♪ >> you are watching daybreak asia live from sydney and hong kong. >> we're counting down to asia's major market opens. >> top stories, white house and

republican leaders rally support to avert the u.s. default. modest gains amid optimism. chinese equities in hong kong edge closer to a bear market as geopolitical tensions keep investors away and for more on what is slowing the chinese economy's recovery we be live with morgan stanley and the chief economist robin. annabelle is here now with a look at markets. annabelle: looking ahead to the open in asia. ahead of that, the start of trading for the u.s. market. shut on monday for memorial day, thin trading. cautious optimism coming through with the debt deal relief, the main center point. u.s. dollar as well, retreating somewhat. it was the asset investors were turning to amidst uncertainty. it was lower on friday ahead of

the deal being announced. nasdaq futures a particular watch for us. one of the key questions is whether the ai frenzy can continue. there was fuel added to the fire on monday in taiwan because we heard from nvidia ceo jensen wong outlining his vision for the company. nasdaq futures to the upside. change over now, that helped japanese stocks in a prior session. topics rising 2% at one point. when you look at the board today it is more -- cautious optimism in the u.s. but cautious overall in asia. seeing the japanese yen above 140, something that could help more of those export names in japan. in terms of what else we are watching, china is the big market to watch given that there

is so much bad news in the market. geopolitical tensions in focus, the meeting between beijing and washington and you can add economic headwinds because we had industrial profits disappointing over the weekend. let's change up now and look at the market reaction. taking a look at the hang seng china enterprises index, down again end of session on monday so we are approaching a bear market for this gauge. does not seem that there is a lot of relief on the horizon. yvonne: we've seen turnover, under a trillion in two weeks. it sentiment is not helping. for more on the issues moving markets, let's bring in our asia editor and d.c. correspondent kailey leinz with the latest on the debt ceiling deal. richard, i'll start with you. china is missing out on the debt relief rally that we've seen

across the globe it seems. we're talking about bear market territory for the hsc i. this market is looking tired. richard: exactly. the steam of the recovery is gone out and we are seeing that in prices for sure. the key question as stock-price as go down, valuations become more attractive, what could be the catalyst for balance. joe biden made optimistic comments about u.s. china ties and that helped shares. one has the sense that a similar sentiment shift could boost chinese stocks but again today we've got the news that the military chiefs, the potential meeting was scuttled by china, not helping things in the near term. paul: chinese stocks did not get the benefit of that relief that we saw in the asian pacific on

the back of the principal debt ceiling agreement. i stress the words in principle because the deal is not done yet, is it? >> it needs to be turned into law. the agreement has been turned into legislative text released on sunday evening in washington. as lawmakers travel back to the capital to look at this again on tuesday, it remains a question of whether or not it can be passed. the house rules committee is what it has to get through first. they will meet at 3 p.m. eastern time on tuesday to decide whether to advance this bill to the floor and that could be a hangup because there are republican lawmakers on the committee, congressman it chip roy and ralph norman, they have expressed discontent with the bill. those with tom maxey, who could be another holdout, could prevent this from getting to the house floor unless a democrat decides to advance it.

that is a hurdle that needs to be jumped over and then assuming a gets to the house floor, it needs 218 votes. you're going to leave republicans on the far right side who wanted to see larger spending cuts and a higher increase in the defense budget, you will also lose regressive democrats who don't like the strict work requirements as well as the energy provisions in the bill. so it's about whipping the votes now and we know speaker mccarthy and president biden are doing that as we speak. the president has been calling members himself on monday in washington. paul: looking around at futures for the major asian markets it seems the relief rally might be played out from the debt ceiling agreement. we have south korea online today after a public holiday. >> in dds, holidays in other regions as well. the u.k., europe and the u.s.. there was that expectation that we would have a deal and that

seems to have played out, so investors who held back, hellfire, looked at recent instances of debt ceiling negotiations. they have been vindicated. we are not there yet. this is not law and it needs to be before we can sound the all clear. over the fullness of time we will see this instance mirror those in other times where debt ceiling negotiations have come through at the last minute and stock prices have reflected that. that's how things will play out. yvonne: what do we look for next in the deal? there are supposed to be hearings on tuesday where you are. >> the rules committee meeting tomorrow will be the first thing. that is 3 p.m. eastern time assuming they vote yes to advance it to the floor then we will look for a vote on the house floor as early as wednesday. it has to move to the senate.

there are many parts to get to law and if it passes in the senate which will require bipartisan support could be disrupted because any senator can put up hurdles to get this through. we've heard senators like mike lee expressing discontent with the spending figures. we will have to watch it get through both chambers of congress then it can get to the president's desk for a signature and we can see the ceiling raised for two years us was decided upon between the speaker and the president himself. we are really working against the clock. this is a race against time because june 5 is when janet yellen has said her department will run out of cash to pay the bills. there's a lot of room for error between now and then. paul: bloomberg's cross asset asian editor richard and kailey leinz there. let's get to the first word headlines. the u.s. says china has declined

a request for a meeting between at lloyd austin and his chinese counterpart. the pentagon says its proposed meeting in singapore aimed to keep lines of can indication open to prevent conflict. china's rejection was called concerning. beijing demanded the u.s. lift sanctions on the purchase of weapons from russia. turkey's new president is said to have met with a market friendly finance minister as he announces a new cabinet. influential names are arranging the talks. erdogan promised his team would have international credibility following his reelection on sunday. spanish prime minister pedro sanchez will dissolve parliament and call a snap election before july 23. the socialist party suffered heavy losses in regional and local elections on sunday. the votes timing will ramp up

pressure on the leftist coalition as it struggles to resolve disputes. pwc australia is putting nine senior partners on leave and the independent directors to their board following a tech scandal. business with the government woman mise conflict of interest and boost governance. they've been under fire after a tax chief leaked secret information during his time working as government advisor. china is said to be looking at tax incentives to high and manufacturing companies. the source tells us the proposal could help qualified manufacturers send -- save hundreds of billions but the plan is subject to approval. beijing is seeking to boost the economy as recovery loses momentum and encourage innovation. those were your first word headlines. yvonne: sluggishness when it

comes to china's economy. morgan stanley's chief chinese economist joining us from morgan stanley chinese summit to discuss the outlook for growth. up next a closer look at the impact of the debt ceiling talks in the u.s. are having in global markets. we discuss that with k2 asset management. this is bloomberg. ♪

