tv Bloomberg Daybreak Australia Bloomberg August 29, 2019 6:00pm-7:00pm EDT
paul: welcome to "daybreak of shrill you." kathleen: i'm kathleen hays at bloomberg world headquarters in new york. inina: i'm selina wang beijing. we are counting down to asia's major market opens. : here are the top stories we are covering in the next hour. president trump indicates new trade talks after china said it will not hit back on tariffs. on.ings season rolls we look at numbers and look
ahead to the last of china's big angst to publish results. two years after taking the wheel, uber's dara khosrowshahi rates his performance so far. we have an exclusive interview. kathleen: all it takes is a little trade war optimism to carry us over the stock market. look what happened -- stocks closing higher across the board in the u.s. today. the s&p 500 approaching a three-week high. not a big market, but still a move in the right direction for most people. the dow gaining 1.25%. , wasasdaq, of course, tech really helped by this optimism on trade. take industrials led the way -- .ech industrials led the way 10 of 11 sectors closed higher today. the only one that did not was staples.
the answer could be that when the trade war showed signs of moving forward, especially after chinese government official who spoke to the commerce department said we're not opens are now about putting more tariffs on the u.s. and retaliating, let's start talking about taking the tariffs off, that is what got this rally going. how about asian markets? that's right. we're seeing a lot more green on the board. the markets were being held hostage to what they were waiting for next and it turned good news." that china is not going to immediately retaliate.
we are reversing some of the losses from yesterday. we do see the asx 200 on it third straight day of gains. yesterday, we saw the health-care sector leading. switching gears and taking a look at what is on tap on the economic calendar. a very busy day. we will be breaking a lot of these numbers later in the hour. want to focus on that japan factory output. industrial output probably rebounded according to bloomberg's economics forecast with analysts projecting a gain of .3% in july after a decline in june. on that bank of korea decision, we will be expecting that benchmark to be mostly unchanged, monitoring that july 25 basis point cut. paul: thanks very much for that.
jessica: u.k. and e.u. teams will meet at least twice a week next month in a bid to resolve the brexit impasse ahead of the october 30 first deadline. london has asked brussels to step up talks, although both sides are playing down the chances of a breakthrough. boris johnson's office says they "some distance apart" on key issues. the eu says it is still awaiting what it calls concrete proposals from the u.k. offering lagarde is clear signs she will stay on the dovish path set by mario draghi. the toolshe bank has to tackle the downturn in europe and must be ready to use them. policymakers meet in two weeks and are expected to launch another round of stimulus. she takes the reins of the ecb in november. chinese news agency has issued what it calls the strongest
for antigovernment protesters in hong kong. it says any activities that challenge the one country, two systems sensible or harm security will not be tolerated. the message comes a day after a pro-democracy leader was attacked by two masked man in a restaurant. agreements to be no on territorial disputes in the south china sea, despite top level talks in beijing. met with xi jinping his counterpart but the two accord.o reach an the leaders did sign a range of deals including a loan agreement or a new rail project across the island. global news 24 hours a day on air and at tictoc on twitter. powered by more than 2700 journalists and analysts and more than 120 countries. i'm jessica summers. this is bloomberg.
paul: thanks very much. president trump says the u.s. and china will new trade calls, though he offered no timeline or other details. he spoke after beijing indicated it will not immediately the latestfter tariff increase and wants to prevent any further escalations. let's bring in trade editor sarah mcgregor. what do we know about the talks? all right, we seem to be having some faculty getting hold of sarah mcgregor. we will take a short break and see if we can reconnect with her. that to come, we also have a chat with uber ceo dara khosrowshahi. he will explain why his country looks immune to the trade war and potential recession. kathleen: first, investor aaron largesays stay away from
paul: as we mentioned earlier, president trump says the u.s. and china will renew trade calls, though he offered no timeline or other details. he made the remarks after beijing indicated it will not retaliate after the latest tariff increase and it wants to prevent any further escalation. let's get to sarah mcgregor now. what can you tell us about these talks? sarah: we have not heard any more today other than trump saying there was a call planned. he did not indicate the level of officials involved. he just said there was a conversation planned. we have not been getting official readouts from these calls. we are often not even notified
they are taking place. very difficult to know even if it took place or what they talked about, but the fact of the matter is if they did speak, it is only two days before the u.s. is expected to increase tariffs on about $110 billion of chinese goods additional, so it is just hard to imagine where they will find common ground 48 hours before these tariffs hit. like -- kathleen: it seems of trade policy chicken, but it seems like the obvious thing would be for the president to say we are going to delay the tariff date, especially after the chinese said they are not so interested in escalating and would like to off the table.s sarah: absolutely. the u.s. chamber of commerce called for the u.s. and china to halt any escalation of tariffs, take a step back to really examine what effect these are having for u.s. companies and businesses.
