in terms of prices. but what we might overlook is that last year, we are talking a 50% increase in import prices in japan which hurt corporate revenue for a lot of japanese firms, as you can imagine. automobile manufacturers, semiconductor producers, et cetera. but this year, import prices fell 5.5% in june, even though the yen has depreciated versus many other currencies. this is a major change that we see this year versus last year. even though i think the yen has depreciated to a certain level, the impact on corporate revenue will not be as big as before and that is helpful for japan's exports at the moment. haidi: does that also mean that you see less of an impact when it comes to the weaker you won the chinese economy -- to the

weaker yuan on the chinese economy? gary: most of them export electronic goods. even though inflation has been weaker in china, manufacturing costs do not seem to be increasing so much. i think this is more a global question versus whether china will still be able to increase exports. domestically, i do think there is a problem of supply and demand balance. because a lot of industrial utilization rate is actually not back to pre-pandemic levels yet. chinese firms will need to lower their profit margin actually export to other countries and also sell domestically. so even though the yuan is weaker, i don't think it can help china so much as japan. haidi: it certainly would not help when it comes to the

property sector. what can they do there, because we are still seeing emerging credit risks, so long entered this correction or this structural turnaround when it comes to the property sector? gary: indeed, i think it is one of the biggest problems china is facing right now because confidence in the household sector is not great. we can bring this back to the concept of the so-called balance sheet recession. it does not mean the economy is actually in recession. even though the central bank has cut rates a number of times, the households do not seem to be willing to buy more houses. we see that home sales still are 25% of pre-pandemic levels. fiscal revenues falling. also there is an uptick in underperforming loans in banks. that means i think china really needs to relax the regulation, to boost the confidence of

households. because otherwise the real estate sector cannot have a widespread impact from the microeconomic level. haidi: gary ng, senior micro-economist for aipac at natixis. you can get a roundup on the stories you need to know to get your day going on this edition of daybreak. terminal subscribers can find that on dayb . you can customize the settings as well you only get the news on the industries and assets that you care about. this is bloomberg. ♪ ♪ a master's degree in nursing into your busy day. your graduation team led by your own gcu counselor provides you with the personal support you need to succeed! find your purpose. visit gcu.edu

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okay. i'll work on that. the queen sleep number 360 c2 smart bed is now only $899. plus, free home delivery when you add an adjustable base. shop now only at sleep number. shery: these are some of the headlines we are watching. twitter orner elon musk has raised the number of tweets that accounts can view each day after twice imposing lower caps. says unverified users can view

1000 posts daily. verified users can see 10,000. he initially set lower limits for both. he says that cap is needed for what he calls "extreme levels of data scraping." the united airlines ceo told staff the carrier may have to reduce its flight schedule. his letter on saturday follows days of flight disruptions as airlines across the u.s. deal with severe weather and operational challenges ahead of the independence day holiday. plenty more to come on "dayb

>> tesla delivered a record number of cars in the second quarter. ellen is watching the story.

>> numbers look really good. that is 18,000 more than the first quarter. and 82 percent increase year on year. we know that well over 90%. there was other good news as well. 18,000 more cars produce and then last quarter. as is down to 13.5 thousand. still a lot of work to do. we will have to pick up the pace. these are pretty encouraging numbers ahead of the earnings announcement. >> we know that test faces tons of competition. especially within china. what are the chances they will cut prices even further? >> we have already seen some

sharp discounts in the u.s. back in january. it was 66,000. these were offered to customers globally as well. this makes it available to other ev makers. that is a source of revenue as well. the competition is catching up. it is still the number one ev maker but there is a different story to the rest of the world. china, build your dreams is performing particularly well. it has a fresh alanna. you do see more more and more of these cars driving around the streets of the city. we could see a few more price cuts coming from tesla. work cuts were announced for chinese consumers. >> that was paul allen on those tesla numbers. let's get you a look on the tesla effect as paul mentioned.

>> that is right. we are seeing futures indicating we will see that. part of that is down to those tesla numbers came through the supplies. very much in focus this morning. we have tokyo, sydney and so opening here. japan futures coming online. you can see that jump in the contract. 8.8% at the open. otherwise, tech stocks are generally focused. apple entering the 3 trillion club on friday. plus, what came through on the inflation data and we saw signs of price pressures and moderating there. perhaps at the expense of the economy but this is the state of play as we head to the open. that does look into the interest on bonds for particular. if you look at emerging market debt and different entry points. a lot of investors say that if you change now, they are saying

korean bonds are attractive in particular. we have actually seen yields moving higher over the past few months. they have tapered off somewhat. investors in saying this is an entry point. we have inflation data that is due out on tuesday. we are expecting inflation to start to moderate again. no cuts expected as of yet but investors say that will change quickly once it seems clear that the be ok has gotten on top of the inflation problem so we should see cuts placed in toward the end here. >> the incoming co-ceos has credit markets are being squeezed as rising interest rates choke off trading and borrowers opt against taking on new debt. we were taught exclusively why that markets are now at a major inflection point. >> a liquidity in the market is meaningfully lower today than it was pretty covid or even in