♪ yvonne: checking u.s. futures this morning. markets are closed for memorial day, reopening on tuesday as debt ceiling talks reach a deal. it has to get through congress but stock futures are elevated. nasdaq 100 futures are half a percent higher. the ai trade, nvidia is fueling that one. watch when it comes to long data treasury futures rallying in the wake of the deal reached between biden and mccarthy, paul. paul: u.s. equity index futures

are creeping higher, modestly so. after debt limit negotiators in washington reached a tentative agreement to raise the debt ceiling and avert a default. joining us is george, executive director and head of research at k2 asset management. u.s. futures are looking modest for the asia-pacific. looking flat. what are you expecting to see in u.s. markets when we get the open? george: it was a short relief rally in the asian region. it's a tentative agreement and a good case of adversarial politics. when we are looking through it, take a high-level approach. some level of fiscal discipline

and lower spending for the year ahead is doing the fed's work for it. less inflationary all things being equal. debate seems reasonable and a good result and solution would be positive for the bond market. it is not confirmed but june is not far away, the fifth of june. markets are not having a fit or any concern, it is a political mechanism in place and the language is adversarial. we believe we will find a solution even if it is a last-minute pickup in congress in the vote. paul: we got a good relief rally around the markets. china did not get one. shanghai up by eight points. csi and hang seng both losing ground. what is your assessment of chinese equity markets? george: china's equity market is

different than the rest of the world. it slowed down and the pmi coming out of there, the concern is that the post-pandemic rally in the second largest economy, they've got a property issue to deal with. they're cutting interest rates. but if you're positive about china, it does have an inflation issue. yes, it is slower on global trade. southeast asia has replicate what china has been doing since 2006. not an inflation issue, cutting rates, different than the rest of the world. boosted domestic demand is not kicking on with the pace that we thought previously and that will be concern for the cycle ahead, but think of it as a low growth profile. that's an easy statement to make. domestic demand will be part of the gdp going forward. yvonne: it seems like what we thought 2023 was going to be was

china would outperform the world, u.s. and eu would have an economic slowdown. in markets are not seeing that. it's almost the opposite. s&p is up, dollar is stronger. we are breaking seven and talking bear market territory for chinese markets as well. is this u.s. exceptionalism coming back? george: just more pragmatism, predictably. u.s. corporate earnings and conditions and policy notwithstanding what's going on in congress, there is more predictability. aggregate earnings have been quite good. the slowdown and decrease of earnings have not been as bad as people thought. corporate in the west are protecting margins. with higher prices. that will not be the case going forward. we are preparing for the slowdown.

the u.s., best case scenario is a technical recession. labor market is tight, more pain in the market in north america, commercial. but i'm thinking about people, rates in north america staying higher for longer. within 12 months, that would be too early. when it the rate starts to start, the bond will be two and a quarter to two and a half. we are not going under two again. hi discount rate, investment horizon for the decade ahead. yvonne: you add that to europe also averting the worst case scenario that folks thought at the end of the year. you talk about resilience when it comes to eco conditions. macro conditions look different. george: just like the unevenness of earnings by sector, germany was the play with the china

reopening. germany unwinds quickly. europe is very mixed. it is a domestic demand story where there are benefits in technology. it is going to be even more uneven and the earnings outlook will say north america. it is where the growth will come for the imf. they're not doing up right, this is a strange scenario. massive global market to the western economy. it is a form of strong fiscal stimulus. north america and parts of europe are getting it and that is driving domestic demand higher than we thought. it looks like the downgrade from the west to gdp numbers will not be as bad as we thought which compensates. it levels out a bit. unevenness around the world by

geography, unevenness from earnings by sector. in the aggravated -- aggregate we are waiting for a correction that is not quite there yet. paul: just before we let you go want to get your thoughts on ai, the tech rally. is it looking frothy to you? george: portfolio managers have those positions. you've got to look at the valuation. we have managers around the world to do longs and shorts but it is something that people do not understand the full details of it. the emotional element. ai will be embedded in many different sectors. it struggled to pass the savings the first time around. from an organizational point of view it can contribute to the services sector.

we hope that brings services. that's the best summary i can give on the current craze. yvonne: george, executive director and head of research at k2 asset management. get a roundup of the stories you need to get your day going in today's edition of daybreak. terminal subscribers go to dayb and also available on the bloomberg app. customize your settings so you only get the news, industries and assets that you cared about. this is bloomberg. ♪

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♪ yvonne: china has declined a u.s. request for the two countries defense chiefs to meet. this after beijing raised concerns over washington -- over

sanctions. let's bring in the leader of foreign policy coverage joining us from singapore. so there was a lot of hope that something was going to happen where you are this weekend but what happened? >> you are right, there were expectations. the u.s. and china could finally get over some tensions that have been plaguing the relationship. the shangri-la dialogue is an annual meeting of defense officials and experts that takes place in singapore. somewhat neutral ground in asia. secretary lloyd austin is flying in, his counterpart from china is flying in. they will still be in the same room at times but it does not sound like they will get a chance to meet. for u.s. officials, things will be very frustrated. the inability they've had to establish basic contact.

i don't think they're looking to have a big negotiation and make a deal. i think they have been trying to get channels of communication reopened, find a way to deal with the other side when there is a crisis or a spike in tension. paul: china says they would not be on equal footing while the sanctions are hovering over him. the failure to meet, what are the risks? >> from the u.s., when that alleged spy balloon was floating over the united states, it's important to be able to talk to the other side and say what your intentions are. try to explain your side. their concern is if there are other intentions weather over taiwan or the south china sea or a military accident, they have a channel they can go to to open

up talks. right now i think they feel like every time they try to do it they get shut down. yvonne: when it comes to the u.s. and allies they moderate the tone. when it comes to china, decoupling to de-risking. for beijing that sounds the same. is there a difference? >> from the chinese perspective it is semantics. the u.s. and allies are trying to say we want to keep trade with china. we want to keep doing business with china. we do not want to facilitate risks to national security. china sees the west as ganging up on preventing them from having access to high-technology computer chips and things. they think it is a matter of rephrasing and they have rejected talk of de-risking. paul: that was bill faries who

leads bloomberg's national security and foreign policy coverage. let's take a look at pictures we've got live out of china as we await the launch, three chinese astronauts, one in space travel, another a civilian on their way to the space station. we are expecting lift off within the next couple of hours and we will bring those pictures to you when we get them. plenty more to come. this is bloomberg. ♪ bridgett is here. she has no clue that i'm here. she has no clue who's in the helmet. are you ready? -i'm ready! alright. xfinity rewards creates experiences big and small,

