We have world coverage here on daybreak asia, we will be live in seoul for an update on the north korea missile test fallout. Betty and we go to detroit for is announcement that volvo going electric in 2019. This is daybreak asia, live york andmbergs new asia headquarters. I am in new york, it is after 7 00 p. M. Yvonne and it is just after 7 00 a. M. Here in hong kong. Lots to talk about. Much from president xi and chancellor merkel. But we are focusing on the fmoc minutes. A divided fmoc when it comes to the Balance Sheet timing. Betty absolutely, the timing is key. A lot was propelled by confusion or what is confounding fed officials, and economists everywhere, which is, where is inflation in the u. S. , despite seeing lower Unemployment Rate numbers . We are almost nearer full unemployment in the u. S. , yet no inflation. That is complicating the feds direct timing. Coming back from a long weekend, we saw the markets at first it dipped then they rallied with tech shares. We will go into detail without any minute. A slightly mixed session in asia. Yvonne it looks to be. 50. Ty flat on the anz the kiwi not doing much,. 7289 right now. Oil bouncing back in the early asia session after that 4 drop overnight. We are sitting at 4555. We are seeing a bit of a bounceback of 1 . The aussie at. 7608. We are bouncing back after the weakness we saw from the rba decision. Rba futures not going anywhere. A bounce of possibly 20 points in tokyo on the nikkei 225. We did see it bounces 0. 25 yesterday. Dollaryen, still seeing risk off tones. Largely, the market shrugging off kim jonguns comments. We have to discuss the e. U. And japan deal. Street,ack on wall returning after the july for holiday, tackle eating the markets higher. We saw the tech selloff right before the close of trade. Ramy inocencio walks us through the day. A lot are saying it is a dead cap balance. We will see whether it is ready to buy based on the death of the last few days. Getting to the main markets, the fmoc, it is sooner or later, but it will happen. That is what we are seeing in terms of market sentiment. The s p 500 pushing up about 0. 1 . That green means the s p is on a 3d three day winning streak. That is the longest in a few weeks. And we had mixed sentiment from the markets and currencies. For the most part, they were unchanged. This one up by only 0. 2 . You can see where it fell in terms of u. S. Treasuries. Let me walk you through the s p 500 over the course of the day. Out of the gate, we fell partially, but were able to rally back up above the zero mark for much of the rest of the day. Around 2 15 p. M. To the right of your screen, you can see a bit of a letdown. That is when the fmoc Meeting Minutes came out. The markets took a letdown, but investors said, we are thinking this will be more hawkish than dovish, so we will push it back up. With that said, there was a bit of a wait. That happened with energy stocks. For the wtitoday crude. Over the past 24 hours, down 3 in terms of the today. Maybe another bounce. We will see how that turns out. Exxon, chevron, the biggest weight on the s p. Hop into the bloomberg terminal. I will show you where we are going with oil into the future. The blue line is the 33 Day Moving Average for wti crude. It is more to the downside, 10 is the green line here. Ever since february and march. We can see this is falling lower than a dma. A 33 dma. Han we are looking to july 24 when they meet in st. Petersburg. Yvonne just touch upon tech. Can we keep going on with this momentum . Ramy that is a good question, i wish i had a crystal ball to answer that. Lets see what happened in terms of fang stocks, up across the board. They are at their highest since last thursday or friday. Chipmakers also rising. Nvidia getting a boost. This is green you ask me how long it can last . Take a look at the bloomberg. Possibly, it might not last very much longer. This is another. Is the interesting one in red. This is a push and pull between the bulls and bears sector. Diamond that this is a formation shows the nasdaq could fall as much as 7 in the foreseeable future. We are taking it across the 50 Day Moving Average. If it falls 7 , it will take us to 5900. Right now it is at 6150. Not good news if you are in technology shares. China reporting the past few hours it was down by nearly 10 , paring losses down by nearly 5 . People in china are not eating as much pizza as they were expecting to. Sales are flat at pizza hut. They were expecting growth of 1. 5 . Mightina saying they leave more with taco bell. We will see where that goes. Yvonne still love the pizza. Inocencio, thank you so much. Lets get the first word news with courtney collins. First up, the u. S. Ambassador to the United Nations says north korea has shown it does not want to be part of a peaceful world. After this weeks test of an intercontinental ballistic missile. Nikki haley held an emergency meeting that trade could be used to punish kim jonguns regime. But force remains an option. China and russia called for restraint from all parties in said they would not support military action. The u. S. Is prepared to use our full range of capabilities to defend ourselves and our allies. One of our capabilities lies militaryconsiderable forces. We will use them if we need, but prefer not to go in that direction. Saudi arabia and its allies response to its demands as negative and does not recognize the gravity of the situation. Doa alks in cairo, they say doha needs to deal with the problem. Qatar denies problems it is destabilizing the middle east by supporting terrorism and holding up iran. We cannot have a country like qatar that is in ally in the gcc, and that has an airbase from which planes take off to fight isis and al qaeda. And at the same time, it turns a blind eye to those who operate openly in qatar. We must lay out any and all the just igo concerns logistical concerns. And some engaging in a constructive dialogue. Qatar is ready for negotiations. We will set a precedent that guarantees our sovereignty is not infringed by others. The Chinese Central Bank says it plans to remain on the path of prudence and neutral Monetary Policy throughout 2017. Pbocs report,e they will try to prevent risk. Aey also plan to keep liquidity basically stable, as well as maintaining the Exchange Rate at equilibrium levels. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am courtney collins. This is bloomberg. Agree the Federal Reserve in their june meeting to hike the key rate. But there is a critical question, of when to start shrinking them passive the massive Balance Sheet . Kathleen hays is here with more. It is interesting we do not think that by this time we would be talking so much about the Balance Sheet reduction. Kathleen we didnt, a year ago. March but no, we are ready to go. It is clear they were debating if they should reduce the Balance Sheet this year. The only question is, when . Lets look at key phrases from the fmoc minutes. We decipher them to see what the fed was debating, what the takeaway is. Several, if we are to start within a couple months. Does that mean that in the july meeting they made an announcement and start winding in september . That is what it gets people thinking about. Readyaid, better to get later in the year two address inflation. Say, are we sure we need to start reducing the Balance Sheet . That the suggested danger of moving to quickly with this Balance Sheet reduction, especially in the face of inflation, would be that it are showing you are not on a gradual the, and that could roil markets. With so much division, can the fed start reducing the Balance Sheet and do another rate hike by the end of the year . One said that it would be tough. The consensus is still for september tapering. The more divided the committee appears to be, the more dovish the minutes will be interpreted as. Builde if you cannot consensus internally, it will be much harder to deliver the combination of a taper and rate hike by the end of the year. Pretty confident they get one or the other. Kathleen the census among economists i would say broadly the rewind or Balance Sheet unwind will start in september. And you get another rate hike in december. Have had him on the show more than once, he thinks the hikes will happen in september and the Balance Sheet reduction starts in the Fourth Quarter. That is a broad consensus. All over the map. What about the timing of another hike or the likelihood of another this year . Kathleen it seems to hinge more and more on what happens with inflation. Before we got these minutes, we have seen more fed officials like in dallas in minneapolis saying in june, inflation is slowing down, why are we hiking rates . Back to the minutes for key phrases. Most fed officials saw the profits in inflation due to idiosyncratic factors. We talked about these as big changes in the mobile phone contracts lowering prices for people, lower drug contracts. The fed says it is a onetime thing. It does not reflect the economy, it is a special case. Some are worried it might be slower and moving away from the target, and softness might persist. There were a couple who saw there was an upside inflation risk in a severe undershoot of 3 or 4 . If it falls further, could a boost inflation . Lets jump into a bloomberg chart i would like to take a look at. Is come of a yellow line, the 2 target. The turquoise line, the headline deflator down to 1. 4 . Heading solidly lower. Maybe the mobile phone prices. The core also moving down. That is a concern for people maybe not ready to move right away. World Interest Rate productions, wirp, take a look. 22 . That is not very high. December, 55 . One in two, not a resounding vote the fed can get another rate hike this year. Happening,e crazy the fed wants to normalize. They are starting to really slow. Lets get it started, it does not need to affect the economy or market. Lets see how the economy does and see if we can get that third rate hike. Betty what about overheating markets . Kathleen there is a definite sprinkling of them increased risk tolerance could be risking lifting asset prices. They are not assessing risk properly, that could destabilize markets. Subdued market volatility could lead to financial instability. Last week, janet yellen said asset valuation by some measures look high. Not uncertainty, but that is how they are looking. Said, Risk Appetite is propelling values valuations to excessive levels. John williams in San Francisco said the stock market is running on fumes. If you are in the camp that wants to hike and inflation is falling, people are saying maybe you can say, what were risking question, mediumterm if we leave now it could pick up. But we could cause financial instability if we let these markets get too frothy. It is interesting to see how this is evolving. Betty kathleen, thank you so much. A lot of complications for the fed. We will get more insight on the feds latest minutes later this hour. John silvia joining us at half past seven 7 30, hong kong. Yvonne we will speak to Morgan Stanley at 9 10 eastern. This is bloomberg. Yvonne this is daybreak asia, i am yvonne man in hong kong. Betty i am betty liu, in new york. An Emergency Council meeting. While trade could be used to punish north korea, military forces still on the table. China, russia flatly ruled that out, not supporting any military action. Peter pae joining us. The u. N. Seems divided, it is like we are at a standstill on what to do about north korea. What is next . Peter that is the big question that the g20 meeting will face. All the leaders will be getting together. The u. S. Is seeking increased sanctions, specifically targeting countries that have skirted the u. N. Ban and continue to do business with north korea. On the other hand, china, which is one of the countries that continue to do business with north korea and russia, they want more moderation, bring north korea back to the table. I am not sure if any agreement