the pboc will take tougher measures. the pboc has plenty of tools they can use.offload the dollars in the currency market. that is currency intervention. make.s a move they will that is going to burn a lot of hedge funds. all theong-term, fundamental factors that were driving the recent appreciations of the yuan are still there. still have not found restoration for the trade, we may see more tariffs come in this week. expected,ry easing is the economy is still flowing. big of america is saying the currency will depreciate by the end of this year. manus: tell me this. the volatility we are seeing now, it doesn't shine with the level of volatility or panic that we saw in 2015. that has not seemed to happen thus far. what is different now to them? -- to then? are not seeing a lot of panic in fx markets at all. some gauges of nervousness have spikes recently. there really front away from the levels we saw in 2015 and 2016. what good example is the offshore yuan three-year risk reversal. it has bite recently but is still at 1.1%, which was the far of 4.5% -- which is

the pboc promising not to use it as a weapon.s in europe, and says countries must work together against protectionism. also, malaysia's missing billions, facing charges related to the

rishaad: this is on the of a sweet spot for the pboc.are getting this weakness without the outflows. how far do you think they will let it go? will they intervene at any stage? will they continue to allow it to fall? ken: investors are asking this question. i think the pboc is thinking about how to stabilize this. historyat the very long of the exchange rate, it ranges pastsix to seven over the years. i think it is a target for the pboc. they will try to introduce conduct to stabilize this. weakness, itrther will really reinforce market expectations on the pboc. they may be using weakness as a trade were true. war truth. this is a bit worrying. think the widening of offshore spreads -- it is traditionally indicated it should be monitored for the expectation. dohink the pboc would not anything to the management. target is onnly the exchange rate. be need to be ready. rishaad: are we seeing any followthrough with this? muchre talking about how black humor there was with this. about theere jokes yuan. this was another huge pressure on the e

the pboc promising not to use it as a weapon.repares for trade talks in europe, and says countries must work together against protectionism. also, malaysia's missing billions, facing charges related 1mdb scandal. he denies any wrongdoing. this is "bloomberg markets: asia." ♪ a pleasure to have you joining us now on bloomberg markets: asia. lots of things to talk about. these developments and kuala in kuala lumpur, a slight move to the upside. there is also the micro story that might have an effect in markets like taiwan. not getting any convincing moves across equity market so far. volumes withight that handover from wall street, u.s. markets closed for the independence day holiday. nikkeilook at taiwan and , a bit of diversions. we have to look at ship markers in the wake of this report that china has banned macron. sophie is on the market for us. >> let's check the big players when it comes to the chip space. , this microelectronics company won in a case against macron, so up 2%. suppliers also on the out, up 1.3%, a macron sup

what are we expecting from the pboc? interventional or even door burning for the currency. >> that is pretty difficult to predict. theyuan really depends on china u.s. trade and china fundamentals. it does make sense for the pboc to at least slowly yuan depreciation for a little bit. seven,pikes quickly to it does trigger panic. investors leading to significant outflows. shorten the yuan again. directll lead to intense intervention. that will lead to a drop in reserves and that will be difficult for china. a key theme of our conversations this morning has actually turned out to be, well, what options does beijing have to support growth? if you look at this trade is coming at the worst possible time, they are talking about the debt crisis, it is kind of the moment of reckoning finally for beijing. what can they do without exacerbating that problem? >> i think clearly the chinese economy is slowing. most will agree on that. after that is where the disagreement comes in. how severe will be slowdown be? certainly policymaker

what could be the new line in the sand for pboc? let's ask.d your colleague talking about lowering the forecast for the yuan. what next? >> when we think about where the yuan is going, the key drivers will be what the trade weighted view is. our view is they would rather keep it relatively stable versus 2017. you could argue much of the original move was to correct the relative outperformance in the trade weighted yuan this year. part of it his also whether or not you will see a broad dollar up or down trend over the next year. shorter-term, you could see it higher, but the key to us, the real limit, the line in the sand, his whether or not they would want to let the genie out of the bottle coming back into this market. want to dolieve they that. that is where i think the constraints will move in. >> the key right there is stability. given its move. likely it will see more weakness for the yuan. the pboc with lines regarding the leverage ratio things stabilized. that put pressure on onshore markets. what is your take? between is a difference w

