Federal reserve. Risks,china reining in credit growth and banking topping the agenda. Survey a bloomberg makes for uncomfortable reading for the boj, saying 2 inflation is unattainable. We were talking about the asiapacific. Rishaad emerging markets back in fashion with one of the best years have her, 20 up msci emerging markets index. Lets look at the asiapacific , well, it did look like at the beginning of the month we would slip below this trend line. We didnt. Bull channel surviving the current challenges. 1988. S going back to we are getting towards the level of the financial crisis. 20 gained us far. Quite something. Haidi indeed. In terms of this yellen trade, day two of her congressional testimony, we are seeing that , butout, pretty good gains looking to end the week on a high note. 30 minutes away from the open in china and hong kong, key regulatory reforms being there. Trade, how is that yellen playing out . Sophie rising, asian bonds and gold sliding given Janet Yellens more hawkish comments, saying inflation is a twosided risk, gold down. 1 , but equities driving the momentum, driving the benchmark to the best week since march. The taiex the only outlier, down. 2 . Aussierency space, the the best g 10 performer going strength to strength above . 75. At 113. 54,ding helping the nikkei 225. The singaporean dollar losing ground despite the rebound in gdp for the Second Quarter and the drop for the won is extending. The taiwanese dollar extending its climb after extending the most in three months on thursday. Its recent strength has been a pain for exporters, so the taiex is down. Falling. 5 after its thirdquarter sales forecasts came in short of estimates, a second consecutive miss ahead of the 10th anniversary of the iphone do in the fall. Mcs biggest customer. The stock has gained 18 this year, and it did hit a record in june, so this has helped turn the founder into a billionaire at the ripe old age of 86. Rishaad thank you. Worse than growth expected, but showing expansion. Here is paul allen. Paul singapores economy rebounded in the Second Quarter as a global trade pickup help to improve the outlook. 4 according to preliminary estimates. That compares with a revised contraction of 1. 9 in the First Quarter. Stableberg survey says inflation above 2 is unattainable in japan in the foreseeable future. More than 60 of economists held view. Almost no one thought 2 would be reached within the bojs timeframe. It expects to reach the target sometime in april 2018. France and germany have signed agreements to harmonize corporate taxes imposed of the standing of the european union. Angela merkel welcomed president macri and as a key ally in giving your new purpose. She also says germany is open to a euroarea budget and explained expanded role for the investment fund. Liu xiaobo has died after a long battle against cancer. Winning the Nobel Peace Prize chinas most prominent political prisoner and infuriated beijing. He fought against oneparty rule in china since the Tiananmen Square protests in 1989. He is the first nobel nor it to laureateison nobel to die in prison since 1938. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Rishaad president xi jinping expected to attend the national were conference later today. Reigning in Financial Risks is likely to be firmly on the agenda, battling credit growth, shadow banking, and arguably some parts of the country overheating property. Our chief north asia correspondent joins us now from shanghai. I am reading a list from last year. What is different this year . This year is the work conference, because it is held every five years. These are ongoing concerns with the debt pile going up to 258 a lot ofnd we have these companies behind me and shanghai going abroad, perhaps over leveraging. We have overheating in certain cities like shanghai and beijing. The risks of shadow banking and offbalancesheet liabilities with Wealth Management products, and the Deleveraging Campaign has been kicked off i had of the Party Congress at the end of this year. Every five years you have this work conference, and this year it will be headed by xi jinping, but you can bet that his priority deleveraging and containing Financial Risks is going to be highlight on the agenda. One thing we are hearing is because of this regulatory you have, since different regulatory agencies overseen different parts of the economy, you have had riskier products inc. Introduced because of the arbitrage taking place and finding ways to navigate around regulation by the banking regularly, the securities regulator, and the insurance regulator, so there is talk and this has been bandied about for quite some time, but you get an Umbrella Organization or unit of the pboc over seeing those various regulatory bodies and having one coordinated focused risks,ntaining financial or at least that is the aim. Haidi it can be difficult to parse the significance of these fairly opaque worker conferences. Give us some context into how important this one is. Sure. This will be the fifth one. The first one was in 1997, an important year for asia and china, the handover of hong kong and the outbreak of the financial crisis. Everytarted this once five year work conference then. The groundwork for the recapitalization of the banks ahead of the listing of the state banks in the next , theyg five years in 2002 had the were conference to lay listingplans for the lifting overseas of the big banks. They also set up the banking regulator following that conference. They set of the insurance regulator, in 2007, the sovereign wealth fund, then the outbreak of the Global Financial crisis, which