Was priced in. The story of the day is on the fx markets. You can see the dollar index moving to the upside. Most of that is down to the weakness of sterling. It does look as though volatility is creeping up and spiking further and further. That is implied volatility in the white line. Sixmonth in turquoise. Three months from now, dont forget that is when we have the punitive date of britain leaving the european union. 1. 21 at the moment, some suggesting we could go to 1. 18. Are we pricing in a hard brexit already . Volatility coming up. We are at levels we have not seen since february, perhaps not pricing in a hard brexit when we had the original data for a punitive release of britain from the eu. Lets find out what else is out there. Lets get out to new york and join su keenan for the first word news. Su lets start with the trade talks, which resume in september after the meeting in shanghai ended with no progress. The two sides discussed purposes of forced technology transfer, i. P. Rights and nontariff barriers. The white house says the talks were constructive and washington will host the next round. The peoples daily newspaper rejected president trumps earlier description of ripoff china. The u. S. Has charged a chinese billionaire with a 1. 8 billion in american antidumping tariffs on aluminum. He is the former chairman of asias longest Aluminum Extrusion company. He is accused of lying to u. S. Customs agents to avoid import duties imposed on 2011. You can see the stock dropping. Yet tothe company have respond to the charge. President trump has dismissed the feds rate cut, tweeting that fed chair Jerome Powell has left the country down. He posted after the fed lowered borrowing costs by a quarter point. The reduction is the first in more than a decade. There were two dissenters on the out againstspoke making any cuts. It is intended to insure against Downside Risks from weak Global Growth and trade policy offset the to effects these factors are having on the economy and to spike inflation toward the 2 objective. Su global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im su keenan. This is bloomberg. Just moving into 30, 40 minutes into the chinese session. Lets get on the post fed market reaction. A strategist is with us out of singapore. There is an obvious reaction. What do you think we should be talking about . Good morning. We came in and saw this big rally and long bonds. I was a little bit baffled by it. We set out to find reasons for it. Some of the reasons might be there was a selloff in stocks that might have driven people to a safe haven in bonds. There was a selloff in to your notes that might have driven people toward longer maturities. After all, u. S. Yields are pretty attractive compared to german yields, which fell to 44 basis points. The trouble for all those reasons is they are all temporary reasons. If you look at what chairman powell said, i think there are more irish factors in play bearish factors in play for treasuries. He said the outlook for the economy is favorable. He said part of the reason they cant was to spur in cut was to spur inflation. These are longterm negatives for treasuries. They u. S. 10 year yield is Less ConsumerPrice Inflation rate. That is one sign treasuries are expensive. In my view, the temporary factors that pushed treasuries up yesterday are going to fade and the greater likelihood is yields will rise. Rishaad we have a lot of storm clouds gathering quite literally in hong kong. The usual things affecting markets here, but on top of that we have this weather, we also have daily protests hitting retailers hard. On top of that, that gdp reading as well. I think we have the letters the worst losing streak for hong kong stocks in three years now. Wes i wasnt aware of that. The negatives are building for hong kong stocks. We had the surprise contraction in the economy. We seem to have more and more calls from chinese officials to stop the violent protests and it looks like hong kong is stepping up. There were some arrests of some of the protesters, a rioting charge that carries a maximum sentence of 10 years. So it does seem like the negatives are piling up. If they u. S. China trade war keeps going, that will not be good for hong kong. Hong kong stocks sold 2. 7 in july, which was more than the benchmark. It looks like they are going to lag again in august. Yvonne lets stick to bonds. We have seen ozzy bond yields climbed aussie bond yields climb in response to the fed. What do you think about this ahead of the rba meeting next week . Wes aussie bond yields are 1. 2 . To 1 . S talk of it going unlike the fed, which does not want to go on a series of rate cuts, it looks like the rba is in the middle of a series of rate cuts. It looks like there is more to go. The lesson is german bunds argument are 44 basis points. Bonds, theyatter to can slice through them. 1 ozzy bond yields are not aussie bond yields are not too farfetched. David we are more clear in the cutting cycle, at least with the rba. Morgan us now onset is stanleys asia economist. As an economist, what is a midcycle cut . What does that mean . From a growth extension perspective, the u. S. Economy has seen its cycle. From our perspective, that seems too optimistic an assessment. Even for morgan stanley, we believe by all accounts the u. S. Economy is in a slowdown phase. What it means Going Forward is the fed will still cut, but this will not be the lengthy cutting cycle that the governor was mentioning overnight. Yvonne is there a communication problem . Dependent, the data we have manufacturing in the u. S. And jobs coming out friday. If the date is is not pick up, you expect the fed to cut more . Deyi we expect the fed to cut by 25 basis points in the october meeting. This will give the feds time to look at more fed time to look at more data points, how households are behaving, and you also get risk events like the u. S. China trade negotiations and brexit. Rishaad it seems he is not as deliberate as he would have been before. He seemed to ramble in