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♪ yvonne: jobs data out of japan right now when it comes to the jobless rate that is better than expected. it fell the 2.6 percent. the survey was 2.7, the applicant ratio is in line with

the prior month of 1.32. things are looking better and the jobs front. with tourism coming back, automakers are hiring so that is helping the headline figures. annabelle is watching markets. annabelle: the boj has been tracking data but easy policy settings from officials. it's been a key reason that the nikkei 225 has been pushing up. taking a look at momentum over the run-up over the course of this year, the question is whether trading activity is sustainable. bank of america is among those raising its forecast for the nikkei 225. this chart taking a look at the 14 day. you can see it has been above 70 for the last two weeks and we saw the selloff over the past few sessions so something to be tracking.

that does tell us according to what is on the blog, when it holds above that level it is only done so for this time around 74 times since 1990. when that happened 13 weeks later the index was higher. 65% of the time. gains ahead for japanese stocks. another reason where tracking is there's so much buying activity, exposure to japan and companies to ai. investors are piling in. changeover, someone we know missed the rally has been cathie wood. her flagship etf closed down its position ahead of the rally in january. she's been on twitter, one of the most read stories in the past hour, defending the decision to offload stocks. she saying it's priced ahead of the curb. big players, the stock looking expensive. still she is saying go for tesla

instead. yvonne: i was talking to kathy from bloomberg intelligence. she bought in video for four dollars so she's logging some profits. thank you. when it comes to nvidia in japan, let's talk about china. morgan stanley is hosting its annual summit in the city, the first in person event since the pandemic. the bank is retaining their view that china will grow this year with additional policy easing as broadening consumption in the second half, that's from the chief china economist at morgan stanley. he joins us now from the hotel. great to have you. shuri and questions about the growth trajectory. hard and soft data does not look good. is this a soft patch orchid things look better or worse in the second half? >> weakness, look at where we

are today. around the hotel and everything, pandemic level. last time we had conference like this are asia summit in singapore, no one would have expected that. golden week, travel has reached pre-pandemic levels. now the debate is can china find the path. the debate is much healthier then what we had in november last year if china will reopen. recent may data weakness is a hick up. things will get better again. china used paycheck programs to jumpstart recovery. so like other asian economies, without the massive program it is not a surprise if we see bonds but the overall journey to recovery is on track. yvonne: what assumptions are you making, and consumption growth broaden that to consumers buying

cars and houses for example? robin: yes i do think so. the first stage of recovery was always about the difficult sectors, travel. if they start to hire again as we have witnessed in other economies, two or three quarters after reopening, china just reopened for months now, so some sectors we have seen hiring and by the end of this year we think we will be able to get 10 million jobs back out of the job losses. that would broaden the consumption recovery to the big ticket items even for the mass-market. yvonne: there are serious structural challenges when it comes to low confidence from the consumer. you have record high use unemployment. do you think china can stay the course and lay the foundations

of this consumption growth or are they going to have to revert to the old playbook and stimulate with infrastructure investment? robin: recent weeks investors are talking about stimulus like infrastructure or so-called special bonds but these are incremental stimulus. none of them are a bazooka. the next big thing would be how you can solve the local debt issue and at rapid population creating problems for sustainability of local government. how can we sustain it for social stability. in the next week's ns the year goes on after the government merges different agencies they will focus on this. sop reform in the 2000, restructuring ipo's and in 2015

to 2017, capacities, life accommodation. now they are about capital efficiencies. more than 300% of gdp as assets, how can they use that to give back hit in debt to sustain the fiscal transfer for social stability? it's all about how we can improve sle's. i think that is bigger than infrastructure spending from a local bonds. yvonne: there's is also refinancing pressure on local governments and developers. we've seen defaults this year. how will that play out this year and should we be worried about a second default? >> on local debt if it includes these china's government debt is probably more than 110% of gdp,

quite high. on the other side of the break she we have more than 300% of gdp state owned assets. the problem is some assets are not managed efficiently. their return is quite poor. and in recent years we have seen them prioritizing with giving local sle is kdi focusing on our oe, giving them an out. it seems to be narrowing the gap with funds. so if they can initiate the next reform, particularly approaching planning, that would be the big thing to solve debt issues. before that it is near term reaction type of solution for extending the loan. for the markets that's the big thing on reform. yvonne: markets need a catalyst here. were talking bear market

territory for hong kong benchmarks. we are above seven now. everyone is hoping for some stimulus but with a 5% growth target it does not seem like there is much appetite from policymakers for that right now. what stimulus are you expecting in the next few weeks or months and what is the time horizon? robin: talking about stimulus we just had one month data. so it is probably too short for the policymakers to come out with any reaction but we have the entire second quarter, may, june, even july data demand be soft, the hiccup will be too big to ignore. in terms of incremental stimulus, there are three options. one if you use policy banking tools like giving chip funding for infrastructure lending. second is housing. we can relax purchases in large cities. the third will be consumer

incentive like subsidams for cars. in july before the bureau meeting is a time for this incremental moves. we are upbeat because as we have witnessed in other economies given the use, the transfer to jumpstart recovery, it takes time because you need the service sector to create jobs. yvonne: give it time. great to have you, robin, chief china economist at morgan stanley, kickstarting the morgan stanley china summit in hong kong. plenty more guests coming through the morning. she fixed income strategist joins us to discuss the debt ceiling deal plus we will be speaking to stoneridge group and the wilson center's kissinger institute on the latest political and economic trends. paul: let's get a check of the first word headlines. japanese prime minister kishida will fire his son from his post

as political secretary after a scandal over a party at his official residence in 2022. the premier had reprimanded his son but local polls showed three quarters of respondents saw his behavior as a problem. a recent rise in support for his cabinet is stalling. singapore's president serve the country since 2017 but says she will not be contesting this year's elections. according to her the election date is expected in a few months time. the nationstate is run by the prime minister. the presidency holds important powers including view telling spending bills and signing off on single service appointments. reuters reports elon musk is expected to visit china this week. the ceo is expected to meet senior chinese officials and visit the company's shanghai factory. it will be his first trip to the country in three years. tesla's shanghai plant accounted for more than half of global

production in 2022 in the facility can now produce one million cars a year. chinese president xi jinping is calling top officials to increase efforts to build high-quality education system that has greater global influence. he says china needs to set up world-class universities offering scientific courses that meet the nation's major strategic needs and attract overseas students. the call comes as the country contends with rising use unemployment. president biden says his team is reaching out to members of congress to get them to vote for the debt ceiling deal. republican senator mitt romney has said he will back the bill. so has the leader of a moderate coalition of house democrats. biden and house speaker kevin mccarthy have expressed confidence that their proposal will pass and prevents an unprecedented default on debt. those were your first word headlines. up next, we discuss australia's

renewable energy transition with senior investment analyst of all-star impact funds. this is bloomberg. ♪ my mind. what if we live to like 100? that's 35 years of being retired. i don't want to outlive our money. and i have been eating all these stupid chia seeds! i could totally live to be 100! why do i keep taking such good care of my- since we started working with empower, we're able to get all our financial questions answered, so we don't have to worry. so you never- no. never. join 17 million people and take control of your financial future to empower what's next. start today at empower.com

paul: bloomberg's latest report shows australia is on its way to becoming one of the most decentralized and de-carbonized sectors in the world.

