Manufacturers up for a Third Straight quarter as exports drive expansion. Haidi chinas latest hong kong connect starts today, giving overseas investors access to the 10 trillion debt market. Beijing taking aim at washington after the pentagon sent theyve or shipment to disputed waters. Half an hour away from bond connect. The whole idea is to connect the world through hong kong, sending the northbound traffic to this 10 trillion bond market, corporate and sovereign as well, in china itself. What do we have . The idea is we have this big premium over china debt over u. S. 10 year debt, and hoping this will create demand, pushing yields down as we see that you cap balloon gap balloon. Of 120 five basis points difference between what you get in terms of yield in the u. S. Compared with china. Thats right. We are looking for the onshore rate as well as the dim sum bond and forstart never ring the chinese bond premium to start normalizing as well, closely correlated to money market rates. When another important day it comes to Hong Kongchina ties. We have the inclusion of ashares in the mci, so we will be watching how that plays out when it comes to the china and hong kong bond market. Lets get over to sophie for a check on the markets. We have plenty going on in this part of the world to drive stocks at the moment a little bit higher. Sophie we do have some items on deck when it comes to the ecocalendar, Central Banks in , the rba to announce on tuesday, meeting notes from the later this week. We are seeing fluctuation in ,sian stocks, the asx 200 down falling for a second straight day. Dragging on stocks in sydney, down. 25 . Japanese shares paring earlier swinging,he yen is 112. 684 now. Korean shares higher, earlier we were looking at a fresh record. We do have the aussie on the back foot, down. 1 ahead of that rba meeting tomorrow. The offshore yuan rising for a fifth day, the launch of the Chinahong Kong bond connect in focus. When it comes to that you really them, i want to pull up this chart, 496 on your terminal. That premium is not just over treasuries, but german bunds. Higher yields could prove alluring to Foreign Investors. We will see if foreign buyers will jump in and immediately todayhat being kicked off , or if they will wait in warily. The pbocs willingness to loosen fact be the most important to see chinese bonds outperform and narrow that youll premium over u. S. Treasuries. U. S. 10 year yield notes, one Percentage Points above the record low this week. Chart 708, widening the gap with the term premium, the line in yellow, the gauge of Investor Confidence in holding longer maturity notes, and what this implies is treasury rates could fall again. So much fornk you that. Sophie kamaruddin there. Lets get first word news. It looks like a big no out of doha. The saudi news channel set the deadline to comply with demands has been extended by 48 hours. Monday was the day set for on 13 demands, including cutting ties with iran and closing the al jazeera network. The qatar stock market fell as the government said it would not comply four weeks into isolation. Kyoto news says President Trump has spoken by phone to shinzo abe, confirming their commitment to raise the pressure on north korea. Trump is expected to call xi jinping ahead of his meeting on the sidelines this week in hamburg at the g20. Chancellor Angela Merkel has called on partners to put policy divisions aside and seek winwin solutions. She says it offers a platform for nations to air their interest at the g20 and forge policies that benefit the global economy. Once articlest could lead to irreconcilable conflicts. Brexit, its tune on ministers are adopting a more sober and realistic tone following the disastrous snap elections. Hammond will tell that an abrupt split from europe will not be attempted. Facesminister shinzo abe one of his biggest tests after his ruling party was well beaten and a local election in tokyo. Ldp is projected to win its lowest number of seeds with the tokyo governor taking 50 seats and a 127strong assembly. Ldp executives have called an emergency meeting for monday morning. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Haidi thank you so much for that. Back to our top story, a key date when it comes to the opening up but chinas markets and the Hong Kongchina ties. Fter a key weekend you are looking at live pictures of the launch, the Opening Ceremony of the Hong Kongchina bond connect. You are looking at the newly sworn in hong kong leader carrie lam speaking to the audience they are. Back ofa program on the the equities stock connect to give Foreign Investors come offshore investors, a way to access the 10 train dollars debt market of china, and that is 10 trillion debt market of china, and that is now getting underway. Beijing will be hoping some of these capital inflows will help them manage liquidity when it comes to the markets and take and pressure off the yuan for the pboc to be able to manage open Market Operations we see so frequently. There also speaking financial secretary of hong kong. We are looking at another day of hong kong, ceremony, and pageantry after the weekend comes steve. Another milestone after the weekend handover ceremony, where president xi jinping said hong kong should prosper from chinas rise and economic clout, dont necessarily resistive. All the dignitaries will be speaking in mandarin. , you just heard her speaking mandarin, and a few comments in english, lauding the next step in the integration of the chinese economy, the capital markets, bond markets with hong kong and the world. She says another chapter in mutual Market Access for china and hong kong. This is a nearly 10 trillion bond market, number three in the world, but less than 2 in the hands of foreigners. This will hopefully facilitate more Foreign Investment into the japanese bond market at the time they are cracking down on leverage, so a new funding wave. Issuances in may were at a amid this leverage crackdown, so we will have a number of dignitaries here. We are now listening to the Deputy Governor of the pboc. Hear from the Hong Kong Monetary authority chief executive norman chan along with other dignitaries. It, steve. Will take what we just heard is the new chief executive, but all of this after, well, a mixed bag over the weekend, some stern words from president she should in thing. What are people making of the handover ceremonies over the weekend . Absolutely. This is a monumental and momentous occasion for hong kong and china. Im being told right now to speak of little bit lower as the pboc Deputy Governor is speaking. We dont want to drown him out. Again innother step the continued integration between hong kong and china. It is inevitable. Much forthank you so that. In sam muti. Everybody wants to know how important this will be in the grand scheme of things, opinions bege from meh to it will brilliant. Piece ofa nice choreography. Carrie lam goes to the bond connects her money and gives a speech. That tells you the importance of it and the meaning behind it. It is a geopolitical gesture. It is china opening up to the world. It is not opening exporters for its own southbound trading. It is definitely another brick in the wall as it were. Rishaad will it have a noticeable impact straight away on chinas on market . We saw with this connect that it took a while to get going. You mentioned that yields are quite high, so in theory quite attractive for overseas investors. The chinese bond market does have some issues. Rishaad im going to bring up this chart and talk about how the yields are meant to come down, eight 041, 10 year treasuries over 10 year chinese these two willg not converge, but come closer together and we could see more demand for china debt. I think that is the longterm thinking. I dont think these things are done for the next six months, maybe six years, 10 years. The chinese bond market is like the chinese stock market. Policies come at the drop of the hat and complete the change the market. We saw a plunge in years because of deleveraging crackdown that no one saw coming. Foreign investors are unsure of whether to get in because of that. Haidi that is the thing. After thes gun shy stock market roller coaster was not that long ago, and same kind of issues we have seen with msci inclusion. What comes next in terms of the structural things that need to tressed for the flows to to be addressed for the flows to pick up. Investors getting used to the market. Yields arerket, the attractive, and the longer these things are open, the more different channels open up and people get more comfortable. ,rimary connect, ipo connect where chinese investors would be able to come south and take part in new listings in the Hong Kong Market, that could be the next part of the mutual Market Access int terry lamb mentioned terms of better integrating hong kong to the mainland as well. Haidi certain the further integration is the road ahead. Thank you for that has we get the Opening Ceremony of the hong kong long to connect today. Still a latest china pmi numbers out, ubs chief china economist. Survey, japans tankan the highs for more than three years. We have the chief economist from Credit Suisse joining us from tokyo live next. This is bloomberg. Haidi this is Bloomberg Markets asia. I am haidi lun in sydney. Inhaad i am Rishaad Salamat hong kong. The latest business flash headlines. The Fairfax Media pulling out of after Neither Group submitted a binding offer. Is proceeding with its own strategy to spin off its domain listing business by the end of the year. Fairfax reporting preliminary earnings of 205 million. Haidi toshiba preparing to raise money by listing it switzerlandbased energy unit. The First Step Towards an ipo in zurich may be made this week, although toshiba is still discussing whether a straight sale may be preferable. Ubs is advising and talks have been held with several potential buyers, including Goldman Sachs. Three former Senior Executives of Tokyo Electric Power did not guilty to charges of negligence related to the 2011 fukushima disaster. Two thenr chairman and Vice President s apologize for the disaster and said they did not there criminal responsibilities. They could not have foreseen it. The trial is expected to last more than the year. Tepco has not been charged. Haidi confidence in japan is on the rise in the economy, particularly large manufacturers. It still has not translated into higher wage growth. Joining us is the chief economist for japan for Credit Suisse. Thank you for being with us. Give us your thoughts on the a beat,the headline was but does it have implications for wage growth, reinvestment, and inflation . The good thing is the and fracturing sector is still growing. In the meantime, if you look at the industry, neither sector is doing well, only for large , retail formes example, is not that good, so conditions improve and tight labor markets continue to be the case, but it may take some time for wages to pick up and impact consumption. Keep isnt the issue we going back to this conundrum of why we are not seeing price pressures. , wage strip out energy pressures are not there, investment neither. Is this an animal spirits