stocks closing near all-time highs. the dollar halting it slide. budget president trump's proposal would hurt the people who put him in office. in 20 years after the hong kongcrisis, property at an all-time high. but are there problems on the horizon? yvonne: china tries to satisfy

demands for better quality and safer food. we will be live in singapore a little later for the noble group's fight for its life. u.s., thee in the fallout from the trump administration budget for 2018 fiscal. released hours ago. going through the mile high stack of papers. i am betty liu. it is just after 7:00 p.m.. yvonne: is just after 7:00 a.m.. banks mentioned, central are going to be a key focus. mario draghi speaking in madrid later today. weighing inid, -- on boj policy with governor kuroda.

plus, an exclusive interview in 10 minutes. betty: we had that news yesterday, june 20 will be the day we will hear the announcements on who will be let into the index. shares, a multiple shared to get them into the index. this june 20 going to be the day that finally happens? it does, what does that mean for the world of global finance. you have pension funds all over the world now looking at china a shares, and having to weigh them, which is going to be a different world. we are going to be asking henry fernandez when he joins us. yvonne: could that be a boost for the a shares? in the meantime, let's look ahead to the fed minutes coming up in the u.s. in the meantime, how things are

playing out in the asia-pacific. new zealand, the kiwi getting bouncy after trade data that did beat estimates. u.s. cents.70.18 stocks, slightly positive. aussie unchanged at some before some the eight -- at 7478. a modest bounds out of stocks today. japan, we are expecting that whenng at the 8:00 hour, ben bernanke does talk at a conference with kuroda, 111.79. stability toof read could be a boost for stocks out of tokyo.

that was a early look. we saw the fourth day of gains on wall street, but we have not fully recovered from the selloff last week. betty: incredible. it is so easy to lose your shirt that so hard to get it back, right? we did try to get a little bit of it back today. up 43 point.ow some of that coming from some of the gains we saw in europe, after better economic numbers out of germany. it looks like momentum is increasing in france. now let's get to the first word news. nina: the philadelphia fed president has added to speculation of a rate hikes, three. yorkld his audience in new

the fed is still discussing how and when to shrink its balance sheet. it will be done in a predictable and transparent way. >> based on strong economic outlook, i continue to see three rate hikes for 2017 as appropriate. we have one under our belt. given the forecast right now, we will talk about it in the q&a, i see two more. nina: u.k. police say it is too early to know whether the attack in manchester was a loan attack or part of a terror plot. bomberes says the returned from a trip to libya three weeks ago. the so-called islamic state group said he was linked to them. all campaign mean has been suspended. has beengning suspended. the looking president has put the southern island of mindanao under military rule.

the measure will remain in place for 60 days, and he is cutting short a visit to russia to handle the situation. lastal law was declared in mindanao and 2009. the u.s. commerce department is pursuing new leads into its investigation of a chinese smartphone maker over the breaking of sanctions against iran. zte wasans want -- fined more than $1 billion for passing restricted american technology to tehran. the mine will come early next month. the mayor of santa barbara has been at odds, but says he will make a ruling on june 6. some marco says it will need at least five months.

global news, 24 hours a day, powered by more than 2600 journalists and analysts. betty: as we were just discussing, stocks pushing toward all-time highs. indicating the global economy is perhaps on firmer footing. even the president's budget proposal did not dampen positive sentiment. su keenan with more. we have been able to shrug off what is going on in washington. and the terrorist attacks, which is remarkable. let's go right to the numbers. gain is the fourth straight rise. that is a big contrast to last week. the big movers, bank of america up. it shows the banks were in the lead. on plunged.

autozone, profit forecasts missed. if wego to the bloomberg can. as we look at these records, very interesting and perhaps counterintuitive this chart shows investors shying away from the spider of the etf. you see the april and may boxes. investors are leaving. this could be a confirmation of the events. taking it off the table as we get into uncharted waters. is something related to the budget that could affect the oil market. is proposing we selloff the emergency reserves

and all the gasoline piled up after hurricane sandy. let's go to the video and look at the proposals. he is talking about selling off to 70 million barrels. could gain traction in congress. 50.6uld trim the budget by $15.6 billion. we have been talking about oil at a one-month high. opec is optimism about the cuts. let's take a look at the chart from the bloomberg inventory. these are charts of the iraq and iran output. buts pretty strong, starting to stabilize as we head toward the cut area.

if you asked in for nine more forhs, that could bode well price stabilization. the undercurrent of what trump is going to do with his price proposals may be something investors will continue to think about. first: president trump's budget has been dismissed as a fantasy. it would threaten many of the who propelledpoor him to the white house. let's bring in the bloomberg managing editor join us live from washington dc how has this proposal been received? it seems like it gets criticism from both sides of the aisle. >> democrats and republicans are saying, thank you, mr. president , but we will probably go our own way. keeping in mind, anytime the president submits a budget request to congress, it is just that. it will be up to the lawmakers to decide what really gets done.

this budget has some things to like and some things to dislike. uponhing paul ryan seized is the president appeared to be trying to achieve a balanced budget. he is doing that through three points extruding dollars worth of cuts, many of which go to social safety net programs. he is doing it through budget gimmickry. the critics say, there are too many assumptions. you had to have 3% growth and tax reform. can you describe this is a balanced budget? >> it takes a little creativity. that is something budgeteers tend to do. 3% annual economic growth is a very ambitious target, one many economists say is not achievable. it also assumes the president's tax plan, which we have only

seen in rough outline form, would be revenue neutral. it would not cost anything. that is another assumption that many independent observers question. speaking about taxes, how can they get the overhaul they want any budget? take someoing to work. we learned today, treasury toldtary steven mnuchin the conservative house freedom caucus neither he nor the president are inclined to support the border adjusted tax that paul ryan has recommended. as you know, that would replace the corporate income tax with a brand-new 20% tax on u.s. domestic sales and imports. on importsthat rely like retail do not want this to happen. it sounds like the president and treasury secretary are inclined

to agree. that gives republicans a kind of problem in their plans. thank you, joining us live from d.c. we will continue our conversation on a budget proposal later on in this hour. we have a guest to says the document is a massive unforced error, which proves it cannot govern. seems he has an opinion on that. coming up next, henry fernandez joining us exclusively. we are going to ask him about the topics a lot of foreign investors mind. what risk that might pose. remember the saudi arabia, -- that saudi arabia as well is gearing up for this. this is bloomberg. ♪

yvonne: we are coming down to the first asian market opens.