other sectors and hurdles on the path to lamenting environment policies might stall progress. let's bring in any affect of australia research and all-star impact funded senior investor claudia. i want to start with you. what needs to happen for australia to reach its legislative targets and stay on the path to net zero? >> in our analysis we looked at three scenarios for australia's future energy systems. the first one is an economic transition scenario were retry to let the changing fundamentals of energy technologies, assets on the ground an investor and consumer choices play out into the australian future. we found is admissions from energy use will fall by 18% on 2005 levels by 2030. 56% compared today by the year 2050 which is good news for those concerned about australia decreasing carbon emissions but still significantly above its legislative target of a 43%

reduction by 2030 and reaching that zero by 2050. to understand what we need to occur to make those targets feasible on a technology credible pathway, we looked at our net zero scenario only found australia would need to accelerate decarbonization by accelerating the retirement of carbon intensive assets on the ground and scaling investments in low carbon energy forms of supply and use. to do so it would need to rethink many elements of policy mechanisms as well as many elements of market design to ensure investment can scale at the speed and rate it would need to to stay on a low carbon pathway. paul: in terms of investments what is that mean for future investment in australia? >> i looked at what would be required in terms of investments in australia and the number we came out with was 1.9 trillion u.s. dollars invested in australia which might seem like a lot given the size of australia, but when we look at

our economic scenario, without new forms of policy, we worked out investment opportunities would represent 1.2 trillion u.s. dollars over the same time. to stay on that trajectory the systems invested in would need to be very different in terms of the demand side of energy where electric vehicle sales internet zero scenario represent 53% of the 1.9 trillion u.s. dollars. let's look at the supply of energy in australia. one figure we determined was for every dollar australia invest in fossil fuel energy supply which may be important in the near term across the country, it would need to invest six dollars in low carbon energy forms, its power system and other forms of industrial energy which is almost a complete inversion of the world today. paul: we want the perspective of claudia. claudia, linear lining, the sheer scale of investment opportunity will more than trim your dollars. where you see the opportunities

in australia? >> we are impact investors so we invest with the tension -- intention and on those numbers lenny gave the opportunity is significant. however we look at places where there can be abatements as well. an interesting one accounts for 3%'s current emissions stack. if you increase recyclability rates and outcomes you can abate up to 10%. the same with cars. transport makes up 18% of the current emissions stack. cars 10%, but if you invest in clean mobility it can be up to 15% of the carbon emissions stack. paul: for an investor looking at transport, how do you get exposure to the scene. it looks like lithium is the only way. >> we have an investment in alstom, the number one trading provider. the only producer of hydrogen chains.

they have metro and light rail in el dorado -- al delayed, melbourne and sydney. the hydrogen capex out of europe and export development of canada , they did a strategic partnership for 3.5 billion to offer financing to customers with the purpose to invest in clean mobility. we look for the outcomes. if you look at the carbon abatement scenario, for every -- a train takes 4.9 kilograms versus 120 two 119 for a car. paul: claudia makes the point there about hydrogen and the australian government has reiterated, a number of companies have, the potential for australia to become a hydrogen superpower. what does this mean for the future of energy systems? >> we've heard australia can

become a superpower for many years. that's a scenario we try to consider, looking at australia's energy systems. in a hydrogen export scenario we assume they can produce 5.7 percent of the world's hydrogen consumption by 2015 with an abundance of natural resources in the form of renewable energy supply. we found is it is an enormous opportunity for australia but there are significant challenges lying ahead. to put numbers to it, australia has 40 gigawatts of operating wind and solar capacity around the country. to get to net zero we would need to build 300 gigawatts by 2050. this hydrogen export in superpower scenario, you would need to have operating it hundred gigawatts of wind and solar to reduce the hydrogen that could be used for exports. but to reduce green materials that are trading partners would need on their own carbon transition story. there's a lot of supply chains

and infrastructure needed to support the size and the scale of the economy. paul: when investors are looking at these opportunities, you are in impact investment, but how do the returns compared to traditional investment? claudia: we look at engaging companies to accelerate, scale and extend impact. with hydrogen it is in its infancy. but there is in australia for them to become an exporter of cleaner goods. there is a company listed in australian stock exchange called fontina energy. they are on path to be the first to commercialize large-scale hydrogen looking at a cost of three dollars per kilogram, which is due to the fact that there are large sources of low-cost renewables. so we are absolutely looking for economic outcomes alongside environmental outcomes. as stated you need subsidies, rebates and other mechanisms for the public sector to de-risk and

stabilize the industries. right now we are operating in flexible market structures but for the private sector to crowd in, very predictable long-term markets there. paul: thank you for joining us, that is claudia and all-star senior investment analyst and bloomberg's lenny as well. plenty more to come on daybreak asia. stay with us, this is bloomberg. ♪

♪ yvonne: a quick check of the business flash headlines, nvidia unveiled a batch of new services and products as they move to the center of the ai boom. ceo jensen has taken a new networking system and ai super platform. they say this helps companies

create successors to chatgpt, microsoft meta and google are expected to be amongst the first users. >> 15,000 start up in the world. -- built upon nvidia today and 40,000 large companies and enterprises around the world are using accelerated computing. we have reached the tipping point of a new computing era. yvonne: softbank group will redeem $2 billion of perpetual dollar bonds for fulfilling a pledge to buy back the notes early but they say the bonds will be redeemed at their first call date on july 19 easing investor concerns that notes will be left outstanding. there under pressure as losses mount for their vision find an answer s&p -- after s&p cut their credit rating. mazzulla is shortening be majority of holdings. they are ready to deploy money after policy changes over the next 12 months. the head of their global markets

unit say they are moving up with investments after bond yields were hit with the fed's rate hikes. take a look at what is going to happen coming up. a little caution as we see markets open in asia. dollar-yen hovering at the 140 mark. u.s. futures punching higher as of course we are set to open on tuesday. a lot of focus with debt ceiling talks. a deal has been reached but there's a lot of lobbying going on as well. we have sydney and tokyo coming online next. this is bloomberg. ♪ for financial insights from merrill. is he hailing a ride to the concert hall? no. he's making sure his portfolio and retirement plans work in harmony. they want to adopt a child and build a new home. so they're talking numbers with their merrill adviser. she's not researching her next role. she's learning how to handle market ups and downs without the drama. personalized advice so impressive your money never stops working for you with merrill. a bank of america company.

