tv Bloomberg Markets Asia Bloomberg October 4, 2022 10:00pm-11:00pm EDT
10:00 a.m. in hong kong and singapore. >> our top story, asian stocks getting a rally. hong kong roaring back after the holiday. investors sensing a potential debit toward central-bank policy. the rbnz remains hawkish amid high inflation and a tight labor market. elon musk revives his 20 take over at the original price, avoiding a costly legal battle and sending shares surging. rishaad: a4 .3% gang on the hang seng, but the question is, who let the bulls out? global rally, and the feeling others are going to follow suit. the rbnz did not play ball.
the open daca -- the opec story is in play for david: it might be the turn of the calendar, a first quarter and a reassessment after a few days. we haven't gotten to the point to what those few days means because as of now, we are extending the risk rally across the region. 4.4% of the catch up trade here in hong kong. the dollar, more downside as we speak. against the dm though, the dollar stable right now. we will get to opec in a moment. look at this. in terms of repricing, we have seen it, but the repricing has taken place over the aggregate expectation of how high the fed will actually go. so, there has been a little adjustment. but if you measured it all the way to next year, and a reminder
from the rbnz and now the philippines central-bank that because of inflation, that they say they are ready to take further policy action. it might have just been the rba. yvonne: it might have been the rba bucking the trend, offering parameters that they have very high household and also variable mortgage rates. rate hikes, they really feel the pain, the people there. the market reacting so aggressively is my question, but given we are pricing in, the rbnz seemed to pour cold water on the whole pivot situation and talking more hawkish. 10-year yield down to 14 basis points and the kiwi catching a bid as well. treasuries, 4% for the three year 4.07 had the 10 year a 3.61. -- and the 10-year at 3.61. rishaad: opec considering a hike
of 2 million barrels a day. rbnz suggesting they could go rogue with voluntary cuts. wti seems to be gaining 9% in the last two sessions. if you look at the yen and japan, the yen is off 2.5%, given the depreciation of the currency, a barrel of oil that was $100 a year ago is now $106 yvonne: with all the central-bank action we have seen in the last 48 hours, let's ring in bloomberg policy editor kathleen hays. let's talk about the rbnz. i think markets were thinking that adrian orr might follow the rbnz footsteps. kathleen: inflation is what the
rbnz has first and foremost on its policy screen. if inflation is running higher, it is interesting that they said they need to keep tightening at face. -- at pace. that means tightening aggressively. they considered not just a 50 basis points and did not consider 25, they talked about a 75 basis point hike. could that mean they are going to consider that at the next meeting? it is all about inflation, look at the chart that you can see that the stock market is pricing in a move to 4.7 percent by next year. but this inflation chart, 7.3% year-over-year in the second order is a 32-year high. one thing rbnz said in his policy statement is that cpi is too high, it is over 6% and this is april percentage point above the current rate in australia. maybe we can make that contrast. they see pressures heightening
and that is the kind of thing that you think maybe we are going to get entrenched inflation, expectations rising has been an expectation in new zealand. another headline out of that statement is that a lower new zealand dollar is an upside risk to cpi. defendants considering a 75 basis point type. that is why they have to be more aggressive. remember, the rbnz has been a leader in not just hiking rates, but doing it aggressively. first rate hike was october 2021, still low seeing inflation wasn't as out-of-control and wage pressures were not as big, but they did not even start hiking rates until may 2022. we were waiting for them to get going. there is a contrast between these two central bank governors and the conditions in their countries. if you put it together, it makes sense although foreign-exchange analysts think they're going to have to get back on a more
aggressive rate hike now. it makes sense for adrian orr to continue on the path, he started down that road first and is still on it. rishaad: with the central banks weary of a fragile economy, it does seem it is not fragile. in the u.s., the jobs market. so, our markets correct in trying to price in a fed pivot, and should they be trying to do that? kathleen: nobody's going to hike rates forever. it makes sense for the question is when you see that happening and according to fed officials lately, markets may still be premature. i love this chart showing what is expected. aggressive rate hikes at the next two meetings before the end of the year for the fed. but markets team to be saying come in the first quarter, therefore to have to start cutting. the only way they can start cutting in the first quarter is if inflation is coming down way