2021. we are not seeing a lot of trading volume or new issuance and high-yield bonds or in singer young -- or in senior loans. part of that is because there are not willing borrowers. we are also not seem willing sellers or depressed valuation multiples. there was a massive inflection point around rates where we had the reversal of 40 years of downward movement and rates and about 12 or 13 years of using money in the markets. they said as much even this week. the fed is very much of the opinion that it needs to battle inflation to the point where we actually have rates in excess of the nominal inflationary picture. >> we have seen extraordinary

happenings on the monetary policy front. really curious in the time that we have with you to hear your thoughts on what we have seen in the banking sector. i know you have made the point in the past that you are expecting tougher regulation had for u.s. banks. what opportunities would you expect that to create? are you saying those opportunities surface already? >> absolutely. in the case of investment banks, they use their fallacies to commit to deals in the broadly syndicated side. we are seeing a reduction in access to those balance sheets and a reduction in the new volume seen. this is because of the homes that were placed on the balance sheets in 2022. they placed at massive discounts into the market. this really created a big hole in the bank balance sheets in the billions of dollars. the regulators are watching this

very closely. the regional banks in the u.s. have tremendous amounts of real estate loans and other corporate loans as well as a fed that has articulated a higher level of equity capital needed to manage those banks as a result we are seeing how that plays through the markets. a reduction in lending activity in commercial banks across the board. real estate is love -- real estate as well as corporate lending. all to step into that void and partner with banks in some cases as well as just lend directly to borrowers for real estate as well as corporate lending that never have that encumbered lender available to them. >> incoming co-ceo there. some of the other stories we are following from around the world. france remains on edge after protests of the police killing of a teenager continued for a fifth night.

emmanuel macron says 45,000 security officers will remain on duty to contain clashes that have left hundreds of public buildings and shops damaged or ransacked. they put damage at more than 100 million euros. that was down from 1300 the night before. a postadjusted about half of america supports the supreme court decision ending the use of race in college admissions. but views were split along racial and ethnic lines. white and american response approved of the decision of returning affirmative -- affirmative action. pakistan has one from a potential debt default thanks to a draft agreement with the international monetary fund. the finance minister the government expects to receive

$1.1 billion in a few days after i met board approval. pakistan wants to burst -- boost reserves to $14 million but has $23 billion of debt obligations do in the company fiscal year. >> japan is sent to win approval to discharge more than one million cubic leaders of treated water from the nuclear disaster site into the pacific ocean. it is a controversial plan that has upset china. john, who is approving the release of this water when there is controversy, especially with the criticism coming from neighbors? how are they assessing the safety of the water? >> we have the head of the watchdog coming to japan. he will come look at that seizures that japan has to see

if it is within industry standards. it happened in south korea, china, canada. but there are strict guidelines for this. it is a lot of water in fukushima. it is 100 million cubic meters of it. 500 of the big sized swimming pools. japan is trying to do this within protocols and safety as it is applied to other nuclear power plant. >> how is this expected to have an impact when it comes to the border debate over the use of nuclear? >> japan is trying to get its nuclear industry backup into shape which after the fukushima disaster in 2011, japan try to

wean itself off nuclear power. with embargoes from russian oil, a difficult energy situation and being a resource here, japan is dependent on nuclear energy. this will help the process and part of the overall process of getting them back up to speed in japan. it is a difficult thing to do. you have south korea, china, pacific island nations are trying to do this safely. they have three to that is radioactive. this causes concern. it is a difficult balance of trying to keep the science and the economy and the diplomacy all coming together with this fukushima water release. >> the chinese foreign ministry says the ocean is not japan's private sewer so that the international reaction is positive. john herskovitz with the latest.

weighing in on japan's developments on the chip industry, an interview with their president and cto is coming up next. this is bloomberg. ♪

>> japanese markets will open at the top of the hour.

look at the day ahead. they may show us slight improvement in sentiment. an hour from now, they are reducing the final manufacturing pmi for the june preliminary reading. we will continue to watch the yen movements as it becomes the worst performing g10 currencies this year. u.s. treasury secretary janet yellen is in talks with japan on the pros and cons of foreign exchange intervention. and of course at a time of residue police tensions, japan is aiming to bolster its own semiconductor industry. some of the country's biggest electronics firms including ibm japan. >> this vase is a pretty daunting challenge of creating that world-class chipmaker to catch up with industry leaders.