situation where you have deflationary mindset that is hard to shake . That is one very good point. The other thing is that the japanese economy has not improved productivity of labor, and this is mainly because it is a very inflexible labor market, and if you continue to argue that Labor Productivity is not , there isom here pressure on wage levels because profitability is under pressure. We have to see a pickup in Labor Productivity growth and wage growth simultaneously. That will require significant investment by nonmanufacturing industry. It has been a bad, bad weekend hasnt it for shinzo abe , the Prime Minister seemingly under pressure from all sides. A big loss in elections and calls for him to replace governor kuroda from one of his mentors. What do you make of it . Think Many Political analysts would argue that a big reshuffle is needed. I wont disagree with that view. Landscape of japans politics could affect the central governors pick next year and the hike scheduled to happen in 2019, so all monetary fiscal policy management will be affected by changes in the cabinet and abenomics, so we will be watching closely what happens with the cabinet reshuffle. Rishaad people have talked about governor kuroda as thinking outside the box when it comes to monetary policy, but others say he needs come up with fresh ideas. What more could he do in your view . Policy, it could be related to what kind of assets they can buy in addition to japanese government bonds. Some argue the boj may start to buy foreign equities, and that kind of fresh ideas one thing. The other thing is fiscal monetary coordination. I tend to think that that fiscal monetary accord is one thing, what is most important for the central bank is what they are going to buy after the boj will face a shortage of supply for jgbs, and one possibility is other risk assets, maybe including foreign equities. That would have a big impact on Global Markets. We will see. Rishaad stick with us. We will have a few thoughts after this. Confidence appears to be on the rise again in japan, at least when it comes to large japanese manufacturers. Not a lot going into wage growth or investment. As get back to our conversation with the chief asian economist for Credit Suisse. We have been talking about abenomics, potentially endangered, but what is happening with the other two arrows . Are we still expecting reforms . Trust the private sector. The japanese private sector has been doing well in terms of investing more in r d, even productivity remains not so strong. Government side is lacking. The weakest point of abenomics i would say has been that the labor reform has not been happening, so they have not touched upon the japanese labor law for example and are not necessarily that aggressive in improved productivity of labor. Economy has been doing good in terms of investment, but on the labor low. Productivity is the japanese government has also ,een weak on industrial, fiscal and labor reform, everything, so we have to trust the private sector rather than government, but taking time. Haidi appreciate your time. Japan at economist for Credit Suisse. We will get more on the china bond connect the goes live today. Seen the ceremony, carrie lam speaking a few minutes prior. We will be live at the Hong Kong Stock Exchange next. This is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Harbour, 9 20ria nine, counting down to the start greaterrading day in china, hong kong, shenzhen, and shanghai. It is about this hong kong bond link. Better than some measures. The haslinda latest pmi numbers. Caixin latest pmi numbers. Presentation paying in russia, then germany for g20 meeting. I am Rishaad Salamat in hong kong. To seewe are waiting if this translates into better sentiment. You can see live pictures of the stock exchange, the bond connect launch ceremony has just happened, quite a celebratory weekendthe back of the handover ceremonies, 20 years since the handover back to china. We did have in recent days the msci ashare inclusion as well, so a lot going on in terms of this integration of systems between hong kong and the to seed. We will have the implications as they play out, a 10 trillion debt market, the thirdlargest in the merle. In terms of broader markets, a marketsssions, japanese treading water, australia extending declines, the worst selloff since november. Not a lot of positive sentiment. Lets get it over to sophie for a look at how the china and Hong Kong Open is. 300, littlecsi changed after Falling Point 1 on friday. We do have the offshore yuan rising for a fifth day, and the onshore rate also marginally higher at 6. 78 after a weaker fix from the pboc. Kong stocks falling for a second day, down. 2 as the bond connect with china is the kick off today. Said hongarrie lam kong will explore a southbound trade on the bond think in due course. The first banks to get in on the action, completing its first deal as a market maker for overseas institutional investors. It is early days, but we will see if investors will be cautious or weighed in immediately. Macau casino operations, pulling up this board for our viewers after Revenue Growth for june miss testaments, rising 25 on year compared to 30 forecast. Numbers to window been the last week in june because of xi jinpings visit to hong kong and regulation has been tightening for the gaming hub. Back foot today, injury and china falling 3. 7 . Elsewhere in asia, a mixed take sure, but more weakness on the asx 200, down by. 3 , falling for a second straight day. The kospi paring earlier gains, and japanese shares swinging along with the yen. Machinery makers rising in tokyo data the latest tankan indicated an upbeat mood when it comes to large manufacturers. Investors shrugging off that ldp loss in the tokyo elections on economice tokyo fundamentals of japan have not fallen apart. Haidi thank you so much for that. Some breaking news crossing the bloomberg when it comes to australia, house prices, runaway prices when it comes to cities like sydney and no born, may falling 5. 9 ,vals also seeing that number when it comes to building approvals broadly speaking, down 19. 7 percent on year, estimated decline of 14. 1 , so there has been talk about more supply when it comes to holmes coming on the market and whether that will ease some home prices we have been seeing. The treasurer seeing hefty price gains and major australian cities, the demand side is quite real and does not look like the supply side is keeping up. We have seen home price moderate somewhat when it comes to sydney and melbourne. Higherta up 2. 7 , much than the expectation of. 4 for may. That has picked up as well. Clearly playing into the rba policy decision as they meet tomorrow. Lets get you up to date with first word news in hong kong. Is experiencing a weekend of confusion and uncertainty as businesses and consumers attempt to navigate new National Sales tax. In one pointstates 3 billion people in a Single Market for the first time. On day one, many shops were closed and shoppers were staying away deterred by potential price ranges and uncertainty over how the tax will work. Guided. Navy has sent a missile destroyer close to a disputed island in the south see asea in what some washingtons displeasure at beijings failure to rein in north korea. The ship passed within 20 kilometers. The mission may sour the atmosphere when President Trump xi jinping at the g20 this week in hamburg. Ethiad airways says the laptop ban has been lifted for planes flying from abu dhabi. It comes after the department of Homeland Security updated security measures. Iran will sign a deal on monday to develop the worlds biggest gas collaboration. Under par luminary a court, total would control 50. 1 , while cnpc will have a 30 interest, and iran 19. 9 . An unexpected problem is a board to the launch of the latest spacex mission. The countdown was halted nine seconds before blast off. Spacex says the will not be another attempt today. The next window is on monday, Tuesday Morning in asia. Launch control has yet to reveal would cause the stoppage, but the rocket and its payment are in good condition. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Rishaad a new poll putting the japanese cabinet Approval Rating at just 38 . The survey coming as Prime Minister shinzo abes ruling party was well beaten in the local election in tokyo. Ldp expected to win its fewest seats in the capital with the tokyo governor and joining a landslide. Our japan Government Specialist is isabel reynolds. This wasnt something out of left field, but it was a surprise. What brought it on . The extent of the victory was a surprise to everybody concerned. Thats no wonder, the worst ever results for the ldp. Come out ofrty has nowhere, formed a few months ago and yet been able to defeat this slick machine in existence for decades. The support the governor has been able to build up. Build uptar power their social media and other means, so she has that. Shooting itself in the foot with a number of andnet scandals, gaffes, the way they have dealt with this is seen arrogant by the public. Things have not been explained, and voters have expressed their anger about that. Thei the implications for shinzo abe government and other nymex . All, koikeirst of will stay where she is. Her term runs through 2020 and she is devoted to taking care of that job for the time being, so she is not an immediate threat to the national government. That shinzo abe seems to be a liability, it will be harder for him to push policies through that are unpopular with his members. We will probably sees strong rivals against him running for the ldp leadership, and of course he has to call a National General election by the end of next year. If the atmosphere of scandal is still hanging over him, this will have an effect on the result as well. We will be watching that story closely. Thank you for that. China,et back to political tensions, china hitting out at the u. S. Up to the Trump Administrations in a guided missile destroyer near a disputed island in the south china sea, the latest sign of renewed tensions between washington and beijing. Lets get it over to our china correspondent tom mackenzie. The honeymoon is over. Mance indeed. It was the relationship forged at maralago earlier this year. These longrunning tensions have existed for some time, now coming to the front and quick secession, south china sea, north korea, taiwan, trade terrorist. On sunday, we have this freedom of navigation operation by the u. S. Navy. That jerusalem pretty firm pushback from the chinese, who said the americans were trespassing. The chinese said they dispatch their own ships and airplanes to monitor the operation, and it comes on the back of sanctions put in place on a chinese bank with ties to north korea, this shift in tone from trump in the white house when it comes to what it sees as a failure by china to rein in the north koreans on their Nuclear Program, some thing analysts said was a naive assumption that the chinese would be able to enact much change. You have this proposal by trump , military1. 