faster than the fed is expecting. civil jefferson, who joined the fed or in may, giving a first policy related speech today. he said the fed is going to be resolute, keep fighting inflation, restoring price stability may take some time. i think that signals more rate hike. so, they are not signaling they are there yet. one more person to mention, john williams, president of the new york that, he said that policy is not restrictive yet. they still have a ways to go. next year, they're going to pause. they are not there yet and i think the market is going to be disappointed once they pause at how slowly they start cutting rates. david: that is the big question we have not gotten to. we haven't figured out how high they get. kathleen hays, our global economics and policy editor. she talked about john williams. he speaks again two days from
now, among many fed speakers we will be hearing from these next few days. i would imagine all of them will push back against the narrative that it is time to pivot. rishaad: indeed. let's get over to emily strategist mark. what it -- over to global strategist mark. mark: the pivot, the first one that finds it is going to make the most money. that is what you are saying excitement in equities and bonds. people want to believe that no matter what the federal bank decides, especially the fed, the rba opened the door and peak interest rates are closer. they can see it on the radar they want to be locking inasmuch as they can when that happens --
locking in as much as they can when that happens. the 10-year treasury yield for example, if you look at the speed with which treasury yields went from 2% to 4%, if there is any hint the fed is going to call those in the near term r-star during smaller interest rate hikes, you could have another 100 basis points downside on the 10-year treasury in no time. that is opaque the swings have been in the market at how much money is waiting to get back into the bond market. and you can friends that -- and you can translate that to equities as well. started this quarter particular to a low. no wonder we had a rally in the s&p 500 as people are sensing that there is a chance. you might as well put some money to work. you might be wrong, but if you get it right, the upside potential would be huge. yvonne: and we are seeing that
in hong kong, coming back in a big way. how high a bar is there now to start pricing in that fed pivot? mark: still very high. fed speakers, you have got the most senior fed speakers. we still need to your from jerome powell. williams was pushing back a little bit, but until we hear jerome powell sounding more dovish, it is going to be very hard for us to sustained really big moves -- for us to sustained really big moves in equities and bonds. because he set the tone in jackson hole and the whole market has been reacting to what he said. that is not to say that you can't have a good earnings season with equities and that is coming up soon. take banks start their words next week in america. they have set the bar low, so the earnings season could be a beaten that would continue the rally for equities for a while. but if you look at huge swings
in the markets now, 5% change from one date to the next for the hang seng, and we haven't even reached 18,000 on the hang seng index yet. we are still very much in a bear market, you can still rally aggressively within that context. people would love to find bottom because you can just imagine how far it could go if the turning point was around the corner. david: and we haven't found it yet. mark cranfield from our mliv team. rishaad: let's look at news. we have elon musk reviving his bid to buy 20 or the original price of $54.20 a share. the move backtracks on his efforts to quit the deal and avoid a potential courtroom right. elon musk make the proposal in a letter to twitter on monday according to a filing with the securities and exchange commission. winter shares plumbing 22% in new york after that news.
opec-plus is considering a reduction of its inventory as much as 2 million barrels a day although the impact could be small on global supply. there considering smaller reductions at their meeting wednesday has many members already pump far below their official quota, meaning they won't have to limit production even if limits are set. it is a sign the policy tightening me is beginning to weigh on consumer demand, price is 5.6% from a year ago, easing from august's 5.7%. interest rates may be raised .5% to bridge a gap opened up with the federal reserve as the u.s. hikes aggressively to rainy spiraling inflation. thailand is battling some of its worst flooding in years with large areas of farmland in david -- farmland inundated, 160 hectares of agriculture land affected and 80,000 houses
damaged across 72 provinces. that is pressuring prices on food and household items. more rain is forecast in the coming weeks. ♪ david: just ahead on the show, we assess the probability of a soft landing, and there are 16 indicators that are divided up as to where they might actually fall. we are joined by our guest talk about this in a couple of minutes. yvonne: plus, we had to the opec-plus meeting in vienna for what could be its biggest output cut in two years. this is bloomberg. ♪
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♪ >> right now, the pain i hear every day, the suffering people, they are going through, is on the inflation side. if you let it go, it is a corrosive disease that erodes the purchasing power of people. david: san francisco fed president mary daly, talking about all the things the market is trying to digest. u.s. and european futures are down. that gives you an idea of how far this rally can extend. that depends on how long this notion of a pipit actually -- notion of a cave it -- notion of a pivot actually lasts. ralph? ralph: i am happy to talk about the pivot. david: what do you think of the nose?