we are hearing from a pboc advisor.about how trade war will slow growth in china by .2%. thee is also on your screen trading debut of china isotope. you can see the ipo price. the same not be having smile at the moment. 7.5% down. g in al get the gon moment. 6.6336.e rate, 21.60 the price. we are looking at $20 now. the does not even include book building process. here we go. coming off the lows. we will see where this goes. lots of other things to consider across markets. happy faces there. it looks like a happy start to the trading session in hong kong. we are still down massively for the week, 2%? >> we are still down, but the ang kong market is seeing glimmer of hope. the hang seng adding .3%. mainland markets trying to figure out which direction they want to go. the shanghai, looking flat. that marketsnd have had a bearing on how shanghai shares have fared, down 17% year to date. when you compare that to their 2% in 2018.parts, keeping and i on what is going on with the yuan, the offshore rate below that handle. as

pboc walking a tightrope. more insights, next. this is bloomberg. ♪ >> this isn't a simple task for the chinese administration. they are looking at domestic policies for their exporters as part of the tit-for-tat reaction. it's not just a threat to tariffs but also week exchange rate. the question is, that doesn't come without its cost in terms of the debt side of the ledger for the chinese corporate sector. don't think it is a tool that very inclined to use privet we would agree it's largely a response to a broad-based reaction to the dollar and we think it's being driven by the fact that u.s. growth is surging in the first half, while we've had disappointment elsewhere. number two, a little bit of risk aversion in response to trade uncertainty as well. as the central bank is concerned, 6.7 is a line in the sand. it's not the definitive line in the sand, these things never are, but when we look at a chart of the dollar-renminbi rate, it's pretty clear that you can home in on the movement we've had over the last month, directly re

we have had this warning shot coming out of the pboc.e you want trading losses -- yuan trading losses. from the pboc having some of that in terms of what we see in the market this morning. up next, we will bring you some of the stocks on the move. commerzbank isn't selling its equity markets and commodity units to socgen -- is selling its equity markets and commodity units to socgen. commerzbank trading up by about 0.7% this morning. this is bloomberg. ♪ ♪ minutes -- 12 minutes past the hour in europe. european equities on the front front desk front foot broadly -- front foot broadly. nejra cehic joins us now. nejra: socgen looking to increase its stock print in europe, acquiring commerzbank business that includes its exchange traded products and we have seen it up by -- .4%.erzbank up by 0.$ socgen up by the same. up.anz also this by that coming through was not a huge surprise to the market. 1.3% higher is where we trade on allianz. besi is the worst-performing stock on the stoxx 600 at the moment and has hit its lowest since april of 2

now -1% where the pboc fixes it.etting the market dragging it down and in the pboc sets its rate the next day based on those previous market moves. it is a must like a self-fulfilling -- this is why you have to some kind of intervention to stop that, otherwise you end up in a currency crisis. tom: i am going to show you in real-time how we do this. this is going to hold the rabbit out of the hat. reserves withina a big buildup to $3 trillion, almost $4 trillion. what is critical here is dr. carr nails the piggy bank. the piggy bank is flat. what happens if we break under $3 trillion and get a piggyback back to where was in 2010? to 3da: as soon as it goes trillion, that damages market sentiment. that is a was been a red line. the way they have managed it is you have kept some money going out of the country and stepped up capital controls. at the moment, you have this very strange and well-managed equilibrium. as soon as you see that breaking down onto flipping below the thrill trillion -- 3 trillion and capital fligh

the pboc weakened it by .19%.tion the authorities are sanctioning the losses by not intervening and -- have helped make the one among the worst performers in the past month. the u.k. prime minister will today reaffirm her pledge to keep the border between ireland and northern ireland open after brexit. on the second of a two-day visit, theresa may will say the notion is -- of a hard border is almost inconceivable as she urges the european union to accept her proposal on a free trade area for goods. the indian primary and -- minister modi faces a vote of no-confidence. it is the first such challenge for any india administration in years. to coalition is affected defeat the motion, but the outcome will reveal which group has been more successful in pulling smaller parties into its fold. global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in more .han 120 countries you can find more stories on the bloomberg at top . in asianret he day markets. we were high,

we will ask him what he makes of the pboc's latest missive.loomberg. ♪ rishaad: markets searching for direction as the rally in china stalled shanghai. unit, one ofher hna the big losers. a seven-month halt in shenzhen. top european individuals head to washington amid growing anxiety in the business community surrounding the -- a trade war. haidi: the tables are turning at signaling aetwork, dramatic rise in facebook's long laundry list of problems. this is "bloomberg markets: asia." ♪ haidi: we have been on inflation watch. second quarter inflation numbers out of australia. a bit of a caps on the kobe dollar -- o.b. dollar. we have definitely had more asian than hits on the economies that announced numbers last month. there could be some more support for regional bond markets. yuan depreciates against the basket of currencies. there is an inflationary tone to the rest of this part of the world. more benign inflation looking ahead as well. the shanghai market is just about positive. haidi: -- it is a mixed session, as you pointed out. bp pharm