the news conference, saying things like midcycle adjustment, not giving any clarity. Of course you never get perfect clarity here. Is he getting bullied . I mean, im not just talking about his boss, marketsbut his boss, but markets. David journalists with hard questions. [laughter] rishaad all of this noise coming out of bond and equity markets. Were the fed futures already permeating a basis cut. We got to the growth outlook. Myself, therelike is a lot of uncertainty over the horizon. From the fed perspective, it will be difficult for them. Rishaad sure, but he didnt seem himself, jay powell. Deyi he did deliver a less dovish commencement than what we got. We believe they probably will do more. U. S. China trade talk uncertainty, the talks in shanghai this week concluded with no finalizations. Finalizations. Yvonne doe easing matters or will they be more domestic factors at play . Deyi the likes of the rbi even for them, remember at the start of the year start start of the year, Market Expectations were to rise. It is a sea change compared to where they were before. Macro stability indicators have improved for these economies, so we feel comfortable making cut calls for these central banks. David we were getting word that should not come as unexpected, because hong kong is tied to the fed. They are expecting effects from local factors. They are seeing no signs of capital outflows out of the hong kong economy for now. That segues us into Asian Central banks. We will talk about this report ready, get set, cut later on. Deyi will stay with us. Rishaad coming up on the program, we will be talking about more what is happening between the u. S. And china trade with, coming to an end certainly not a bang. They are going to continue talking. We will talk to the polson institutes executive director for a recount of the latest meeting. David next, should asian emerging economies follow the feds lead . What should they do . We will discuss it all next. This is bloomberg. Far, they seem to be cognizant theye downside growth risk brought down there gdp growth to forecast. I think it has not reset to the underlying condition. They have to do next revision growth downward, that will force them into other yvonne have you done the math, if japan removes south korea from the white list, what impact will that have on growth . Deyi let me just say this, 40 to 90 of the three kinds of chemicals that are part of this exportation process is imported from japan. These are used for production. A south not a part of korean production. If supplies are constrained on that front, it could put downside measures on export growth for korea. The companies have excess inventories. Gdp growth will show in the form of these markings in global production. David i was going to ask about the chip cycle. The export numbers were out ok, down for the out again, down for the eighth month. But we haveottom, seen signs before that did not pan out. Deyi ironically because of the japankorea trade issues, analysts are saying it may lead to an adjustment on the inventory side. The inventories you are seeing may adjust downwards. From our perspective, the way we look at the export cycle in asia is export momentum will probably slow down further into the second half of this year, but as we get incremental policy easing coming out from em central banks, we will see some stabilization in the Fourth Quarter before a slow recovery in 2020. Rishaad talk to me about negative rates in europe. We have negative real rates in many part of the world as well. Does this cause a load of problems for governments and companies that can borrow at absurdly low rates . This allows little incentive to do anything about longterm spending patterns. Are we storing of trouble down the line up trouble down the line . Deyi this poses problems in a few aspects, one is how much policy space we have left. There are two conclusions, two implications. If you think about what it means for monetary trade policy, there needs to be a greater combination between rate cuts and macro measures to make sure whatever liquidity there is in the system, criticism over age discrimination in one of many ongoing lawsuits. The former Vice President of hr says ibm has fired up to 100,000 employees over the last several years in a strategy that targeted Older Workers and tried to make the company seem cooler to younger applicants. Strategyer said its is based on delivering value for the companys clients. Lets have a look at where we are marketwise lots. Of earnings to get through, and selina is here to take us through those names. Selina after a slew of earnings came out, nomura up 8. 9 after they reporting earnings beat estimates. Earlier today they jumped of as much as 9. 8 in the morning. That is the biggest intraday gain in six weeks. Another positive day for a Manufacturers Electronics components tdk financings tdk announcing it met its guidance. Investors were pretty happy er panasonic operating income plummeted, lower china sales and the tesla battering business battery business posting a loss. David as we head into what do you think we will have for lunch in downtown tokyo . Rishaad one of the young brands offering. A christmas favorite of course. David we should get it delivered, although i am not sure if delivery activities are up and running. Rishaad lets have a look at if the weather is any better in tokyo going off to our lunch break. Ttempts to isolate taiwan. Japan meanwhile says it still aims to remove south korea from the list of trusted export destinations, rejecting u. S. Efforts to calm tensions between the two countries. The government said the move is necessary for national security, although no date has been set for koreas removal from the socalled list. Secretary of state pompeo is to meet both sides of the talks in bangkok this week. Global news, 24 hours a day, on air, powered by more than 2700 journalists and analysts in more than 120 countries. Im sue keenan. This is bloomberg su keenan. This is bloomberg. Talks ended with no progress. The two