this is a vp and chief technology officer involved in this project. really great to have you with us. this is a challenge. how big is this challenge? what you see as the biggest abilities ahead in doing so? >> thank you for having us. of course, this is the technology and there are a lot of challenges going ahead. ibm has been supporting this industry in the last couple of decades in multiple generations of deployments. we know how to do it. this can be overcome. having said that, i think it is still not so easy to recover the capability in japan to mass-produce this.

it is the whole supply chain and technical personnel's and capabilities to surround that to be built up. there -- they are still challenging the situation. in terms of quality hiring and researchers to back up that, including the creation of this drug echo system around -- ecosystem around this. >> there are some fairly advanced geometries when it comes to the animated we are talking about. that -- will that require deeper engineering prowess that is available? are you confident in that ambition? >> absolutely. there are a lot of difficulties and challenges needed to be overcome. just like every generation, we enter into the new technology. there is a process to verify

these and proceed into the manufacturing quality. those are the processes we believe we will be able to overcome together. >> you have talked about cooperating in terms of chipmaking technology with other companies as well. you have provided chipmaking technology to the foundry division as well. give us some insight on what the chip industry landscape will look like over the next 10 years in terms of cooperation but also competition. >> yes. it is a very good question. in terms of corporations, the world demand of the vast semiconductor trip is continued to block. there will be more market than they can currently supply. in that sense, we are collaborating to work together to fulfill the demand.

i am very confident about capability and capacity that needs to be grown as well. in terms of competition, i think there is several fronts. one competes with the continuation of the semiconductor chip. as everybody knows, in order to make the chip more efficient and cheaper and faster, you need to shrink it but there is a technical difficulty and limitation we are always chasing. what we do today is the tiniest bit. everyone is competing with the next generation of technology. how to field the environment for the mass production.

>> how does the fact that work into the cooperation and competition? do you see them working with them? >> it is always the open. as far as there is an opportunity and business arrangement is reasonable, there is always a chance to collaborate with each other. the semiconductor industry is much more complicated than we can see from outside. including all the suppliers and ecosystem for the whole operation. even the technical talents are exchangeable. there are a lot of ideas that allows us to collaborate by each other. also, the business arrangement case-by-case settlement. >> when it comes to the business

environment in japan, we are talking about the weakness in the japanese yen. when will the bank of japan make a pivot? we are also talking about the geopolitical background and the tech rivalry between the u.s. and china and where japan fits and all of that. where are your key priorities? the key issues you are looking at when you are looking to grow your business in the chip industry? >> i am not an economy specialist. i can't comment on the exchange rates. we have export and import. when it comes to the stability for the industry, as far as ibm is concerned, it is always beneficial to stabilize and diversify the supply chain for those competing -- for the key components. when it comes to the high-tech and differentiating factors. those need to be stabilized.

those need to be diversified. so we can have the stable supply for those. i think that is always the benefit. >> it was really great talking with you. thank you so much. we have breaking news out of japan. we are getting a survey coming from the bank of japan. and right now, a survey. the estimate was for around three for the second quarter. this is a much bigger jump than economists had expected. it is also an acceleration from the previous month. when it comes to the non-manufacturing index, it is also beating expectations for the second quarter. 23 is an improved outlook. an approved number right now from the first quarter. let's talk about large manufacturing. the outlook is a jump on the previous quarter. coming in at nine other than the

communist expected for. also, the nonmanufacturing outlook. this is slightly below expectations but still, very much higher than the previous quarter and this number is coming in at 20 for nonmanufacturing outlook. what we are watching his business spending. how large manufacturers will spend. coming at 13.4%. that is also beating expectations. when we are going through these numbers, we are going to try to get some more insight on the inflation expectations and exchange rate assumptions as well that we are expecting to try very soon. that as we continue to have this very weak japanese yen. the headline you need to watch right now, june, large manufacturing. they are beating expectations much higher than the previous quarter.

we are seeing a drop in inflation expectations as well. we have more to come on daybreak asia. this is bloomberg. ♪

>> fourth of july celebrations

are kicking off your and the u.s.. i barely slept last night with the fireworks. take a look at commodities right now. aaa risk -- expecting a record 42.8 million people over the five day holiday time. average gasoline prices are more than adele and per gallon more than the same time a year ago. we had some weakness in oil prices. that might help those drivers. soaring heat across the central u.s. and the west coast causing energy demand. the same thing here in my house here in the office. prices are down across the board compared with last year thanks to lower natural gas costs. that is hopeful. inflation pressures continued to linger. this is nearly -- never the highest on record. that is in large part to rising input costs including sugar prices which are at a peak.