3 billion aid to taiwan. It is not the largest package, but the timing is of interest. You have the commerce secretary tariffsof potential on chinese steel, suggesting trump was backing tariffs of 20 on chinese steel. If it has not happened already, president xi jinping will get a phone call from President Trump, north korea and trade at the top of the agenda. Shinzo abe as well. Dominating, korea but also pressure on the japanese when it comes that their trade surplus and what more they can do to alleviate and balance of trade with the u. S. Jinping willt xi go to moscow and the g20 at the end of the week. Is the what significance of that visit to russia . It has been heralded by the Chinese Media has of great significance given the economic instability globally. Look, both countries, china and russia, have tried to improve ties and trade has picked up. China is russias largest trading partner. They are expecting the two president s to ink 10 billion of deals from media to education. Energy may be in focus as well, a beijingbased gas Company Buying a 20 stake from rosneft for 1. 1 billion. And sides, the russians chinese have signed a developmental cooperation deal when it comes to their militaries. We may get some more details on that. The russians say they are drawing up their own plan to pressure north korea to rein in its Nuclear Program in coordination with the chinese. More details as well we are hoping to get through on this meeting. Two days, then he has to germany and the g20. Rishaad thank you very much. Tom mackenzie there. Pmit, the latest caixin numbers. Out of ubse analysis for what it means for that economy and beyond. This is bloomberg. Haidi this is Bloomberg Markets asia. I am haidi lun in sydney. Rishaad i am Rishaad Salamat in hong kong. Some breaking news, the Caixin Manufacturing pmi number, sme enterprises, better than expected. Likewise with the state official numbers as well. 0. 4 showing expansion we were looking for 49. 8, a 49. 6 wastraction, the number for may, so that is what we have. This state official one was also better than expected at 51. 7, so reports of a slowdown in china greatly exaggerated. Indeed. Ands quite a firm reading activity has yet to be really affected by liquidity. Rishaad does it represent stability or better than expected growth . Quarter,look at the stability, slowing headline numbers, but on a monthtomonth basis, i say a gradual winding down. This will continue throughout q2 and q3 at least. Readad what is the through for growth in essence here . In termssaw the best of the headline momentum in q1, but sequentially growth is picking up in q2. We saw consumption doing quite well. Forrts likely doing well q2, which means even though investment in the economy is softening somewhat, we are getting a counterbalance to offset that. The government has room to continue with tightening. Rishaad this is a 983, showing the correlation between Industrial Metals and what happens with pmi. They track each other more or less. They are very close. I would expect for june that we get an ok ip. Ink rishaad Industrial Production takes in these Industrial Metals. Underlying pmi as well with better exports in the last few months that have helped. Day, we aref the close. We are not shooting back up to the 5455, so steady as she goes. We are gradually branding down ahead of the Party Congress around octobernovember. We dont see much visible weakening until after the congress in q4, and we see them more pronounced slowdown in 2018 and theof property laggard effect of that coming through. Haidi there is that artificiality to the numbers we are seeing, given this is essentially an Election Year and is stability. All are we getting to the point where we are looking at Growth Numbers anywhere near sustainable . We are within a sustainable range right now. We kept up the momentum in q1, then we would have been overshooting. Theyt think that is where wanted to keep it within, but the 6. 5 region for full year. , the bigger headwinds and the more pronounced headwinds will probably come out around q4, they q4 or 2018. I said that before because i wanted to reiterate the two key rates on chinas economy as property and slower credit growth for this year, but both of them are still playing catchup. Property investment is catching next two quarters, Property Investment in construction should be ok. Credit, we have already seen the credit impulse coming down somewhat, but that is a leading indicator, so thats why we dont expect the overall economy to weaken until q4 as well. At that point, you would really start to expect to see actual reform, Structural Reforms, some of the painful capacity cuts and that deleveraging drive that stop started given that it caused a tantrum in the markets to restart in earnest . It has possibly started already. The opening shot came earlier than expected, more than a few quarters before the leadership process was over. The supervisory tightening campaign started last year and picked up pace and offshore market started to take notice around a role, but it has been going on for some time already. Even though we have come off, i dont think the campaign has stopped. It has come down slightly and they are adjusting the pace and improving the Central Banks communications. After that, they will continue again. At that stage, maybe they wont come out with any new aggressive measures. Should growth weak and too much, they will ease on the fiscal , the endeavorall to push forward with Structural Reforms has started already and is ongoing. The momentum will be adjusted along the way. Rishaad what will the naysayers grapple with . You are not seeing any visible signs of progress in Structural Reforms. , sometimesntinuing one step back, sometimes half a step back, and thats when they jump in and say they have abandoned everything, but they havent. It is quite typical whereby the journey from a to b will take many quarters, possibly many years, and should the path of reforms set them against something that is quite painful, market angst or a potential credit event risk increase, then maybe two steps back, just, and continue on, but i would disagree with people that china has given up on Structural Reforms. In a way, they have no choice. The economys ability tos sustained growth is pinned on the ability to push the reforms. Rishaad you mentioned a slowdown in 2018, how much would you calculate . We are expecting it to slow to 6. 2 from 6. 7 . It is not that bad. Rishaad it is pretty good, isnt it . For many people, they focus on where the number is and the governments ability to live with that number, but i take a slightly different perspective. I also look at where they set the number. The political capacity and the financial capacity, the regime has more than enough levers to pull now. The dollar in practice more unpredictable. Rishaad as one critic said, in thes the only economy world that will give you its annual gdp number at the start of the year, not the end of the year. Thank you very much. Inhaad i am Rishaad Salamat hong kong. Haidi i am haidi lun in sydney. Alphabets says the eu antitrust will cut profit by 2. 3 billion. Analysts expect net income of 5. 8 billion. The fine is not taxdeductible and rural reduce alphabets earnings. Pushingas analyzed for its own Shopping Services ahead of rivals read rivals. Rishaad facebook has been granted a patent to roll out peertopeer payments. The patent was filed in several markets worried markets. To say whethere it would launch payments through messenger in australia. Markets,quick look at tokyo, the nikkei 225, a bit of strength,. 2 , perhaps down to better thansurvey anticipated, a gain of. 2 , but not really being replicated in other words of the asiapacific where we have seen some stock indices under pressure. Dictatedi, not being to by what the yen is doing, pretty much flat on 112. 35. Idi. Ey, ha positivepecting a open, but seeing an extension of that selloff on friday. The worst decline since early november last year, so since the u. S. Election, just modest declines today, but extending that. How are things faring in hong kong . Rishaad . 2 down and headed to a break. This is bloomberg. Singapore, 7 00 on sunday evening on the east and the board. Singapore. Bloomberg is markets asia. Rashaad further signs of stability in china. Last week, the official survey showed similar momentum. Confidence is on the rise in japan. Optimism among large manufacturers is up for the third quarter. Kongad the new china hong investment starting overseas. Investors access the 10 trillion debt market. A hugely ambitious milestone with the goc being rolled out. Hong kong, the asian inclusion for msci. Lets look at this chart, you are looking at the difference, a divergence when it comes to equal tenure bonds, the chinese tenure in the white, compared against treasuries. We are expecting a narrowing when it comes to the premium for offshore and onshore bonds. We are looking at the chinese longterm premium to normalize. It is very negative, correlated to that sevenday revoke of the pboc operation that the uses it to stabilize the currency. We had previous systems for Foreign Investors to have access for this market and there has not been that much of a pickup because of red tape. It is about popularity and how Foreign Investors will send the life about waiting into the sentiment wise about wading into the market. This is a 10 trillion market for bonds, so obviously more of a game changer. Haidi lets look at the trading day, rashaad lets look at the trading day, we have a bit of pressure on these stocks despite the enthusiasm concerning the bond connect. Equity sessions haidi enthusiasm not transmitting across the region s. Stocks in sydney and seoul treding water. Pairs its of the yen gains. Investors finding heart from the latest data. We have stocks elsewhere on the sendne, honk thing hang g down, on course for a second faday of losses. Down 1 3 of one percent. But theook at the yuan, onshore and offshore rate. Ng forfshore yuan fallion the first day. Data,of singapores pmi we have the same dollars snapping a fourday rise. It was a mixed bag when it came to pmi of southeast asia. We are going to get manufacturing pmi as the index later today. With centraln deck banks being focused on the dollar. When it enthusiasm comes to the session so far this monday. Haidi quite a bit of negativity going into this holiday. Wall street being off for that one day. First word news. Media saudie state media said the deadline has been as fun. As theari markets fell government said it would not comply. News says President Trump that spoken by phone with president shinzo abe about raising the pressure on north korea. President trump is expected to call xi jinping. Washington has become increasingly verdant about chinas need to rein in kim jongun of. She says at the summit offers a platform for nations it to air their individual interests and benefit the global economy. Kel also warned saybritish chancellor will the government is changing its view on brexit. Ministers are adopting a more favorable tone following the election. He said concerns about the upt split from europe japanese Prime Minister shinzo abe facing one of the biggest problems since he got power. His Democratic Party is expected to win its lowest number of votes ever in the capital. Ldp executives have called an emergency meeting this monday morning. