shery: you're watching "daybreak: asia," coming to your live from new york, sydney, hong kong. annabelle: we are counting down to asia's major market opens. haidi: the top stories this hour. asia is set for a positive open after wall street gains, and optimism from big banks and they revived ai rally led by microsoft products. traders are fully pricing in a quarter-point fed hike next week. plus, the maestri three-week absence of china's foreign minister fuels concerns over freedom of information in the world's second-biggest economy. shery: we saw stocks gaining ground in the regular session. investors were really digesting those earnings beats. not to mention a disappointing industrial production and retail sales numbers. when it comes to earnings, the bkw bank index -- the kbw bank

index seeing its best day in more than six weeks. that is to do with results from morgan stanley and bank of america as well. looking out of the treasury's place, the 10-year yield falling below the 3.8 level. oil prices extending the gains we saw in the new york session. we had risk-on sentiment in the regular session also russian seaborne crude flows degrading to the lowest in six months. haidi: after more than a year in the dealmaking doldrums, wall street big banks are finally seeing lives in their capital markets businesses. bloomberg's su keenan joins us now. we are seeing encouraging signs in the results, bank of america and morgan stanley among them. su: these latest results are really a shot in the arm four stocks. court wall street results for bank of america beat expectations. morgan stanley gate on equities

trading that they really blew the street away with the surprised strength in investment banking. in fact, with these latest two results, bank of america and j.p. morgan standing joint bank of -- bank of america and morgan stanley joint jp morgan and citi on beating estimates. bank of america with the surprised beat in fixed income and equity trading. in fact, they had the best first half sales and trading revenue in more than a decade, zero days of trading losses in the quarter. morgan stanley it executives pointed to an improved outlook. the ceo james gorman says the end of the second quarter was encouraging. look what it did to the stock, rising the most in six months. also, james gorman told bloomberg that the fed's new capital requirements that have been revamped to mirror basel iii do not concern him because they are years away. let's listen.

>> based upon vice chair's speech, they are going ahead with a holistic basil review that will be proposed in a couple of weeks and i expect it to be pretty challenging for the banking system at first blush. there will be a lot of discussion. my guess is none of this gets implemented before the end of 2026. several years to adjust. su: 2026. wow. he also said the kinds of things that wall street wanted to hear, that he delivered solid results in a challenging time, and that he sees things getting better, that we are overall in a better place and with a better turn. we should point out bank of america clearly improved its net income outlook for the full year. the bank index surged 3%, a sign investors really embraced this news. shery: when can we expect that turnaround in investment banking, then?

su: gorman says we have clearly hit the bottom and turned the corner. he doesn't see deals coming back right away, he says it will probably be into 2024. again, that is all the street needed to take off. it has been a rough time for jill making an investment banking. to help four major banks, analysts say, beat expectations, this shows we have turned the corner. we have also seen bank of america and the other banks talk about whether they see a hard landing or soft landing. of america had positive -- bank of america had positive comments on that. we are now looking ahead to goldman sachs which reports on wednesday. what is much in focus is that goldman sachs, for the first time ever, warned the streets that results are not going to be that great. specifically those close to the matter say it could be the worst quarter under ceo david

solomon's reign. a lot of focus on that and how it might change sentiment. stay tuned. shery: bloomberg's su keenan there with the latest on bank earnings. treasury secretary janet yellen is growing confident that a cooling u.s. labor market is easing up the pressure on inflation. meanwhile former dallas fed president robert kaplan telling us that the data all but guarantee another rate hike next week. our global economics and policy editor kathleen hays is here. an optimistic yellen and a pessimistic kaplan. kathleen: couldn't have said it better myself. but start with yellen. she said some very simple but important things that she was at the g20 meeting. she doesn't expect a recession, and she fleshes it out with saying that she can see the labor market is cooling off, but not so much it is getting week, enough, though, to take pressure

off of things like home prices, used-car prices. this is why she is confident. i can extrapolate from this that inflation is going to come down -- she didn't say anything about the fed not hiking rates -- but here is something she did say, the intensity of hiring demands on the part of firms has subsided. and the labor market is cooling without any distress associated with it. this is with the bidenomics than which claims to be something that will help joe biden in 2024 as well. robert kaplan is former president of the dallas federal reserve bank, he was on our show -- he is on her show somewhat regularly and glad he could join us today. after saying the fed should pause in june to assess the impact of the smaller to medium-sized banking crisis on the u.s. economy, he says they will do the 25-basis point hike. inflation is not under control yet. let's listen. robert: if i were at the fomc, i

would do that also. while inflation has improved and the economy is very much an bag, manufacturing and anything interest-which sensitive is we, the service sector is very resilient. the concern is that the services-sector inflation is going to be sticky. kathleen: so, robert kaplan says a hike in july, then they will watch the data. one of the biggest things is the fact that the fiscal stimulus from things like the inflation reduction act, all the other money that is in the economy showing up across the country in construction, helping to boost wages. people leaving target and walmart at $22 an hour to go and work on a construction site for $35, that is a factor. it will be interesting when we hear from jay powell after their press conference next week and their decision. haidi: and in japan, you can't keep speculation down. governor ueda are again having

to pour cold water on the idea that the fed will tweak next week. we get the inflation print on friday. why are these expectations building again? kathleen: inflation is high and staying above target. the bond market and both the yen are better controlled, but there is concern that we are getting close to that point on the ycc band of 0.5 on either side of zero. that ueda says we will not get out of negative rates. . that would be a true change in policy. but, at the very least, we are expected to raise our inflation forecast and that will be seen as a step towards the next step in changing yield curve control. this inflation number coming out in a couple of days is all the more important. because 4.3, that is not the one you care much about. but 2.6, on their target rate of

2%, that is the one we are watching. remember when he says over and over that they made a mistake in the early 2000's, they raised rates prematurely and push the economy back into recession -- might seem like a long time ago too many of us -- at the same time there are a lot of people at the boj who lived through that and they don't want to make that mistake again. he was part of that crew. . that is one of the reason people say he is reluctant, and he will wait until he is absolutely 100% sure that inflation will stay at 2% and move higher. haidi: our global economics and policy editor kathleen hays there. let's get you to belle in haakon. what are you watching, and how are things looking? [laughter] annabelle: essentially we are focusing in on inflation. we just had new zealand numbers coming out for the second quarter, coming in for more than expected at 6%. still quite a big reduction from the reading prior.