nobody wants really pricey ice cream. that is really bad news. >> that is not as appealing is it? when it comes to inflation expectations, we are washing japan front and center. watching this as we get to the start of trading it just about five minutes or so. that big surprise there was the large manufacturer. also, where they see inflation in the end at 140 and the full year. but at grand canyon university, we specialize in helping you fit a master's degree in business into your busy day. your graduation team led by your own gcu counselor provides you with the personal support you need to succeed! achieve your goals with a plan and team behind you! find your purpose at grand canyon university. visit gcu.edu

♪

>> this is daybreak asia. we are counting down to the major market opens. it is a holiday shortened week year with the fourth of july celebrations on tuesday. what a phenomenal first half it

was. we are talking about the best first half for the nasdaq 100 ever. the best first half with the s&p 500 since 2019. will a rally continue into the second half? >> the question really is about all this. we are washing the boj. a gauge when it comes to again expectations. the weakest in about 24 years of doing this survey. also, some of those inflation expectations coming down across the borders as well. the expectation really is for the boj to continue being cautious. >> we have breaking news at the moment. we are getting confirmation of janet yellen headed to beijing on july 6 to july 9. she would not be the second member of the biden cabinet to head to china for conversations

after secretary blinken. we weren't expecting this trip to happen. it had been postponed repeatedly early in the year. now with a trip announcement over when and whether the top economic policy maker would had to beijing, the treasury she has had for months that she intends to visit. this coming as we continue to see this escalation of tensions between the two sides. we are getting a little bit more insight onto what they might discuss. secretary yellen will be meeting senior chinese government officials. they will communicate on areas of concern with china and discussing the importance of managing the china relationship. this in order to highlight the efforts of the biden administration to reinstate lines of communication. a confirmation of secretary yellen's visit to beijing taking place from july 6 to july 9.

let's see how the major markets across asia are kicking off the week. >> it is white shock. their plan within 1.2% at the open. they get those results coming into the boj. the broad we throw -- read through of the readthrough is we saw a sharp shift higher in sentiment with a large manufacturing survey coming in at 5:00. -- at five. quit a strong beat there for what had been expected. what else has been really interesting to read through our these max 8 -- expectations about the dollar yen will leave here. that implies some sort of shift in boj policy. there thanksgiving a lot of that weakness. they're still trading near that 145 mark and that has been down to the boj. keeping it's easy -- easing

policies that is in place. the direction of the dollar could drift lower if the fed does not use this technique campaign. we are also watching the expectation her on inflation coming through. we did see inflation expectations dropping down a little bit. still on a five-year basis. japanese companies seeing inflation hitting 2.1% on the year so that is higher than the boj target of 2%. let's take a look at the open here. a lot of that will be coming through the moves we see for the kospi. other major markets down to what was the position in tech stocks in the wall street session because we had tesla for instance and focus on sunday. highlighted the second-quarter deliveries. it does set us up for strong tesla results for the latest quarter. we are watching other tech

stocks given we saw apple injuring the three -- entering the 3 trillion club on friday. in terms of what else we are watching, we do have a lot of pmi data dropping guys out. australia, the big focus will certainly be the rba decision due on tuesday. economists are very much split. it really has been struggling, the rba to get on top of inflation. it is very elevated. brent crude has been online for the last couple of hours. we are a little weaker in the session here. traders are focused on what will be the outlook for demand in the second half. >> let's bring in our next guest. stock valuations and narrow segments of the markets are getting stretched. with us now, the head of applied

research. great to have you with us. take a look at what defined the u.s. markets. a very narrow breadth of what we saw the rally and as well as valuations looking overheated. do you still see opportunities at the moment where investors are being complacent? >> the complacency has declined. we are now at very low levels. usually volatility needs to have a little bit of a spike. they have been walking a very narrow path. that path is getting crowded. >> here in asia, where are you seeing some of the more compelling narratives? we just had a mixed bag.

as a present are so low. but also, inflation expectations. do you see further likes to run when it comes to this kind of structural nature of this japan rally? >> asia has been benefiting from a very narrow story in asia. this is the reallocation of a global supply chain away from china just in case as u.s. and china tensions keep rising. japan has benefited from that. this is still related to one story. we need to see a broad-based rally and volumes move away from just the big tech names. we haven't yet. >> when you expect that to happen? what would lead to that broader rally to take place? what's the rally will take place until investors are secure. until we have reached the peak of interest rate cycles.

we know it is still more to come. the company has been resilient just about everywhere. they could also flip very quickly if things get worse in the second half or if interest rates start to actually bite. the positive, real interest rates. we will just have to sit and wait. >> on the sidelines? where would you still find some opportunities at this point? >> i think people who wanted out already did get out in 2022. maybe in 2023 when they got spooked by the rises and so on. what i'm talking about is the money that is in the market now.