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Longawaited bond connect between china and hong kong has finally gone live. It gives offshore investors the new access to the mainland 10 trillion debt market. North asia correspondent is steve engle and he is at the hong kong changes. What is it like, steve . Correspondent things are wrapping up here. Here we have the hong kong exchange, he is speaking to the local press commenting on line this bond connect is launching only north bound, not southbound. He says there is no artificial reason for not going southbound. That means mainland investors into the Hong Kong Market just yet. He says there is no timetable right now for the other direction into hong kong from china but there is no artificial reason for not having bonds today. Deputy heard from the pboc governor. He spoke addressing those issues. Bond market has big room to open up however he reiterated no timetable for the start of southbound trading. He said this new bonds connect will build the bridge between chinas bond market and the foreign Investor Community and show that china does indeed have the will to enhance hong kong as a financial hub. Foreign investors will have access to the mainland bond theet but only tapped to by foreignercent holders. Fore is a lot of concern investors have including transparent the and about the bond ratings agencies, whether there is adequate Risk Assessment by the ratings of the issue in china. Rashaad people did not know officially that this is going to come until the weekend so we dont really know how much is being traded, how many bonds are not manyght, considering the fact that not many people knew about it. I dont have the numbers yet, what i do know is two policy banks from Mainland China will be issuing bonds today and tomorrow including Agricultural Development they, a China Policy Bank and another Bank Offering foreigners the issuing bonds for potential foreign buyers today and tomorrow. This will be baby steps and then we will get a sense of this event. Strongly talked about, the relatively high yield in Mainland China seems to be in high demand. We had some other quotes coming from the Deputy Governor of the pboc, he said there are a lot of foreign issuers too that have strong interest in cny bonds in the mainland. There are a couple of different avenues to participate in. Rashaad still ahead of this hour, there is no need to worry about the trillions of outflows from china. Will be talking about the breakdown of why. India takes a huge step to tackle its informal economy. Were going to get an assessment of how it is going with moody. This is bloomberg. This is Bloomberg Markets asia. Rashaad lets have a look at the biggest headlines. Shares in australia plunging over 11 first. The reason, it has pulled out of both groups,ith saying they did not submit a binding offer. Today reporting earnings of 205 million, back in line with analyst estimates. Haidi toshiba is said to be preparing to raise money by selling the energy unit. Toshiba is still discussing whether a straight sale may be preferable. Rashaad three former senior have pleaded not guilty to charges of negligence related to the 2011 fukushima disaster. Wo been Vice President apologize for the disaster but say they do not bear criminal responsibility as they could not have foreseen it. The trial is expected to last more than a year. Haidi it is the first day of the business week in india and the new gfc regime, perhaps the most important economic reform under promise or narendra modi. Narendra modi. Er like we are talking about in brexit, they have launched this but theres going to be some growing pains. India is an economy of over 10 billion people, it is going to take a lot for it to be implemented successfully. Were expecting it to have some teething issues over the next few months but for the longterm it should be good for growth. We will not see the longterm benefit until next year. Haidi even saying as soon as next year, that is it surprisingly shortterm. What kind of benefits the d. C. . Do you see . Gst works and other economy is you see a oneoff increase in inflation. We do not expect that to be the case in india because of the gst is designed to be neutral in terms of inflation and prices. Increase andds may prices of some goods may come down. We do expect in the longterm to see some benefit if the processes are approved and in terms of Global Sentiment towards india, that is also improving. Haidi i want to talk about what it means in terms of the use of doing business. India is one of the worst ranked when it comes to doing business. Ocus has been to attract investment and get more for an more foreign interest as well. Towards thatgo goal . Andhen it comes to 2018 2019, we should see businesses coming more accustomed to the way the gst is rolling out. It should streamline some of the processes that are currently applied. Overall we should see indias Business Environment improve over the coming longterm. Should used the words into occasion in two occasions, but the terrorists would say chinas National Pastime is tax evasion. It is difficult to say because some of the Small Businesses will have to complete the applying of the gst. The Small Businesses will need to get uptodate with the infrastructure they gst is applying. Over the longterm, and should improve considering businesses comply with the new standard. Rashaad i meant india of course and you refer to the answer as india. How hard hasnt been to tolement this has it been implement this gst and are they ready . It has been the, the gst policymakers have been looking at it for the last 10 years. It is not something that happened overnight. It is a backandforth with some statese they the about how much revenue they should be taking on. It has been a long business process and now is the right time to implement it. Otherwise we could take a bit longer than assumed. Rashaad what about the ratings of the movies, they will be looking at you in due course ratings of moodys, they will be looking at you in due course. Im not a ratings analysts so i cannot answer that question but from an Economic Perspective we do expect to growth to rebound next year to 6. 8 and that is up from that we are forecasting this year. Overall, we do expect the Indian Economy to improve over the coming years. Came andrendra modi there was this enormous platform of goodwill and high expectation. Do you think he has delivered . What could be next. One of the main things investors are looking at is the changes in labor law and land law. It is hard to get approval for infrastructure purposes in india. If those reforms are delivered, we will see an increase in Investor Sentiment towards india are. Overall, the reform agenda is gaining traction. Haidi never short of thank you for being with me in sydney. Up, we will be live in singapore up next. This is bloomberg. Rashaad the swiss luxury lly isker valley is ba going to expand its footprint in china. There is much more interest than we expected from all over the world. Or november,tober we need to concentrate on the core business. The assets managed have increased by four in four years, it will be in the hands of someone who will spend more focused and love now the trend has started. How do you plan to move things forward in china, brickandmortar stores or ecommerce . Last month we launched our ecommerce platform and i wanted make sure the launch was way more above expectation. It was. It allows investors to think more about investing in the ecommerce platform. A you wants to give bally true strategic aim to turn the brand around. We do not look to be that brand of arrogance and sophistication, we must be more approachable. It is true that for two years, we saw a different appreciation and approach to the Chinese Market in the first thing was basesssive gap in pricing between Mainland China and the rest of europe. We have to reeducate and get the respect of the chinese that everything is transparent. What is your revenue targets for 2017 . We do not discuss revenues but i can guarantee you we will 50 between men and women which would bring the brand into the region of 1 million. Correspondent how do improving economic fundamentals in europe play out . It is very positive from the point of view that you see the first quarter, 28 growth of the Chinese Consumer in china. Dollar,a strong inviting the americans to shop more in europe. You see the russians coming back after a year or two of a week ruble. E weak london had been really challenged, the year before it was paris, europe has been under attack and they are looking for the future of consumption and the mindset of the people are moody and concerned about what is happening. Prime singapores minister will address a family dispute in parliament after its buildout into the public s phere. What is this all about . Haslinda the heart of this a dispute is a house, the estate of the founding father of singapore. In his will, he stipulated his house should be demolished after his death but his eldest son is accused by his siblings of trying to block that is. That move. His say it is to exploit fathers legacy for his own political gain. Pm lee says he deeply dispute he deeply regrets the and he will address Parliament Today at 11 a. M. Local time. Lees oldered with brother younger brother and saidr took to facebook and they had lost confidence in their brother and decided to singapore of lee as a result. There has been no selloff suggesting the family disagreement has threat to the country stability even though it is unprecedented. Haidi we will continue to watch that, highly unusual when it a place singapore, known for governance and transparency. We have plenty more ahead, a look at the markets. Asian markets in search of a lead. Hang seng trading well. This is bloomberg. It is 10 29 in hong kong. The latest gauge of manufacturing confirms signs of momentum, the caixin beat expectations. Relies on a smaller sample size, but echoes the official government pmi. It beat all estimates in a bloomberg survey. Kongchina bond connect has started operating, giving offshore investors access to the 10 trillion debt market. It will echo the stock connect operations. Is the latest step to integrate into the Global Financial system. Rules include allowing the pboc to access data on offshore investors. Japans largeng manufacturers improved as exports writing the longest economic expansion in a decade. The Tankan Survey found sentiment jumping with the outlook rising. Large Companies Across all rising by 6 . Iran will sign a deal on monday to develop the worlds biggest gas field in collaboration with total and cnpc. Whilewould control 50. 1 , cnpc will have 30 , and iran 19. 9 . The section of the worlds biggest gas deposit qatar shared with qatar. An unexpected problem has aborted the launch of the latest spacex mission, halted nine seconds before blast off. Spacex says there will not be another attempt today. Is 7 37 monday, tuesday in asia. Launch control has yet to reveal the cause, but the rocket and payload are in good condition. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Rishaad there we go, a busy we. Japan,kan survey out of manufacturing better than anticipated. Caixin index coming through better than anticipated also, reading over 50. Below 50 was anticipated. Looking ahead, xi jinping, russia, germany, hamburg for that g20 meeting. Nonfarm payrolls at the end of the week. Not least, 20 four hours before we get a Rate Decision in australia. Haidi i was listening to you go through that agenda for the week , not lacking factors that will move the markets. Say, the rba meeting tomorrow, the aussie dollar continues to confound policymakers, expecting Downside Pressure as you got those three rate hikes from the fed, instead of 7 when it comes to the aussie. Lets check the rest of the markets. Sophie as you pointed out, factors of plenty when driving sentiment, but looking like a tepid session with trading on the light side, asian stocks mixed after the best start to a year since 2009. Resources leading gainers, tracking the rise in oil, extending 2017s best rally, rising for an eighth straight day. 1 , perhaps5 up finding support from that Tankan Survey. In china, not much in those he despite the stronger caixin reading. We have weakness when it comes to the onshore and offshore yuan , pressure on chinese bonds, five year yields up 1. 5 basis points. Despite what we are seeing, take a look at ashares, marginally higher, set for a second day higher in the three sessions. Ke driving the advance, real estate up 3. 4 today. The board elected a new chairman who will serve as president. Shenzhen metros chairman was elected vice chairman. Macau casino stocks listed in hong kong on the back foot, tracking the most in hong kong. Drop, thisg the after june gaming revenue came in weaker than expected. Space, thatdities oil rally as i mentioned, new york crude gaining 8. 8 over the last eight days. Is commodity down trend intact despite that steep rally we saw last week. Copper has been a key driver of near and commodities, 6,000 and may not see much more upside here. Yields could bond divert investor attention away from the commodities complex, so we could be anticipating a lower down trend when it comes to commodities. Rishaad thank you very much. China hitting out after the Trump Administration sent a guided missile destroyed near a disputed island in the south china sea, the latest sign of renewed tensions between beijing and washington. Tom mackenzie has more on this. What can we say here really . Is this the end of this, well, detente between the two countries . It puts a spotlight on their personal relationship after that meeting in florida which trump said went very well, talking about the chemistry he had with president xi. That relationship now being tested by longrunning issues between the u. S. And china coming in quick succession. South china sea, north korea, taiwan, trade tariffs. There was this freedom of navigation operation that took place on sunday. The chinese accused the u. S. Of trespassing. On north korea, it seems like the white house has lost on its that on china to rein in north korea. Aose sanctions imposed on chinese bank that had ties or business dealings with north korea. And then you have the decision by the Trump Administration to sign off on this 1. 4 billion. Rms deal for taiwan the timing is what is interesting. That may the tariffs be join up on chinese steel, reports of the weekend that trump may sign off on a 20 tariff on chinese steel. We are expecting leaders of the u. S. And china to have a phone call later today and President Trump expected to speak to Prime Minister shinzo abe as well. North korea will be the top of the agenda in both of those phone calls. Haidi as we get signs that that mance may be fading, president xi jinping heading to russia, so what is the significance and how is it playing at home . Tom it is a pragmatic relationship with there is still distrust between china and russia, but they have tried to forge a close alliance politically and economically to be a counterweight to the u. S. The state media are hailing this as of great significance, the sixth time president xi jinping has visited russia since 2013. They will be signing deals worth about 10 billion including education, media, energy and focus. A beijing Company Bought a 20 stake in an oil and gas field in russia. Then there is the security question, china and russia signing a cooperation deal, also testing and drills in the baltic area that has caused some European Countries to be anxious on that come as though they will no doubt be watching. You have closer cooperation on the belt and Road Initiative and chinas eurasian economic union. Can work see if they together more closely leading up to the g20, president xi jinping in moscow for two days, then later at the g20. It will be interesting to see the body language between president xi jinping and President Trump given the frictions between these two countries on a range of issues. Rishaad thank you very much indeed. Indeed, chinas currency reserves drinking every july for the last three years. Thereer regulator said ,ere surges during this period and Goldman Sachss capital outflows have picked up again. Actually come from in your view . A lot of Chinese Companies have to make Dividend Payments, 8 billion, an average of 12 a and dollars for the first part of the year, so a substantial amount of currency that Chinese Companies need to buy. As they buy the foreign currency, it puts downward pressure on the yuan. Again,f volatility yet after a recent run coming to an end, and it is time for the yuan to slide lower. The Dividend Payment could put an end to the recent yuan bull run. Downward pressure, there are external factors, but could force the government to spend more to prop up the currency. They had a good run with reserves recently, rebuilding them above 3 trillion. It will put pressure on their own reserves. The reasons why you should not worry about money flowing out of china come you say there is optimism . Nothing to see here. This is a contrarian look. There are ongoing concerns about capital outflows. Leavingof the money china can be considered capital flight, and not all of it is going towards a dead end destination. Some of it is buying Technology Vital to growing the economy. Some of it does pay down for an debt, removing a key external liability, and some is an escape valve for the economy because there is so much liquidity, it ends up inflating asset prices. Alone some to leave, it takes some excess cash out. It is not all good, but not all outflows can be dubbed capital flight. Is there a chance that the implications of the inflows in the bond connect could help . Again, on paper you would have to say yes. There is a feeling we were here before with the stock connect with the significant anticipation ahead of the launch. Modest at best, but on paper, Foreign Investors do want to buy and hold more chinese assets. That with the msci decision, and now potentially another channel for people to bond securities, so if over time this of false and matures into a significant channel of money going to china, it would be a plank of support for the currency, but there are andty of other external domestic liabilities china has to deal with in the meantime. Haidi another one of the symbolic rather than milestones. Y mild tone thank you very much. Coming up, the third financial bridge between hong kong and the mainland. We take a look at the opportunities and risks open to the bond connect. This is bloomberg. Friday, investors can start trading chinese Corporate Bonds. This follows trading between hong kong, shanghai, and shenzhen. It is only northbound at this point. Comments coming through the we will have southbound flow set some point. Lets bring in Goldman Sachs asset management, the head of xed income. Symbolic rather than substantial . I think so. The changes are helpful at the margin. It is a continuation of regulatory and structural changes in china. It will help with flows. Theyig Global Investors, will need time to do the research on the names come to get approvals, put systems in place. He wont have flight of capital within a couple of days. We wont have flight of capital within a couple of days. The correlation between the u. S. Treasury tenure and chinese tenure and chinese 10year is at a fiveyear high. If that continues, do see an impact on global rates as a result of the pickup and chinese bonds . Sure. Risk premiums are moving, critically after the concessions with Central Banks last week. You get a correlation globally independent of inflation and growth, which is driven by risk premiums and the marginal capital flow they can get in into the market, then be priced off the global market, which is treasuries. Haidi do you continue to have a bond market that does is not leave the fed . Fed . Es not believe the influence of these Global Factors on risk premiums are wider than just the fed. Having anjust the fed impact. For the last two years, it has been more about the ecb and boj than the fed. Now that the fed is on the move and have a stated intention to continue to move, Global Markets are taking notice. Haidi do you see convergence . Know, the response to last weeks no, the response last week our way premature. We all knew the ecb would have to do something about their policy stance because they are running out of ons to buy. They have been taking the opportunity when growth is strong to start that normalization process, but our view would be that growth and inflation in europe will continue to be low and the ecb will have to continue easing, less easing that it has come a but still easing, whereas the fed will move to neutral. Rishaad on that point on europe, are they getting it wrong . Are they behind the curve . Does show a significant and the turnaround taking place, particularly for northern europe. That theyw would be are not behind the curve. If anything, they may be going to put themselves in a position where they get ahead of the curve. Be thatook would there are big structural problems in europe that will weigh on growth and there is significant downward pressure on inflation and the core inflation in europe will remain very low, and ecb will need to remain easing in its stance. It was compromise because rates are negative and there is not much more you can do their, so you had to make some change to what they buy. As ae this announcement technical step by the ecb to give themselves breathing room to hope the growth continues, but we are not confident that it will. Rishaad real yields are firmly negative, arent they . And the Financial System is in difficult situation. Government finances are compromised. The Unemployment Rate across europe is high, low in germany, but high across the rest of europe, and there is no upward pressure on core inflation. In that environment, the ecb can afford to scare any growth it is getting away. Rishaad where does that leave people who are searching for real yield, as it were . With the bond connect being switched on, that may be one opportunity down the road, but where else . Absolutely one opportunity. Speaking to sponsors in the last couple of weeks, the story is that with bond yields low and Central Banks moving from super accommodative towards neutral come the yields probably wont fall a lot from here. You are not getting a lot. You are getting negative real returns in some places, so what do you do . Placements, private infrastructure, maybe higheryielding corporate sin emerging markets. That is one reason why local market emerging has done well, money recognizing it has to go somewhere to chase relatively high real yields, so we expect continued demand. Rishaad the rba tomorrow, hence tide . I think so. Just because Central Banks are more hawkish does that mean the rba will need to. There is a lot of slack in the labor market and no Wage Inflation and the currency strengthening, so i expect them to stay neutral for quite a long time. Haidi great to have you. You can turn to your bloomberg for this and other interviews you might have missed out on and i can any securities or bloomberg functions we talk about, for bloomberg subscribers only, tv. 20 more to come. This is bloomberg. Rishaad this is Bloomberg Markets asia. I am Rishaad Salamat in hong kong. Haidi a quick check of the business flash headlines. How for but eu antitrust fine l cut profit by two point 2. 