i think this is, you know, the on the up of pressure trump administration to hold fire on the latest round of tariffs has hit a point where you just cannot overstate it. lawmakers are not in session right now in d.c., but i'm sure he is also getting a lot of pressure from those in his republican party. we saw the usda today cut their soybeans and corn shipments for the 2019 year, which is really an effect of that trade war. we see all this evidence piling up on the economic impact of the tariffs and that puts more pressure on the trump administration to back down. : encouraging news on the talks front, at least, but it was only last week president trump said companies should break off ties with china. have we had any response from u.s. firms who are doing business there? sarah: there was a survey out that was done before trump made the directive that they should cut ties with china, and the
survey showed that big companies have no plans to scale back their investment or move out of china. a lot of them work in the domestic market. obviously, that is a huge selling ground for them, and companies are not necessarily closing up shop despite the difficulties they may face with the trade war. disconnectbit of a between i think what trump was calling for and what companies are actually doing. even when he made that directive, a lot of people questioned how the president of the united states could even make that happen or try to put pressure on companies in that way. kathleen: thank you for joining us. quite a beat to follow these days. she is our senior trade editor at bloomberg news. su keenan is here to take us through the action of the day. where do you want to start? su: let's start with the fact that we have the s&p 500 putting two gains back to back. we saw industrials and tech lead
the way higher, particularly chip stocks. let's go right into the bloomberg. you mentioned gdp data. one of the best quarters for .onsumer spending since 2003 really underscores the story of resilience. again, that was propping up some of the gains. as we go into major movers, you will see energy stocks, chip stocks, and the gains were fairly significant across the board. big moves inf commodities as well. oil rising to a two-week high. orange juice futures jumping thanks to the hurricane. what's the latest? su: a hurricane two years ago cost billions of dollars of damage to the orange groves in florida. if you look at the chart, you can see we are almost at 10% gains just for the week, and that is probably one of the best gains we have seen since 2017. take a look also at oil. that is climbing to a two-week
high on positivity about , but also trade talks stockpiles in u.s. storage falling the most since 2008. kathleen: still an impressive move. thank you for that. the s&p 500 returning more than its smaller cap counterpoint. goingxt guest is still big on small. the president and cio of gives wealth management joins us here in new york. -- the president and cio of gives wealth management -- gibbs wealth management. it seems like if you move forward on a trade war, and a lot of the big corporations stand to gain. they make 40% of their profits overseas. they export more. how does that play in? still lagging.
let's start with the trade war and how it might help boost small caps. yes, large caps can benefit more from the trade war, but they also can be hurt, and it does not look like it will be resolved any time soon. what i'm saying about getting into small caps now is when you look at the projected growth over the next 12 months, he would looking at about five times the rate of growth for small caps versus large. five times. even if large caps pick up a little bit of benefit, 5%, 2%, from the tariffs being eliminated, we're not talking about getting anywhere near the kind of growth you're looking at in the small-cap arena. on top of that, we also have a rather unique inversion. s&p 600 isons of the actually below that of the s&p 500. you've got about a 10% discount for small versus large which almost never happens.