very busy day a for pboc officials here in china.d a central bank governor talking about the yuan, making sure it would be stable early in the day and then we had the central bank governor say the same thing and shortly, we had a pboc official come out and say for the first time, the most clearly that china will not use the yuan as a tool. david: a lot of speculation about this question, why did it take them this long to say this and does it have anything to do with the friday deadline on the tariffs? john: i think it is the reason for why they have come out to speak, it has to do with more how the yuan has fallen. a did that, we saw some state banks coming into the dollars, toy support the yuan and after that, we saw the pboc come out more forcefully. is 6.7 the line in the sand? john: it appears to be that, given the way that the pboc has reacted. the verbal communications that they have given has not been all that new. they used a lot of standard language but it is rare for three officials to come out on the same day. julia: that

the pboc not doing much to stem fears.e had the 6.7 for the first time in about a year and the most weakening on friday in two years. down 8% since march highs when it comes to the yuan. looking to see whether volatility spreads across the rest of the em, the fx complex. us get to first word news. u.k.'s new brexit chief said the country must prepare for a no deal brexit. they told bbc that while they ae this scenario happening, responsible government should plan for every outcome. he talked to the sunday telegraph, the uk's will refuse to pay the divorce bill if it fails to agree on a deal. the new president of mexico is toling on president trump trash nafta talks and aimed at a final deal including all three countries. he says the three sides should work together on a range of issues including trade, migration and security. he added that a new nafta could harm investments in the medium and long-term. a heat wave in japan has killed sent 10,000 to. blistering temperatures continue throughout this week. the tokyo forecast

is there a next line in the sand for the pboc? spoke to one of the strategists in the essex world who is one of the most accurate forecasters of the yuan . he said 6.8% would be a key level to watch for us to whether the pboc allows the debate through. 7%,rs say they could get to then you start to see intervention from policymakers because then you would get concerns about capital outflows. pile atthe reserves $3.1 trillion is pretty solid. they do have that as an option. of course capital controls remain in place. some look at the 6.8% level. 9:15 we will look for. others say china should look beyond easing measures and appreciating yuan in terms of support. maybe they should look for fiscal measures. we heard from jpmorgan saying that was potentially something policymakers should look for now. we heard from someone from china social sciences looking and suggesting that tax cuts should now be on the agenda to help stimulate you -- growth. that came through earlier this morning. rishaad: tom mackenzie in beijing. g20 finance minis

what more do you expect from the pboc?nk the chinese government must find a middle ground. one hand, they want to be as accommodative as they have to be. and also to prevent a hard landing of the chinese economy. they don't want to add too much stimulus and potentially overheat the real estate market. they have to find a very thin line between the two positions. willwill tell whether they be able to find a middle ground position. much.thank you very we will get thoughts on europe in just a moment. we were lingering on the china story there. china to keep the yuan stable. let's get a check of the markets and see where we are. manus was checking at the start of the hour and a look like they were a little bit positive. the compass it has come back briefly -- the composition -- by shanghai composite up .3%. manus? i love with the mliv team were saying. china did a manly job of fighting back towards parity ever think of equity markets, they do manly jobs. the details, the price, we haven't got that yet. the deal will have a pos

it looks like the pboc would weakenhe yuan we can -- . the fact that the pboc seem happy to let the dollar rise is a positive sign for people bullish the pair. i don't think we will get there quickly. they want to let the idea there is panic out there, but let macro fundamentals dominate the exchange rate. guy: what is the consensus on chinese acids this morning? morning? this -- 2%. up percent i turned bullish, but the rest of the team was concerned about what we are seeing in china. overall, there are a number of fact is that make us election across the team. chinese equities bottomed out two weeks ago and in spite of the panic, they have not revisited those lows. the price action turned more positive. we have seen a shift toward easing bias and that pboc, saying the drive is over for now. saying there will be a second half easing bias. this is confirmation of a shift we saw her he weeks ago. to emphasize that a weaker currency should be good for chinese equities in the right context. that will support exporters at the margin, the econo

what should he do, the pboc governor?e saw earlier this week that the pboc had enough with renminbi depreciation, with that verbal intervention. they sent a signal to markets that this is not a one-way bet. calls are still for the renminbi to weaken, but not at the pace we saw over the last three weeks . i think they will be keen to introduce that two-way price action to make sure they are not getting much speculative positioning building up. vonnie: you see today, the south korean won is weaker versus the u.s. dollar and the mexican peso is stronger by 1%. it is very hard to know where these currencies will all fall in the domino game, and at the same time there is a lot of money being made. elsa: the mexican peso is an interesting currency, because you have the election sunday. when i was in mexico some -- recently speaking to investors, there was a lot of money on the sidelines in cash or u.s. dollars, very anxious ahead of the election. a lot of the rhetoric we have been hearing from him and his team has been relative