that is more talented than the average. they are happy to stay here and keep playing until the details become too risky and you can lose more than you bargained for. >> are you expecting much from china in terms of the medieval stimulus that will trade -- change trading expectations? >> i think investors will be disappointed by what they saw so far. now distemper regulators to come out again. that is what will happen before investors there in the towel once again. it used to be stronger at this time of year. there is some work to be done by regulators. >> could to have you with us. u.s. treasury secretary janet yellen will travel to beijing

later this week, becoming the second member of the biden cabinet to head to the chinese capital in recent weeks as the world's two largest economies look to mend relations. for more, let's bring in stephen engle who is in beijing. we have been hearing about this potential visit. there is finally some confirmation. what are we expecting? >> now we have a date from the sixth to the ninth. later this week and perhaps over the weekend. we will have all the news on monday to get the respective on janet yellen. it is important because this is the second major secretary from the biden administration. we had antony blinken a few weeks ago go to beijing and that we have janet yellen the treasury secretary. no matter what they talk about, it is positive the two sides are showing a willingness to sit down and hash out the differences. boy are the differences mounting. it was janet yellen who has been talking a lot about de-risking

from the china supply chain. she has talked about moving some supply chain resilience to other nations including japan. in april, janet yellen had a sharply worded speech where she did reaffirm that they are not trying to decouple from china but did admit the united states might have to accept some sort of economic cost by de-risking from the china supply chain. this will be a critical meeting as well. she will be meeting the new leadership team. let's hear what janet yellen had to say in this. >> we really welcome and want to have a healthy economic relationship where we think it is generally beneficial. we have disagreements. my hope in traveling to china is to reestablish contact from a

new group of leaders. we need to get to know one another. >> stephen engle there in beijing. let's get you back to bill for absolute -- a look at some of the movers. watching that tesla story, beating expectations when it comes to the wall street assessment of numbers, does that mean we are seeing suppliers see some big moves? >> that is the story we are seeing so far. we are about 10 minutes into the session for so, sydney and tokyo. just recapping what analysts had been expecting for second-quarter deliveries from tesla. the expectation was for just over 448,000 cars to be delivered. tesla did much better after coming out with a record 466,140 cars worldwide that were shipped. that is a stronger beat than what wall street had been expecting. it doesn't bode well because

some analysts had been bracing for further cost cuts but the reductions we had seen certainly seem to be having their intended effect which is to increase tesla's market share. that is the state of flavor some of tesla's biggest suppliers here in asia. let's take a look at what else we are watching the session today. that is shares of tokyo. essentially, the company seem to demand related to generative ai technology. there will contribute to things over the coming fiscal year. still seeing investors really piling into tech stocks particularly after we saw apple entering the $3 trillion club on friday. >> talking about billings and blades of dollars in the tech sector rebounding. a closer look into china's weakening growth ahead of

factory pmi numbers due in the next hour. plus, a long serving technocrat looks set to take charge of the pboc. we will get bloomberg economics take next i what it may mean for policy. this is bloomberg. ♪

>> big central-bank decisions and the dead driving them are in focus from the survey just south to the u.s. jobs report coming up on friday. our global economics and policy editor kathleen hays is here with the latest. i am not really surprised sentiment improved given the weakness of the japanese yen but what is the overall message we are getting? >> the overall message is there is definitely more optimism out

of japanese companies large and small and the second quarter of the year. we have seen the stock market exploding. we see the eco-numbers looking pretty good on many fronts. they do think the yen is going to remain weaker. you have a lot of things in here that we have together. i'm glad we're starting on this one. yes, in terms of what inflation expectations are, they're looking at small and large manufacturing companies, they are hearing from large and small service companies, they are lower across the board but look how high they still are. this is what the bank of japan is trying to decide. this is the big debate about the july meeting. about whether or not they will do any kind of tweak. inflation is running well above the 2% target. it is expected to be not as strong in the second quarter as it was in the first quarter but look how high. five years out, 4.4%. three years out, 3.8. the large manufacturers and

small manufacturers overall, they do see this inflation as being something that is for real. i will tell you the form of debt to the governor told me when we were prepping for talking about the april meeting that this is one of the very main measures of inflation. there aren't a lot of good measures and japan. this is one they watch very closely. if we were sitting and talking, i would love to ask him if you have to doubt the stability of maintaining. other measures, look at the outlook for the economy, that has improved. the larger companies and manufacturing services. and the expected weakness in the end, what does that tell us? if they expect again to be weak, what does that mean for exporters and importers? a very important survey for the boj.

it is going to continue -- something they will continue to look at. >> atop beneficial says he is watching incoming data before deciding what they should do at the july meeting. there is plenty of incoming data this week. >> that service. there is one we cannot be sure of and that is that the number one is jobs. payrolls on friday. remember how we had this year inflation problem? two or three years ago, the bigger point was i was the jobs report because it shows us how strong the economy is. not to hundred 25,000 is nowhere near as strong as 339,000 except in perspective, that is a good, solid number. a healthy economy is still good for keeping unemployment low. the fed would like to see final demand getting a little bit weaker and the job market with it. unemployment is supposed to fall to 3.6% to 3.7. not getting looser there.