>> this is at daybreak asia. we are counting down to the major market opens. u.s. markets are closed on this

monday. it really seems like this relief rally that we saw with the debt ceiling talks and the deal that was reached was ready short-lived. a lot of concerns on china where about 31 points away from a bear market. paul: the other major chinese markets are losing ground we have south korea returning to trade today, may be a bit of a catch up. annabelle: we will be watching those chip names in particular, following the upgrade from morgan stanley. we have the open of japan alongside the start of trading for cash treasuries. not a big lead in because you because -- u.s. and u.k. markets were shot. a level of cautious optimism surrounding the debt deal. a hearing for that is scheduled on tuesday. japan, one of the big markets,

they did benefit from that relief market. we saw the nikkei gaining. also watching for any influence coming through from the economic data we had earlier, particularly the jobless reading. we saw that dropping to 2.6% in april, off of 2.8% in march. that could potentially feed into higher wages growth and that is really what the boj has been looking for. inflation driven by the demand side, real wages are keeping pace with price gains. stocks wise, we are tracking the nikkei 225. bank of america is sticking with the bullish calls and low valuations. a weaker yen, something that helps the bigger exporting names on the index. we are still holding above that 140 level yield inferential between the boj and the fed,

very much in focus. let's turn to the open of korea, coming back from a public holiday. we are watching those tech stocks in particular. the tech heavy because dark roughly in line with the gains. we saw morgan stanley raising its price target for korean chipmakers overall. they say the paradigm in ai is shifting. we heard from the and video ceo speaking for about two hours, outlining his vision for the company. essentially, morgan stanley saying we are setting up for a 10 year cycle. not only a shift for ai, also about accelerating computing. they say sk hynix can play into that. qantas, one of the names to be watching. we did get out its long-term strategy. oil is a little bit flatter

today, trade is really focused on that debt deal progress. we do see that trading lower over the course of the year, concerns around fed tightening, russian supply, and you can add to that what we are seeing from china and economic recovery that hasn't really appeared in the way some economists were expecting. paul: joining us now to talk over more, we have the managing director and cohead of will microstrategy. with the exception of south korea, seeming to run out of steam. it never really extended to chinese in the first place. the hang seng and csi 300 went backward. what is your assessment of chinese equities? sue: we have come a long way in a very short period, the reopening rally did fizzle out as expectations got ahead of

reality. right here right now, it is looking a little more fairly valued. from a macro perspective, we do -- we are more focused on whether the recovery coming out of the dismantling of covid restrictions is sustainable. key areas we are watching will be the extent of the consumer recovery. property market developments, which, on both counts, appear to be really going in an l shaped recovery. from a political perspective, it is difficult to see consumers really opening their wallet, despite hitting the streets. mobility has returned to normal, but some of the dynamics we are seeing in terms of deposits, significant drawdown in terms of household net wealth, all of these just the consumers are likely to be focused on rebuilding their wealth as opposed to running down accumulating savings. from a policy perspective, we

are not seeing enough stimulus. paul: we will get an important read tomorrow with pmi's, and we do have a chart on the bloomberg terminal that shows expectations being firmly managed in that respect. we are expecting to see an improvement for manufacturing pmi. we have had a bunch of mrs. this year. are you braced for another disappointment around the set of numbers? sue: it does seem that the economic surprises are firmly tilted to the downside. that really reflects the expectations that run ahead of reality. in order to see that sustained recovery, we really need to see the property market inflecting higher. we need to see the consumer coming off the sidelines. to date, neither is manifest policy. we need to see more support. policymakers appear reluctant to be really fueling that credit driven rally that we have seen in previous cycles.

yvonne: i was just talking to a previous guest, it just depends on what market you look at. the macro picture seems to be different. lou looked at renminbi, and copper, and then again i take a look at markets like korea, taiwan, u.s. maker cap tech docs that are on fire right now, which are all procyclical. does that make sense to you? sue: it is difficult to reconcile the fact that most asset markets when you have credit equity, they have really gone sideways yesterday. not really consistent with most of the narratives of a looming global recession. if you look under the hood and you can see there is a real lack of breadth. on equities, it is driven by the mega caps. small caps are underperforming as you would expect concerns about recession. in the credit space, it has been

largely driven by triple c's. in the midst of a banking crisis, it is difficult to watch. we do think the rally we are seeing year to date looks suspicious and is unlikely to hold. paul: all right, thank you for being here, sue. owing to be staying with us to talk a little bit more about markets for now, let's get a first word news headline. president biden says his team is reaching out to members of congress to get them to vote for the debt ceiling deal. mitt romney has already said he will be backing the bill. so has the leader of a moderate coalition of house democrats. mccarthy and biden have expressed confidence the proposal will pass and prevent an unprecedented default on u.s. debt china has declined a request for a meeting between defense secretary lloyd austin and his chinese counterpart. the pentagon says it has

proposed meeting in singapore aimed to keep lines of communication open to prevent conflict. he called china's reaction concerning. joe biden demanded that they left on lee. turkeys newly reelected president is said to have met with a market friendly former finance minister as he looks to announce a new cabinet. influential names within the circle are arranging the talks. erdogan promised his new economic team and have international credibility following his reelection. japanese prime minister says he will fire his son from his post as political secretary. this comes after a scandal over a party held out his official residence in late 2022. the premier had already reprimanded his son, but a local poll showed three quarters of respondents shot his behavior as a problem.