pboc, 665m the against the u.s. dollar. mark, china in on this.re we over assessing over dollar china? when you look at the basket, what do you think? i always think the basket is much more relevant. it's important to note the quick shift in regime in china. up until a few weeks ago, the yuan was one of the best-performing currencies in the world. the second strongest performing currency in the world over the previous 12 months. this puts back to the average of the last year against the trade weighted basket. overall, still outperforming a lot of currencies that were seeing a clear change in regime. i think i'm with a lot of the broad market that it probably ins pretty soon. this is just a little bit of easing of the margin for chinese corporate. it's not the start of a major depreciation shift. control of it a little bit at that time and they don't want to risk it again. overall it shows the yuan against the trade weighted basket, only average after last year. cannot let you go without asking my favorite question. asx 200 has been the outperform

lananh: i think it makes things turkey for the pboc because -- tricky for the pboc because they haver rhetoric. when you have a currency plunging, like the chinese currency, the optics look bad for the pboc. china has made an effort to try and stabilize that currency, but it is another area in which the u.s. administration might be able to escalate that war of words. mark: the big drive when it comes to china is curbing indebtedness to state firms and local governments.that seems to be a policy priority, or is it ? is edifice cracking when it comes that priority? lananh: i think the problem is that there are multiple key priorities. china is trying to flesh out bad debt, but it also has to worry about that plunge in the shanghai composite index, the weakness in the stock markets and currency. the pboc is trying to balance multiple priorities. they are trying to tighten in one area while loosen policy in others at the same time. mark: on the shanghai, said, how would do -- shanghai compass it, how would you describe investor sentiment towards chinese assets? we had the shanghai compas

the pboc, will it deliver further easing? good morning. to "bloomberg markets: the european open." i am alongside guy johnson in london. by .001%.stock up nothing happening at an index level. france.strongly out of our stock of the hour trading up 1.514%. we continue to see activists making their presence felt in the company in europe. let's take a look at the bottom end of the market. is sapu are not getting continuing to fall. it is stabilizing where it is. marketbers -- the doesn't like what it is hearing. the advertising market is a useful indicator as to what is going on more broadly. publicists is trading down by publicis isorning -- trading down by 8.9% this morning. >> president trump, continuing to deliver mixed signals over russian meddling. in a press can't -- he told cbs intelligence for moscow is ongoing, but in a press conference he said he doubted russian meddling. >> i have tremendous faith in dan coates. he does tellou, if me that, it better not me. topresident trump's economic advisor has blamed it china for -- china for

the pboc is signaling policy shifts.es from the advisory panel when it comes to liquidity management, but they changed from stable to sufficient. have you think they are going to follow through on this? a very interesting point. in china, they are fighting to battles. they are trying to use financial to ensure financial stability. but they have the problem of the u.s. on the external front. i'm not going to say they are going to go to the easing side, but they are going to shift to that site. strongve a very tightening on monetary policy steps. that thetry to ensure growth [indiscernible] because they have domestic and internal pressure. ramy: in terms of what is happening with the currency right now, there is talk from several analysts saying this could be used as a weapon in the fight against the trade front. to what degree do you think this might happen, and when might it with us heading toward the $34 billion tariffs from the u.s. and china? dr. le: a good question, but frankly, i don't think the character differenti

the pboc is helpful.ding to our analysis, we have found out the stock market rallies have a stable relationship. ns thely july -- it mea market is looking at -- is improvement in the market sentiment. we see a strong balance in this market as well as the asia shares market. rishaad: are you a fan of these banks currently? they have been seemingly unloved. we believe in more than six months, chinese banks are fairly attractive. we think the market is extremely bearish and generates market safety. given the rates from the chinese bank, we think it is a value play. that is one of our topics in terms of sectors. haidi: what about the picture when it comes to bad loans and that side of the accountability picture? with this targeted loosening of monetary policy, have they taken off the gas? does that affect chinese lenders? kenny: the main focus will try to stabilize the economy. there will bet interest rate caps. the main focus is to stabilize, but not to boost the economy. haidi: what about the impact of the