average hourly earnings expected come down a little bit. 4.2% is still not quaint double with the average hourly earnings were averaging before the pandemic started but still, pretty high. if you want to believe in a soft landing being engineered by the fed as they bring down inflation, maybe the supports it but we just saw one of the key inflation reports which is part of the personal consumer spending, the pce report. that is the fed's main measure. it barely moved in the latest rating which came out on friday. that is the problem for the fed. that is what they are trying to figure out. now we will get the minutes from the last meeting on wednesday. it will be interesting to see what the argument for pausing will be. what are the signaling for the next meeting? what would they have to see to continue rate hikes or pause?

in the u.s. every month, more numbers as well. but the jobs report on friday is the big one. this is one that is big, not just for the u.s. and the treasury bondholders but for everybody. i think this rba meeting coming up pretty much split down the middle. will they hike? a lot of drama around this one. essentially a lot of room to move markets. >> that was kathleen hays in new york. we are looking ahead to the rba. the central bank top communist party here. let's get some analysis from the chief asian economist. he is a known quantity. he has been in that deputy rover for over a decade. he is the head of safe. does that mean more of a priority when it comes to you on weakness? how do you gauge this

appointment? >> this seems to be a good move. it is a move that the market will feel relieved about. if you look at his background, he would be in a very good position to deal with the pressing issues of the day. the exchange rates, the other parts of that is growth and property markets. he is at the table for discussions for all these important issues. he is very likely to have his own views he is dealing with here. he would understand the complexity in dealing with those issues and on top of that, he has research experiences in top

universities. that means he understands the approaches and other economies and other central banks in dealing with the kind of things we just talked about. it is sort of the right experience makes. >> this is very complex. it is very hard for us to understand. i think he is dealing with those issues that will likely help with dealing with those exchange rates and property markets and

growth issues. if we are going to the specific issues, at this point, china is we have been talking about in recent weeks, china's we growth has been slowing and this is a very strong case for china to increase and strengthen the supports from the monetary side and the policy support has been dominated by fiscal spending. now, the key issue is the lack of confidence and monetary policy playing a role with the pboc cutting the interest rates, all this going forward. one thing we think is particularly interesting could be the property market. this has been the important person for devising property

markets, he has a more hawkish stance on the property regulation. we do see them taking a more practical approach in dealing with property markets and even for a soft landing and markets. overall, we do see very complex issues in dealing with what he has. >> does that matter in terms of decision-making? we know he ultimately reports to the state council. >> it is a complex issue, we don't know exactly how this will play out.

i think their expansion the different backgrounds. he will have very deep understanding of the complex issues and he can have strong input on those discussions. i think you can have a very important voice in formulating all the policies. >> that was the latest on the shakeup at the pboc. you can get a round up of all the stories that you need to know to get your day going. bloomberg's of sprint -- bloomberg subscribers go to dayb . this is bloomberg. ♪

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>> this is daybreak asia. we are half an hour into the session for japan, korea, you can see we are being led by those moves in the tech sector.

we had tesla second-quarter delivery numbers on saturday. apple getting on friday. the result of the latest market survey out of this week really taking a look at these cost of living particular. the big question that was put our respondent purely nearly 600 replies to this one saint you expected boost your savings? we are looking at some other plans they came out of the survey. what steps the people are taking in order to prepare for over session. the math on this is not stacking up but that is also because you can have more than one response. you can see the vast majority are looking to reduce personal spending and others are looking for a higher paid job or a second job. it is that household economy we are also seeing a lot of people

looking for a second gig in the market. the other factor they came out for this is essentially what will be outpacing inflation over the rest of the year. a lot of people feel confident about the investment for their unfold -- a lot of them expecting them to outpace pressures in the market. let's charge on. it is that outlook for what we are expecting at a fourth of july gathering. essentially, the main topic people are expecting being avoided. it is that ai focus we are seeing really outpacing crypto there. that had been such a hot topic early last year. >> at that we were going to talk about inflation and how pricey hot dogs have become. ai and crypto, something to watch. we do have some breaking news on the manufacturing pmi numbers across asia. let's talk about the japan pmi numbers.

we are confirming we are in contraction territory. about 49.8 from the previous month and take a look at some of the other numbers. one of note is a philippine manufacturing pmi fall into the lowest since july of 2022. we also have the indonesia june manufacturing pmi. actually improving slightly to 52.5 against 50.3. we are firmly in expansion territory. taiwan manufacturing pmi's continuing to be in contraction territory. we continue to see this divergence. we have to talked about this with the previous guest. challenging manufacturing numbers across asia. over more than 13 years, peter has built this lender into singapore's largest listed company now. the very success that is

creating sort of an elephant in the room. let's bring in our guest. we are getting more talk about ceo accession. tell us a little bit more about this. >> good morning. they have been running the bank very successfully for some 13 years and transformed the bank culture. there has been so much digitalization. he also changed the banquet significantly. that is why people are talking. after 13 years, who can replace such a successful ceo? >> this is basically a household name. so how has it gotten to this point?