ralph -- of the news? ralph: pivot means different things to different people. is it when they pause? is it when they cut? this week for the fed, we are in the camp at the moment that it is a long ways away in terms of when they are going to see -- when we are going to see them pause. we don't think it is until after the march meeting. we have the fed funds rate going all the way to 5% by march. i think the fed come of risk with the fed giving heat to the pivot -- and we saw this with the rba yesterday -- is that the markets are itching for that pivot and it could ease financial conditions so much that it would unwind all the tightening the fed is doing. so, i think they are going to be talking tough quite some time yet. yvonne: you have been crunching the numbers.
you have a hard-landing scenario and a soft-landing scenario. what differentiates the classification into is most at risk? rob: we looked at past tightening cycles, 110 in fact across 30 countries. and we found interesting things when we break down after tightening cycles, we break down the episodes which are hard landings versus soft landings. i think there was 40 hard landings and 60 or so soft landings. and what we found for hard landings was, if you had come up before the tightening cycle started, high inflation or you had excessive house right wrote or high household or corporate debt, there was a bigger risk of they hard landing after the tightening cycle. we also found, during the tightening cycle, and this makes
a lot of sense, substantial amounts of the bigger risk of a hard landing. but also come for tightening cycle lasted a long time, a bigger risk of a hard landing. and by contrast, if the rate hikes are frontloaded, happening early on in the tightening cycle, there is a lower risk of a hard landing. so we look at each of the differences and we thought, what about if we look at those features and apply them to what is happening in this current tightening cycle to see what is happening? david: when you look at energy prices and local currency terms, they are usually higher than they are in the u.s. this is coming against a backdrop of tightening monetary policy, create ending a perfect storm, is it not?
rob: yeah, in our view, it is going to have a significant effect on economies, more so than central bank are letting on, we think -- more so than central banks are leading on, we think. so, we are forecasting recessions, gdp growth in the u.s. -1.1%. europe is even worse, minus one point 6% of the u.k., -1.4%. and economies that had big housing booms in large debt buildup such as canada and australia and south korea. and it is not just tighten it, it is -- not just tightening, it is prices. there is a growing unintended inventory build right now and
that means you need less production going forward. so, it is all these factors. david: what if china recovers next year? to what extent can that help? rob: good question, david. we think dina's economies extreme -- we think china's economy is extremely weak right now it is going to stay week for a few more quarters. but around second-quarter next year, hoping the zero-covid strategy ends and we get more stimulus, we think china's economy will start to rebound. and there could be quite a bit of pent-up demand, as we have seen in other countries that relaxed directions. so, china is very interesting. it is very countercyclical. most economies are slowing down, and more central banks are raising rates. the one exception where the economy is already slowed and rates are being got and fiscal
policy is being eased is china. china could be the one that bounces back before others in the world. yvonne: we have talked some of your peers who basically said things are looking bad, but not as bad as we saw in 1997, not close to that. but how do you look at how this is going to play out with this weakening of currencies? is it somewhat offset by energy prices? how much does that help? rob: we are getting questions like that from investors now, with currencies weakening, is it the start of another asian crisis? the emphatic answer is no, asian economies are in much better shape than they were back in 1996 when you look at foreign currency, external death, fx reserves, current account
positions. and letting currencies be more flexible. so, just very different. that said, we are seeing aggressive fed and we are seeing currencies weakened. i think what asian policymakers are starting to do, i call it an eclectic approach that lessens the asia crisis. they are not going to be dogmatic and just approach on defending currency or doing one policy in the extreme. i think they are using multiple instruments. they will let currencies weakened to an extent, but they will intervene to smooth the currency's depreciation. they will also raise rates. and i think they will use a bunch of capital control instruments as well, whether it is new regulations on state-owned companies or taxes or macro financial measures -- things to throw sand in the oil on capital outflows. i think it is a clever strategy,
more than asian policymakers have and i think if they stick with it, asia is going to be a strong position to be one of the first regions to come down from this. rishaad: we will discuss more ahead. the hang seng tech index up 7%. all 30 on that attentional -- all 30 on that benchmark are moving to the upside, none on the downside. stay with us.