it is very unique because we seen this lag and you are looking at five times the rate of growth. is ae, it looks like there ton of value. they are basically trading well below their average. it will not take much to push these stocks up. even if they don't hit their growth rates, there is a lot of alley-oop. unlikely small caps continue to stay below large .aps kathleen: how do you weave the macro backdrop underpinning. the federal reserve may cut rates more than once. that's because the economy is looking weaker. down,caps, when you go they tend to go up a lot. >> this for me is pretty much a value play with the rate cuts. it tends to favor more of the large caps, so you get these higher valuations, but i think ultimately, for when you are
looking at, again, this inversion of valuations, this is the place to be and as long as the u.s. economy stays stable, we're still looking at strong growth across the board on both sets. if you don't have that exposure on small caps, i would say now is the time to get in. paul: you like small caps, but what are you avoiding? i know you are concerned about the impact of the trade war on retailers, so you are steering clear on retail stocks. are you concerned about the future health of the u.s. consumer overall? >> yes, one of the things we look at andy biggs leaders with this volatility are the industrials, technology, and consumer discretionary, but a few really look into it, retailers have some of the biggest exposure and potential negative impact, particularly going into the holiday season. if we do not see resolution, if there is not another delay, we see massive reductions unexpected profit growth. just in the past two months, retailers for the second half of
the year went from 8% expected growth down to 2%. really meagher, and it just keeps up. they could potentially have profit declines, so it is something we are really concerned about. it is unusual to see such dramatic revisions in just two months for an entire half of the year. paul: going forward, how many concerns do you have about the potential for recession? we talked about a number of indicators -- the 2/10 inversion, and then there is this chart on the bloomberg terminal. this indicators suggest there could be a downturn just around the corner. are you concerned these warnings are getting louder, or have they been overplayed? taking ak we should be look at them. there is another indicator that . love, already sales
i don't see it being imminent. this is certainly something we are looking anywhere from 12 to 24 months out. all these indicators are well forward-looking. i feel that there are opportunities for us to turn the ship around and avoid wreck. none of these indicators are 100%, but it does seem we are to beginning an increase in indicators, but again, we're looking at one or two years down and does not mean you should be getting out of the stock market because the markets still could go up. equity markets in the u.s. economy are two different things . they are highly correlated, but obviously, there are differences. smart investing is separate on that. the careful about where you invest. listening and thinking she's right. after to do some small caps in my portfolio. what do you recommend?
>> i like the s&p 600 small-cap. i specifically like the etf better than the russell 2000 just because we just get a smaller basket, and they tend to be higher quality stocks. tracks theres benchmark really well. it's one of my favorites. kathleen: an industry or sector that you would say that's where you would the if you want to cut it down a little finer. what would you suggest? of the health-care stocks, particularly medical services, really have potential growth. they are not as exposed to terrorists because they tend to not have exposure to either supply chain or revenues in china, so that is one area that long-term we're just seeing higher health-care, one area of growth.
kathleen: i'm kathleen hays in new york. paul: i'm paul allen in sydney. you watching "daybreak australia." uber faces yet another headache two years after dara khosrowshahi took the wheel. a former engineer has been charged in a case involving tech from waymo, adding a criminal element to the drama. need different kinds of management ford different times
in the development of a company. theirmanagement has faults. every management team at the time has their false, but the fact is they built a great company, and they have handed it to me, and of got to take that great company and make it even greater. i think i'm up to the job. while they made the mistakes, the fact is that they built a had weaknessest and has incredible strengths. it is my job to take it to the next level. ki was anthony levandows just charged with stealing self driving technology from google, stealing trade tickets. what do you make of those charges? >> i wasn't here when we brought anthony on board, but what i do know is we went to incredible to make sure any information anthony might have acquired from google -- and it sure looked like he did -- did
not make it to our company. that was our responsibility, and i think we were incredibly diligent in making sure that we were not guilty of anything that could be nefarious one way or the other. we think that when you build, you got to build the right way. anthony is an incredibly talented person. it did not work out, but i think we did the right thing within these walls. emily: the person who was here and spearheaded that acquisition $100 might cost uber million and has already cost some credibility, is still on the board. do you question travis' position on the board? that i am going to live in the here and now. an incredible amount of historical knowledge about the company. he is incredibly bright, as are our other ford members, and use him at the board. he is a very strong advisor, and his background on the company is