is this -- is the biggest challenge going to be finding someone as well-regarded? >> definitely. it is a good question. he was running the bank in alpha city in malaysia. now, after 13 years, he also helped implement a wealth management business as well as transform vent -- transaction banking. this is important. this has become a regional hub where major companies around the world are doing business here and making singapore its regional headquarters. that is why he is so successful. who can be so well-rounded, understanding singapore inside out, that is a big question. >> any signs of who is in the running for that position? too early to tell? >> according to sources for

internal candidates running, the first one is the one who helmsley is to do banking business. the second one is the one who runs consumer and wealth business. the singapore had and the one who has been appointed head of strategy and planning. it is still premature to say who will get the job and also, there are no signs that they are stepping down. request that is the latest on dbs and succession dilemma. the stories washing from around the world. elon musk has raised the number of tweets they can do each day. musk says unverified users can view a thousand posts a day while verified once can do 10,000.

they need to account for extreme levels of data scraping. the supreme court -- the survey found that the views hello racial and ethnic lines. the majorities applied to overturning affirmative action. hispanic americans were evenly split and 52% of black respondents disapproved. pakistan has one vital breathing space from one potential debt default after an agreement with the international monetary fund. the finance minister says the government expects to save $1.1 billion after i am a board approval. they want to boost reserves to $14 billion. there are $23 billion of debt obligation do coming in the fiscal year. >> that will definitely help the country at a time when it is struggling to get back on its

feet. that is one year after devastating floods hit the country. we are talking about those funding shortages we talked about. a lack of coordination and many other challenges now weigh in on the recovery there. >> record flooding in pakistan in 2022 left a third of the country underwater. it demonstrated the extreme effects of climate change. the country is still sinking. recovery is far from complete. the new monsoon season is approaching. pakistan is facing a vicious climate cycle. climate change is driving more intense flooding. that is even more devastating. many are worried that the countries on the brink of disaster.

one of the top challenges is food. the flood impact on livestock has limited her son's ability. many blamed the lack of progress here. they have pushed up good prices to record levels. job opportunities have dried up. with climate change, problems only rising around the world, experts warn pakistan's experience could become more common. >> pakistan's climate story was the front and center of big take . bloomberg subscribers can read the full story on our website as well. we have more to come on daybreak asia. is bloomberg.

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>> the idea that when you don't get high levels of growth, you get a big stimulus bazooka. i think people on the ground are starting to realize that those years are now gone. >> even 10 basis points of interest rate because doesn't really move the needle. it is better to have it than not. they should keep doing that.

>> also to reinsure the the government is not going after them if they want to generate good productive employment growth. there will be crucial for sustainable growth over the longer term. >> some of our guests commenting on china's growth prospects and what the government can do to boost the economy. as we count down to the market opens in china, let's bring in charlotte yang. >> all of these expectations of stimulus coming from beijing fading a little bit but they hit the markets. what is the outlook for the next few weeks? what will be the driver of equities? >> for the next week -- next few weeks, the key term for investors still likely to be patient until we hit that july meeting and get a sense of what the key stimulus is likely to be. we recently spoke with over a dozen china managers as well as strategists. investors are expecting a mild

gain for both for this quarter. that is a mild gain. investors are not seeing a clear game changer to jumpstart the country's economy. that is why they say we will probably have to hang out here for longer. request to the developments have any impact on how investors are feeling? >> yes. in terms of this, that will likely be continuity. that could be seen as a positive signal but not too much above expectation. so the situation is definitely a key thing to watch for chinese stocks. this has been a key headwind for the equities market.

>> what are we expecting for the yuan? we saw the stronger fixings for the last four days or so. can we expect authorities to push back on this extreme weakness? >> i think this is what we get from the stronger-than-expected fixing. they are not comparable with this extreme one-sided losing end. but how strong that will be, we will have to see. let's not forget that the authorities invasion could use the you want to support the currency. >> developer stocks are in focus after another tumble in home sales in june. >> for the property sector, this is not comfortable to touch on. a strong recovery is pretty far

from site. we really need to because public sectors are so inclined to. as we see from china's very high employment rate, in week households, it is very unlikely that we could see a strong rebound anytime soon. >> we are also watching some tesla adjacent names. be right he would definitely be one of them. also some of the empires -- suppliers. are we entering upside when it comes to ev demand and a bit of exuberance for that sector? >> yes. for the ev sector, it is being approved. automakers have rushed out to cut prices.