what we're seeing in markets is a bit of firmness coming into the kiwi dollar. bond yields had been trading lower. now they are fairly flat, but just off those levels. it tells us perhaps traders are bracing that we will need to see that rbnz staying more hawkish. how long this lasts? probably will start to see it disappear throughout the morning session given the rbnz at have signaled they have done enough tightening to stay on hold for the coming months. in fact they do see inflation overly decelerating as we move toward 2023. that is the state of play on new zealand inflation. let's look at equities. futures are pointing to a fairly mixed start. we have austria looking to open higher. china is the big focus -- we have australia looking to open higher. china is the big focus. we had the consumption plan yesterday, more stimulus measures but falling short of

what investors are really hoping for good if we change our now, we are starting to see the stress intensifying once again. in china's property market. we have home sales falling. as a result, developer funding really drying out. down 22% of the year. the expectation is that we will start to see defaults. already seeing some big names saying they will be struggling to service their debt obligation. wanda said similar things yesterday in their session. hsbc saying when you look at high-yield property bonds, expect default rates to start a pickup in the months ahead. shery: and still ahead, the biden administration about to move forward with new regulations on u.s. investments in chinese firms. we will discuss that with a former deputy assistant to the u.s. trade representative later. but first, state street still sees upside for equities,

favoring those in the u.s. and europe. their global cio joins us, next. this is bloomberg. ♪

>> we will need to hike in july again. but, from july onward, i think

we have to carefully watch what the data tells us on the distribution of risks surrounding the baseline. for july i think it is a necessity. for anything beyond july it would utmost be a possibility, but by no means a certainty. haidi: ecb governing council member klasse knot there. our next guest is the global chief investment officer at state street investors, lori heinel. tell me what is compelling to you and why are broadly underweight asia. lori: first and foremost, we think the likelihood of the fed achieving a soft landing if the u.s. increasing. earlier this year without the fed might go too far from the rate increase standpoint and we still think there is a danger of that, but the labor markets have been incredibly resilient, consumers have been incredibly resilient, and you have seen a pivot from good spending to services spending.

in europe we see a similar dynamic where the continent has been resilient against a number of geopolitical shocks but also seeing the benefit to industrials, materials and other parts of the market recovery. asia is in a different place. certainly everybody was enthusiastic about china reopening at the beginning of the year, but it did improve as robust or durable as many believed it might be, in a matter of fact we are seeing dramatic slowdown. that weigh on thes region. and other things like japanese inflation are other things were keeping an eye on. haidi: so within asia you are not enthusiastic in partaking in the japanese rally, for example, or opportunities in some of the more emerging markets like india that are expected to get outflows redirected from investors in china? lori: there might be select countries that we actually see opportunity or perhaps even more

importantly, companies within those countries that can benefit from the trends bid from an asset allocation standpoint, where looking where are those high-conviction ideas? where other places with a high risk return? asia at large is not a place where seeing large opportunity and emerging markets as well. not the risk-reward we would like to see. we are much focused on the u.s. and europe from an equity standpoint. shery: that is not necessarily been the call we have been hearing from other analysts, especially given the valuation perspective were a lot of things in the u.s. seem pretty expensive at the moment. lori: interesting point, and i get that question all the time, why are you buying u.s. at very healthy valuations. there are a couple of things here. first of all, if you look at the history of earnings forecasts in the last couple of years, emerging markets have disappointed time and time again. even though earnings may look

relatively attractive and valuations may look pretty good based on future earnings, that just has not been the follow-through. we want to see more conviction there before we are actually willing to buy the story. in the u.s., there is still a lot of opportunity for the market to broaden out. valuation levels are definitely concentrated, but we are starting to see other parts of the market are to submit, a rally in materials, consumer discretionary, potentially even at large financials take part. shery: how is your positioning in cash? lori: actually, that is one of our largest overweight right now, that is practically from our fixed income asset allocation. we are holding 8.5 percent cash against a strategic rate of zero. when you get paid to hold cash, you don't have to worry about creditor duration risk, and if you have some dry powder, as

opportunities present, that is a good place to keep some dry powder for clients. haidi: you're seeing consolidation around gold prices as we try to work out what the fed's path will be. do you think there is a role for that in the portfolio given the geopolitical concerns are not going away? lori: we actually have had a small tactical position in gold as well. certainly the geopolitical concerns. we have a bit of a barbell position in the portfolio. while we are more or less viewing the likelihood of a soft landing to be increasing, we also are having some low duration treasuries, a little bit of the gold and other assets in the portfolio that would benefit, in the event that call approves to not be what we see. we think gold has advantages to the portfolio level right now. shery: lori heinel, great to have you with us, global chief investment officer at state street. you can get a roundup of all the

stories you need to know to get your day going on this edition of daybreak. terminal subscribers, go to dayb . also available on mobile on the bloomberg anywhere app. you can also customize the settings as well for the news on the industries and assets that you care about. this is bloomberg. ♪ the first time you connected your godaddy website and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

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shery: microsoft shares soared to a record after the company revealed its new corporate ai tool called co-pilot will cost $30 per user, per month. for more let's bring in bloomberg's microsoft and ai reporter dina bass. this will be on top of what most consumers already pay. is this a reflection of demand or just how much it costs to run it? dina: a bit of both.

microsoft has had a couple of hundred corporate testers. they say they have had a lot of people begging to get into that program. also, running these sorts of systems requires very pricey chips and expensive cloud compute power so it is expensive but microsoft as they are thinking of making these things available. the price we got today from them was probably higher than what analysts expected. at the you mentioned, investors are very optimistic and enthusiastic because they see the possibility of a lot of office customers adding this additional tier on and bring more revenue for microsoft. shery: what does this mean for the rest of the industry? is this a scene-et cetera for what is to come for other companies as well? dina: there are other companies rolling out other tools.

microsoft has this dominant office software which the vast majority of companies use to organize their corporate information, documents, spreadsheets and an. that gives microsoft the ability to offer ai tools that run analysis or predictions or generate content, on top of each company's own set of information. that is harder to do if you don't have that information. at the same time, there are other companies trying to do similar things that work with their own corporate software programs, people like salesforce, for example. haidi: we also had the announcement about meta partnering with microsoft for its own ai tech. i am curious how sits alongside the concept of a corporate ai from microsoft. dina: the meta product is a

large language model, an alternative to what openai offers and what google is offering as well, but it is open source, freely available through microsoft and later on through other cloud providers like amazon. microsoft has been hedging its bets a little bit between the partnership with openai, and also offering open source tools. they have a deal with a company called huggingface which houses a lot of the open source repositories of ai models, so that let's microsoft customers who want something that is open-source source that is freely available also able to access it through microsoft. but as you mentioned, they are all in on the openai relationship as well, particularly that $13 billion worth of investment that they have put in. haidi: dena bass there bloomberg's microsoft and ai reporter. let's get more on the stories on the corporate front. sources say a chinese chip startup is considering a hong

kong ipo as soon as this year. we are told they may file in the coming weeks. the company is in talks with investors including state backed firms for a separate financing round that could rates $279 million. tiktok has announced a partnership with warner music giving the video app access to its repertoire, rating more opportunities for artists and songwriters. tiktok has become one of the music industry's most powerful kingmakers, and record labels are pushing for a greater share of revenue. shery: at the moment we are seeing the u.s. dollar holding steady after raising a little bit in the new york session, this putting into perspective, because it has been trading in a narrow range after its worst week since september. jp morgan with a call saying that markets are failing to reflect that threat to dollar dominance.