incredibly useful, and i think he is supportive. ultimately now, we are a public company, and shareholders are going to get to pick their own board, and that governance process will take care of itself going forward. emily: you talk to him often? >> i talked to him during board members -- board meetings and once in a while after. he is on the board for now and will be on the board tomorrow. ceo,een: that is uber's dara khosrowshahi. audi is said to be in talks to add warren buffett-backed byd for its battery. they plan to deliver fully electric cars with more than half in china. they plan to lift -- list the battery business to raise funds for expansion. paul: saudi aramco is reported to be reevaluating plans for an
ipo. dow jones says it is considering a plan to split what is expected to be the biggest ever share sale in two. following up with an international offering next year or the year after. aramco appears to be looking at tokyo for the listing. kathleen: more pressure on korea's largest company as it navigates the turmoil of a trade war. the supreme court overruled the decision to suspend a prison sentence and is sending the case back to a lower judge. he was arrested in 2017 and spent a year behind bars. the new ruling means he may eventually returned to prison. paul: the reserve bank of india raised its gold holdings by more than 9% of the ending in june, its biggest bridges and newly a the r.b.i. fought
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paul: 6:30 a.m. friday morning in sydney. the market open about 90 minutes away. we saw a positive close in u.s. markets inspired by some good in the trade war. a sense of deja vu, maybe a glitch in the matrix. i'm paul allen in sydney. kathleen: i'm in new york where it is 6:30 p.m. we are going to get right to first word news now with jessica summers. jessica: thanks, kathleen. china has indicated it will not retaliate immediately against the latest u.s. tariffs, saying it is more important to work on
removing existing duties. the commerce ministry says china has ample means to strike back at the focus should be how to escalation inr the trade war. it adds that beijing is launching formal representation with washington on the whole issue. a survey suggests most u.s. companies will ignore president trump's order to leave china and will continue to work there. the u.s. china business council says 87% of respondents say they have neither moved nor plan to move operations out of china. the survey was conducted in june before trump tweeted a directive for american companies to start looking for an alternative to china as a production base. tanker sought by the u.s. for alleged smuggling seems to have change course in the mediterranean. it is shown apparently sailing away from its expected
destination of turkey, but it is not clear if the course is temporary or permanent. president trump says the u.s. is close to a deal with the taliban and is planning to withdraw more than 5000 troops from afghanistan. he did not offer any timeline for pulling soldiers out, but cutting troop levels to 8600 would bring the total down to roughly what it was when the president took office back in january 2017. the fight against the taliban is the longest war in american history. global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 100 20 countries. i'm jessica summers. this is bloomberg. kathleen: thank you very much. let's look at the markets in particular this morning, going back to selena. selina. back to
red,a: looking at a sea of and the group of samsung stocks after the verdict of a retrial on bribery charges, and it could mean he has to go back to jail again. bloomberg is reporting that for a lot of the investments he drove, that could be affected over the long-term in addition to putting overall business at risk. we're seeing samsung electronics close down, but samsung biologics which makes biopharmaceuticals, was one of the biggest losers, falling almost 5%. i want to take a quick look at some stocks, upgrades and downgrades. this is a business card management software company, which only went public a few months ago. at some ofme looking
the earnings on tap, we had many coming out of hong kong/china. bank of china, agricultural bank of china. paul: thanks very much. let's get more on what we should be watching us trading gets under way in asia. bloomberg's global markets editor is with us. as this hugely volatile month draws to a close, we have benchmark yields around 7.5%. do you think that respite is going to last? >> for the last trading day of the month, it has been, as you said, very tumultuous. for a lot of people, little sign of stabilization as we draw august to a close. it will come as a relief to some people and most of the moves we have seen this month has been really in the bond market. we have had stocks come up, but the move in yields, more than a few basis points lower for the 10-year treasury yield. a reminder from the start that
and theeen the long end tens and 30's, shorter durations like the five-year treasury yield have not moved just as much. many of the conditions remain in place for this rally in bonds to keep going. you still have the u.s.-china trade problem, week mobile growth, and things going on on the periphery like the turmoil with brexit and argentina or hong kong, keeping investors on their toes. in essence, we get a bit of stabilization is the month ends, that we have the same picture as we had a few months ago, that things look very rocky and still remain quite fragile. sentiment indeed looking pretty depressed at the moment with equities off the highs and bonds continuing to rally pretty high. it will be interesting as we get into september next week just how things start to play out throughout the remainder of the year.