pboc much smarter in how they deal with debt?oader deleveraging case, what surprised internal and external observers that there is no let-up now if you look at the comments from the regulators. the pboc have the instruments to offset some damage but i think the messaging again is very, very clear. they are going to see it through. francine: a difficult question but a simple question. at this point in time do you think the authorities can stem a pan nick the market? >> absolutely yes. i don't think there is any reason to worry about a debt crisis or anything like that. currency reserves are well stocked. i think that is a gradual control. francine: later today on chancellor , german angela frankel averted a crisis. we speak with the e.u. migration commissioner. don't miss that interview. this is bloomberg. ♪ >> this is bloomberg "surveillance." let's get the bloomberg business flash. the co-chairman of hma group that is died. he died from a fall while on a business trip in france. he was 57. they are trying to recover from soaring

weakening isy this allowed by the pboc which tells us. they are not defending a specific number i want to say this chart which has to do with japanese exports. seeing auggest we are little bit of weakening around the japanese trade story. the weakest in three months. the fifth month of japanese exports. where are you hiding from a trade story? is it possible to hide? tristan: i think it is will it knowledge. if you look at the recent bank of maryland survey, it was the number one risk everyone -- the top concern. i think there are a lot of asset prices around the world that is been affected by these trade concerns, certainly emerging markets have suffered substantially. a lot of this is starting to get roped in. a certain survey at a barclays people were asked if they were surprised in terms of global growth. there was a far greater number of people saying the risks would be. downsized i think market expectations are pretty pessimistic right now. manus: hold those thoughts. tristan hanson stays with anna and myself. in the u.k., there are

a looks like the boj and pboc are grabbing attention among central bankers.mark jgb's surged to the most in almost two years to a february high. check out the aussie benchmark as well. treasuries near 3%, so we are seeing the steepening of the curve. it will come down to the july 31 meeting of the boj. most economists do not expect this given week inflation, slowing economy, but it looks like the boj is starting to lay the groundwork for a possible move. should jgb yields push higher, that could lure funds away from other markets. currency hedging costs for high. investment remains that is what we are looking at for the global bond markets. we will see how the equity session could shape up this morning. modest gainspating this tuesday. banks can continue to rally. we saw the push higher for japanese banks on monday. with tech shares, very much of focus given alphabets strong sales to boost sentiment, kathleen. kathleen: big news out of china. policymakers demonstrating a willingness to tweak policy. even then, it was a subdued rally on monday. why? bob: chine

no serious pushback from the pboc.ne day in early july when they did a bit of a stealth and intervention but nothing major to stop that. we have reached this quite andificant milestone of 6.8 that may be an area which starts to slow things down a bit. overnight, the comments from president donald trump, he was talking about the markets, as people are probably trying to downplay it a bit. confusion intoof the market when we have had such a strong move already. we might see things calmed down a little bit today. particularly if people are now looking for treasure secretary mnuchin to follow up with those remarks. let's see if he has anything to say about it. there is enough being thrown in to confusion. hopefully something settle things down. ramy: may why we are also seeing negativity in the market trickling down into asia-pacific. onwards to japan, just about 35 minutes ago we got the latest print, take aim and 0.7%, the survey was were 0.8%, let's say that for the most part, the boj is probably going to stick to its g

what happened at the beginning pboc easingou have monetary policy.ave the monetary policy that [indiscernible] and the fear of a trade war and you have the pboc becoming more tolerant of volatility. these are the three factors. are trying to stabilize the market and they did. it is stabilized for now. it would be depreciation pressure but it is more of the market forces rather than what the government wanted. talked a lot about the reaction we might see from china. they said they would retaliate. how does the trade war impact the reform momentum in china? this is something you talked about. where are you concerned? concernhat is a bigger of us. if the cause of the trade war -- the chinese government put aside their reform or deleveraging reform, which should be very positive for china's media outlet. if they go back to big stimulus plans, that would be much more damaging to china's long-term prospects than otherwise. let's hope we do not get there. anna: thank you. a great day to have chinese expertise on the program. the u.s. ratcheting up the trade

that has boosted stocks along with the change in tone from the pboc. what is the monetary policy picture outside of china? i think overall it is very easy globally. we have seen global central banks are pumping liquidity. the u.s. stopped pumping liquidity into the system in 2014. everyone got excited about the central bank reducing last year, but it had been stable before that. the fed is the fourth-largest central-bank in the world. they are still pumping liquidity in. we have excitement in the last few days. the bank of japan might move to tighten. they are nowhere close to their inflation target. pmi this morning was the lowest since 2016. time to take a bad their foot off the pedal and they are not indicating the have any plans to. it is unlikely. there is a lot of liquidity in the system. matt: there were great stories about bitcoin outperforming other cryptocurrencies yesterday. now i know this has gone through 8000. any thoughts on the rise? one of the things i was just observing is the fact that bitcoin should have been an early indicator of t