this, coming from the u.s.-china tension, putting the greenback at risk. and also cold war 2.0 among those scenarios that could further hurt the dollar. the aussie is holding steady against the $68 u.s. level. we are seeing weakness in the offshore yuan continue at the 7.2 level. the weakness of the chinese economy being reflected there, despite the fact that china just released a plan to boost household spending. the japanese yen at the 130 eight level. we had seen strength in an, rising to the strongest level since may on speculation that the

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>> you are watching "daybreak asia." taking a look at one of the most interesting data sets and that is the new zealand inflation members coming through. new zealand bigger on a global stage because the rbnz was a front runner in the tightening cycle. investors, traders, economists watching how the impact of more than 500 basis points are tightening is weighing on the economy. we are still seeing them starting to slow here. the question is whether we are seeing the peak. second-quarter cpi coming in at 6%, harder than had been expected on the quarter, coming in at 1.1% versus expectations

for growth of .9% but still, it is that impact of the rbnz's tightening that is starting to take effect. in terms of what we are watching what the market reaction, it has been quite interesting so far but we are starting to see a moderate somewhat because the kiwi dollar spiked often use given that traders started to question would the rbnz need to stay hawkish? starting to pull back somewhat. bond moves as well have really started to moderate in the session. yields were trending lower. it should be said the rbnz already indicated that they do plan to keep rates on hold. they are done with tightening for now. enough work has been done to bring down price pressures but that is the market reaction so far. shery: imf managing director -- china's gdp to grow 5% this year and says beijing has a policy space to push for stimulus. she spoke exclusively to

haslinda amin from the g20 finance ministers meeting in india. >> what we are predicting for china is growth. this is way better than where they were last year. last year, for the first time in four decades, china grew less than the global economy on average. from 3% last year, they are climbing up. growth is slower than is necessary. consumer confidence is not as strong as it has to be. why? because of the problems in the real estate sector. we also see export from china slowing down because growth in the world economy is slowing down. demand for manufacturing products from china is slowing down. what can china do about it? our recommendation is first, china

can encourage, through monetary policy steps, especially by cutting rates, more investment so they can perk up the economy. to address the problems in the real estate. so that is going to boost confidence and of course, for china on a medium-term, that is this whole revamping of the economic prospects for china by emphasizing more consumer rather than export driven growth. just going into social protection that gives people confidence, so they don't pile up their savings but allow the savings to flow into the economy, to be a source of the investment which would help. >> at what stage would china be

a risk to the global economy? we heard about ripple effects, especially for asian economies in particular. >> right now, china is, despite that slower growth, a source of growth for the world economy. we expect 30% of global growth this year to come from china. china slowing down of course affects asia, affects the world. for the chinese economy not to slow down, the recipe is well known. they can inject some stimulus, and they have the policy space to do it. my expectation is to see china carefully monitoring their growth pattern. they are very keenly interested in what is happening in the rest of the world because that determines their export potential. and they would have to revisit what they have done so far since

covid, which is a bit of hands off -- not a lot of support from policy interventions. i do not expect china to turn into a major problem but let's remember one thing. there are new risks that we are yet to fully internalize. climate shocks. china is very vulnerable to floods, to droughts, to impact from climate events. they are now experiencing record high temperatures. how the economy would adjust to secure agricultural productivity to secure the functionality of the economy is still to be seen, so that thinking of the unthinkable is something we have to. haslinda: might china slip into deflation? >> we don't see that coming.

inflation is low. it's below 1%. but we don't quite see yet disinflationary risks. and again, i want to stress, china has the policy space to do better. haslinda: the imf managing director, krista lena, speaking to haslinda amin. the mystery of the prolonged absence of china's foreign minister is deepening. he has not been seen in public in more than three weeks. officials in beijing are not giving much information about the reason why. for more, let's bring stephen engle in hong kong. what do we know? stephen: not a lot and that's why we have to be careful not to speculate but what we can do is lay out the circumstances as to why, as time goes by, this becomes more of an important story. i have heard of the mystery absence for several weeks now. it wasn't a story back then when i was in china for the world

economic forum. i arrived on june 26. this is simply a coincidence. he has not been seen in public since june 25. back then, about a week into my trip, we started asking where is he? we asked some senior officials and there was no response. now, it has been more than 24 days and we have not seen him and the ministry of foreign affairs has not provided much information other than when his predecessor and essentially his boss represented him at an asean meeting in jakarta where he met with antony blinken. let me bring up two pieces of video. first from june 18. this is antony blinken meeting qin gang and they were having their first talks obviously in beijing. the first time the u.s. secretary of state went to china as secretary of state. very important conversations right here.

fast forward about 3.5 weeks later today asean meeting i mentioned at jakarta on july 13. you would think continuity would be important. qin gang should be there. that's his predecessor in the hallways. the speculation has really started getting quite deep. they have been rumors and reports on social media. the times of london have actually talked about is not necessarily health reasons or it could be something more than health issues. there have been rumors. i'm not going to be a rumormongering but there's been rumors of extramarital affairs and we have also known that other officials at the top echelons -- keep in mind, he is in the central committee of the communist party of china. he's a senior leader even though he's relatively young at 57. and again, when people like this go missing, if you will, in china, with very little explanation from officials, often times, and it can be

related to disciplinary actions. we don't know. i'm not going to get ahead of myself other than the fact, for 24 days, he has been out of public and there's lots of speculation. a very important quote. he is the former editor-in-chief of the very much estate backed global times, a hawk on national policy issues in china. he says there is something everyone is talking about but cannot be talked about publicly. change the page. he says this. disclosing information would help improve official credibility and convey confidence to the private sector. that is a key point. china right now is trying to emphasize confidence in the private sector and this just raises the questions about transparency in china and the whole black box issue where information does not share very readily. keep in mind, qin gang is close

ally of xi jinping. he rose up the ranks fairly quickly. he was only the u.s. ambassador for two years. he's only 57, my age, so not too old. right? anything that reflects badly on qin gang reflect badly on xi jinping. that is why it might be a very sensitive issue. shery: stephen engle there. let's turn to the economic relationship between china and the u.s.. a senior fellow at the center for new american security. she previously served as a deputy assistant at the office of the u.s. trade representative. emily, great to have you with us. the last we heard here at bloomberg is the latest u.s. plans when it comes to these restrictions on investments in china will be very narrow and will be slowly implemented. are you expecting any shift in how washington deals with beijing on its economic ties? >> clearly, the secretary of treasury janet yellen has been

messaging in recent weeks, trying to emphasize that when the united states takes actions in the economic space to put in place restrictions such as new export controls or the anticipated executive order on outbound investment, it will do so in a way that is narrow, targeted, and focused on national security issues economic competitiveness issues. we can continue to see that trend but at the same time, there will continue to be more measures. there will be more restrictions put in place. we know there's a lot more coming so it will continue to be a source of tension in the bilateral relationship. shery: what about tensions between what the biden administration at the white house is trying to do and what congress wants? emily: there's clearly a shared sense of concern over how there might be national security risks that arise from the economic dependency is that the united states on china. it's a slightly different question in terms of what the right response is. some of the questions on the hill, the concerns on the hill, have been seeking to take much broader actions that would not