nothing on the other side. this index has done so badly that with these gains, it is back at its highest level since last tuesday. yvonne: let's look at oil and the energy story. energy stocks are a flight this morning. a report this morning says opec may be considering a bigger output cut, 2 million barrels a day. that is double what was initially forecast. rishaad: we will explore all of this at the opec plus meeting in vienna to plot production, policy and more. update on the way, next. ♪
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markets absolutely going gangbusters. hang seng 5.2% to the upside, all on this bet that we could see a pivot earlier than expected from the federal reserve after the bank of australia emerged yesterday. nikkei up one third of 1% after yesterday, putting in its best performance since march. oil prices on the way up. the pound on the way down. probably anomalies on that board. yvonne: a lot of people asking how long the pivot could last. is it profit-taking? who knows. t inflation prints as well came out of the region today. the philippines, 6.9%. still heated. maybe we will see that 50 basis point hike in the next meeting. things looking cooler.
thailand coming up next. we are expecting a 6.5 percent print from thailand. david: that's an hour from now. inflation in the region has started to peel off ever so slightly. when you look at the u.s., that's what it comes down to when it comes to policy. breakevens have come down. for people looking, this is one of the things they point to. the other thing that has fallen goes into the transport demand question on them needing to adjust supply because of demand. have a look at shipping rates. have a look at how far these things have actually come. this is container shipping from the peak. this time next year, headline inflation will be nowhere near levels we saw a couple years ago. rishaad: let's quickly move to opec-plus.
cutting oil supply by up to 2 million barrels per day. it would be the biggest output curb since 2020. elizabeth, what do we know about this? what would this do in terms of supply? elizabeth: right. it looks like everything is coming closer. estimates are going up. it sounds like opec-plus is preparing to make a decisive move to curb the weakening market we've seen. it's important to remember the context of this. many members in opec-plus have been under producing. market watchers said that they need a cut of at least 1.5 billion to make a meaningful impact in putting a floor under oil prices. oil prices slipped quite a bit in q3 from its peak this year.
the momentum would be considered more aggressive and could turn oil into a more supply driven market instead of being driven by recessionary concerns. the flipside is also further shocks to the global economy. that is driven by energy costs. it is going to frustrate other oil consuming countries like the u.s.. president biden visiting saudi arabia. such a move would be a slap in the face for the administration. opec-plus intends to keep matters of oil in its control. this morning, brent above $90. if we see such a move coming from opec-plus, we could expect a bullish perspective on oil. yvonne: the opec-plus wildcard is that maybe you will see members like saudi arabia that will announce voluntary extra
cuts in their oil production. how likely is that scenario? elizabeth: it depends on the magnitudes of the cuts. i think right now, there are certain -- certainties that they will make a decisive move. whether or not saudi arabia will make extra voluntary moves, it's just another way of implementing a significant development in market supply. yeah. i think you have to be honest. david: we will find out. thank you. talking us through the energy parts of this. i think you touched on this already in the previous segment. energy prices remain elevated into next year. do we still have the same
balance of payments and current accounts flowing out and putting pressures on those currencies? >> yes. i think that's the risk that markets fully priced. usually when you have a global growth slowdown, commodity prices come off. the issue this time around is, there's the -- a lot of supply issues. whether it's geopolitics or climate change issues. that could keep pot -- oil prices elevated or go higher. if i bring it back to this region, if oil prices stay high when manufacturing and exports are cooling down, balance of payments pressures could intensify. countries like india, indonesia, philippines are among the most that are very exposed to that. that's an environment -- you just talked about how inflation may be starting to peak in asia. central banks may be thinking of not have to raise rates as much
as the fed in asia. if currencies weekend, it will make it more challenging. it will be a much more challenging environment for asia. i think that's going to play out. yvonne: hold on the second. we have breaking news when it comes to the philippines. they are starting to market a three-part dollar bond. we will see how this all plays out here in terms of the pricing of this for what we presume is the five-year, 25 years. this despite the fact that the peso falls to a record. do you have any more to news on this? david: we are looking at the 25 years at 6.5%. the five is at 155. the 10.5 is down two to two 220. -- down to 220. the treasury rejected every
single offer that was made in the previous option. that's a local currency option but this is the dollar that they are putting forward here. they might just be looking to guide their borrowing curve as far as dollar funding is concerned. rishaad: getting back to rob now. when you look at what has happened psychologically, we got a new month and a new quarter, new p&l's. this could create a psychologically buoyant thing. it's been the danger that you mistake a short squeeze for a trend reversal as far as what's happening. rob: it is certainly possible. we are in a very uncertain environment. the markets have taken heed of any rba which dial down rate hikes. it looks like all central banks
were competing with each other to see who could raise rates the most. the rba has dial it down. that's fair. we are in a very uncertain environment. how much growth is going to slow while inflation pressures are elevated? we will have to see how this plays out. ultimately, if you think about the onion, the first layer of commodity prices coming off has happened. that is increasing talk about a pivot. the core of the onion when you are looking at housing costs, services prices, particularly the labor market and wages, they are still showing a lot of inflationary pressure. i think markets are still going to have a challenging time ahead where growth slowdown is going to continue to gather steam. central banks on the whole are not going to be quick to pivot. i think they want that core of the onion of inflation to show clear signs of coming down.