3 billion dollars. Analysts expected net income of 5. 8 billion. The fine will reduce alphabets earnings by its full amount. Google was penalized for pushing its own Shopping Services ahead of rivals. Rishaad the Australian Financial review says facebook has been granted a patent to roll out peertopeer payments. Facebook declined to comment about whether it intends to launch payments through messenger in australia. Hong kongs richest man betting on a commodity on the skids. Li kashing doubling his stake in canadian uranium explorer next to jan energy. Shares soared after the announcement of 110 million of financing from cf holdings. The deal means they can appoint one of the next board members. Here in the sydney session, Fairfax Media shares tumbling sale it polls out of processes. Management off the process calling off the process, why . Fairfax management described these proposals from the private Equity Companies as unsolicited and opportunistic, yet they said y record the companys be they required the companys be given opportunity to do Due Diligence. That ended on friday, and fairfax management has decided there were no bids worth coming so over theparties, weekend, they decided enough disruption. They needed to get on with running the company and dealing with the challenges without the distraction of trying to find out whether one of these private equity guys wants to buy the company or not. It looks like a competitive auction . Last week, it look like you had to bank committed buyers two committed buyers. Since thed increased proposal came public by 25 , so investors were cheering the prospect of a takeover premium. The deadline passed and tpg put out a statement saying it thing for the opportunity to access the books, but was unable to make a formal bid. Whileher similar saying they were not walking away, they were not in a position to make a formal bid at this time. Why fromo learn fairfax management this morning on the call, the chairman said the tpg proposal looked to be too difficult for them to buy the whole company. Both of the buyout firms were keen to own the fairfax a domain real estate listings business, rest of the assets are legacy print and radio asset struggling in a difficult advertising climate, so maybe saying that whole company was to complex for these firms to take. We saw the reaction from investors. Both proposals have collapsed, and the shares similarly, down 11 , the biggest daily drop since 2008. Haidi quite a bit of downside when it comes to that stock and a flat market. Thank you for that. That is just about it. Bloomberg markets continues. Rish will be back with angie and a few moments to look at the asian trading session as we see japan managing to keep its head above water. A loyal to gain for an eighth day. This is bloomberg. Angie i am angie lau. Rishaad i am Rishaad Salamat. To Bloomberg Markets asia. Angie asia pacific markets mixed as we go into the second half, stocks saw their best start to the year since 2009, oil climbing. Rishaad signs of stability, the private Caixin Survey topping 50, as well as expectations. Last week the official pmi survey showed similar momentum. Angie confidence and optimism up. Apan, large manufactures rishaad the name is bond. The Chinahong Kong connect living investors access to a 10 trillion debt market. Bond, bond connect that is. What we are seeing as we wrap up the first half of the year, volatility has returned. Rishaad you have a chart about that. Angie btv 701. It is back. Rishaad what are you getting mixed up with . Angie you said he would be back. Volatility is also back. It boils down to centralbank talk to, right . White line here, volatility surging along with hong kong. Selloff in the first half of the year, stocks paring gains. It was still the best start back 2009, but it did pare , so where does the second half bring us . Rishaad with that in mind, lets find out what else is going on, shall we . Ofhink it is a big no out doha. Deadline to comply with saudi demands has been extended by 40 hours. Monday was the date set for compliance with 13 demands, including cutting ties with iran and closing the al jazeera network. The qatari stock market fell as the government said it would not comply four weeks into its isolation. Kyoto news says president has spoken to Prime Minister shinzo abe, with both leaders confirming their commitment to raise pressure on north korea. Trump is expected to call president shenzhen thing i had of this weekends g20. The japanese Prime Minister faces one of the biggest tests after his ruling party was beaten and a local election in tokyo. Ld our party is projected to win its lowest number of seats ever in the capital. Koike governor is set to take almost half of the assembly. She is stepping down as leader of the fledgling party. Chancellor Angela Merkel has called on g20 members to put divisions aside and focus on a winwin. She says it offers a platform to air interest and to benefit the global economy. Warnedmerkel also onesided goals could lead to a reconcilable conflicts. Philip hammond will say the government is changing his tune on brexit. Ministers are adopting a more sober and realistic tone following the disastrous snap election. He will say concerns about an abrupt split from europe will not be dismissed since the referendum last year. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. The markets see how are tracking halfway through the day. Sophie kamaruddin standing by. A cap that start to the second half, like law items. Asian stocks are mostly lower, support shares finding in the commodities complex. Aluminum up 1 , still up 2 in shanghai. New york crude and brent adding to gains, crude up 8. 8 in the last eight days, the best rally in 2017. Take a look elsewhere, chinese large caps leading laggards despite the strong caixin pmi reading. The onshore and offshore yuan rates are falling after a slightly weaker fix from the pboc. Chinese ons headed for a fourth day of declines as the Hong Kongchina bond connect kicks off today. Soft jens head of emerging socgens head of emerging markets of that will be negligible as inflows will likely be small compared to the size of the domestic market. 1 where, the nikkei 225 up on friday,ng for 1 investors seemingly shrugging perhaps funding support from the tankan data. Ahead of the rba policy decision, sydney shares little changed. ,he aussie dollar losing. 2 and volatility for the aussie on the rises traders speculated the rba will add to that hawkish chorus wehave been have been hearing. Some Market Movers in asia today, fairfax lunging almost 11 after it into talks with potential suitors for the company. Macau leading decliners, casinos finding weakness given Revenue Growth came in lower than expected. Bluebird shares in indonesia surging lost 11 after regulators introduced right hailing rules in indonesia. Guys. Bondad the long awaited connect between china and hong kong has gone live, the third crossborder trading link that gives investors new access to the mainland. It is a huge market. Our chief north asia correspondent Stephen Engle is at the exchange. It is official . It is official. It has gone live. It is up to everyone else. You will hear drills and banging because they are deconstructing the ceremony here. Gong wass when the banged and the connect went live heading north and to china. No timetable for southbound, but it is an inevitability. They are saying the Market Conditions favor going northbound for Foreign Investors only going into china. Nearly 10 trillion bond market, is in the hands of foreigners, so lots of potential. A lot of risk as well, questions about transparency and chinas corporate on market and the issuing of ratings, whether they are h or representation of the risk. Controls are capital as well, so it is a baby step, a big baby step from the beginning of the further integration of the bond markets globally and china, the third bond market in the world. A few comments coming from dignitaries, the deputy pboc governor was the first to speak in the press conference saying this will build a bridge for Foreign Investors and show china has the will to enhance hong kong as a financial hub. Been thrown into question a little bit with the anniversary celebrations of the hong kong handover with xi jinping this weekend. The velvet glove saying hong kong is in his heart, but saying, you know what, you hong kong people need to be grateful, that basically said you should prosper from the economic rise of china rather than try to fight it. Guys. Rishaad you mention some of the politics surrounding all of this. Lets have some more detail and flesh on what we are seeing today in terms of bond connect. Activity ormuch falla because nobody knew about this on friday officially. Thats right. The Market Players were pretty much expecting it. We have been expecting the launch date this week with xi jinping in town, but it was not expected to go gangbusters from day one and the Market Reaction has already been tepid in the early going. These are just the beginning steps for this. The backdrop is the more interesting thing. As a gift to hong kong at a time when there is a lot of discontent. Wealthng has the widest gap in the region with soaring property prices and young people not feeling they are on this gravy train they did did not talkedt term, but they about the wealth effect come and they dont feel they are part of it. Xi jinping did talk about the need to build political consensus and get the hong kong people on board with this mainland landlord story come if you will. They are the boss. Angie lets see if there is market consensus. It looks muted. The connect has been live for an hour and a half. Our Global Markets editor him a oh is joining us from beijing. How are investors reacting. Emma obrien joins us from beijing. How are investors reacting . People did not know it was going to happen until sunday, and it will take time for Foreign Investors to get used to the foibles and intricacies of chinas bond market, which until now has been pretty much dominated and probably going for for quite some time by domestic investors. Unlike previous schemes accessing the market, there are not any quotas for the bond connect, which is being welcomed , and there are a multitude of plr statements today from bank saying they are on board and have been using the connect today, but it will take time for those close to build up. Rishaad tell us a little bit about Corporate Bond issuance too. As i said, it takes time. That more thants 1 trillion in fixed Income Investment over a decade period find its way to china. That is a long time frame. You have to think about places like japan that took 10 years to 7 , 8 of Foreign Investment involvement in the bond markets, so this has been a good First Step Towards inclusion in some of those wider bond indexes, which will really generate the inflows that china is probably seeking. For Global Investors looking for yield, benchmark 10 year government on deal steady at 3. 