japan futures much firmer. 0.7% gain on those nikkei futures. the open.gain at dollar-yen stabilizing overnight. as we look ahead to the fed minutes, coming up. this is "daybreak asia." for those invested in emerging markets, june 20 is going to be a date for your diary. says they willci say whether or not to include china a shares into the benchmark emerging markets index. i want to bring in hand henry fernandez. great to see you. know you have been traveling around the world. you must never get back home. let's talk about china. that is what is relevant to our viewers. i know you cannot say the

obvious question, which is will they or won't they get into the index? maybe i start off here. why has it been so difficult? >> i think there has been a process -- this is the fourth attempt -- in which we are trying to marry the needs of international investors with the conditions on shore in the china asian markets, in terms of accessibility. market accessibility. it has been to do with market prospectus, good or bad. it is accessibility. we tried last year, and there were big topics. can you access the market through -- doors? the second was voluntary suspension of trading. the third was the preapproval process of the data, as it relates to launching financial products. this year, we are making another attempt. we are halfway through it.

we have consulted with 100 or so of our clients. this, givingd on qfii.our we have seen the implementation of the conditions, regulations, on the suspension. there are still over 100 stocks that are suspended in the country, which is by far the largest in the emerging market. about 5% of the value of the index the third part is the data rights. we are making a lot of progress. you have taken a lot of care of the majority of these issues from last year. reduceat has done, also,

the number of shares or companies that would be included in the index. i just want to pull up the chart.t, this high -- pie chart. question, i know why it is important. we all know why it is important. is this something you look at enure,y, at least in my t i what to get this done? of chinesea page history. we have a long journey, so we have to take the first that. -- step. we reduce the number of securities from 450 to fewer. caps., large we took out the mid-caps and small caps. we also took out some of the a

-shares. we make it more flexible. ithink with that reduction, may be easier to get the first to step. we don't know yet, but we are those needsto marry of investors with conditions on shore in the country. we are trying everything we can to say, can we make the first step so we can get going and everyone gets more comfortable with the accessibility? betty: let's say it does happen, henry. what would be the immediate impact? i amnd i talked about -- sure you have gained this scenario out. what would happen if the a -sahres do go in the index? >> the first thing is to look at the totality. about 2 trillion.

about 15% of that is passive. evenrd is actually -- though it is a small inclusion, it adds up to a significant amount of money. compared to the size of the market, -- betty: it is relatively small. forhat sets the stage future increases. it can be adjusted up and down, andnding on the experience the expertise that international investors get to do in the market. place. that they china continues to be very focused on reform. betty: do other countries lose out? >> whenever there is an uy ofsion, there is a b securities and there has to be a cell, because the amount of money does not increase. lls.e will be cellse

a little bit of sells from korea and taiwan. etty: a little bit, or impactful? >> not really impactful. it is spread over many countries. if it happens, and when it happens, it sets the stage for future steps. it gets everyone to the table and everyone is now married to the process. we can get more progress done. we continue to be very committed to the process, and we believe the chinese authorities, based on every discussion we have had, be very committed to the pace of reform. it is just at times it is faster and at times it is slower, and we need to adjust the process. betty: i was looking through some stories to read one of our says, when you talk to various

less than half, only six out of 13 believe it is going to happen this year. are you surprised by a number like that? >> no, not surprised. the process has been hard for the last three years. there are other places that have been harder. there are still a lot of issues to result in a short time. we believe the market data issuance is a big one and actually are investors -- betty: do you think is the biggest? >> all of them are related, but in terms of timing, trying to resolve the market data, the creation of financial products for investors, is something that will have to get result. -- resolved. betty: you were in saudi arabia a few weeks ago. thiswant to get into index, and they are doing everything they can to do that. i want to talk about saudi

arabia for a moment. i want to contrast between what you have seen in saudi arabia and china, and the chinese officials have been giving mixed signals. on one hand, they say they would be excited for this to happen. on the other hand, they say it will make much of a difference. authorities and markets would like an inclusion to happen. obviously, on their terms and conditions. it is a sovereign state. they have every right to want it at the pace and conditions that they want. that is a choice a country makes. that choice.act i think what is happening in saudi arabia is they set up a process a few years back, they invited us to give our opinion and our views. we collected feedback from investors in terms of what they needed to do. they have been following that

blueprint, first in terms of regulatory reform. and the naked another set they launched september of last year. they get a series of market accessibility changes in the marketplace. they launched that at the end of april. they have been following every step of the way what investors have wanted them to do. we are now monitoring with the reactions have been. like: other countries, qatar, the shares rise, there is a lot of buildup. when you were there and saudi arabia, give me the flavor or sense of what you were seeing. how they were viewing this. >> is very exciting to see what is happening in the country. vision 2030 is very transformative. social economic change, cultural change.

dependence on oil, creating new industries and all of that. quite a big transformation in the country. we are all hopeful it will continue because it will be a shining example of what can happen any middle eastern country, an arab country. betty: and what it means to be considered an emerging market. part of that has been the capital markets, the equity capital markets. the pace of reform and all of that. they have been following a lot of what we have been telling them that they need to do. betty: i want to pull been other chart here that shows just how bullish investors are. let's pull up a chart which shows the vanguard ftse emerging-market fund, and the flows that have gone in. on the right-hand side, you can see the blue bars are the sheer amount of volume.

it has been incredible, over the last several months. a lot has to do with the lowered dollar. how much of an impact is the dollar having? >> we will take this one for now. there are a lot of things going on emerging markets. the country's bitten down a lot in terms of valuations. secondly, the increase in wereest rates people about going to happen did not. bit,ollar strengthening a although lately it has been a little weaker. conditions that these countries could be more investable and a good bargain. that is what is happening. the index has been out more than 15%. betty: i had a chart, but we ran

out of time. of msci.man and ceo

we've got raindrops. 7:30 a.m. wednesday in hong kong. 30 minutes away from asia's first market open. betty: not much better, a little bit loony as well. the markets are brighter, though. fourth day of gains on the s&p. i am betty lou in new york. yvonne: you are watching "daybreak asia. let's go to the first word news. trump's firstt

budget has been dismissed as a fantasy. impact manyatively of the rural working poor who propelled him to the white house. to food stamps, medicaid, and low income housing assistance. >> it is a fantasy document. the assumptions about economic growth are ridiculous. it does not even include the president's tax cuts, and it is hard to believe republicans will go along with it. it simply creates more deficits because of these huge tax cuts. nina: the u.s. treasury secretary is hiring. four top aides with the title counselor. the senate will not vote on any of them. administrations on both sides

have used the tactic in the past. the new wells fargo ceo says the bank is making good progress rebuilding trust after the revelation that staff opened thousands of unauthorized accounts without permission. incentives,shook up change structures, and denied bonuses. the turnaround is going well according to the ceo. >> i am proud of the progress the team has made. we have changed our incentive plan. we have reorganized how the bank is structured, and we have focused on remediating customers. over the last nine months, we have done a year or year-and-a-half of work. go has's alpha struck another victory for artificial intelligence. program beat the

top european player. beat a chessue champion in 1997. global news, 24 hours a day. i am nina melendez. this is bloomberg. yvonne: let's get more on what we should be watching as trading gets underway in asia. good to see you. stocks remaining strong. there a further upside for stocks in the asia-pacific? start with a we do little bit of that positive rollover from the u.s. interesting,th was so that has got a little further to go. those comments this morning, adding more weight to that argument as well.