they don't want to make the mistake of the 1970's and prematurely ease, and then they have to start hiking again. yvonne: yeah. let's peel back the layers a little bit. in asia, we focus a lot on the domestic stories, shining bright. people talk about indonesia, india as well. how bright are those spots? rob: i think asia is an interesting environment. the challenge for asia is not so much inflation. inflation is starting to peak. it is more the spillover from the u.s.. we think the fed is going to be resolute on inflation. that interest rate differential with the u.s. is going to widen more and more. let's hope oil prices don't go up further because that will exacerbate the situation. currency depreciation is going to remain a challenge for asia. that's inflationary and it increases your foreign currency external debt levels.
they may have to do more. maybe raise rates a little bit more. not france laois and but on the currency side. an eclectic approach using multiple instruments is the way to go for asia. they are starting to do that. they continue to do that. asia is going to come out of this pretty well. yvonne: great to have you. coming up, elon musk revising his bid for twitter to avoid a contentious slide. we have a details next. this is bloomberg. ♪
rishaad: a look at the first word news. europe using all measures to keep its financial system stable as russia's invasion of ukraine undermines the region's energy complex. the eu natural services commission is meeting the finance ministers and luxembourg to discuss the situation. the block will be careful to prevent any spillover from energy insecurity. >> every finance minister. everything we do, we want to make sure that nothing will
allow the energy difficulties to flow into financial instability issues, whatever measures we take will be cognizant of the importance of financial stability here in the european union. rishaad: new zealand gas prices suffering their biggest quarterly drop. corelogic is saying the quarterly declines are second only to the record drop in the wake of the financial crisis 14 years ago. prices in auckland falling 4%. the capital seeing a slump of 8.5%. the united states firing several missiles in live fire drills after north korea sent a projectile over japan. first time they've done that in five years. the missile malfunction, crashing inside and air force base early wednesday. panicking nearby residents. governments calling for u.s.