57 , and perhaps that is the story. We will leave it there. Looking ahead, lets press pause. Fairfax tumbling as it admits not having binding bids. We will be live in melbourne later this hour. Rishaad we assessed the effect of indias landmark tax overhaul. Angie this is Bloomberg Markets asia. I am angie lau. Rishaad i am Rishaad Salamat. Indias landmark goods and services tax rolled out with consumers and businesses unsure of how it will work. It is suggested there is confusion as it takes effect. Lets discuss the further. 6035, the Modi Administration says it will add to gdp. Rishaad two Percentage Points. Angie so why the disconnect. There will be a disruption. It is easy for big corporate thereestle to adjust, but is a huge enterprise, Small Medium Enterprises that will take time to get used to it. ,here is economic disruption but from a mediumterm perspective, it is a strong positive, and then you have the , andplayer which pays out that is the mediumterm story, that 2 boost. Makes things easier logistically, bound to add to gdp. Absolutely right. Focusedge corpus were on sub optimal outcomes. Multiple warehouses, all that gets consolidated over the next 35 years. Again, smes have been bullish because they rely on demonetization. The stronger good Balance Sheet companies emerge stronger. The enforcement, how with that rollout . That is why india trades at a premium to the region. That is because the Modi Government has chosen to bite the bullet and do the right things. Would bertant things this bankruptcy law. There have been a couple of test toes whether india is able enter early liquidation and you can have private equity funds by these assets. Rishaad are they able to make this work . Whose nationalry asfession is tax avoidance some satirists put it. It was easier to cheat when you had so many taxes. When you just have 45, well, you know, there is always a way around these things camino. It is tough for somebody to escape it. When i sell something to you, at the same time you the to say you bought and trail stops at you and the tax man knows you are underreporting. Rishaad your optimism here is wonderful. On that. Ded point having gone to the pain of realizezation, they that the mood has changed and it was a shock which happen to the psychology of all these tax evaders. The tax man is after you, so you better do business the right way. Rishaad that will take a generation. This is where the shock came. Even if itd costs, is taxes, it is still beneficial for a company. I want to ask you about Foreign Investment. How are you advising investors. 362, this shows foreign equity into india is increasing. A lot of this money is flowing ,nto financials, banks and such but does the current state give you confidence to continue that flow into india. It is just one of these measures that has been taken. You had a focus on affordable housing, then bankruptcy law, where the government said we will take care of the asset quality issues which were there was some of the corporate banks. That inspires confidence. ,part from portfolio investors what we have seen is Foreign Direct Investment touch record highs. Billion. O be about 25 it is now 35 billion, so that speaks for itself. Rishaad so what is next . The market takes a breather for threefour months because the vibrations are not too cheap. When people realized india is a sector story, which you get is the benefits of compounding, earnings growing between 15 and 20 . We continue to like private banks. Valued, butirly these are compounding machines, 15 auto loans. We like consumer discretionary, so autos, retailers, people who benefit from gsds. Rishaad you mentioned everything there, but what if we were talking about china. We are equity investors. Rishaad thats a selfdefeating question, sorry. The way i say this is we have gone through the connect and have seen how our perception has improved over china having gone to the shanghai connections. Companies. Ood having gone to the connect and spent time of these companies, you realize china is not all about growth. There are Good Companies focused on profitability with good roc s. Same thing happens on the bonsai. Bal all aboutt is not a buying companies wreak can make were you can make money by investing what should be done is to have some of these in english. As of the difficult to learn mandarin. They should have the documentation english. Rishaad always a pleasure. Angie dont forget about our entered active interactive tv function tv. You can dive into the securities or functions we talk about here. We invite you to become part of their conversation by sending us instant messages during the show. That is for bloomberg subscribers only. Check it out at tv. This is bloomberg. Rishaad i am Rishaad Salamat. Angie a quick check of the latest business flash headlines. Toshiba preparing to raise money by listing switzerlandbased energy unit. Steps towards an ipo and circle may be made this week. Toshiba still discussing whether a straight sale may be prospal. Advising and talks have been held with potential buyers, including Goldman Sachs and canadas onyx group. Rishaad the former chairman of to then Vice President s apologize for the fukushima disaster and said they dont bear criminal responsibility because they could not have seen what would happen. The trial is likely to last more than the year. Tepco has not been charged. Angie iran will develop the worlds biggest gas filled with total and cnpc. Accords, totalry controls 50. 1 , cnpc will have 30 , and iran 19. 9 . Section of the worlds biggest gas deposit which it shares with qatar. Rishaad a look at the session across asia, equities muted. Volatility is back. Sydney, one eye on that Rate Decision out of the rba. Is up korea, the kospi 24 so far this year, down a fraction today, but what is showing. The Hong Kong Market, year to ,ate including best far today 15 ing at what, so far, gain or thereabouts for that market. 16. 4 . Angie thats right. We are looking forward to the afternoon in tokyo, that better than expected Tankan Survey, sentiment on the rise, but our wages . Now,e nikkei 225 right fractional gains ahead of that business lunch. We will get the latest on japans reopening next. This is bloomberg. It is 11 29 a. M. In hong kong. The latest first word news. The latest geisha manufacturing in china confirms momentum, the beatte Caixin Survey expectations, 50 point 4 , up from 49. 6. The official government pmi released on june 30, climbing to 61. 7 it in june, beating all estimates. Connect kongchina bond begins operating, giving investors access to the 10 trillion debt market. Is the latest step in chinas effort to open up and integrate into the worlds Financial System. Allowing the pboc to access data on offshore investors. Has offloadedoper real estate in tokyos ginza district within two months of acquiring it. It sold the eighth floor to green oak real estate last week for 180 million. To point demand for property in tokyo, even as prices have gained by more than 50 . Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Sophie a check on the markets. Tepid trading this monday as we kickoff the second half of 2017 despite that strong caixin data out of china and tankan the survey. Themuch in 207 even as Chinahong Kong bond connect kicks off. Chinese bonds falling and weakness in the yuan after a slightly lower fixed from the pboc. Come underuld pressure as chinese firms prepared to pay out dividends to oversee shareholders. , the asxstocks up. 2 200 little change, but the aussie dollar sliding ahead of the rba policy decision on tuesday. In seoul, korea, the kospi down. 2 . And Health Care Stocks offsetting the rise and telcos. The week in what could be most controversial g20 meeting ever, safe haven gold extending in drop after losing 2 june, its first monthly loss this year. Rick spooner says rising global bond yields put pressure on gold. 10 year treasury yields are trading at 2. 32 , the highest level since midmay. Welcome back. We are kicking off the second half of the year, but notable is the yuan, another strong fixing today. It is this trend we are seeing from the pboc, speculation of intervention, this chart tells the story btv 9331, the fixing past threehere, the sessions in the past two weeks speculation the pboc did fix it above that weaker close, and china has thrown a lot at the renminbirag the higher. The size of chinas fx reserves will gradually stabilize, and currently is in ample and reasonable range. Regardless, strategist believe we will see a weaker renminbi by the end of the year. Rishaad what we have is a situation in july, analysis taking place that inevitably we get a lot of outflows. Right, what happens with the yuan is a product of the dollar. Btv 697, no matter what the news doesnt matterit about economic surprises to the downside are upside in recent months, the dollar has only headed in one direction to the downside. That begs the question, what has the pboc been doing . The currency strengthen these it be the dollar, but they tried to weaken it further. Lets see what happens in what they think is the fair value i suppose for the yuan. Angie that is dependent on that fed data flow. Rishaad or not, because the data does not seem to make any difference. Angie low inflation, right . Rishaad economic surprise difference index, no difference. Brett foley has been tracking the story all the way from melbourne. My has management called off thanks, angie well, it is pretty much a question, the fairfax management has said enough is enough, enough distraction. We need to get on with business as usual. The proposals it had received from tpg and heldman and freemen were unsolicited, opportunistic, and they came in around may. The fairfax management decided they were of a price level that Due Diligence the granted to line was, and the dead friday. It passed without either putting in a formal bid. Over the weekend, there was some lastminute talk, but fairfax confirmed it had no formal bids, and it needed to get on executing its strategy and be done with the distraction of catering to potential private equity bidders, so they are moving on. Rishaad it looked like a competitive auction. Was it . Recentlyhat we knew as as last week, both players were still keen, engaged, going over the books to see what price they might be able to formalize at. Shares have reacted drastically today as you said, dropping is biggest dailyhe fall since 2008, so investors have reacted and the market has spoken. Realwe dont know is the detail as to why the private equity bidders did not make a formal bid. If investors are worried there is no longer a takeover premium, but maybe there was something in the books which cause those private equity buyers to not be able to justify the price. Shares have fallen back under a and fairfax management is under pressure to deliver on its own strategy, itsh includes cutting off real estate business into a separate business unit. Will unlock value and provide some funding and Earnings Growth that will allow them to fund the legacy media assets, which are causing andfax trouble, newspapers radio, struggling in a difficult advertising climate. Not much confidence when you open your books and they declined to bid. Where does this leave fairfax . It is a good question. Conference call today where they said they are going to continue with their ve off domain. They plan to keep 60 of the business coast so they help the business rerates, creates value, and delivers earning growth. A lot hinges on the success of that spinoff, and they still have the problem of a difficult advertising climate. Have been through rounds and rounds of job cuts, laid off hundreds of journalists, cut costs and area area of the business. There is not too much more they can cut, so they need to find a way to grow advertising revenue in their traditional media business. Be watching. L only time will tell if they can a success and rehabilitate the legacy media assets, but it will not be that easy. Angie it remains to be seen. Thanks. Whats right, from going on in australia corporate wise to a new paul putting the japanese cabinet Approval Rating at just 38 . The survey coming as Prime Minister shinzo abes ruling party was well beaten in a local election in tokyo. Angie ldp projected to win the fewest seats in the capital with governor koike enjoying a landslide. It was a very big surprise, isabel. Yes, this was an extraordinary night for Prime Minister shinzo abe and his government, who have enjoyed so much stability over the past 4. 5 years. Now they have the lowest number of seats they have had in the tokyo assembly, and this koike who defected from shinzo abes party to lead this new party into this election has scored a massive victory. There are two main reasons. Has been skillful building an image for herself of transparency, costcutting. One of first first moves was to cut her own salary and half, which showed how serious she was. She uses social media and has built a following. Ldp has shot itself in the foot and failed to explain itself to the voters, so the voters have punish theldp for that. Rishaad what does this mean for shinzo abes government, abenomics . There is also story you are running about if it is time to change governor kuroda. Well, one result we will see from this is an end to this period of time when everybody agrees with abe. T will see a lot more disagreement from within his party, harder to push through policies on gnome us anything. Longheld mean his dream of changing the constitution will have to be put on hold to bring up his own support rates. Wille bright side, koike stay in the job is tokyo governor for the next three years, so she will not pose an immediate threat, but we will see our other strong candidates coming forward in the ldp leadership election next autumn and potentially taking over from abe. Rishaad thank you a lot for that. Angie indian businesses are coming to terms with the nations new tax structure. One retailer joins us next to discuss how his business sees the gst rollout. This is bloomberg. Rishaad i am Rishaad Salamat. Angie the business flash headlines. Eu for bet says the antitrust fine will cut profit in the Second Quarter by 2. 3 billion. Analyst expect net income of 5. 8 billion. The fine is not taxdeductible, so will reduce earnings by the full amount. It was penalized for pushing its own Shopping Services ahead of rivals. Rishaad the Australian Financial review says facebook has been granted a patent to roll out peertopeer payments in its messenger service. Afr said facebook declined to comment about whether it will launch payments through messenger and australia. Hong kongs richest man betting on a commodity on the skids, li kashing increasing his stake and shares soared after the announcement as financing from cef holdings, 50 holdings. Li and his son can exgen board of n members. The ceo of future group joins us now. The big bazaar chain of stores in india, thank you for joining us. It is a winwin in your view . I think it is a big reform. It changes everything, the way we do business in the country. It is a winwin for everyone in the long term. India, the economy was quite informal. Everything will be for my this new reform. The first days have been good, some glitches here and there, but this will be a game changer for the country. Shortterm, how is it for you rolling out the gst as it relates to your relationships with your vendors and supply chain . We have been working on this for a while. Our supply chain has been aligned. This,e been waiting for but we have a huge number of vendors. We operate in 27 states in the country. Thats been a challenge everybody has to get used to. People are getting used to it, attending seminars. We are training people, so people are getting used to it. There are challenges that a lot of people are facing. People are afraid of change, some of the people. By the time everyone comes on board, another 48 weeks. We had a guest a short while ago, asking him about this. Said the demonetization action late last year was the precursor to this and shook things up, sending a shock to the system which made the introduction of gst easier. Would you agree with him . To an extent, yes, but this is different. Except of the causes for the good of the country. In as a big change different way because people will have to learn a new way of doing business. It is natural for any human being to resist change. Way of into a new working, it will not be easy for them. Arbitrage, and now they will have to discover a new model of doing business. That takes time. Demonetization was much different. It did help to some extent in making people realize that the informal economy wont work in the longterm. Angie i have to ask you about the appetite for consumers. They are facing taxes of 22 . You have offered discounts to offset that gain. Is it sustainable . Do you think you are have to continue doing this until business comes back or normalizes . This, sharing the st, and we believe prices will come down because of the tax regime. Expect some products to come down by 5 , 10 . There will be some products cheaper. Goode whole, it will be for business. What you are saying is this is the gradual formalization of the economy, part of the demonetization, also limiting the black economy looking ahead. What should be next in your view . Think this is a lot we are dealing with, a lot of changes, new regulations, new taxation. Person put up with . We dont expect much for the next 12 to18 months. Angie before we let you go, i vant to show this chart, bt 552. India ranks at 130 at of 196 countries. Improvehink this will thanks to print minister modis reform . In the longterm, definitely, any multinational who wants to come into india looks at the economy, and that is what they will look at now. The formalization of the economy will make them understand the economy in the real sense. Numbers are very hazy, and to understand india is much more difficult. After gst,ar of data that data is something that multinationals can comprehend, understand, and decide whether to enter india. Rishaad thank you very much indeed. Futures group, a Department Store operator, bazaars as they looking atand indeed india. Just started trading a short while ago come up 38 points. Up, the house does not always win. Macau casino stocks on the slide. We will find out why, next. This is bloomberg. Angie this is Bloomberg Markets asia. I am angie lau. Rishaad i am Rishaad Salamat. Lets look at this gambling hub of macau. Casino stocks under pressure. A disappointment i suppose given the latest revenue numbers coming out. The numbers missed estimates for june. Did rise forvenue an 11th straight month. It is still recovering from the twoyear slump. It is all down to that corruption crackdown in china. Angie and certainly the slowdown in chinas economy. We have rachel chang tracking all of this for us. Why did these numbers disappoint . The numbers word lower than expectations, growth in gaming revenue rising 20 , less than 30 expected. Chalking it up to president xi jinpings visit to security inhich had the region putting macau under virtual lockdown. That contributed to lower business in macau. The takeaway away is that this is still the highest growth in 11 months. What are the main risks and concerns when it comes to gaming . It has been in recovery now for almost a year. I guess some of these numbers deceived because they gave some pretty poor comparables. Right. Thats right. The recovery is in process. There are positives about the sector, but one of the big risks that remain is the government is serious about clamping down on Money Laundering and capital outflows through gambling. They have put in facial Recognition Technology at all the atms in macau. In june, they arrested 17 people in macau suspected of proxy betting. The authorities on the policy side are very serious about enforcing regulations in macau, and that will continue to be watched by people. Watching whenou it comes to the streets estimates for the year . The estimates are still positive for the year. Gamingian is 12 for Revenue Growth, and that will be the first positive number the street expects since 2013, so in macau, the recovery is still underway. Angie rachel chang, thank you so much, live from shanghai. Rishaad right, Bloomberg Markets middle east coming up. Yousef gamal eldin standing by. We will ask what you are up to. Go on. As sneak peek. A big hello to our viewers from around the globe. We will continue our coverage in terms of the latest coming out of qatar, interesting developments now. The deadline has been extended by 48 hours from the saudiled alliance according to the Saudi Press Agency on the request of consider a kuwait to letter that was hand delivered from the qatari delegation. What is not clear is what additional sanctions could be applied if qatar does not comply with demands. Saudi has maintained their list is not negotiable. Renaissance capital will join us to weigh in on that and how that changes the investment approach to this part of the world. Thank you very much indeed. That is it for this edition of Bloomberg Markets asia. Angie thats it. Join us for Bloomberg Markets they are out there, driving recklessly, and driving up your insurance rate. This is a show of elkhart accidents. Classic cars, and the hd mirror cam. Personal Security Camera for your card