elsewhere in the equity markets, it is interesting to hear the chief talking about a lot of work to be done before we get to for chinastep -ashares into the index. we have two rate decisions coming. and then in canada, later in the day. the big gold up today, leading into the fed minutes. if the dollar can hold that with thegoing in, latest set of evidence we are getting from policymakers about the trajectory for rate paths, heavily scrutinized when that comes out later in the day. it is pretty rare to see

emerging-market currencies as well as the yen moving together. explain little bit why this is happening now. is it going to last? m: you are right. it is very rare indeed. if we bring up this chart on the bloomberg terminal, it gives you some sense of how pronounced this rally is in both the yen and fx currencies. speaking to the folks at merrill lynch, they say the trend will break. they expected to break down later on in this year. it is around the divergence we are seeing in monetary policy. everyone is well aware the fed is starting its process of rate normalization, bringing down the balance sheet. the things they pick out our the fact the market is only pricing a slow rate of increases by the fed at this point. bank of america expects more

aggressive moves by the fed. that supports one case that might lean on the yen there in terms of how the dollar is related to the end. the market ise, maybe ignoring or underpricing me sense of how the bank of japan has to keep their foot on the floor, keeping that yield target very much in focus. has is a at a time when ecb to start to talk about an exit policy. and the fed of course moves further through their rate normalization process. the key differences between japan, europe, and the u.s. for bank of america, at least, they say this divergence will break down. betty: thank you so much. now some perspective on the budget proposal. first budgetmp's proposal has been criticized on all sides. it would initiate massive spending cuts.

it would also dramatically reduce the government's role in society. let's look at the arguments for and against. joining us is a former senate and house budget committee staffer. also, bloomberg businessweek economics editor. we have been saying this, this budget is going to hurt the very people who put him into office. why put this together? >> i think he is sending a signal. i am writing this in bloomberg businessweek. this is a political document more than an actual plan of action. trump is trying to send a signal to the freedom caucus, the right wing of the republican already, he means business. he can out reagan reagan. he believes in their cause. i don't think he would actually even want this budget to be passed as it would have exactly the effects you are talking

about. it would not be good for his own vboters, it would hurt congress and hurt him if he ever tries to run for reelection. out-reagan reagan. great line. we heard from mitch mcconnell -- what is going to be the ultimate version of the bill that will end of the president's desk? >> it will be completely different. basically rejected everything with the 2017 budget, in terms of increases and decreases, and came up with their own plan. we should expect the same thing again. this is not really a budget, this is a trump political rally on ipc paper. -- on a piece of paper.

it is designed to rally the troops. this storyave seen before. i'm curious if you think it is going to be distasteful enough we might even see a government shutdown later this year? >> that is one of the interesting things. it is going to be so difficult for congress to deal with, they are likely going to reject almost everything the president proposed. the next time he will have a chance to get back at them is when a continuing resolution is needed to keep the government n october.ctober -- i it is likely if he doesn't get anything he wants, he will veto that and shut the government down. shutdowns a government more likely and tax reform less likely. about the talk assumptions this budget entails. they are forecasting 3% gdp for

the budget to work. does the trump in this ration have the credibility to actually sell this budget right now? >> certainly the investigations don't help. had no issues at all on the political side, he would still -- they would still and say thatowth does not seem realistic. the cbo has been saying growth 1.8%.average more like sure, you can get 0.1% or more. 3%.nothing like the only reason they came up with 3% is they needed something ofgive them the claim revenue neutrality. betty: i want you to put your economist hat on and also your history reporting on all this.

throughave been combing , it is like a mile high document. i don't expect you have looked through everything. what is different than the others we have seen from other presidents? give me a sense of what you have noticed. we know some of the broad strokes. tell me what you think is unique. is saying is this has the biggest budget cuts of any budget ever. i think that is probably true. takes allold me, it the proposals of 20 years that never went anywhere and puts it into a single budget proposal. even mark meadows, he is the chairman of the house freedom caucus, the group that has been and even theama republican leadership because they are so intent on cutting deficits, mark meadows himself

said, even though i am not sure about meals on wheels. for those whos, don't know, delivers meals to people who are homebound. even mark meadows is concerned it might be going too far. yvonne: i'm going to ask the last question. we heard from someone, saying this is a compassionate budget. we want to benefit the taxpayers. they say they hopefully want to get people back to work. do you think that is a ferrous option to make? who paywo groups, those taxes and those who get benefits, are not mutually exclusive. you can't separate them out. yes, it would be great to get people back to work. wet he is really saying, is

are going to throw them off food stamps and make them get back to work, even if there are no jobs. i did not see a lot of job growth in this budget. it shows the unemployment rate staying flat for 10 years. yvonne: we are going to leave it there. i want to thank you for joining us from bloomberg businessweek. human way for hong kong property is up for years. that has prompted fears of a crash. we assess all the warning signs. next. ♪

betty: we are counting down to asia's first market open. japanese futures up 0.8%.

from are awaiting remarks ben bernanke. konge: this summer, hong marks 20 years since the handover to china. it happened as the asian financial crisis began to unfold. property prices are at all-time highs. mortgage borrowing is booming. things sailing ahead. or is the city facing stormy waters? let's ask those questions. he is veteran of hong kong property. great to have you here. time and again, we hear from the bears. what is different this time? what are the chances of a 1997 scenario? i think the domestic situation is such it is different from 1997. we are not seen a mania we often see in property bubbles.

first, the volumes of transactions are running at the long-term average. the level of lending is not at many levels. in fact, the affordability, although the figures from demographics suggest it is very bad. it is nowhere near as bad as the demographic figures suggest. you could ask anybody economy say hong kong's is basically the housing market. i want to show a chart to our viewers. surge inue to see the record prices for housing, the secondary markets, some 200% since 2001. eight rounds of tightening curves that have not done much to steer that away.

on the blueline, we do see wages are relatively stagnant. do you think he's levels in housing prices are actually sustainable? >> there is no question of affordability has been stretched. you have to remember, interest rates in hong kong or mortgages are some of the lowest in the world. 4% or 5% ine like other developed countries to read by housing after-tax income. even if youg kong, earn $100 million, you never pay more than 15%. the number of people who pay taxes is very low. you don't get asked on dividends, capital gains. this is an asset driven market, whether it be stocks, bonds, or property. people have a great deal of inherent well tucked away. lth tucked away.