kathleen: it's amazing the son rally occurred with no global recession, no great crisis. in south korea, sales of convertible bonds are booming. what is causing the demand? the this in the market? >> it is an interesting part of the market, especially because a lot of it is being driven by hedge funds. where is hedge funds in the u.s. and much of europe would be institutional money, in places like south korea, a lot of retail and smaller investors driving a lot of the flow and demand into these kind of .onvertible bonds part of the reason that has triggered the increase here is that governments have supported younger firms to essentially their struggling economy, so they have tried to push money into this area, and of course, this is creating pressures in younger companies, small companies that people do hugeecessarily know a
amount, to have a huge amount of credit ratings and history, so it is a very tricky area. there are some signs of concern from analysts that there are risks building in this part of the economy, but certainly one to watch. volume now looks very strong. paul: thanks very much for joining us. you can check out our gtb library for some of the charts we have been talking about. a look atlet's take earnings season rolling on in china. a top bank posting first half income that meets estimates of more than $23 billion. rosalind chin has been tracking bank results this entire week. the numbers do not look too bad. rosalyn: that's right. they are holding up for the first half. these gains helping net income to grow as well for the past, meeting estimates. consistent that it is ahead of consensus estimates for the full year -- it is ahead of
ensus estimates. there's been all kinds of other pressures playing on net interest margins. part of that, when you look at the terminal charts and the valuations dropping and we see the u.s.-china trade war slowing the economy, adding to burdens on chinese banks. there have not been many calls from the government to increase financing to smaller businesses and also cutting financing cost. you see this white line here, for is the average book china's big four banks, dropping to historic lows. : could bank of china be seeing external pressure, to? >> yes.
all these places have big exposure to places like hong kong. we look at the board, it shows you what the estimates are. that banks like bank are very expensive in hong kong. bank of china being the most. you will see a chart which will show you the difference between exposure between bank of china bigger fiver chinese banks. bank of china derives about 1/5 of operating income to banks overall. basically hong kong is the biggest offshore market. they have about 7% of the total assets here. what is going on in hong kong may be emerging in the results for the next few quarters of the year. back to you. paul: thanks very much for joining us. they earnings, china's oil a first halfd up
of oil explosion and punish refining. making giant some profits slide. our china correspondent joins us . run us through the details. tom: i will give you an overview because there's a few different factors at play here. all we have is pressure on these companies to, as you say, increase exploration and production and spend very heavily. unlike their counterparts, the likes of chevron or royal dutch shell, for example, trying to keep costs under control, they are being pressured by the government to increase production and output has been gradually increasing. some of their investments are starting to pay off. the other factors they have managed to cut costs. in terms of cost of production per barrel of oil, that has fallen.
the benefit of the bottom line as well. the other area they have been focusing on is the production of natural gas. petrochina also saw natural gas production in double digits. kathleen: would you say the thing to do to stand out here? tom: certainly, when you look at net income, net income for the first half rose by about 20%, it logged net income again of about 4.2 billion u.s. dollars. that was above estimates, and again, cost-cutting is a key factor. in terms of petrochina, they also saw net income come in above estimates, logging about $4 billion there. as well, in terms of refining,
they did see some losses. refining is becoming were difficult, but in terms of exploration and production, that offset a lot of the refining and also, their losses in terms of , thosemports of gas losses started to decrease as well, the lowest level in terms of losses since 2016. that also helped to alleviate some of the pressure on petrochina. both morgan stanley and bernstein say these stocks are undervalued. kathleen: some like something we should all be paying attention to. thank you so much. our china correspondent joining us from beijing. more earnings up next. australia's numbers may not be as bad as they look. some bullish analysis coming up. this is bloomberg. ♪
cut. know what everyone is worried about argentina right now, large government debt. people are waiting to see what the next administration will do. stocks were beaten up, bonds have been beaten up. paul: thanks, kathleen. it is friday in australia, so both the end of the working week and the end of earnings season in australia as well. earnings downgrades outnumbered upgrades 321. revenue and profit both increased by 5% and dividends by 6%.
we're joined by the chief at wealth within. just want to get your reaction off the bat. did anything else grab you? >> there were some different areas with that market that i thought were good. the lowest trillion dollar is also something i will be interested in this reporting season, but retail was not so bad. they did all right in that has been an environment where people have been thinking retail is dead. lookingng in the u.s., at home depot and nordstrom -- what was the other one? i cannot remember.