will come out of this other particularlyuntry, the u. S. , trying to levy their own sanctions, and take unilateral actions. A combination of the g20. Yvonne we know the u. S. Is dreaded the day north korea would be able to develop a missile capable of hitting the u. S. With a nuclear warhead. We are still debating what the red line is for President Trump, whether he will be taking further action and whether we have trusted. The flip side, we have moon jaein, the south korean president , urging diplomatic talks with north korea. Moonsis weaken position . Peter it is a larger challenge for south koreas president moon. He has taken a two track approach to north korea. One is to continue to seek an open dialogue with north korea, while at the same time, increasing sanctions whenever these kinds of provocations occur. Unfortunately, it appears now, that because of the missile launch, moon is appearing wishywashy. Conservatives here are saying they take a harder line. What do you want to do . They are very much similar to what trump is facing in the u. S. The red line is a difficult thing to define. Mainly because if you do so, it decreases your options. What you do if they do cross that redline . It is a very complicated strategy. I think the trump and Moon Administration both are grappling with this. Everpect they will not declare exactly what that redline is because that does put them against the wall to take action. Our seoulter pae, bureau chief, thank you for joining us. There were negotiations in berlin, as well as brussels. China and germany are pushing relations forward. And japanin the e. U. Area, with a record Free Trade Agreement. Lets get to david ingles mi here to look at the preview and the preg20 headlines. Panda diplomacy, cute. Pandas are pretty cute. When nixon made that historic trip to the they established diplomatic relations a few years later. Fastforward to today, as trump takes the u. S. Out of the Global Leadership role, as some perceive it. Now, xi jinping goes to the tolin zoo, giving two pandas Angela Merkel and the german people. It is a symbolic move. A new beginning in germanchina relations. Ties are being repositioned. A number of deals they want to talk trade. Kim jongun has a different agenda, setting the agenda for the g20. Trade is important to the germans and chinese. They seek neutral ground on globalization and a common vision on Climate Change and other issues. Yvonne they were seeking new breakthroughs, this relationship has started new beginnings, in the words of president xi . Puzzle , and air airbus had a deal. In turn, germany agreeing to participate in the one road initiative. Yvonne a potential deal coming in later on. Plenty more to come. This is bloomberg. Yvonne a quick check on the latest business flash headlines. Chinas overseas spending spree saw deal after deal. Must pay off at least 11 billion in bonds alone by the end of next year. That is just a fraction of the total debt of 160 billion they have reported. Bloomberg data show they have around 60 billion in cash. Immediate debt should could should be covered. Worth airbus has planes 22 billion on paper. A380augment the deal with superjumbos. A320s. Ved 100 planes at a new plant in beijing. Orders will be split between that site and europe. This will sell at 73 for the first 1000 customers during a monthlong trial. That compares to around 180 for amazons echo. The gadget what should i watch . Show me sports. Its so fluffy look at that fluffy unicorn hes so fluffy im gonna die your voice is awesome. The x1 voice remote. Xfinity. The future of awesome. Morning in hong kong. Sunlight bursting through after the rain early in the morning. Minutes away from asias first major market open. Isty looks like it clearing, 7 30 wednesday here in new york. Market did close a little bit higher. We saw that rally back, and some lows, led by tech shares. I am betty liu in new york. Yvonne i am yvonne man in hong kong. You are watching daybreak asia. Lets get the first word news with courtney collins. Germany and china are calling for more twoway trade is berlin and beijing step into a leadership gap left by americas with a draw. Germany isel says ready to participate in president xis landmark one road projects. The European Union and japan say they have overcome differences on farm and auto exports, paving the way for a trade agreement between partners that account for more than a quarter of the worlds economic output. The deal has been in the works since 2013. Prime minister shinzo abe, jean called juncker, and another, are expected to endorse it on thursday. Israel and india have launched a new tech fund and signed accords in areas ranging from space to water and agriculture. The israelindia innovation fund, known as the i4f, comes as Narendra Modi looks to boost his economy. Modis trip is something of a uturn as india has typically back to the palestinian cause. Young china shares fell in late trading after disappointing secondquarter sales. Pizza hut sales were flat, short of estimates up 1. 5 growth. Revenue was just below forecast. The ceo of young china is making profits in loyalty programs, restaurant upgrades, and digital deliveries. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am courtney collins, this is bloomberg. Betty thank you so much. We counting down to major market opens in asia. Lets bring in adam haigh in sydney. North korea dominating the geopolitical realm this week. Seem stillets resilient to all of this. Why is that . Indeed, very, resilient. And a showing a track record we where equityory, investors shrug off these political concerns and focus more on the fundamentals. Lets take a look at it on a chart. The extent of the outperformance we are seeing in south korean stocks. It is asias best market this year. It is handing double what you are seeing on the s p 500. That is because investors focus on earnings rebounding, the buybacks we are seeing and corporate reforms that slowly but surely are