august is the traditional slow season for auto sales. we have seen some of the analysts. for citigroup's coming out saying what is the sales momentum coming out? this is a key thing to watch. they probably have less concerns. there might be some volatility going ahead. >> be sure to tune into bloomberg radio. get in-depth analysis from the daybreak team there. broadcasting live from our studio in hong kong. plenty more ahead. this is bloomberg. ♪

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>> as we head toward the china open, let's talk a little bit about those etf's focusing on individual equity sectors and mainland china. they could continue to lead inflows this year as they outperform equity index peers. as get the details from bloomberg etf intelligence. rebecca, tell us a little bit more about the flows we are seeing and mainland china in the sector.

>> in terms of sector etf's, mainland china really leaves the asia-pacific. in terms of the number of etf's, they have roughly 353 sector etf's. that equips to roughly 72 billion in assets. this is roughly 25% of the global tech here. this is a huge amount. we are really seeing flows into the tech semiconductor and health care etf's. in terms of outflows, we are seeing them across the road based equity indices. an area that is interesting is the health care sector. health care has seen a lot of inflows but from a performance standpoint they have not done really well. ultimately we think this is due to valuation. health care is a bit of a cheaper sector. there is a lot of growth potential in china. we expect more people to invest into this area. >> what other sectors do you see potentially outperforming?

>> i think as we look at areas that are going to outperform, tech is an obvious one. there was a lot of hype around ai currently. tech will ultimately benefit. in a recent survey done, it said that 83% of investors expect to increase their allocation to tech and internet. i think that is an area that will grow. other areas that may do well are sector themes. if we look at a performance standpoint that says tech has performed 10% relative to the broad-based indices which are around 3% from a performance standpoint, we are seeing the performance sectors are performed broad-based indices. >> and we look at northbound, they have a lot more etf's but north bend has 97 etf versus southbound.

but from as it management, north bend has 110 million versus 25 billion. i think that northbound will be doing a lot better in terms of flows last year as they reached a record month. the current program has only been lost a year ago. we expect that northbound will continue to do well. we will have more foreign investors investing into this and the etf program should benefit from this on the northbound side. let's rebecca sitting there. tessa did a record number of cars globally in the second quarter. suggesting the plan to change value by cutting prices is working. this beat wall street expectations. the test have to do more when it comes to bringing prices down? >> yes. i think they expected tessa may have to do a little been more in terms of cutting prices but what we saw on sunday was the price

cut that the u.s. carmaker has already done, tesla to -- delivered 460 -- 466,000 of their cars. we had analysts saying that people were bracing for another round of price cuts. this makes that seem less of a risk. a very strong performance potential in the second quarter. there were still a lot of levers to move when it comes to moving those cars. they did the earliest this year. there were a couple of perks offering free and fast charging. let's see whether they cut

prices as the numbers bear at. >> we know that in china, they face so much competition, especially with those local ev names. what can we expect from their front? >> china is tesla's number two market after the u.s.. it is facing stiff competition there from the likes of byd. that is a chinese car company that has increasingly global ambitions. we are looking at what byd for -- did for the second quarter. these are electric and hybrid cars, clean energy cars. not all of them were pure electric cars. byd delivered around 352,000 electric cars. byd is still behind tesla in

terms of the overall numbers. the sales were up 98% year on year. just coming from nowhere. it is really going international inattention these days. >> there is a look at the outlook when it comes to tesla. we will be watching automakers in china when they come online. we will see how they trade on the back of those tesla numbers. also watching out for ev shares as well as them is byd. the domestic competitor and increasingly, more of a global footprint as well.

>> we are seeing brought upside when it comes to markets in korea and japan. we are talking about every sector on the nikkei 225 being led by technology shares in industrials as well. materials energy, there are higher by more than 1%. this coming at a time when the japanese yen is pretty weak against the u.s. dollar continuing to feel the pressure after touching that 145 level for the first time since november. the japanese yen is the worst-performing g10 currencies this year. it has been down about 9% against the u.s. dollar. we are seeing the divergence between the fed and the boj. as we get more numbers from the survey about business optimism and yen weakness we are seeing, take a look at the kospi up 1%. this is a second session of gains for the korean won. kiwi stocks under a little bit

of pressure. we are seeing a muted reaction. it is a holiday shortened week in the u.s.. not a lot on the u.s. front but we are watching the offshore yuan very closely. 77 is your level after three months of the clients the u.s. dollar. still to come, a deeper look at the fixed income strategy. also, ubs produces its 2023 china earnings growth forecast. we discussed. this is bloomberg. ♪

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♪ david: just like that it's monday again. at 9 a.m. in hong kong, beijing and shanghai. welcome to bloomberg markets