it is nowhere near as bad as it was in 1997. nowhere near as bad as 1993 or in the 1980's. it has gotten worse but it is not critical. betty: if we are not in for another 1997 scenario, how come some measures have come out to try to contain any kind of asset double in hong kong property in the -- asset bubble hong kong property market? why are they nervous? >> they are not so much concerned about the social effects of affordability. ,hey are concerned, i think about risks to the financial system and banking system. and irstand those risks do not disagree with the policy. however, the risks are very contained. burst byerty bubbles

excess debt. in hong kong, that is not the case. the developers are some of the most lowly geared companies in the world. households are not highly leveraged, either. is 51% loanmortgage to value ratio. really quickly, one factor that is different are chinese investors. you say there is a misperception chinese, mainland chinese, are driving up hong kong property prices. >> that is absolutely true. there is a serious misconception here. if you look at the government's own statistics, less than 5% of people buying housing in hong kong are either non-hong kong residents or limited liability companies. it is about 4.8%. you can't claim chinese buyers

are driving up prices of housing. are very active in the land markets in the last six months, 12 months. and in fact, 35-40% of the land sales. they have been driving up land prices, but not flat prices or housing prices. yvonne: thank you for clarifying. the asian property services director. around that and many more things you need to get your day going. can gorg subscribers, there on their terminal. also available on mobile. you can customize your settings so you are the only one who gets news on industries and assets you care about. this is bloomberg.

with nearly 1.5 billion mouths to feed, china has had its share of food problems. story.kenzie has the tom: this farm could point to the future for chinese agriculture. almost the size of new york city, it is one of the biggest organic farms in the country. ofike the vast majority funds, it does not rely on heavy use of pesticides. that is very much in line with the government's push for a more ecological agricultural sector. this person has run the farm since the 1990's.

it is now home to a few thousand sheep and pigs and produces tens of thousands of foods -- fruits and vegetables the year. >> the demand for organic is growing. tom: the farm with its bumper crop is hailed as a model business. the central government pushing for more high-end food production has invested have a billion dollars. money that helped fund the farm's wind turbine and a system of filters. it could be rolled out across china. >> initiating ventures as organic farming. not only a stand-alone business as a model for other farms so this can be replicated in other provinces. other varieties of food. it is something we have seen in other industries that the government has invested in.

seesthe chinese government organic mega-farms like this as part of the solution to producing large quantities of food consumers trust. the food safety scandals est it is a change that cannot come soon enough. yvonne: a great story. give us a sense of the size of challenge china is facing. feeding so many increasingly demanding people. tom: it is a huge challenge. part of the warehouse, the huge structure in beijing, supplying food to the capital. there are 200 tons of papaya. kindss an example of the of foods the middle class are demanding. as well as meats.

they now consume half the world's poor. we have seen a 19% increase in beef consumption. that is changing the way beef is produced around the world. that has huge implications for companies but also investors. the challenge for china, about 20% of their arable land polluted or contaminated in some way. they have an aging population when it comes to farmers, the average age is about the seven. -- about 57. we have been seeing spending chinese companies. is the pork producer in the u.s. big implications globally. betty: thank you for bringing that report for us.

tom mackenzie. you can get more on that story and our special reports on feeding china on our website. that is at bloomberg.com. check that story out.

betty: asia-pacific stocks signal mild gains things to data indicating the global economy is on a firmer footing. the yen is weakening again. yvonne: president trump's budget proposal is going to hurt the people who put him in office. critics say it is a work of fantasy. betty: a trader faces more pressure today. the stock is suspended and there are reports a potential partner has walked away. menu as china tries to satisfy growing demands for better and safer food.

we will have a special report. this is the second hour of daybreak asia coming to you live from bloomberg's u.s. and asian headquarters. it is just after 8:00 a.m. betty: just after 8:00 p.m. in new york. in just a few moments, we are listening for remarks coming out from the boj governor, kuroda as well as ben bernanke, the former fed chief. they are speaking right now. we are watching for any comments from kuroda about inflation targets, monetary policy, and bernanke weighing in. yvonne: last summer when they , there was a prospect of some type of stimulus, even helicopter money that was thrown into the topics of interest for many traders. so far, we are starting off pretty strong in japan. let's get the latest with shery ahn. make awe will see that

difference in the markets right now, but for the time being, we are seeing the market set for strong gains. .9%, notikkei is up surprising given the weakness we have seen in the japanese yen, which is falling for a third consecutive session. more strength for the south korean kospi, which has been getting this week. another day of weakness for the south korean won for a second consecutive session. surplus out of new zealand, though the stock market is not reacting that much. it is barely up a little bit, .1%. the asx 200 fell. the aussie dollar really has barely botched the last -- has barely budged the last couple of sessions. the overall tone of the market is fairly positive, not surprising given the gains in the u.s., just pushing toward all-time highs again. -- of that here as investors all of that is based off your as investors focused on positive

data globally and move past terrorist attacks in manchester. yvonne: the dollar reversed the losses and gained in the last session. what are we seeing now with the greenback? shery: we continue to see those gains. take a look at this. we had data out of germany showing a strong economy there, also under france showing they were gaining momentum. this is the bloomberg dollar index strengthening since then, and it continues to strengthen right now after two sessions of losses. we are seeing a pretty strong day for the greenback. what that will do for emerging-market currencies in asia, we will have to keep a close eye on that. i want to show you one currency that the attention has been focused on overnight. that is the south african rand. we did have some news overnight that the anc leadership could be debating the ouster of president

jacob zuma, so we are now seeing durant -- seeing the rand strengthening in the past three sessions, and it continues to strengthen today. i do want to bring this up in the context of emerging-market currencies, because if you take a look at his white line, which is the emerging-market currency index, it has gained more than 10% year-to-date. --n it comes to be rand comes to the rand, there is still love with the carry trade that is being felt in the emerging market spirit -- sphe re. betty: watching many factors in the asian markets. now let's get to the first word news with paul allen. msci venture henry financers has told bloomberg that the inclusion of shares on

the index next month is by no means assured. china was rejected for inclusion last year and is awaiting the msci's classification review on june 20. fernandez says the timeline is tight. asia rose strongly through march, but have since declined. >> the process has been hard for the last three years. there have been other places that has been harder. there is still a lot of issues to resolve in a short period of time. tom: embattled -- paul: embattled commodity trader noble says there is one report that cited him as pulled out on top. noble says it is not aware of any reason to back that up and says he remains in contact with potential strategic partners and that those talks will continue. shares were suspended soon after the open on tuesday, having slumped towards an all-time low. noble has requested that be lifted. u.s. treasury secretary steven mnuchin is hiring, trying to