accrued council meeting over north korea's latest launch. the british government says that it sees the prospect of a deal with the european union trade arrangement within weeks. the foreign secretary saying at -- the tone of discussions has improved. the a casey's agreements as achievable. many sticking points to remain. that's a look at the first word headlines. yvonne: drama is back in a very big way. twitter stocks soared 20% after elon musk revived his bid to buy twitter. doing an about-face on his efforts. bloomberg broke the story, musk confirmed it with the fcc. david: let's try to understand the motivations here. why do we think elon musk changed his mind? >> we can possibly know what goes on in his mind but we are hearing that his legal team and
advisors say he may not win this case because every major ruling ahead of the october 17 -- had been in favor of twitter. also, there was a big deposition scheduled for later this week. musk may not want have -- may not have wanted to deal with it so he decided to do the deal after all. the stock shut up like a rocket. tesla was initially down. tesla was in the green. legal experts say this was destined to be the outcome. the parties come to an agreement and settle. it's not really a settlement because musk is taking everything back to square one. 52.20 share that this goes forward. musk tried to back out of the
deal in july. twitter sued him in court to force him to go forward with the purchase. now he is saying he is going to do this. the stock price dropped dramatically with all this uncertainty. it is still a premium, the price. it is the most we've seen. who are the winners here? the merger. they've made a lot of money. great day for them. they were betting against what looked like a deal that was falling apart, that it wouldn't go through. now it looks like there's a greater probability. twitter acknowledged the letter that musk filed with the fcc. they say they plan to close the deal but they've always been saying that. right now, it's not quite a done deal. rishaad: what happens next? does the court case go away? does nothing happen? what happens next? they have to get all the money
together first. >> the judge has asked both sides to commit to the course and explain how they plan to proceed. legal experts say it's unlikely that twitter would let go of the court date and the deposition date. take a look at the timeline. as we know, musk made his overtures. he agreed to the deal. then he backed out of it. one mounting manager told bloomberg, it's not that the two sides don't trust each other. at this point, they hate each other. the expectation is that twitter will ask the court to come up with what is known as a consent judgment. that makes the proposal to close the deal -- any walk away would be a breach of a court order. the financing is the next big step and was always in the deal. it's in the letter that musk just filed with the fcc. it is contingent on the debt financing. we already know the terms of the
12.5 billion financial package. it remains the same. it was put together by a group of banks led by morgan stanley. you are looking at his other debt commitments. there's no doubt that he will be able to get this together. the big headache for the wall straight banks is the environment in the bond market. it was much different back when this was all put together. it's difficult for banks to offload billions of dollars and buy out that now in the market downturn that we are all experiencing. back to you. yvonne: the saga continues. thank you for the latest on twitter. coming up, a third term at the communist party conference. his first 10 years in power, next. ♪
rishaad: we are having a look at the big take now. deep dive into china's evolution during a decade of role. we have jenny marsh joining us now for more on this extensive report. >> we are expected to hear him talk more and use his platform to trumpet his achievements. it's been a decade of constraints when it comes to tighter controls as well.
how would you classify the last 10 years? >> the last 10 years, he has ended extreme policy in china. there's been a lot of progress made in terms of corruption in the communist party. from a societal level, xi has taken china back into an era of ideology. the party has pushed this ideal citizen on people, which is han, heterosexual, married, several children, ambition. rather than forward this opening up policy that china had had, integrating in the world economy, he is cutting china off more from the world. internet controls and physical border closures under covid. western ideas, feminism has been seen as a western idea. lgbtq rights also have been
rolled back. for the average person in china, they have seen a lot of freedoms they were allowed to explore 10 years ago being reined in. it will take some of your freedom but it will make you rich. for the first time, we are seeing the economy slow with covid policies. rishaad: that was the compact, wasn't it? you accept that we will be curtailing your freedoms and return for you to become more prosperous. and that compact with many differences here. not so much unbending control. why did he feel insecure? >> it's hard to ever know why xi feels anything. when he came to mauer -- power, he had newfound wealth. the party was riddled with corruption.
they were seeing protests. people had their land taken from them. xi felt that he had to consolidate power around the potty again -- party again. patriotism brought china to loggerheads with the western world in a way that people didn't expect. it wasn't his profile when he came into power. david: the big take is centered around --. give us context. the significance of why? >> yes. great question. it is this giant mega-city in the heart of china. it's away from beijing and shanghai. it's more representative of life outside. also, it is a giant physical myth -- landmark. he ousted his main rival there to take the top post in 2012 to
rule china. the irony is, his wife and the end was embroiled in a murder scandal. she was embroiled in the murder of a british businessman. before that, he had been seen as the ideological politician. he had a red campaign. xi was seen as a reformer. when he convinced the party to investigate his wife's crimes, he was seen as the reformer coming in. actually, he has been the more ideological the two perhaps. david: great stuff. check that out of course. we are entering the last 60 minutes of trade in the morning session. the reopening story across hong kong. what a massive rally. expected given the move up we've seen. markets coming off of highs that were substantial, as you can see on your screen. yvonne: new zealand continuing
on the tightening path. you are seeing huge move slower when it comes to guilds. 18 basis points. a 50 basis point hike from the rbnz. u.s. futures still in the red this morning. rishaad: what do we have in terms of data and trade numbers? coming out of the u.s.. services pmi's coming out of europe as well. we've got a lot more to come. we are seeing a rally across the board. hang seng now at 4.9% in the green. this is bloomberg. ♪