-- saw his behavior as a problem. spanish prime minister pedro sanchez says he will dissolve parliament and call a snap election for july 23. that is after his socialist party suffered heavy losses in regional and local elections on sunday. the votes timing will ramp up pressure on his leftist coalition as it struggles to resolve disputes over whether they can unite under a single bound. yvonne: we are getting into the open, let's get to bell. annabelle: checking in on hynek's in particular because we just had a call from morgan stanley essentially lifting targets on korean chipmakers across the border. this is in reaction to this ai frenzy that we have seen. a lot of activity around the japanese chipmakers. korean markets were shot. morgan stanley says the paradigm

in ai has shifted. we are entering a 10 cycle that will be for both ai and accelerated computing. they are saying sk hynix can benefit from that. up from around 110,000, it is now staying overweight. both of those names are higher. across the board, we can see chipmakers are moving to the upside. we did hear from nvidia ceo outlining his vision for how the company can capitalize on the big shift. another name we are watching is qantas. australia's flagship carrier. stock is fairly flat. we did get the update on their long-term strategy, they are moving further into the loyalty program.

as much as one billion aussie dollars by the fiscal year 2030. key drivers include holidays, hotels, partnerships, and diversification into financial services. also looking to sustain margins of 18% for domestic, tourism. yvonne: still ahead, we are talking to two fixed income strategist from morgan stanley, joining us to assess the bond markets. we will be live at the morgan stanley china summit. up next, bloomberg economics expects the bank of japan to build a case for a major overhaul of its stimulus framework next year. this is bloomberg. ♪

paul: bloomberg economics says the bank of japan will gradually build a case for a major overhaul of its stimulus framework in the second half of next year. let's get the details from paul jackson. is there really a need to build a case, is the boj preaching to the choir? paul j: i think since the prime

minister took over in april and announced his review, he will take up to a year and a half. economist have been trying to think, does this mean there will be no change for a long time? not all economists are convinced of that. someone else is saying no, they will build a case very, very slowly. they will use this review to back up major change. that major change won't happen until the second half of 2024. what are they going to do in terms of major change? they will scrap negative interest rates, they will go back to an overnight call rate set at zero. they would scrap the y cc, the yield cap. they would still be buying bonds, but without targets.

they would have maximum flexibility to kind of control those bond yields but without a specific target that speculators could attack. this would make the stimulus framework more sustainable, keep it going for longer, and less vulnerable to speculative attack. that is the view of newburgh economic. -- bloomberg economics. yvonne: interesting, we just saw some numbers come through with the jobs numbers. the jobless rate is coming down. the labor market is tightening a bit. does that mean we will see some meaningful wages to shift policy? paul j: the wages part has been a key argument used by the bank of japan to explain why it is not following the rest of the world in fighting inflation with interest rate rises over the last year. they are saying the inflation we

see now in japan, even though it is decades hi, is not sustainable because we don't have these wages supporting it. we see data suggesting a tighter labor market, that feeds into the idea that wages will be supported and will keep going up. i should just caution that although we see a it tighter labor market this morning, we are still back to the level where we were pre-pandemic, three or four years ago. we are not at maximum tightness yet, but this should helps wages and the case for sustainable inflation. some economists may not take the same view as bloomberg economics. we may think, we have to be on the watch. the boj could still pull a surprise out of the bag, possibly as early as july yvonne: thank you so much, paul jackson.

let's bring back sue, head of global microstrategy. are you in that camp that eventually may be later on this year, the boj will have to cave and blink and normalize policy? sue: what is the saying? in the long run, we are all dead. that is not the only factor that could cause the bank of japan to tweak its y cc. most compelling case for a tweak is that the bond market functioning has seriously deteriorated. i feel that is spread by general collateral and special collateral repo. the negative spillover has prompted the bank of japan to tweak why cc back in december. that would probably be why it would like to tweak it sooner. i would like to stress a couple of points. i want to be careful as interpreting it as tightening. i would also be very careful not to extrapolate any kind of tweak

to why cc as sustainably bearish. that is because a tweak does very little to alter the significant interest-rate echo. -- pick up. yvonne: you have argued for yen depreciation. i have to wonder, it certainly has helped the equity markets. does this bull market territory reach in japan, do you see more upside? do you think a lot of interest will climb? sue: if you're looking at japan equities in isolation, it is a 30 year high now. on a relative basis, we are still only around the middle of the range. absolutely the more dovish policy from the bank of japan has been a real tailwind for japanese equities. we do see that japan is a key beneficiary to the ongoing

diversification of supply chains , particularly the industrial sector. the weak yen has been very supportive of corporate earnings. paul: before we let you go, just want to get your thoughts on the debt dealing agreement. we have seen a few short live rally in the asia-pacific. where do you see things happening in terms of the u.s. open? sue: investors are generally breathing a sigh of relief on the back of this. the next chapter in this book is passage through the house and the senate. we do have an extremely polarized and dysfunctional political environment, that does increase the risk of policy stakes exponentially. even though we do expect to get it over the line. when you look at markets, they have been pricing at a nontrivial odds of default, less so in equity and credit markets, which really have ignored that

risk. the extent of the relief rally is really questionable on the open, given equities and credit never really raised in. -- priced in. paul: it really is policymakers agreeing not to shoot themselves in their own foot. in terms of the next big macro on the horizon, we do have a fed meeting in a couple weeks time. what will we see there? the pause, the skip, or another 25 basis point hike? sue: we do think it is live, after which we do see the federal reserve on extended pause. whatever central bank you look at, there is a pattern whether it is the reserve back of australia, bank of korea, these are central banks that moved to the sidelines and saw that inflation was really far too sticky, particularly core. despite the pause, the next moves were hikes.

we do see the market as rather premature in interpreting any kind of pause from the fed. a sign that the peak -- the fed could still very much hike after a pause, a skip, as you say. if you look at pce, core inflation, it has more than a 4.5% at this point. any kind of dovish pivot in history my we have never seen more pc inflation so high. really difficult to see the fed having the root hired covert doing engage in the dovish pivot. paul: thanks for your insights. managing director and cohead of global microstrategy -- macro strategy. this is bloomberg. ♪

paul: china has declined a u.s.

request for the country's defense chief to meet this week. it argues the defense minister wouldn't be on an footing with his american counterpart if sanctions stayed in place. this presents president biden with an unappetizing choice. keep the sanctions and -- or risk losing them. china and u.s. relations have been rocky, yvonne? yvonne: that shingle a dialogue was something that they were really hoping for some kind of meeting in the u.s.. meanwhile, we are learning that taiwan is beefing up its communications infrastructure to ensure it remains connected to the rest of the world in case of any emergency. among the scenarios include earthquakes or an attack by mainland china. let's go to our taipei bureau

chief, sydney. it is not like it is theoretical, there was an incident around the mach 2 islands. what happened? cindy: exactly. this is not a theoretical scenario at all. earlier this year in one of taiwan's offshore islands, we saw a live example of the internet cut off and people on the island have to live for months without internet access. some serious destruction to their daily life because all their banking services, phone connection, everything is affected by the cut of undersea cables. the undersea cables to taiwan are also very important because they are so agile and vulnerable. some experts even called it the heels to taiwan. a disruption and conflict china would let taiwan be cut off from the internet and connection to

the outside world for month and probably just like what happened to the island nation of tonga where the erosion of a volcano left the place without internet access for months. that is a real-life scenario of what could happen to taiwan. what happened earlier this year, we see that both undersea cables connected were cut off by flying p.r.c. flags. that is the urgency that is telling them, we really need to go up and deal with in case of the worst case mary a. -- worst-case scenario. paul: what is the government doing to prepare? cindy: the minister told us in an interview that taiwan wants to prepare digitally in case like this. right now, they are kicking off a resilience enhancing plan. taiwan aims to have a 700

satellite receivers around the island or the end of 2020 or. to get there, taiwan will first have to get a lab and pick up a satellite operator. the more they can have, the more resilient they can be in terms of emergent. paul: all right, the deputy taipei bureau chief there. plenty more to come, this is bloomberg. ♪