have a more disruptive effect on the overall relationship, talking about banning wide classes of investment or putting in place really stringent technology controls. that doesn't seem to be where the administration is headed and it does seem like the administration is moving a bit faster than the hill to put some of these new efforts in place so it's definitely an area of debate and contention still in washington but i think when you actually see some of these measures take effect, they will be of the more targeted proportionate nature. haidi: emily, what does the broader landscape look like? we know there will be strategic and competitive tensions between these two superpowers going forward. do you think it's possible to find these grown-up guardrails to mutual benefit? even on more though hanging fruit, less contentious areas like climate, there are concerns that there may be frictions there due to technology and overlap when it comes to these tensions. emily: it's a tough question to

be sure. i think the challenge for the two signs will be to find those areas where they can cooperate and figure out how to compartmentalize a bit. i think the united states signaled that they would like to do that. they talked about competing in some areas and having conflict in other areas and cooperating on those areas of global public concern such as climate change. seems like china is less willing to compartment allies like that and ac linkages between these issues -- and they see linkages between these issues are they are less willing to find areas of cooperation. have been a lot of high-level meetings recently between the two sides. i think that's a really encouraging sign. some of those communication channels are starting to open up again. you will really start to have a better sense over the coming months if those relationships and if those communications are going to deepen. if it is really going to provide some stability and guardrails around the relationship or if it is just a bunch of talk. shery: how much does the broader economic situation and political situation for each country matter when it comes to the

leverage that each side has going into talks like these? emily: it matters a tremendous amount. if you look at some of the signaling from the biden administration, from the very early days, they clearly recognize this dynamic. they wanted to invest at home first and be able to negotiate from a position of strength. they did not try to talk to china. they tried to make mastic investments in our cleaning energy industry -- clean energy industry so when we were in negotiations, we would be doing so on the basis of a stronger economy where we started to de-risk some of these points of contention particularly in the technology relationship. i think we are also watching what is happening in the chinese economy. if china's economy is slowing, experiencing slowing growth, it has structural issues it has not fully resolved, i think that will put them in a difficult position. they are going to need that continued engagement with the global economy and they are going to have to figure out a way to engage with not just the united states but with europe,

partners in asia, japan, south korea, singapore, all of these countries who expressed strong concerns about date practices and unfair trade practices of china for decades and if china is not coming to meet any of these talks with a sense of leverage or strength, at some point, they are going to have to start to really think hard about whether economic reform is something they are going to have to do. >> emily, great to have you with us, senior fellow cnas. this is bloomberg. ♪

>> morgan stanley reported second-quarter results. shares jumped as it topped expectations for investment inking business. james gorman told us he expects any u.s. recession to be mild if it happens at all. james: it is not a given to have a recession. with unemployment where it is, inflation coming down under 4%, unemployment still under 4%, decent economic growth, stable markets, the banking system balance sheets are strong and consumer balance sheets are ok, that's a pretty good bank drop. some industry sectors obviously hurting more than others. you see it in the earnings this quarter. the earnings are not really bad. are not great but they are not disappointing. >> what keeps you up at night, to the extent anything can derail this progress in the economy, what would it be?

james: the macro issue is the china-u.s. relationship. the gdp of those two countries i think is 40% of the global gdp. they are very dependent -- we are very dependent on china. china is more dependent on the rest of the world for trade. that is sort of the tipping point. there is an existential one which is the u.s. defaulting. that did not happen. it is insane that we should be having these discussions but thankfully, they got through the charade again. what really matters is u.s.-china geopolitical relationships for global trade and economic expansion. within that, you see secretary blinken and now secretary yellen both going there. we are getting to a more constructive tone. honestly, after all the years of doing this, i don't worry a lot at night. stuff happens and you deal with it. you have a strategy which is designed to carry the company forward for a decade or more. and you accept the inevitable disappointment on the way or the things that go wrong and that's just part of leadership.

>> speaking of the next 10 years, there is something that has the potential to impact some of the biggest businesses you have and that is the basel iii endgame. they are targeting fee-based businesses which has become a big part of the business as well as trading is mrs.. how do you expect those rules to eventually impact the returns on those businesses? >> firstly, and i will try not to get too weedy, but the rule has not been proposed yet. we have had basel i, basel ii, basel iii. europe has not even complied with its own rules. the u.s. has had a system and all the banks have come through it this cycle very well so based upon the vice chair's speech, they are going ahead with a holistic -- a review that will

be proposed in a couple weeks. i expect it to be pretty challenging for the banking system at first blush but if you read the speech by the vice chair and various other commentary, it's clear that they want input and they are going to need input. there are things that were proposed under the european system that i just don't think are appropriate for the u.s. system like, as you said, changing the way they measure operating risk, weighted assets, based on the fee businesses you have. that's completely intellectually counterintuitive to what you want in fee-based businesses which is stability. i don't see why the u.s. financial system should be dictated by the european regulators. i just don't see where it's going to end up. i think there will be a lot of discussion and my guess is none this gets implemented before the end of 2026. several years to adjust. shery: morgan stanley ceo james gorman speaking with sonali

basak. we have more to calm on "daybreak asia." this is bloomberg. ♪

shery: japan's rising inflation may prove to be a blessing in disguise or retailers, customers have been able to swallow the first price rise for chicken nuggets since 1980 six, helping

both earnings and the outlook for retailer shares had that spring in our senior asia stock reporter. i got to say, takes me back to my japan days where it was the best in japan. it's getting more expensive now. hideyuki: yes, it is. there's growing signs that at least for now, consumers seem to be comfortable with price hikes so far so what happened over the past couple of weeks is that there have been some very good earnings from retailers which took some investors by surprise and one example here -- one of the top three convenience store operators here. after it has announced very

strong earnings, its stock prices rose which is kind of rare. we have seen the operator of the shop. they announced a very good earnings and that is partly because of the recovery in the china business. the stock price also hit daily limits. the biggest japanese retailing company by revenue, their earnings were a little bit disappointing just because of their operation overseas where we can respect it and the domestic business was in good shape. so yes. pretty good shape. shery: does this mean we can expect more upset for the japanese market which has already rallied so much? hideyuki: yes.

some investors are starting to shift back to domestic demand orientated shares including retail shares. one good thing about retail stock at the moment is the cost is likely to fall or at least the cost increase is likely to slow. when you look at the wholesale price, corporate goods price index, as it is called in japan. the increase in wholesale price is going to slow and it's going to fall below consumer inflation rate so that suggests the margin is likely to improve further at least in the near term. >> the market opens in sydney, seoul, and tokyo on next. this is bloomberg. ♪

>> this is "daybreak asia." we are counting down to major market opens as investors digest earnings beats as well as disappointing eco-data in the u.s. but of course there's also the new plans coming from china on boosting household spending and what the japanese yen is also doing ahead of the boj next week. haidi: ahead of those inflation numbers for it on the boj, we are hearing the governor has had to pour cold water over using expectations which are building in tokyo traders and saying it will take a major shift when it comes to the view on the price target for that to happen. what are you watching for us?