sides discussed purchases of u. S. Farm produce, and rights i. P. Rights, barriers. The talks were constructive. People rejected president trumps earlier description of ripoff china. David lets discuss all of this with our next guest who served in the executive office with the Deputy Assistant u. S. Trade representative for china and the lead negotiator for the wto. Henry paulson to launch the u. S. China strategic economic dialogue. Shes joining us welcome to the program. Where are we without this . With all this . We have another set of talks that have ended in a bit of a whimper. Moment allat the political as we wait for the election cycle to get going proper . Thanks very much for having me on the show. No, i dont think it is. I think that maybe expectations were too high for the discussions that joe took just took place in shanghai. The Biggest Issue and the key progress was that the sides are both back at the negotiating table. There is a very large agreement. There is some substantive commitment within that agreement. The challenge now is how to get that over the finish line, particularly, as you point out, that we start in the United States, to go into a political period, starting next year, with the president ial election. What do you think the biggest Sticking Point is . It seems like the 5 which is the hardest bit to get done. I think the Biggest Issue really is enforcement. Thats going to be critical to the agreement overall. The United States has a view that it should stipulate even down to the level of changes that should be made in chinas legal system and reflect it in chinese law. The chinese have protested that the United States shouldnt be giving them that level of detail. And how they now find a compromise to capture these commitments in a way that they can be enforced is what will be at the top of the agenda for the negotiators Going Forward. David this is david here. Do you think thats too tall an order to ask for the chinese . I can easily see the other way around, if the chinese aske the u. S. To put somethingd asked the u. S. To put something into law, the u. S. Would be up in arms. You are right. Ive negotiated on three of these with china. In the end, it always came down to Something Like this. It was form over substance. The commitments have been made. My understanding from people in the administration is they are very good commitments, although they have not yet shared the details. The critical issue will be at a working level, the negotiators will continue to meet through august in preparation for the principles meeting again in september principals meeting again in september. The china and the United States, to the degree the u. S. Is making commitments, that china and the u. S. , to the degree the u. S. Is making commitments, can both be held accountable. We have a president ial candidate debate going on now. Would it be worth the chineses wait to wait this out . Would the conditions change drastically if we had a democrat as president . Ironically, it seems and listening to the president ial debates that many of the Democratic Candidates seems in listening to the president ial debates that many of the Democratic Candidates are running to the right of the president. The democrats and the republicans agree on being tough on china. I think it would be a mistake for the chinese to think they will get a better deal if they wait. Holistic thought, what are the chinese like to deal with and negotiate with compared to others . The chinese are very expert at negotiating. They are very tough. They are very focused and negotiating what is in their own National Interest focused in negotiating what is in their own National Interest. There is a recognition that many of the things that china that the u. S. Is asking for are in chinas own interest. Weve seen a lot of reform domestically, but we havent seen a lot of opening up to foreign firms. If china is going to continue to grow its economy, it must open key sectors to foreign firms. Understandably, when you have an economy the size of china, there are going to be domestic interests, powerful domestic interests which may be opposed to some of that competition and market opening. This is a decision that, in china, at the top levels, they need to make if they want to continue with economic growth, if they want to have a strong economy. They must open up to foreign competition. Talked about some of the low hanging fruit, to your point. One of which keeps coming up. Its the upping of agricultural purchases, of american farmers, which i would then imagine it plays into the 2020 election. Is that the lowest hanging fruit . If that gets done, what do you think is next . I think there are many different aspects to this agreement. That is really on the margins of the overall agreement. And that really was one of the key indicators of whether the talks were going to go forward or not. Its a dispute over what was actually agreed to. The impression that the United States had and certainly the president had is that china was going to continue to move agricultural products, purchase agricultural products, which is one of president trumps priorities. se of president xi priorities was progress on huawei. You would have the view that if china announced it is moving forward on the agricultural products, there has probably been some movement or indication about approving companies to be able to continue sales to while away to huawei. On the commitments, we understand a lot of commitments have been made. We can hear the premier make announcements about the timetable moving up. Thats one of the low hanging fruit. Theres been discussion about that for many years. China is finally taking action on that. We hope to see much broader reforms. Some of the Structural Reforms in dealing with state owned enterprises, additional sectors being opened up for foreign competition, and so on. Guess, deborah, i hindsight, looking at chinas ascension to the wto, perhaps they didnt come and i guess return the favor here of opening up the econom