fill top positions by retreating financial industry figures with job titles that don't require senate confirmation. he has hired four top aides with the title towns of including a former blackrock executive, and the senate won't vote on any of them. administrations on both sides have used the tactic. u.k. police it is too early to know whether monday's attack in manchester was part of a terror plot or larger attack. they named salman abedi as the manchester arena bomber, and at times says he returned from a trip to libya three weeks ago. the islamic state group says he was linked to them. the attack comes just two weeks before the general election, and all campaigning has been suspended. global news 24 hours a day, powered by more than 2600 reporters and analysts in more than 120 countries. i am paul allen. this is bloomberg. >> we are getting breaking news right now. that is the boj governor kuroda

speaking at this conference in tokyo. there is some headlines coming out right now. he is saying that monetary policy is not for fixing inequality, but they pay attention to this. but also, monetary policy, saying that many agree the industry has fallen in recent years. almost kind of stating an observation already in the markets, but just saying that many agree that the natural interest rate has fallen in recent years. we are watching more for comments related to inflation and their inflation target and also their balance sheet. the bloomberg global economics and policy editor kathleen hays, monitoring these headlines. what do you make so far? is there expected to be any big news from this? kathleen: you never know. i don't think he is taking questions. if he does not take questions, we want to get extra digging. i want to remind our bloomberg users you can follow us online.

we are carrying the speech live from tokyo. we are watching headlines and paying careful attention. i like the topic that he and ben bernanke is going to speak about , looking at policy lessons learned and challenges that still remain head. governor kuroda has insisted that inflation is going to hit the 2% target sometime in fiscal year 2018. that gives them until march 2019 to make good on the prediction. lesser member that japan is having its best gdp growth in over a decade, five straight quarters. when it comes to recovering economy, you could say extraordinary measures are working. let's jump in the bloomberg and look at a chart to illustrate how far from target the boj is. that is the green line, 2%. the white line is japan's cpi year-over-year minus food prices. 0.2%, not negative but a long way to get to 2%, even though moving in the right direction.

we would also like to see if he follows up on recent comments made a week and a half ago, saying that he agrees that at some point the boj will exit its yield curve control, but not ready to do so yet. when you look at that chart, you can understand why. again, we are showing that headline, monetary policy not for fixing inequality. that is a big theme in the whole world right now. i think you are right, inflation target, exit, these are the kinds of things we like to hear. yvonne: the plot thickens when ben bernanke makes comments after kuroda. he had a blog post where he wondered whether the boj could do much more. kathleen: in fact, that is why i think the conjecture about helicopter money, ben bernanke and helicopter money, will he urged the boj to get more aggressive -- which is tough to do, they are a pretty aggressive. in the blog today, let's take a

look. you said the options are limited for the bank of japan because government bond yields are already near zero. it has been tough to boost inflation expectations. proving difficult, he said, and that further stimulus is needed. maybe fiscal policy and monetary policy could work together. if they lose the inflation target, maybe that would help. the question is about helicopter money. if he gets asked questions, maybe someone will say, because a top advisor to abe said about a year ago that when ben bernanke came to visit the boj, this is what he was recommended. government issues securities than ever richer -- never mature. the boj buys them and holds on to them and that helps boost the monetary base, and this would be a strong anti-deflation tool. there has been a lot of back and forth on this. critics say that is just monetizing the government's debt and allowing mr. abe to spend a

lot of money and the boj is going to keep paying for it, and that could be destabilizing and inflationary. by more bonds,t get more money into the economy, you will see inflation rising. you see a turquoise line that shows you what the japanese yen has been doing, going from way back in 2002, a trend from weakness to strength, then weakening again. again, the money supply, it has been moving steadily higher. for years, the bank of japan has been boosting money supply, but the impact on inflation so far limited. again, will ben bernanke weigh in on this? i think he probably won't because he is saying the boj is doing all they can right now. will he weigh in on the u.s. economy, where he has said recently that there are limits on gdp as they go above 2%? the fed will hike rates gradually, etc., but nothing astonishing. maybe he could astonish us today?

. >> we are waiting out of the u.s. for a hike, but also looking for any details on the balance sheet. we also heard from the philadelphia fed president, echoing every other official lately that more rate hikes are coming. kathleen: more rate hikes are coming indeed. three rate hikes are appropriate. i think it is interesting what he said about the balance sheet, because he said it is going to be like watching paint dry. they wanted to be boring. the fed is going to make announcements about how they're going to do this. the interesting question now for the fed is this -- they have so widely advertised a june rate increase, just a couple of weeks from now, isn't it? and sometime late this year, start reducing the balance sheet. the interesting question is, if they do the june rate hike -- which they seem sure to do -- will there be another rate hike this year, a september or december hike? that is where the debate is theg to rest, maybe more on

economy again because inflation has moved away from the feds target. on theas been mixed data economy, but for june, it seems to be a done deal. the pricingat how would be if we had even one fed officials saying, i don't know about the june i, because even the most dovish ones seem to be on board. >> what do they think about fiscal stimulus? we continue to watch headlines about the trump budget proposal. kathleen, thank you. the president's first budget proposal has been dismissed by critics on both sides of the $3.6 trillion in spending cuts. some of the biggest losers would be social programs and working-class voters. justin sink has fired this report from washington. >> the budget has gotten a mixed response on capitol hill. republicans give him more leeway. you saw house speaker paul ryan say today that even know the

budget itself is most likely dead on arrival, there are elements he is impressed with. for instance, republicans are focusing on the fact that the president, over 10 years, says he wants to balance the budget, something president obama never did and something they want to drive towards. also military and defense spending, something republicans are going to seize on and try to incorporate into their version of the budget. democrats are more skeptical, and so are many moderate republicans. in all likelihood, i think this bill doesn't have much of a life on capitol hill. what contributes to that and furthers that is the fact that the budget doesn't include essential details, like how the president's tax reform plan would play out. those are the type of things that lawmakers are looking for guidance on, especially going forward with the president's legislative agenda. , this isesident trump mostly a document to show his supporters in the country when he is passionate about, but it

also is something i think we are going to hear a lot of democrats seizing on. they're going to look at the deep cuts, 40% to nondefense discretionary spending over the next 10 years, and they're going to say, the republicans and president trump want to cut food stamps, increase the cost of college loans, want to go after social safety nets. so while it is something that is not going to have a real legislative impact, it could have a sincere political impact going forward. >> justin sink out of bc. looking ahead on "daybreak: asia ," china's first smart watchmaker. hear what the ceo has to say about wearable tech. betty: up next, we're going to continue our coverage of the boj comments with a former bank of after kuroda and ben bernanke speak in tokyo. this is bloomberg. ♪