annabelle: it does not stop traders for betting for some kind of shift but the open is upon us for cash treasuries and at the start of the day, watching those yields in particular. we saw them paring earlier losses. it was not story of disappointing economic data coming through -- it was that story of disappointing economic data coming through, rising less than had been forecast and an underlying measure of household spending pointing towards a more resilient consumer at the end of the second quarter. in terms of what that means for the fed, we see traders fully pricing in a rate hike next week so looking ahead to that key meeting, the boj also coming into view with this decision at the end of the month as well and as you say, it really is that line they are watching, speaking at the g20 conference in india, saying it's going to keep using the unless the view shifts quite dramatically on the inflation and price target goal. in terms of what else we are watching in the session, it's the bank stocks in particular

because we have the likes of bank of america really glowing past estimates after it's fixed income equity traders as well, delivering a surprise again. we saw morgan stanley rising the most since 20 20's or certainly, watching those at the outset here. the nikkei up 1%. that's a change on because it's not just the u.s. bank stocks in focus. a pretty strong session for tech stocks. particularly microsoft had we saw a big rally, trading higher in after-hours as well but essentially, we saw it setting its price for corporate aia products and just that alone added about $150 billion in the session so today, again, it is that story. perhaps we will see stronger tech moves, keeping in mind what we are seeing with the cosby at the start of trade and we are also seeing still that korean won. it's fairly steady but around the five month high. let's change on because the session also underway with australia, the asx 200 coming

online and we are seeing it here at the start of the day, trending a little bit higher. key details that we are watching in particular will be those materials names. we have the likes of rio tinto, woodside as well putting out their production targets, seeing a bit of softness coming through from the chinese economy and that is really the key one to watch as well not just for metals, broader commodities, but the asian equity benchmark because yesterday in the session , it really was that story of the policies coming out to boost consumption. a lot of concerns around the property sector as well. it's the two stage divergence we are seeing between the u.s. economy and what is going on in china. >> let's bring in our next guest his has a key risk will come from a lack of positive news flow. with us is the director of asia equity research at morningstar. great to have you with us. is this a concern about earnings? is it the rate hike path for major economies? what is the issue this quarter?

>> the main thing is that we need, starting with the u.s. markets, good to see good use come through in terms of earnings but basically because valuations and the market run-up was run primarily by two sectors, technology -- particularly in the states, and asian technology and industrials. you have this case now where valuations are little bit higher particularly in the states, at a 5% discount for the u.s. market. if you don't get the same -- that was mainly, you know, led by the nvidia news. particularly and the fact that -- you don't get that same sort of news flow coming through again. at those valuations, just a 5% discount. you are going to have a chance that if there is some bad news down the road at the markets will pull back. i think for asia, even though we are still at a 15% discount fair value estimate, that becomes a

little bit of an overhang, particularly with china being slower than a lot of investors anticipate at the beginning of the year. >> so that all these to investors having to be more selective than this quarter. where would you go? lorraine: for us, last quarter was easier because was at a very nice discount. the discount for tech is 10%. there are still some buying opportunities, and what we are focusing on -- maybe you have a chance to outperform earnings expectations so the ones that we like -- we are focused on domestic areas that are still in a reopening play and that includes yum! china on the restaurant side and we also like , for example, some of the names that will benefit from a pullback in regulatory

restrictions. if we go -- haidi: you talk about some of the concerns over the weakness of the chinese consumer. the stimulus plan, consumption stimulus plan that we heard and got more details on yesterday, does that give you much upside expectation at all? lorraine: we are still hope -- anything hope that this stage but we are seeing a trickle of policies what we would like to see is a very concrete plan to maybe just address the excess supply in the housing side and i think there are some -- you know, we saw the numbers come in on the real estate market and that really -- the depth and sentiment. where you have excess supply that needs to be cleared so there's some floor to pricing enter consumer confidence. i think that will help the whole effect -- feeling that you get

in china also addressing youth unemployment. these are measures -- employment measures i think will take some time to pan out. we have to push back our expectations over to 2024 verses we had hoped to see of it -- see a bit more stability in the third quarter. haidi: we have seen re-directional flows. the big one has been japan and is also lots of optimism over india or the china alternative within the asian region. you sort of see compelling opportunities in either of those markets? lorraine: japan was one of the areas that we did like. it's also run up quite nicely there as well. we are seeing fewer opportunities but at this stage, we would point out the laggards and those include some of the chip names and tech names.

the ai angle is a little bit less of an impact to most companies in asia right now. this would benefit cyclically as well so i think as that absorption of some of the -- expecting asset sales -- that area to be bottoming out and that will help some of the indicators for these companies so those would be two names we are looking at as well. shery: what are your thoughts when it comes to the direction of the dollar? we saw that since november of last week and at the same time, a little bit more strength in the last couple of sessions. lorraine: we don't really have a specific angle on the dollar. i think -- or on fx for that matter. i think our long-term fuse are that, for example, that you know, that things are going to be fairly -- start to normalize

for other currencies versus the u.s. dollar, particularly if the anticipation is that the fed will start to pause. i think you mentioned one more rate hike -- will start to ease. shery: when you look at the outlook for some of these companies, especially multinationals, do you factor in the currency risk? lorraine: we factor in some long-term currency headwinds. if you are referring to japan, we find that a lot of the companies have diversified their risk over the past couple of decades so the impact of the fx itself is relatively muted. obviously, the yen is nonetheless -- but we are looking at the strength -- basically, the strength of the company's own competitive advantages. a lot of the japanese have been well-established, very well market -- very good market shares, particularly domestically. obviously, their names carry weight overseas and some of them have good market shares overseas as well.

it's only helping them right now slightly for that. but we have so many established manufacturing bases offshore. haidi: lorraine tan at morningstar, always great to have you with us. let's get you back to belle for some of the movers. annabelle: we are seeing this sector broadly gaining in the session this morning, and that was after we had the u.s. bank earnings as well continuing to come in overnight but the headline really on bank of america, because it blew past estimates, essentially. fixed income equity traders delivering surprises to the upside here. that also helped to cover a slight miss that came through in its expected net interest income. morgan stanley as well rose the most in 2020. it put out an improved outlook so something else traders are watching quite close to goldman sachs, citigroup rising off the backs so that is the state of play for some of the big lenders in japan, korea, and australia as we get 10 minutes into the session so far but let's change

on and take a look at another group of stocks that are in focus today because these are the defense names in particular in korea and japan at the start of trade. again just seeing mostly some moves here, small ones to the upside here. but we are keeping them on a watch given that we saw north korea launching two missiles into waters of its east coast early this morning so just coming hours after the u.s. brought a submarine capable of firing nuclear ballistic missiles to a port in south korea for the first time in about four decades so that group in focus there. we are seeing weaker inquiry about higher as we get underway in japan and finally, let's change on because we are also focusing in on the miners this morning in australia in particular because we had rio tinto putting out its production forecasts for the year. it kept that unchanged although it did see a slight dip in the second quarter of 1% and that was down to that weakness in china. woodside aswan looking to keep its production target unchanged but this is a sector that is