for the pboc it is the right thing.e saw announcements they will allow some banks to invest in loans again, and an easing of some regulations. they are trying to redirect liquidity. as far as china goes, the right response. jonathan: there are many ways to look at the chinese currency. you can look at it against the u.s. dollar in a vacuum, or in the basket. when you look at it, what story do you see? diana: i think versus the dollar, the currency is trading roughly where we think fair value is. when you look at it in the basket, value has been depreciated. euroially when you look at and some asian currencies. that makes sense. the trade impact right now is going more toward asia. we expect a bit more weakness coming into the basket. i think the u.s. is a tough call. we just had bob and lisa discussing what the u.s. policy response is and the president pushing back. i think that is a harder call. from 2017 into 2018, do you worry about a slowdown in china? what it ultimately means for global growth? certainly if the tar

that is being helped by dollar weakening and comments from the pboc governor. morning that china will keep the yuan at an equilibrium level. we are also looking at these talks between president trump and the incoming president. scarlet: a big day here for nymex crude. to be ti swinging. it declined quickly from the levels and settled to close down just about 2%. still bouncing around. saudi arabia and russia reaffirmed an agreement between opec and its allies to increase oil production so the pressure from president trump certainly being felt. are keeping an ion growth recovering from the lowest since december as the dollar declined. copper and aluminum had recovered. there are now lower by almost 1%. shery: treasury yields across the board lower today. the 10 year around 2.8%. the two year only 2.5 percent. we are seeing the yield curve continue to flatten. spread at one point falling below 30 basis points at a new 10 year low. those are today's market limits. for more on today's market action let's bring in chad morganlander. great to have you with us. we're

the yuan, a second day of support for offshore yuan in particular with reassuring comments from the pbocsaying they will not be weaponize in currency, despite one report suggesting that the pboc would still be comfortable with a softer currency. when it comes to onshore 6.6325. looking at looking at the european session, pretty wishy-washy, light volumes. one report from the ecb suggesting that policymakers are concerned about complacency.investors are not expecting a hike until december 2019. those expectations have sifted somewhat and we thought that rise when it comes to the euro as well. industrial metals suffering pretty badly in this session, copper in particular, close to an 11 month low trading in london. that will play through when it comes to materials and the mining sector here in australian trading. let's get first word news. reporter: thank you. u.k. police say to my people have been poisoned in southern engine with the nerve agent nova novichok, the same used to poison the former russian spies. they remain critically ill in the hospital. the united states says it is being s

so for the pboc it is the right thing.ay we saw some announcements they will allow some banks to invest in loans again, and an easing of some regulations. again, trying to redirect liquidity and to loosen a bit domestic liquidity conditions. so as far as china goes, the right response. we think they are doing the right thing. jonathan: as you know, there are many ways to look at the chinese currency. you can look at it against the u.s. dollar, alone, in a vacuum, or in the u.s. basket. as you look at those two things right now, what kind of story do you see? diana: i think versus the dollar, the currency is trading roughly where we think fair value is. when you look at it versus the basket, it has been depreciating. especially when you look at euro and some asian currencies. that makes absolute sense when you think about it, the trade impact right now is going more toward asia. so we do expect a bit more weakness coming in versus the basket. i think the u.s. is a tough call. we just had bob and lisa discussing what the u.s

the governor of the pboc saying china will keep the yuan stable. earlier, some of china's major banks to set to have sold the a slump to break the key psychological level of 6.7. what's up next for chinese markets? you. to see let me's nash limited to a chart. 6.7.ing through as you can see from the chart, pulling back from those levels after we heard from the pboc governor. what is behind him stepping out today? fundamentals and differences the last few years is, given the shrinkage of the current account, you rely a lot on capital flows. youwant to discourage cases have capital outflows. not the best interest of the authorities to have bouts of volatility. at the same time, the currency has to adjust to a stronger dollar across the board. it has been doing so. it's in the best interests of the chinese government to maintain it edible basket target and two extend it, actually catch up in the face of they want to. i think that move is quite justified and they would like to avoid moves above that. nejra: could it resume its life from here? themos: a

david: what is the incentive for the pboc on the currency?in the last week, on the currency. are we over thinking that or is there more incentive for academics to think it is weaker? i think it is slightly risky for the pboc, because when they have tried to do this in the past, it hasn't worked out so well. there is a risk of over thinking a little bit. being held r&d is against others and not just the u.s. dollar. we know it is likely to weaken. david: that takes me to the em basket, do you think it worsens for em in the second half? isaac: there is a risk they could weaken further. i think what will drive that is the direction of oil prices, the direction of u.s. dollar rates, and of course the ongoing sentiment and concerns around the u.s.-china trade negotiations. we would say, keep an eye on what is happening, what is happening in broader markets, and will that flow through currencies. david: let's take things apart. let's say oil stays at about $75 to $80. only is a debate they can do one or two rate hikes. will this be a problem? isaac