betty: this is daybreak asia. i am betty liu in new york. yvonne: i'm yvonne man in hong kong. the bank of japan governor has been speaking on monetary policy in tokyo. alongside him, former fed chairman ben bernanke. we are told he is just beginning to speak at the boj conference. let's discuss that and what we have heard so far with the senior fellow and chief economist at sony financial holdings, also former senior advisor to the boj. also want to welcome kathleen hays back and our conversation. i want to start with you, because the last time these two heavyweights met, there was talk about helicopter money. japan a year later, much firmer footing on where the economy is going, but inflation still a wildcard. what do you think ben bernanke can bring to the table this time

around? >> i think bernanke's idea of helicopter money controlled by the central bank is quite interesting, but at the moment, we expect the boj to continue the current policy framework of control and change, so the money is not so important, the boj focuses on the shape of the yield curve, so they shift their targets from the body of the money and the yield curve. but the discussion of helicopter money will be important in terms of what the boj needs to do and -- which means when the deflation risk comes back. betty: you are right that the focus now is on the balance sheet, but also the shape of the yield curve. mr. kuroda has expressed confidence that the inflation

target can be reached in japan. do you share that confidence with him? have 2%,ally, we will but we don't think the inflation target 2% will be achieved by the end of march 2019. it will take much longer. given the tone of kuroda's voice that has changed, he appears to be a little more downbeat in terms of the boj's challenge of the 2% inflation target. we think it is just a matter of back,hat boj will push the timing of achieving the 2% inflation beyond fiscal year 2018. tokyoen: when i was in recently, i spoke to a lot of people about the boj. when you follow this to its logical conclusion, the boj is not going to meet its 2% inflation target, certainly not by march of 2019, and if it

doesn't, how could it ever talk about an exit? if it doesn't exit, it keeps buying endless amounts of bonds. is this the wheel the boj has gone on that it can't step off of for a long, long time? >> yes. what they have said so many times and for a long time. the boj should publish the exit strategy sooner rather than later, but kuroda always says it is still premature. you are right, and when the boj tries to exit, it is quite likely to have a very big loss in its profit and loss account, and its balance sheet will deteriorate. in order to maintain and restore the confidence of the boj from the public viewpoint, the boj should publish sooner. confidencethe boj's should be a loss on the exit. that is a very dangerous thing.

>> masaaki, i want to bring up a quick chart we have on the balance sheet for the boj. let's bring up this terminal chart that shows just how much the bank of japan's balance sheet has risen the 70 the fed vis-a-vizsen th the fed and the central bank. how worried do think the road is about the balance sheet getting too big and influential in japan? -- it isly, the boj possible the boj will publish its exit strategy before the term is over. kuroda-abet the

hinted recently. i think there is some risk, but what is a risk -- what is at risk is the confidence. it is difficult to define confidence in the current context, but if the boj remains independent at exit, and at exit the boj is required to implement very aggressive tightening of monetary policy, together we have tightening of fiscal policy. if we can do that, then we can find the exit. -- but if not, the inflation rate may keep getting is to whatone point extent the boj will remain independent after exit. bernanke's version of helicopter money that is controlled by the central bank or the boj, so the boj needs to keep its independence at the exit. then we can find the exit.

>> is the boj independent, or are they doing prime minister abe's bidding? do you believe they are still independent? >> oh, yes, it is still independent. but in this context, who will be the boj's governor after april next year is very important. you.saaki, thank stay with us here. we continue the conversation as we get to hear more from ben bernanke. masaaki, hold on a second. we have breaking news out of china. moody'sowngrading -- downgrading their ranking from a one to 83. reflecting loser expectations that china's financial strength will erode somewhat with economy wide debt considering to rise as potential growth slows. masaaki, first let us know how

big of a threat or concern is china for japan at the moment? what is your take on this downgrade from moody? naturally, the chinese are very important in japan in the context of trade and politics and especially risk in northeast asia. hope, that china's economy will remain stable. ofthis sense, the downgrade china is a bit of a concern, but at the moment, i think the chinese economy will be stabilized in terms of gdp growth rates, somewhere in , and if thend 7% chinese economy stabilizes, then actually we don't have to worry too much. recently, china's trade is slowing down and japan's export to china is slowing down after

being boosted in the first quarter. , the growthconomy rate of the gdp was 2.2% in the first quarter, but there is some downside risk in the second quarter. as exports will not be able to be the driver of the economy. in this sense, the chinese economy is key for japan. >> hang on one second, because i want to return to these headlines. this is a big surprise, china aa3 byut to ai from moody's. as yvonne was saying, china's financial strength will be eroded somewhat over the coming years. kathleen: they have got a lot of debt. every economist you talk to in the whole world is wondering how in the world they are ever going to deal with it, and that the government would have to take steps. debt has been growing to boost the economy. certainly the pboc realizes it

has got to start deleveraging -- to a certain extent. it is not like they downgraded them to a really low rating, but i think with this, so obvious to the world, it can't, as too big of a surprise that moody's, one of the big ratings agencies, has chosen to make this adjustment. >> we are seeing the offshore yuan falling marginally, but still significant, 0.06% after this surprise downgrade. it is not down to junk status by any means. a1hleen: it has still got from aa3. >> when it is going in the wrong direction, that is not a good surprise for the markets or for china. masaaki, thank you so much for joining us, a senior fellow and chief economist at sony holdings, former advisor to the bank of japan. don't forget bloomberg

subscribers can watch the boj conference in japan featuring bernanke and kuroda at live go. stay tuned there. ♪

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betty: 8:30 and singapore, just half an hour away from trading. looks sunnier than what we are seeing in hong kong. yvonne: i'm yvonne man in hong kong. betty: i am betty liu in new york. you are watching "daybreak: asia ." let's get to the first word news with paul allen. budgetresident trump's has been dismissed by critics as a fantasy that would dramatically reduce the government's role, cutting social safety nets and negatively infecting -- impacting many of the world working poor who put him in the white house. it proposes $3.6 trillion in spending cuts over the next decade, including medicaid and

low income housing assistance. >> it is a fantasy document. the assumptions about economic growth are ridiculous. it does not include the president $5.5 trillion in tax that's and the spending -- in tax cuts and the spending cuts are so massive, it is hard to imagine the republicans going along with it. rather than balancing the budget, it creates more deficits because of the huge tax cuts. paul: philippine president rodrigo duterte a as put a southern island under military role after terrorist links to the examining -- link to the examiner state clashed. the president is cutting a visit to russia short to handle the situation. martial law was last declared in that city in 2009 by the president then. the u.s. commerce department is pursuing new leads from its investigation into chinese tech maker and smart moan -- smartphone company cte overprinting sanctions against

iran. they want to the trump administration to identify a company that zte said used similar tactics. than $1defined more billion for passing restricted american technology to toronto. tehran.-- technology to googles game plan computer has struck a blow for artificial intelligence. it was facing a 19-year-old prodigy and won by half a point, the closest possible margin. in 2015, the program beat the top european player, then defeated a korean player last year. beat at chesse champion in 1997. global news 24 hours a day, powered by over 120 journalists and analysts in over 120 countries. i am paul allen. this is bloomberg. >> time to see how the asian markets are doing following moody's downgrading the rating.