extremely sensitive to what is going on in china. shery: we will be discussing all of that with jp morgan who explains how a modest policy using might be on the way in china. disappointing second quarter gdp numbers. not to mention the broader economic activity data. but first, wall street giants are finally seeing signs of life in their capital markets businesses. more on the outlook for the big u.s. banks, next. this is bloomberg. ♪

shery: morgan stanley reported second-quarter results that fell short of analyst estimates for total trading revenue but shares jumped as they talked expectations for their investment banking business. ceo james gorman told us he expects any u.s. recession to be mild if it happens at all. james: it's not a given to have a recession. unemployment where it is, inflation coming down under 4%, unemployment still under 4%, decent economic growth, stable

markets, the banking system balance sheets are strong, and consumer balance sheets are ok, that's a pretty good backdrop. some industry sectors obviously hurting more than others but you see it in the earnings this quarter. the earnings are not really bad. they are not great but they are not disappointing. >> what keeps you up at night to the extent that anything can derail this progress in the economy, what would it be? james: the real macro issue is the china-u.s. relationship. the gdp of those two countries i think is 40% of the global gdp. they are very dependent -- we are very dependent on china. china is more dependent on the rest of the world for trade. that is sort of the tipping point. there is an existential one which is the u.s. defaulted on its debt. that did not happen. it's insane that we should even be having these discussions but thankfully, they got through the charade again. what really matters is u.s.-china geopolitical relationships for global trade and economic expansion and

within that, you have seen secretary blinken and now secretary ellen both going there. we are getting to a more constructive tone. you know, but honestly, after all the years of doing this, i do not worry a lot at night. stuff happens and you deal with it. you have a strategy which is designed to carry the company forward for a decade or more. and you accept the inevitable disappointments along the way or the things that go wrong and that's just part of being in leadership. >> there is something around the corner that has the potential to impact some of the biggest businesses you have and that is the end game. you regulations in the united states and across the globe that are targeting fee-based businesses. as well as trading businesses. how do you expect those rules to eventually impact the returns on those businesses? james: firstly, and i will try not to get too weedy, but the rule has not been proposed yet. we have had basel iii and game.

-- end game so i guess we are not going to get four and five. europe has not complied with its own rules. the u.s. has had a system parallel to basel and all of banks have come through it this cycle very well so based upon the speech, clearly, they are going ahead with a holistic review that will be proposed in a couple weeks. i expect it to be pretty challenging for the banking system at first blush. but if you read the speech by the vice chair and various other commentary, it's clear that they want input and they are going to need input. there are things that were proposed under the european system that i just do not think are appropriate for the u.s. system, like, as you said, changing the way they measure operating risk weighted assets based on the businesses you have. that is completely intellectually counterintuitive to what you want which is stability.

i do not see why the u.s. financial system should be dictated by the european regulators. and i just don't see that is where it is going to end up. i think there will be a lot of discussion and my guess is none of this gets implemented before the end of 2026. so several years to adjust. shery: james gorman speaking with sonali basak. we are speaking of morgan stanley. they are shifting more than 200 technology developers out of mainland china. two new significant national security and data laws. troves of data stored onshore according to people familiar with the matter. these 200 technologists will be moved out of china on these concerns and that shift impacts about one third of tech developers according to our sources and the bankers really overhauling the data strategy after that tightening of access by china, that law went into effect back in september 2021

and it really has major implications for decisions involving data security that will be made by central national security officials. part of the broader tightening of control over the horde of information by xi jinping's administration, by the nations tech companies, but also affecting multinationals and foreign banks as well. the employees are about one third of morgan stanley's tech employees on the mainland and they have been primarily moved to hong kong and singapore and most of the relocation has actually been completed. the remaining staff on the mainland started to build a standalone china system to comply with local regulations. this is really among the most significant that we have seen from a wall street bank. adam haze here with more details on this. what do we make of this? the relocation has mostly been completed. is this the beginning of what we will continue to see given the revelatory legal landscape? adam: not just refinance but

across the whole breadth of companies that are involved where data is so central to the way that the firm operates but clearly in finance, we are going to have to see more of this, aren't we? another indication of how companies are having to change quite significantly and meaningfully, not just the way they organize businesses in the way they position and where they position staff. we understand that most of this has already happened. singapore and hong kong are a beneficiary here. that natural flow of the human talent back into those other financial centers but of course morgan stanley spent many years building out this business and the headcount in china so it's clearly a big move for them to have to go through with this. as you said, kind of almost unprecedented from a wall street bank move of this size, the magnitude we are seeing here and the number of people, more than 200.

very significant development for morgan stanley. for the broader finance space and the companies across the board having to adjust to this new landscape. shery: news from morgan stanley but let's stay on banks because it has been earnings season and the wall street giants are finally showing some signs of life especially when it comes to dealmaking. su keenan is here with the latest. just breakdown the results for us. anything that was surprising. su: the big surprise for bank of america was they just had huge feet -- beat on trading expectations. morgan stanley beat on equity trading but missed on fixed income. the real surprise, especially for morgan stanley, was the optimism for investment banking that came as a result. bank of america and morgan stanley now joining jp morgan and citi in beating on equity underwriting, the most beaten up sector for wall street banks.

we have four u.s. banks exceeding expectations here. bank of america earnings not only beat on fixed income and equity, it was the best first-half sales in those areas in more than a decade. morgan stanley executives pointed to improved outlook. that really helped boost the stocks. let's get to those. we saw after hours for morgan stanley -- check out the way the stock performed in the regular session here in the u.s. it was not the most in six months. at one point, this is a drop the mic moment. he has a succession plan in place over the next 12 months. one thing wall street really wanted to hear, that overall, they are in a better place with a better tone in a challenging environment and bank of america slightly improved its net income outlook for the full year. that had two index up some 3% on the day and certainly, it's

biggest bump in many weeks if not two months. haidi haidi --haidi? su: we heard from that he believes investment banking is at the bottom and that the worst is behind us. when did the deal start picking up? he does not see that happening in the media aftermath. perhaps in 2024 is what he is looking at. but clearly, what these banks had to say about investment banking and about the downturn in trading, a big shot in the arm for banks talks. we also heard performance say he believes it would be a mild recession. you are looking at a survey from bank of america. 60% of fund managers they surveyed believe that there will be a soft landing and perhaps no recession. goldman sachs is up in the u.s. wednesday session. a lot of focus here because for six weeks now, goldman sachs has

been pretty much morning mystery that it will be a weak quarter. people close to the matter say it will be a worst quarter. the bank has been cautioning that they could see a 25% slowdown in trading revenue. shery: su keenan with the key takeaways from bank earnings season this quarter. you can get a roundup of all those stories that you need to know to get your day going in today's edition of "daybreak." bloomberg subscribers can go to dayb . it's also available on mobile in the bloomberg anywhere app. you can customize your settings so you only get the news on the industries and assets you care about. this is bloomberg. ♪

>> we will need to hike in july

again. from july onward, i think we have to carefully watch what the data tells us on the distribution of risks surrounding the baseline. for july, it is a necessity. for anything beyond july, it would at most to be a possibility but by no means a certainty. haidi: that was a cb governing council member. checking on how futures in europe are really opening up at the moment, this is the picture across -- euro stoxx 50 up by .2%, this following on a pretty decent session that bridgett is here. she has no clue that i'm here. she has no clue who's in the helmet. are you ready? -i'm ready! alright.