model is not necessarily dead in australia. i think it is doing well, but as you said, the reporting season was not as bad as a lot of people expected, and i think it is quite positive news for australia. paul: we do have an rba that .ontinues to look to cut fiscal stimulus is missing in action. how do you see the coming half? >> i think the next 12 months to two to three years is very, very exciting. we might have just made an all-time high at the end of july after nearly 12 years. it really does all go well for this trillion market. now, there is a
lot of doom and gloom that has been around the markets for at least 12 months or even longer. the china trade war talks of recessionary environment, etc., and that just spells opportunity for me. australia has been lagging behind a little bit and now is the time to play catch-up. youou study world markets, know that both australia and the u.s. are pretty aligned. they will get out of sync and the u.s. was sprint off away from australia. now is the time for us trillion to shine where is america will not be as bullish. kathleen: 2023 is a very optimistic outlook. like it, a industry sector, are there particular companies you are positive on? care.ike energy, health
i think there's huge opportunity, especially china's growth has slowed, but it is still doing around 5% to 6%. is there, a lot of the rest of asia are growing quite solidly. financial services has been down since march, april 2015. all the banks have been down. to me, now the dust is starting to settle on the financial services inquiry. i think there are some really opportunities. i love the hp real fortescue -- fortescue. not right now, but in a couple of months they will be great. there's some really good opportunities in the marketplace.
kathleen: what is the biggest risk to your outlook? risk to thest outlook really is if the china trade war does not abate over the next 12 months. interest rates staying really, really low, i think that is a good sign. obviously, there's been tax cuts. there should be a bit more spending, but i think australia has been held back so long, i don't think the downsize happen -- down sides happen on this trillion market. i think there are some really good opportunities for mom and dad investors. i think mom and dad investors have been very scared of the market for the last few years but are starting to get that confidence back to be able to get into the market. i think right now, as long as you are protecting downside risk on the stocks you are buying, i think everything is rosy from here. paul: very optimistic outlook.
now if theck check latest business flash headlines. china's biggest banks are seeing margins squeezed by the drive to bolster the economy. net interest margins slid slightly from a year earlier. top leaders have got to government calls to increase loans the small business by 35% the first six months of the year.
volkswagen's audi is said to be buffett to add warren byd to its battery suppliers. plans to list its battery business in the next few years to raise funds for expansion. uber sees a clear road ahead to profitability. the ceo said the company will focus on promising areas. uber slumped 27% since may's ipo. earlier this month, it reported a quarterly net loss of more than i billion dollars. -- more than $5 billion. >> we now have a path to profitability, i believe.
while we have had bumps on the road and every adventure has bumps on the road, i like where we are and i especially like the position we're in now for the next few years. kathleen: the bank of korea made a surprising rate cut last month as the global economics slowdown, the trade war, and its own spat with japan forced it to cut rates. 22 out of 25 economists surveyed by bloomberg safe they will not be making another rate cut. the bank of korea almost never happens -- almost never makes that to back rate cuts. three people in the survey say they will cut hours from now. one of the biggest reasons right on this chart -- exports. you can see at the far side of in screen about eight months a row of lower exports. last few months down 13% year-over-year. remember, korea is the 11th biggest country in the world and the fourth biggest exporter.
its wings well above its weight when it comes to exports. it says isecast already looking to optimistic. recently, scientists sitting through to the broader economy. lastmer confidence tumbled week. you can see this white time along the top. a tumbled more than three points january weakest since 2017. you can see that is unemployment. one cautionary note for the be ok maybe that yellow line. if you lower rates or are too easy on your policy, you might fuel more borrowing. three rates. the turquoise line is that bank of america's key rate, last month cut by 25 basis point.
one-year line, the bond yield, the yellow line, the 10-year bond yield are all below bank of korea's key rate. one of the arguments against is they cut again back to back which is something that almost never do. on the other hand, bloomberg economics point out other central banks are cutting their rates. that kind of sets the stage. one other thing to watch is the federal reserve meeting. maybe they will want to wait until september 18 to see what the fed does. could be an important aspect of making that decision, cutting the rate now maybe could wait until they see what the fed is going to do. paul: we will have a few answers pretty soon. we're expecting korean industrial production numbers at the top of the next hour. we will have s&p global ratings
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paul: good morning. i am saikawa in sydney. we are under one hour away from the market open. >> good evening. i am kathleen hays. selina: and i am selina wayne in beijing. -- selina wang in beijing. welcome to "daybreak asia." paul: our top stories this friday, president trump indicates new trade talks after china said it would not step back on new tariffs. it is staying on the mainland.