let's get the latest from shery ahn. shery: that was the big news from the day out of moody's, a1. aa3 to it reflects the expectations that financial strength in china may erode in the coming years. we are seeing the offshore yuan react to that news. ,e saw weakening significantly although right now it is falling back some of those losses -- it is clawing back some of those losses. let's put this in the context of what is happening across currencies in asia. asian currencies losing ground against the dollar. the bloomberg dollar index is gaining strength for a second consecutive session. we had some data pointing to some strength, not only in germany but also france. we are seeing this weakness across asian currencies. take a look at the malaysian .3%git right now, down

after strengthening for the past three sessions. this is quite interesting, because we have firms that are reeling from a weaker bring it -- ringgit. air asia ask reported their first quarter slumping of net income by about 90%. at last close, it was unchanged, $.54, but then the carrier does the weakness for the future, given the weakness in the ringgit making their bartering and operating costs more expensive, given that they are a dollar denominator. yen,a look at the japanese which is also the only currency right now that is not really gaining ground, but it was reversing earlier losses. it has been weakening for two consecutive sessions, unchanged at the moment. we are seeing other currencies in asia as well, the korean won leading the decline, now moving

around for a second consecutive session as we see dollar strength throughout. yvonne: something that influences the dollar or the dollar influences is oil. it's also big moves in the last few sessions. what are we seeing so far in oil? shery: five sessions of gains for the wti, around $51 a barrel, brent $54 a barrel. there is a lot of optimism that opec will be able to extend those production cuts for about nine more months, although other options are the table, like a six month cut. that will happen. the decision will come this week, tomorrow. in the meantime, we got these hedge fundss data, the speculation of what is going to happen in the future. positioning shows that this recent rally could extend. we are seeing shorts as well as longs gaining ground. when it comes to longs, 2.8

longs for every short in the market, which is the lowest since november. overall, analysts saying there is further room for oil to continue rising. take a look at gbc energy, saying there is plenty of room for oil prices to rise in the short-term. citi also saying brand could rise to $60 a barrel. betty: thank you so much, shery ahn with an early look at the markets. embattled commodity trader noble saying it won't confirm a report that sinochem has pulled out of the talks, but it has requested that shares returned to trade today. here is james and singapore on this ongoing saga. take us through the latest developments. james: this morning, noble issued a statement saying it is reviewing strategic alternatives. it appointed a u.s. new york-based investment bank to

review a strategic options. as you said, it has requested the resumption of shares at 9:00 a.m. in the singapore exchange. it is going to be interesting to see what happens to those shares, because yesterday before shares were halted there was a 32% decline. the only news since then is the statement from noble this morning, saying it was still looking for strategic investors. >> give us a little bit of background on noble. has really just been a troubled firm for so long. they were once asia's largest commodity trader, everything from ags to energy and metals. how did they get to this point right now? james: in 2010, the market value of the company was more than $10 billion u.s. trade in most agricultural commodities was the biggest in asia. then commodity prices started to decline.

there were allegations over its accounting methods, which it denied. there were credit rating downgrades. the price of the shares declined very sharply. in 2015, it reported its biggest-ever loss. it managed to turn that around. in 2016, it had a small profit. it had a rights issue. also sold its agricultural assets and some energy assets. but then came a shop in the first quarter with that profit warning on may 9 -- came a shock in the first quarter. >> things have worsened over the past few weeks, you mentioned the profit warning. we heard from smb is saying their debt is unsustainable at this point. james: exactly, and things have unraveled the past to them a week's. a bigofit warning was surprise because people thought the company was on the road to

recovery. you have 48% plunge in the shares the week of the profit warning. now the confirmation of the loss of $130 million u.s. then you have the bond's decline to more than half their value. you have the credit rating downgrading further into junk. really the final straw i think was on monday evening when s&p said there was a risk of default of the next 12 months. the shares yesterday were halted. it is hard to see where we go theyhere, but hopefully will find -- or at least they hope they will find -- a strategic investor, a white knight. hasa investment corp. still the biggest shareholdings, so there is the potential for something from china, but there is no confirmation of anything yet. interesting to see how the shares perform when they reopened tonight. >> no end in sight for now. thank you, james poole from

singapore. coming up, china's first smartphone makers try to push into ai. this is bloomberg. ♪

>> this is "daybreak: asia." betty: i am betty liu in new york. a quick check of the latest business headlines. new york agricultural trader bungee soared after reports that glencore has made an approach. the ceo indicated earlier this month that the company would be open to a deal. glencore has confirmed it has been contact and finished the london session down 1.5%. bunge stop job takes the market value above $11 billion. chrysler is being sued by the justice department over claims that thousands of light-duty diesel vehicles were legally fitted with software cap hidden during certification.

the complaint alleges the software causes the car's a mission control system to perform better and tests than normal driving conditions, essentially what volkswagen has admitted to. betty: reports say protons parent has agreed to sell a minority stake of the carmaker to a company in china. we are told the decision has to be approved. it stop will be suspended from trade today pending announcement. the investment would allow the company a foothold in ibm market and would be as biggest since it bought volvo from ford for $1.5 billion in 2010. is china's first to smartphone maker. not so well known here, but closely linked to google. up withis also teaming volkswagen for more artificial intelligence. atphen engle is with the ceo the technet 2017 conference.