the financing the pboc gave was only for 12 months.o those property where fundamentals are very strong. the chinese housing market is really strong. maybe the best i have seen it in the past 10 years. --panies are making mark money. all of that is positive for creditors in a chinese high-yield market. we are adding the securities and for portfolio. yvonne: when you make of this ball of money in china? risk appetite is going to the spot market. could this impact the sovereign bond market? , they of the days we saw were piling into money market funds. we saw a huge spike coming in. the market is starting to stabilize now. the behavior of the investors on short is to take time. they're going to need to wait until september if we are going to start to see a substantial move here. this was not a blanket easing. this was very targeted to one specific sector. the message is deleveraging. they have not moved off of that yet. comes to easing, is this supportive are negative? >> -- or negative? >> is going to stabilize. this has come back down i

the pboc cutting reserve ratios three-times this year.rcher from the central bank indicating there may be more room to relax constraints on banks of they can lend more. china may have ammunition beyond the pboc to bolster the economy. they have a lot of tools there. this as the government is ramping up spending. this chart shows policy makers have more ammunition in the second half to counter any problems. of this achieve all perhaps without breaking the budget constraints they have set themselves, or can they? victor is still here. , also big thing is the shrinking and reduction in credit and shadow banking. june was the biggest reduction we have held on record. you are starting to see the repercussions and where the false, peer-to-peer lenders, are having problems. rishaad: this is a huge problem. number, was a record 80, defaults in june. rishaad: the start of this month. >> 49 since the start of this month. rishaad: victor? china way i look at it, would like to de-leverage. they tried it once in 2014-2015. that is when china effective

and it's going to be an interesting one for the pboc. trying keep short term rates down but at some point they'll have to take notice. david: mark, i want to bring you will one of your entries this morning on minneapolis live. you're calling this one, hong kong's china shares -- looking to involunteering the feeling back in february. i think about february, i think about love. is that what you mean? la laugh >> well, it would be love for people who are bullish on the affection shares. i wanted to demonstrate how volatile those shares can be. it's just coincidence that the two big moves this year on the downside or both about 16% and the treeb after the fall in february was about 10% so we saw the eight share pick up yesterday and again today so any rebound could be quite significant if they match some of the moves we've already seen this year. of course, this is something weighsed on numbers before the trade war started. so we 90 -- might not get such a substantial mover considering we're now into a trr tariff war. david: thank you, mark

does the pboc resort to more aggressive measures? pboc to cut the benchmark rate, especially in view of the fed rate hike cycle. of more the potential significant pressures on the chinese currency. we think there is room for more -- to continue the targeted cuts to provide an easier liquidity environment and also support market confidence, especially in view of the continued -- the likely continue rising default in the credit market. there is a consensus that the monetary easing will not address the problem of this credit growth. they need other measures. somewhat of the more clarity and the new asset management, with the announcement of the -- which shall provide more clarity to the markets. we see a continued contraction in the credit components of the credit expansion. part of that needs to be addressed. easing liquidity is going to play a small role in that. yvonne: stay with us. we will have more with barclays chief china economist. you can also turn to your bloomberg for more of this. commentary and analysis from bloomberg's ex

the pboc is glad to let gradual depreciation in the renminbi despite the weakening in the theese data and response to trade tariffs they are receiving. until we see more stabilization in the renminbi and in terms of the dollar, where the dollar has been pretty strong, we still see strengthen the dollar and the dollar funding costs are rising. the headwinds are still there for e.m.. that being said, any positive news, you will see technical rebound in terms of the e.m. space. pockets of opportunity are arising, but more the fixed income as opposed to equities. the asianf high-yield, for example, some of the chinese property names have been got hidden hard. -- hit hard. we are still positive on u.s. equities, given what the macro environment is looking like. aboutd: to that point, renminbi weakness -- i am going to drag this out from my gtb library. it shows how the authorities have tried to push swift payments to get the internationalization of the renminbi out there. yuan areve risen -- of in blue. we had a peek in 2011 of nearly 3% in global payments from china in the rmb. we have se

what do you think the pboc stands now?> they are trying to scratch their heads in figure out where this is going. how can we respond to this in a way where this is minimized from a global perspective? that is a much more political discussion. it is really about second-guessing. the next question was difficult to second-guess, not only from boat,inese, the same which is unusual where they to figure out what is the best response. if it goes to autos, we will worry about what the impact will be on u.s. gdp growth. we will have more just ahead. we will talk trade tensions and how to avoid the crossfire. ramy: what the sudden death of the cochair means for one of china's most indebted companies. this is bloomberg. ♪ yvonne: this is "daybreak: asia." let's continue our conversation here because some policymakers are said to be uneasy that investors are not betting on interest rate hike until december of 2019. rejoin deutsche bank chief still with us out of hong kong. i want you to weigh in on what , talking about an 80% chance t