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haidi: traders expect the fed to resume his tightening cycle next week with a rate hike essentially fully priced and for the first time since early june. the former dallas fed president, robert kaplan, spoke to us earlier and told us more about what the fed will be focusing on with this meeting. >> i do think the fed will raise rates next week. i would do that also. i do not disagree with it. the punchline, which is they are going to raise rates in this meeting, i think the part i am encouraging if i were there would be respectfully to say let's make sure we know why we are raising rates from here. i think the ceases they have had is we have not been restrictive enough for long enough. i think without the government spending programs, i think we would have already been able to

stop raising rates. i think the economy would be much softer than it is now. my concern is i agree with the ultimate actions but we are getting down to the last couple of moves and i want to make sure we understand the pipeline of his government fiscal programs to make sure that we know when we should stop and have a little bit better grip on that. quickset is one of the things that maybe explains why the economy is so resilient to 500 basis points of hikes, 10 in a row almost and i wonder in terms of how that is feeding into the local economy, what about wages? janet yellen seems very optimistic about some slowing in the labor market. inflation will calm down and they won't have to be much more about what do you see in the labor market and the wage side of it? robert: governors and mayors tell me their fiscal situation has not been better than this in the long, long time. in other words, they are flush. they took some of the money they did not need to use for covid

and they stockpiled it. they still have the unspent project money and in addition, whenever there is a big battery plant being announced in the state, it's like dropping a boulder in a pond. the ripple effect has a real impact on tightening the labor market and many of the jobs for these new projects are not coming from the unemployed. they are coming from people who already have jobs in the service sector who are moving so at the national level, it is tricky to track this through the federal budget. the money has already long been counted in the federal budget and even the inflation reduction act money is tricky to track so i understand at the federal government level, you might miss it but at the local level, you can see it in my only suggestion would be track this spending more locally. i think you will see the white house put out a map across the country of manufacturing projects and infrastructure projects.

you see it pretty much covers pretty much across the united states and i see it in my travels around the country. is having an effect on local labor markets. shery: what income levels are we talking about? robert: workers who make $50,000 a year or less. there's 50 million workers who make $50,000 or less. i call it the ground zero of the inflation issue. there are not enough of them. most companies tell you they cannot find them. by and large, when they announce a new project in a city or state , they tend to take those workers who are making $25 an hour and they are offering them $35 an hour so when i talk to construction ceo's, they tell me that is where they are getting these workers from. shery: robert catlin with happen at -- robert kaplan. let's go back to annabelle. what are you seeing? annabelle: well, we are looking

a little bit higher in the session so far and there's a couple of different themes that investors are watching quite closely. you have those tech focus given we saw a big jump in microsoft as it started to price its ai products for corporate and that created a big lift for the sector generally. given the blowout expectations coming through from bank of america. morgan stanley as well as. lifting the entire bank complex. we are seeing bank stocks edging higher in the stocks as well. this is one of the most read terminal stories over the past hour. as take a look at what's happening in hong kong. we are starting to see that talent war being sparked once again. people in hong kong can be adding up to 30% more than their counterparts in singapore for performing the same roles so there has been a cutback in dealmaking activity. still, there is demand for other parts of the business

particularly in bank branches and others in particular. that is the state of play for investment banking strategies. when you take a look at changing on, taking a look at what we see in terms of the director level, that is really where you see the big jump there. that is a $60,000 difference so it makes a lot of difference or sense percent to be looking at hong kong even more closely. haidi: we are of course continuing to watch the broad shifts in terms of market readjustments of expectations for china's growth as well. domestic activity numbers for the second quarter and for june. morgan stanley have trimmed their growth forecast to 5%. there are a couple of expectations that are even lower. barclays now sub 5%. speaking a closely believed to bloomberg at the g20 meetings in india, kristalina georgieva said

the challenges for china are bad news for the global economy. >> we expect 30% of global growth this year to come from china. china slowing down of course effects asia, affects the world. for the chinese economy not to slow down, the recipe is well known. they can inject some stimulus and they have the policy space to do it. >> jp morgan was among the banks to cut projections for growth to 5%. with us now to expand on those views -- great to have you with us. since those expectations were refreshed, we also had greetings from the chinese government and policymakers about the consumption stimulus plan. will it be effective given that we have not had big name

stimulus and we may not get it and even if we do get it, we know that the productivity of stimulus for china has been weakening, too. >> let's put away -- although we are still waiting for details on the limitation of the policy for the home appliance, furniture -- a few weeks ago. it is desirable in a sense that if you look at the economic data, the current major challenge faced by chinese economies is a shortage in demand. if the government just repeats a conventional stimulus package, supporting the supply sector, that will make that problem even worse so from that perspective, it's a very desirable policy to support on the demand side. easing is important. i think that is one of the

policy options but there's also other policy options to consider. for example, -- the household sector to boost the income or are there probably more important is to improve the social safety net. reduce the precautional saving for chinese households. haidi: the credit impulse is worrying because you can make loans available but clearly, the confidence is making an impact when it comes to take up of demand. take a look at the negative turn when it comes to china's credit impulse in june. loan growth has really failed to lift gdp and it's a bit of a warning signal when it comes to chinese assets. how much of this is tied to continued weakness in the property market given we know how much household wealth is tied to that, not to mention other industries that are relying on property? halbin: we have a differing -- we think credit policy has been

quite relaxed. if you measure by the difference between credit growth and nominal gdp growth, actually, it's about historical areas. keeping in mind that nominal gdp growth has been coming much lower in the last one or two quarters. also that we think the market investors worry about the liquidity trap. it's a misleading concept. it's still pretty much advised for the infrastructure activity. if you look at the june activity data, the policy transmission is still there. if you look at the june activity, consumption service has been slowing down quickly. so that suggests the credit support is still affected. the policy framework is problematic, because if you

compare it to conventional measures, housing creates a big difference. housing used to be the starting point for that policy stimulus but we know that housing markets are facing a structural slowdown. the biggest near-term risks. if you look at the economic structure, i think the service sector is slowing down. that's posing a big challenge. if you compare it to two or three years ago, percent of gdp has been coming down, not increasing as we saw in the past decades. shery: that's interesting. i keep focusing on this youth unemployment rate in china at record highs. even climbing in the last 221.3%. how problematic is this for an economy that is trying to grow services, grow consumption, and a whole generation of young people just cannot earn money at

a normal job? halbin: yes, i want to make two quick points. the first is that everyone is talking about youth unemployment rate. the overall unemployment is still 5.2%, relative low, but that is a misleading number because based on the statistic of the so-called survey based rate, it does not include the migrant workers in the rural areas. if you take into account that, the overall labor market condition -- affecting the -- second point, youth unemployment is a big concern. 21 point 3% is a new record high and july very likely will continue to move up due to the seasonality. but the youth unemployment is more about the structural mismatch problem. as i mentioned, if you look at the economic structure, the service sector as a percentage has been declining.