steve? stephen: artificial intelligence is the thing, and we are going to talk about one of the leading players. 4.5 years old, but already a leader in the very fast-growing beijing tech scene. we have the founder and ceo. thank you for joining us. i have been to beijing quite often, and i lived there. believe how quickly the tech space, autonomous driving, ai -- the scene is growing quite fast. how are you staying ahead of the game in just a foreign a half-year-old company? >> beijing is really a center for new technology, and the application of technology. in just a few years, if you look at ai or at mobile internet, it has been a lot of progress for us. we have grown from a company

that only had a few people, but now we have 350 people. we are developing artificial going intolso applications that might make sense. wearables, smart phones, smart technology with the environment. hashen: the ticwatch started selling in united states. how is it doing? this is the latest generation smart watch. the first one was basically a chinese interface. this one also has english. >> we launched the second one last year in december and had a kickstarter campaign that was very successful. we raised about 2 million u.s. dollars. began to sell on line on amazon and also on our official website, and we are also doing sales of the macbook store. so far it is doing well, 30% of

global sales. stephen: you are up against apple watch and samsung. how do you differentiate yourself, simply on price? >> price is one part, but i think the product itself has many unique things. wheree a feature basically you can scroll this green because it -- scroll these green because it is so small. google has invested in you. their first investment into a chinese company. we all know what happened in 2010 -- they pulled out for political reasons. have you seen meshing with the google and android infrastructure, as a way for google to get back into the china game? 2015ogle invested in us in september. we haveon is because

developed many unique ai algorithms that might be very useful for android ecosystems. we have partnered with google on android wear we provide the voice search engine in china. that is the first time google has used a third-party voice search in the world. , becauseid in general a lot of the service is not aware in china, we are able to provide service to customers, which is good for the ecosystem. stephen: where are you positioning yourself over the next five or 10 years to build the architecture of their environment or build the applications on top of what you just mentioned, android and google? >> i think it is both. in china, we are also building the fundamental algorithm for a voice search engines and the app store, but at the same time, applying the ai algorithm into

different educations, because ai itself is not a product. you have to apply it to a specific product. stephen: and the automobile industry, $180 million investment from volkswagen. you are doing their concept car for economist driving, doing the interface in the car for the concept. how are you going to take that partnership further into the automobile industry? which has kind of been resistant to go full internet, but they are moving that way. >> right. volkswagen invested in us last month. since the announcement, we have made a lot of progress in the partnership. basically, our initial goal is to put the voice and service into the car environment. internet-linked muir, rearview mere? >> it is a 4g connected rearview mirror.

it is basically like your iphone in your rearview mirror and suddenly it becomes a 4g connected advice. voice navigation, listen to music. stephen: what is next, the killer application coming next? we have heard something coming in july for the u.s. market. >> we are going to launch the new version of ticwatch. it is called ticwatch s and e. for younger generations of sporty person. doing reallyis well because of the design and position of the product. stephen: what kind of market share can you expect in the u.s.? already a pretty saturated market. last year, smart watch sales went down. >> i would not agree that smart watch sales went down, because it really depends on the season. some seasons are doing well. stephen: so what kind of market share? >> global? it is difficult to say. if we can get more than 30%, we

are super happy. stephen: quickly, ipo, what is your exit strategy? >> we are still working on the ai algorithm and application. so far, ipo is far away for us. founder and ceo, thank you for your time. that is it for now from the goldman sachs technet conference in hong kong. yvonne: thank you and thanks to mobvoi founder. interesting, smartphone on the rearview nomura of your car. -- on the rearview mirror of your car. bloomberg subscribers, you can watch the discussions that kuroda and bernanke are having a conference. you will also find the big diary entries coming up today and this week, as well as the events you may have missed earlier. this is bloomberg ♪

yvonne: this is "daybreak: asia ." betty: the offshore yuan weakening slightly after moody's cuts china's rating, the agency raising warning flags on a worsening outlook amid fears that growth may stall. here is our china economy editor malcolm scott with more context on this. talking to were kathleen hays earlier, who basically said, what took so

long? movies is recognizing what investors has said, which is that china does have too much debt. his moody's catching up with the market, or what is happening here? malcolm: the move to a negative outlook in march of last year, and we have been waiting for a follow-up. we were not expecting it today. you can see by market reaction, the australian dollar giving lower. moody's has taken markets by a little bit of a surprise. as you say, forewarned is forearmed and moody's has been concern for quite a while, as have institutions like the imf. interesting to note that last year, once the outlook was cut from moody's, s&p followed up and did something similar. we will be checking on what is the are thinking in the wake of this. the markets have been taken a little bit off guard today. >> i just want to take my terminal here, where this shows

you the take my take movement and the offshore currency. you can see dollar u.n. spiking -- dollar-yuan spiking, meaning the slight weakening in the chinese currency. it tells you how much of a surprise this really is. is there any sense, as you mentioned, because the outlook had been cut the negative, we were expecting this may happen at some point. is there any sense around the timing for right now, malcolm? malcolm: not that i'm aware of. the one thing to note i guess is now that the cut has come, the outlook is back to stable, so this might draw a line on this issue, at least for little while in this ratings universe. the comments that came through to justify the cut are well-known. there is more debt, the economy is slowing. not surprising the statements, but around the economy -- but

around the commentary on the stable outlook, it is likely statement has two parts. this is why we cut it, but now we are stable and there are reasons to suggest that may remain so. the deterioration in the credit profile will be gradual, and they expect that any erosion will be offset by strong growth and also considerable scope for policy to adapt and support the economy. plenty of words of stability as well. credit rating is saudi arabia, japan, israel, so nothing to earth shattering or worrying. they did mention the reform efforts to leverage our only slowing, not preventing the rise in leverage. do you the pboc is going to respond in any way? could we see a further ramp-up in tightening? malcolm: the tightening has been about cutting financial leverage, not necessarily

leverage. lending to the real economy is crucial to keep the growth rate about 6.5%, the target. they do need money to keep going to the real economy. the best way out of a debt to mess is to grow your way out. if they crunch to hard and crunch credit in the real economy, growth falls off. that makes it that much harder to pay back the debt. leverage seemsal to be a priority of policymakers at the moment, getting that sloppiness out of the financial markets. but lending to the real economy, mortgages, businesses, they want that to keep going, and that could mean economy-wide debt does keep growing. yvonne: the timing is surprising, given that china is trying to open up their bond markets to foreign investors. malcolm scott joining us on that breaking news. more to come here. we are going to wrap it up on "daybreak: asia," but a look at what is coming up.

heidi, what about the moody's downgraded. haidi: some people saying they should have come earlier. take a look at the aussie dollar, taking it by surprise. we continue analyzing that. what malcolm said by the difficulties of growing yourself out of debt when growth is slowing. we are watching that story. also to watch of course, the lines coming from japan about bank of japan conference, hearing from ben bernanke and governor kuroda, talking about where this 2% inflation target went. and what sort of monetary and fiscal policy alternatives still remain in the playbook. plenty more to come. ♪

♪ haidi: i am haidi lun. this is "bloomberg markets: asia." ♪ haidi: the warning lights flashing, moody's cuts china, growth stalling. struggling noble face pressure from a suspended, now reports of a potential savior walking away. president trump's budget proposal would hu