falls to a one-year low, and the pboc may be comfortable with the lower level.mberg headquarters in new york, i am ramy inocencio. on capitolessage hill. slapped with a record fine in europe. itis order to change the way uses services on android devices. well, even when we have no developments when it comes to trade, it is never far from the conversation. market sentiment there, looking at the june trade nubbers from japan, you are perhaps starting to see the impact, if not when it comes to actual volumes, but certainly sentiment with trading partners between the u.s., and we spoke about in the last hour, the rest of the trading world. ramy: and the fear is what is pervading the markets, not so much the damage so far. we had the congresswoman from washington we were talking to earlier, talking about the cheery industry with regards to industry with regards to china. it was definitely about earnings, morgan stanley beating estimates and generally, in terms of financials, they had a pretty good second quarter. we expected to maybe start seeing a shift back into fu

it could be an agenda further down the curb but at the moment, as far as the pboc is concerned —— concerned5% and as far as president trump is prepared to do in terms of these tariffs. $75 billion us, will this be enough to prime the economy? you make in the short—term, yes, but we would not be surprised to see another round, probably in the third quarter or fourth quarter, that 0ctober quarter or fourth quarter, that october or november period this year. there is no doubt the government is holding the wheel is very firmly and they are not prepared to let anything slip away. the shadow banking industries are concerned and that is the major importance of this meeting in beijing. the uk's new foreign secretary has warned the new —— he knew negotiators risk britain leaving with no deal. jeremy hunt travel to berlin to meet his german counterpart. there is the foreign secretary speaking earlier. without a real change in approach from the emu -- eu a real change in approach from the emu —— eu negotiators, we do face a real risk of no deal by accident. that will be incredibly challenging economic

in fact, we have not seen that from pboc policy. we have seen them higher. 8%n you consider the depreciation in the you wanted, that accounts for almost an upset of the 25% tariffs and lamented from the u.s.. there is an argument to say, is this a more managed depreciation? yousef: definitely something to look out for. we want to get into other key views. the head of fx commodities and rates for j.p. morgan private bank. we could see a snapshot of what is coming up. a huge week for earnings. we will bring you an close of interview with the ceo of julius baer and the ceo of philips and the cfo of ryanair. this is bloomberg. ♪ nejra: 6:20 a.m. in london. let's get a bloomberg business flash. labor strife is starting to weigh on ryanair as opposed to the 20% drop in profits. the discount airline board that sporadic walkouts by trade unions along with regional traffic control strikes are starting to make customers hesitant to book flights. ryanair's joined by cfo for his first interview of the day at 6:30 a.m. u.k. time. sergio marchion

them to be able to stem these weaknesses they are seeing in their economy. >> the governor of the pbocs china will keep the yuan stable at an equilibrium level. recent currency volatility on dollar strength and external uncertainties. blaming the recent currency volatility on dollar strength and external uncertainties. the yuan slumped to a level of 6.67. is that enough for the chinese to stabilize the currency? doesn't seem to be. >> no, i think there will still remain some short-term pressure of the yuan until we get a couple of days of strength. the concern will not go away. we saw the capital outflows story at the end of two any 15 and 2017, even after the yuan started appreciating, those concerns lingered for a little while longer. while this is much of a valid, short-term story, traders and day traders should be watching the yuan and should be concerned. long-term investors should not be concerned. this is not a long-term story. >> lets pivot now to iran, the president rouhani seeking deeper ties with switzerland. he called on europe to deliver on its promise to shore up the 2015

after the pboc lowers its rate the most in two years. the italian job. bonds selloff and a report of a breakdown between the prime minister and the populist leaders throwing leadership and out. we made it, it is friday. i am alix steel. onset.elly joins me jason: an exciting friday it is. jeepers creeper's. alix: you come in and you zone out. equities rolling over. . you take a look at the s&p futures down. it had been a monster dollar value. president trump put a stop to that yesterday. that dollar really helping commodities also take a break now that they are slipping into correction territory. that little bit of rollover in the futures market really came on the back from cnbc who said he could go for any minute to $550 million of chinese imports. jason: that cut people off guard because the number that had been out there was $200 billion. -- i can goind of to 500 billion. says, yousee what he have to take it seriously. he has not yet backed down but you are waiting for the follow-up where people come out wassay what he meant to say . jason: we are fro