>> i think we are in a challenging period. an anticipatory period where we don't know what will happen with the debt ceiling or the federal reserve, and then what happens with the potential for a recession.

longer-term, i am in definite agreement that we should be deploying our cash with equities near the top. >> it is really difficult to see that now before this being solved, being the proper time for a real genuine breakout. >> we don't expect a bear market either. >> the markets are pricing in a recession. if we do enter a recession, it will be a recession because of the bank lending standards, because of the lag impact of rate hikes as the consumer savings buffett runs out. >> we do expect a recession to begin sometime in the second half. for the equity market, that means down first, and likely backup. paul: our guests on bloomberg tv entering the mliv pulse question. what is the biggest risk to stocks over the past few months? most say they see a recession as the biggest risk.

the big tech rally has further room to run with this risk driving investors into stocks that form well in lean times. the highest returns this year were to come from buying quality stocks focused on profitability . yvonne: this is what we are watching when it comes to chinese stocks this morning. in terms of lagging behind wall street benchmarks, trailing by the s&p, the nasdaq. then there is the h-shares where we are a whisker away from the bear market territory after the peaks we saw back in january. for more, let's get to sophia. it is a tired tone of market. is there more downside? sophia: the reasons to sell are just piling up. it is looking for that support level. every time we hit it, it breaks down.

the hang seng china enterprise index hasn't had four down years in a row ever. there is a little optimism as well going into this year that it has never happened before, this has to be an up here. really, it started off because of geopolitics and then we had that really strong economic data from china which people didn't believe in. it is very much a glass half empty kind of market right now. we do get the pmi's tomorrow, that could give us a little direction. markets don't have patients. this is an economy, a reopening story in china that is a lot more slow and gradual than what we saw in the u.s. and europe. did it will not be the v shape. it will take time to come through corporate earnings. we are not getting that fast pace that people expected. when it comes to catalysts, it

is the hard data but also needs to be a sustainable and more protracted hard data when it comes to the economy and earnings. you really have to ask, our markets patient enough to wait for this? the answer is very much no. paul: when things like this happen, thoughts turn to stimulus. might we see some? sofia: it is really something that markets are addicted to. it doesn't make sense for the pboc to deploy that. i know there is more of a debate around that, we did see some tax breaks on corporate yesterday. it will be -- my view is that the stimulus will be targeted. it will be more to do with the pockets of weakness in the economy. it won't be the broad-based interest rate cuts that the market is really kind of craving. we are not going to get the kind

of stimulus we saw in 2008. i think almost everyone should agree on that. it is really a market looking for some direction from beijing that yes, they acknowledge the economic recovery is weaker than expected, consumption needs to ramp up, what are they going to do about it? right now, it is kind of all talk. we know that policymakers are willing to do more, we just don't know what exactly that will be and what that will look like. yvonne: thank you for being here. you are seeing a lot more relative value out there in these markets. talk about the bull market territory already in japan, korea could be coming up next. since >> is close to that record high. annabelle: it is really a tale of two different market things. we are watching china on the one hand, but then we have the likes of the kospi it -- which is gaining. it is that ai thing that is

continuing to i out. sk hynix popping at the open. upgrade coming through from morgan stanley. this could be the stock that will benefit from a 10 year cycle in ai. otherwise, we seem like we are a little bit in wait and see mode. australia at well off the 20 day moving averages at this point. have an hour underway. if you change now, it is the reopen of cash treasury markets coming back after the memorial day holiday. the activity so far, really playing out as futures have been indicating. short end of the curve is still hovering around those multi-month highs. at the longer end, a bit of a retreat coming through in yields. a few different factors playing into that. there is this progress in the debt deal talks, but the expectation that when that bill is passed, we could see a lot of liquidity being drained out of

the markets. on top of that, you have the month rebalancing of the u.s. bond index set to take place. you can add to that, really those expectations coming back in. we will see a fed hike, it could be the following meeting. yvonne: pricing not just for june but also july, a possible hike as well. for more analysis on bond markets and what is really going on after this step doing issue, joining us from the morgan stanley china summit, we have the chief asked income strategist, vishwanath tirupattur. great to see you here in town. does a debt ceiling deal change anything for you? vishwanath: i think it is good news that we have a tentative yield in place of the legislative path for getting this deal through the congress and into the president's hands

were a signature. we are pretty optimistic that we will be able to get this through. that has to be a significant sigh of relief or the markets and global economy. yvonne: the treasury is going to have to replenish its cash balance. they will be selling a lot of t-bills. morgan stanley puts that number at $1.25 trillion. who do you think will buy these in what will it do to liquidity? vishwanath: i think that is a significant potential here for liquidity draining from the system. the natural buyers for these types are money market funds who have really parked their money. they are seeing massive inflows into money market funds. we have seen them apart their money at the facility. some of that could be taken out and that sets a potential.

in order for that to happen, the people -- the rates need to be attractive. there needs to be less uncertainty of the future path of monetary policy. all that means is that we expect to see the front end funding rates to the higher because of 1.2 trillion dollars of treasury bills need to be a -- absorbed. whether it is done through the money market funds or some other way, either way, we think there is a significant potential for a liquidity drain in the system that is certainly not constructive. paul: how about yields? where do you see them heading and particularly, yield curve inversion? will not end anytime soon? vishwanath: it is going to be challenging. we also have to deal with monetary policy that is sort of data dependent.

other base expectations is that the fomc will pause in june and will stay paused for until q1 of next year. that means the economy will be under restrictive territory for a very extended period of time. there has to be enough growth. we think as that risk begins, the longer end of the curve will actually rally with expectations from where we are now. paul: we brought details of our mliv pulse survey. most investors are concerned about recession risks. where does this feature in your mind? vishwanath: our base case is that of a soft landing. the combination of monetary policy tightening that we have seen and also the tightening of the regular changes that will come to the regional banks, we

think will constrain the lending coming from the regional banks. all of that simply raises the risk of a hard landing much higher. our base case is still a soft landing. i would say the risk of a hard landing has risen substantially and will get worse if we don't have this debt ceiling issue resolved quickly. yvonne: the drainage and liquidity that we could be seeing seems like when you look at stocks and credit, they are really not that concerned about this. is the market too complacent about this squeeze in liquidity that we are about to see? could it force the fed to reconsider qt? vishwanath: it is possible. i think there is a degree of complacency within the market. if you go back to 2011 when we were at a similar crossroads, the markets did not react very much.