and last year for the first time, the total employment in the service sector declined by more than 12 million in 2022. if you look at the past five to 10 years, young workers -- the college graduates -- particularly high and middle value-added service sector. this is the problem we are facing. the government put a lot of focus on the manufacturing upgrades but the regulatory policy shock in the last two or three years which was leading to a slowdown in the service sector and a job losses in the service sector there. the mismatch in the labor market is the most important reason behind the record high youth unemployment rate. haidi: in the show we have also been watching how because of this disappointing economic growth in china, risk assets around emerging markets have really decoupled from financial assets in china as this chart shows on the bloomberg. i wonder what the implications

are for the economy. because we know that the chinese economy has always been sort of the anchor in smaller, more developing economies when it comes to exports and trade flows. will this have broader implications for other smaller, more vulnerable nations? halbin: in india, weaker expected growth in china. a net implication for the global economy. particularly for this year. if you look at the june activity, it is slowing down in the service and consumption activity which is particularly concerning. talk about the china's post-opening recovery. we have downplayed the conventional channels for china's investment and china's commodity. this is no longer the major channel for this year. instead, we have been arguing that this year, it is mainly

driven by consumption normalization and the chinese tourists will go back to the rest of the world so that is actually benefiting the major tourist destination. if you are facing the slowdown in the service recovery process, then i will say the spillover from china's recovery -- more modest. haidi: it has been a while since we talked about deleveraging. that talk about the back burner to try and struggle through covid zero. how is the central government and local governments going to deal with that time when there's more stimulus and that playbook includes more financing from local governments when debt burdens are already very high? halbin: the government has talked less about deleveraging in recent years instead of stabilizing the debt leverage.

it is a pragmatic adjustment because if you talk about the deleveraging, it will further increase the downward pressure on developments so that is a pragmatic policy adjustment. however, the depth problem will continue to be a major structural issue faced by the chinese economy. the housing market slowdown -- it is posting the biggest risk not only from the macro perspective but because of the real estate investment declining. that was dragging on economic growth. it has financial applications for this year and the spillover for the financing vehicle, increasing their liquidity stress. that has been the problem faced by a number of provinces. we are not expecting an outright default.

it will limit their fiscal capacity to stabilize growth. going forward, we are not going to see an immediate solution for these -- for the distress. they will weigh on the medium-term growth potential for the chinese economy. shery: really appreciate your time. we need to catch up more often. chief china economist at j.p. morgan, thank you. if you missed any part of this conversation, tv is your function. you can dive into any of the securities or bloomberg functions we always talk about and also become part of the conversation so send us those in messages during the shows. this is for bloomberg subscribers only. check it out at tv . this is bloomberg. ♪

haidi: a memo obtained by bloomberg news shows the wuhan institute's federal funding. the move is to pressure beijing into sharing more information on the origins of covid-19. let's bring in our bloomberg health reporter, riley griffin, for the latest on this. you have seen obviously and have gotten access to this memo. what do we know? what sort of numbers are we talking about in terms of the

funding that is being affected? riley: just yesterday, the department of health and human services notified the wuhan institute of virology of the suspension of access to federal funding and potential debarment which means making this decision permanent. cutting them off long term u.s. funding. this is a decision that came after a review that began last september in which the u.s. government determined that the wuhan china-based facility was not compliant with federal regulation. over the course of years, from 2014 to 2020, the wuhan institute of virology received more than $1.4 million in u.s. funding, distributed via the nih and usaid, through several word grants. many are familiar with eco-hotlines which itself has drawn scrutiny from lawmakers. even hhs through its own audit

to determine they did not adequately monitor the grants doled out to the wuhan institute of virology. but this is an incredibly surprising penalty and most drastic action that the u.s. has taken so far over its failure to share documentation about safety practices at the facility. >> especially given that the u.s. has not found any conclusive evidence that this was transmitted or there was a lab accident of any sort so what are the implications then of such a decision and such a penalty for future cooperation and future funding? riley: that is a fabulous question and just to note the u.s. decision by the department of health and human services to suspend this funding comes independently of separate intelligence community assessments which the i.c.

remains split on whether the pandemic started by a transmission or naturally occurring animal to human transmission. as for what this means for broader global funding and foreign research, this is alleged and it question. the u.s. has long spent money supporting them abroad. this is no doubt going to increase tensions with china at a time were international research at the scientific level has certainly been stunted. shery: riley griffin there. here's a quick check on some of the other political stories we are tracking. thailand's parliamentary house speaker will soon decide whether -- is eligible for renomination. arguments being delivered in the next few hours revolve around the rule flagged by some senators that failed motions cannot be raised again in the same session.

if it does manage to win senate support, there is still a court decision hanging over his status as a lawmaker. donald trump says he has been notified that he is a target in the justice department's investigation into efforts to overturn the 2020 election results, signaling that he is likely to be charged with federal crimes. in a post on his true social account, trump says he received a notice some and i from special counsel. trump added that he expects to be charged because such a move almost always means an arrest and indictment. we will be speaking to republican presidential candidate chris christie on balance of power tomorrow at 5:00 p.m. hong kong time. that is 5:00 p.m. on wednesday in new york. this is bloomberg. ♪

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>> we are watching nissan seeing its best day in more than a month. you can see the jump of more than 5.5%, this after nikkei report that says the company aims to return to a 30% dividend payout ratio prioritizing the use of cash for shareholder returns. the nikkei was citing an interview with steven ma,

who says profitability indicators are going well but he did warn about his chinese business because of fierce price competition. nissan expecting the ratio to be 18.7% when it comes to that dividend payout ratio. aiming to return to a 30%, haidi. haidi: let's take a look at how we are looking when it comes to the futures sessions that are trading at the moment going into the start of trading in taiwan, china, and of course in hong kong. this is a picture across the board, a pretty mixed look given that we have seen some modest advances in asia so far in terms of the cash session just extending that rally we saw in the u.s. the kiwi dollar has been that outperform on e-zine inflation but not quite as much as expected. the yen is continuing to weaken after the boj governor really reaffirmed that easing will continue until something really significantly changes. watching of course the outlook when it comes to china. the reaction to that consumption plan as well as a rapidly

shrinking -- focus today. this is bloomberg. ♪ [coughs] good to go. yeah, i think i'll get a second opinion. all these walls gotta go! ah ah ah! i'd love a second opinion. no. i'm going to get a second opinion. with innovation refunds, there's no upfront cost to find out. so why not check like i did for my small business? take the first step to see if your small business qualifies for the erc.

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