once the resolution was accomplished, markets [indiscernible]. that was important because of the nature of that resolution. we think it is not -- we should not be assuming that because markets have been relatively stable going into the x date, we don't necessarily mean it will follow that we want see a correction in the market. yvonne: how are you looking at duration? vishwanath: i think we are warming up for duration. the moment we are long five-year from the treasury curve, we think that as the year progresses, as the slowing of the growth, better not be going to an exclusive recession, but we do expect to see growth slow from the pace of growth we saw last year. as growth slows, we expect to see the longer end of the curve rally. at the moment, we think that

really means long five-year treasuries, long steep as in the curve. that is where we are most focused on. paul: all right, vishwanath tirupattur, she fixed income strategist at morgan stanley. we continue coverage in hong kong, speaking to albright steinberg's group principal. ceo david lee and the institute on china and the u.s. director of a daily. up next, china gets ready to send astronauts to its own space station. after its completion, we will be live at the satellite launch center in just a moment. this is bloomberg. ♪

yvonne: let's get to the first word headlines. at two surveys are suggesting that china's manufacturing sector improved or stabilized inmate. the survey show manufacturing out put picked up notably in may from april. goldman sachs also cited a pickup in emerging industries purchasing managing index. economists are closely scrutinizing the economic releases after april's data widely missed forecasts. china is said to be looking to

grant new tax incentives to high and manufacturing companies. the proposal could help qualify manufacturers hundreds of billions of yen. the plan is still subject for approval. beijing is still seeking to boost the economy as recovery loses momentum and encourages more tech innovation. singapore's president who has served the country since 2017 says she will not be contesting in this year's elections. the election date is expected to come in a few months time while the nationstate is run by the prime minister, the presidency holds important powers including the right to the total spending bills and signoff on civil service appointments. pwc australia put nine senior partners on leave and appoint independent director doors following a tax scandal. they want to minimize conflicts of interest and boost governance. they have been under fire after

one of its former tax chiefs allegedly leaked egret information obtained during his time working as a government advisor. those are your first word headlines. paul: china will launch its latest space mission in the next hour. it will be the first to reach the space station since its completion. and includes the first chinese civilian astronaut. emma joins us from the shawn jaros satellite launch center. how's the atmosphere down there? give us a sense of how important this launch is. >> it is -- i think that [indiscernible] not just because because -- [indiscernible]

basically they are still building on a space station. they are working up there, more modules and all of that. in terms of support, one reason, china wants to show confidence in its space program. last year, sending a rover to mars and sending something to the moon. [indiscernible] mission to the moon by 2030. it just goes to show, it has a [indiscernible] space program and boost national sentiment. also, gdp -- i was watching a trauma center and trying to get other countries involved in the space station and how it will do that is by showing how

[indiscernible] yvonne: that is interesting. setting quite a goal there to send astronauts to the moon by 2030. some bold ambitions we are seeing. where does this leave us in the space race? allen: china is facing a lot of competition. the united states [indiscernible] space activity in different countries, then you have companies like spacex, elon musk [indiscernible] in space just last month. i think there is a lot of competition right now and china wants to show that it can do well. paul: great to have you, have fun, alan at the launch center. that launch is set to happen at

9:31 or so. we are about 50 minutes away. -- 15 minutes. live in shanghai on wednesday. exclusive interview with the ceo jamie dimon and apex ceo, felipe. this is bloomberg. ♪

paul: let's get a quick check of the business flash headlines. cathay pacific is reportedly close to placing an order from new boeing freighters worth about $2 billion. the café chose the triple seven freighters and six aircraft will be purchased. in boeing declined to purchase and there is no immediate announcement to make. qantas says international flying will be twice as lucrative in the post-covid era. they held the first investor day in four years, laying out a projected news from a vast fleet overhaul and a three-year turnaround plan. qantas also expects fair margins in this to mystic business and says operating profit at its loyalty unit may double. softbank group will redeem a $2 billion of dollar bonds for

filling a pledge to buy back the most early. the bonds will be redeemed at the first day on july 19, easing investing concerns. softbank is under pressure as losses mount for its vision fund and after s&p cut its long-term credit rating. nvidia has unveiled a new batch of ai products and services as the world's most valuable chipmaker moves to the center of the ai boom. ceo has taken the wraps off a new networking system and an ai super plot arm. he says this helps companies create successes through chatgpt, microsoft, meta, and google are expected to be the first users. >> 15,000 start up companies in the world filled on nvidia today , 40,000 large companies and enterprises around the world are using accelerated can think. we have now reached the tipping point of a new computing era. yvonne: we will continue to

watch the ai frenzy, whether it can lift these china markets. we are talking about bear market territory when it comes to the h-shares market. 6218 is the level to watch. we are just 31 points away from reaching that bear market here. it continues to be a bad news story in china. paul: it does. that relief rally that we saw off the back of the debt ceiling agreement, it went everywhere except china. we just had modest gains shanghai yesterday. the hang seng, losing ground. it is interesting, not even the love we have seen extended to tech stocks with this ai inspired rally, that hasn't trickled through two hong kong stocks either. really struggling at the moment for investors. yvonne: especially if you take a

look at what the s&p has been doing. it is more breadth, it is driven by mega cap tech and nvidia, but you are seeing some pretty big gains relative value to what you are seeing in hang seng and h-shares. there have been tons of talks and some sources telling us there may be some tax incentives for manufacturing floor. there have been surveys suggesting maybe manufacturing side of angst may look at her -- side of things may look better. u.s. futures are doing -- we are still punching higher. there is still a bit of caution in the asia session, this relief rally as paul has mentioned has only lasted about a day or so. still seeing some pretty decent amount of green. we will see how treasuries fair, t-bills, the like. as we were talking to vishwanath tirupattur, there is a risk of

drainage of liquidity. once they do sell this whole flood of t-bills that will be auctioned off, one trillion plus worth. does that do a lot of the tightening for the fed as well? we are starting to see the possibility of price cuts being priced out in this market as well. maybe we will see something more in july as some are pricing in. here is how treasury markets are doing. that is it for us, open is next. ♪ on that. save 50% on the sleep number limited edition smart bed, plus, special financing and free home delivery when you add any base. only at sleep number.

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>> 9:00 in beijing and hong kong this is bloomberg markets china open. >> a