was the focus of the 2012 were conference, which is saw the bringing in of president xi jinping. Xi jinping firm in command, and there are risks halloween that stimulus package they unleashed seveneight years ago following the Global Financial crisis, but there is a lot of debt in this economy and they want to rein that in while they have a stable growth out in. Haidi if you want to talk about bond sheet online, take a look at the pbocs challenges. Thank you so much. Hour, ambitions versus reality, a closer look at chinas Financial Sector reform plans as the National Work on chri conference kicks off. Rishaad is the tone shifting of the fed . What we have learned from Janet Yellens testimony. Thats next. This is bloomberg. Rishaad you are back with bloomberg markets. I am Rishaad Salamat in hong kong. Haidi a quick check of the latest business flash headlines. Amazon was not the only winner has prime day drew many deal hungry shoppers to the web. Ebay saw its best sales stayed by anticipating amazons big moment and launching an advertising blitz. Using the slogan, did you check ebay . The ceo has boosted the Marketing Budget to freshen its image and change the view that it is an online rubbish sale. Facebook trying to turn its oculus rift a fee our kids into a massmarket phenomenon and is planning a cheaper vr device. Headsets it is cheap and high in rigs such as the oculus at 400. The new headset is to sell around 200. Haidi black rock pushing the corporate world on diversity and said it supported eight of nine shareholder proposals in the Second Quarter. It also voted against nominating committees for failing to address issues. Blackrock had supported only two bank out of 98 diversity proposals from 2012 through 2016. A happy place for the bulls. With some now guidance for the second half is norman chan. Quite something. The hang seng twoyear highs, the kospi at alltime highs. Taiwan multiyear highs. Youre not going to get 20 in the second half. Youre saying we will get half that. Secondhalf return will be positive, but not as strong as the first half. The first half was the perfect situation for equities, including hong kong, china, taiwan, korea. To facend half, we have the challenges. Qe is tightening in the u. S. , europe, and probably u. K. To a certain extent in china as well, gradual monetary tightening in china for the last six months. That has started to push the violations andrn less loose Monetary Policy. Rishaad of course we have cpi today out of the u. S. , key for janet yellen. What do you make of her testimony . The testimony is very very favorable. She keeps saying that she is still very confident about the u. S. Economy, and also she has not changed much since the june fomc meeting. She has sent differently is the inflation outlook, now less certain than what she has been speaking about in june or a few weeks ago. Inflation has remained quite low in the u. S. For a longer than expected time frame. She is now less certain that inflation will pick up to a high level in the future. If that is the case and she remains on the chair, i think the u. S. Fed may be more gradual and also may have lower risk of premature tightening on the Monetary Policy side, and that is favorable for the u. S. Stock market, probably not for the u. S. Dollar. Under this lower for longer inflation out look, you have loss of momentum when it comes to the u. S. Dollar index and pressure when it comes to bond yields. You are still overweight equities, but with the caveat for the second half, returns will not be nearly as spectacular. Yes, the second half return will still be driven by fundamentals, but will have more headwind first of all. Rallying fors been eight months already, since november, and the valuations are less attractive. It is still reasonable, but there are technical correction pressures. Although we have seen corrections, it has not been too sufficient. Down 2 ,index has been 3 maximum early july or june. That kind of correction is not to substantial considering we have been rising 20 since november. The technical correction threat is there, and the Monetary Policy situation is different from the first half of the end of last year, although we dont think there is high risk of substantial tightening. The Monetary Policy is turning from very loose to slightly less loose, and that would concern the market, and that would create more volatility. Haidi loose to slightly less loose, a subtlety there, norman. Rich valuations going higher and higher, what is your allocation when it comes to an alternative . Alternativeations has been rising from a low base and we plan to keep increasing that alternative waiting to 30 to 35 from 20 now. Most important, Interest Rates orain low and bonds constrained bond funds keep rising further. There is a point we want to reduce our risk and those interestrate sensitive investments. Rishaad when are they going to start unwinding the Balance Sheet, a debate going on at the moment, should they wait for shortterm Interest Rates to rise further . The point being you start selling 10 billion a month going to 50 billion a month, thats going to cause serious repercussions on the bond market , yields go up, prices go down, and an environment where we got so used to cheap money and assets which have been lifted up because of the cheap money. Equity prices are probably more affected by the fundamentals than cheap money. Rishaad im talking about the bond market and how that influences people who are levered. Normalize they Balance Sheets within the next 12 months, it still takes 45 years to normalize the whole Balance Sheets, 10 billion a month at the beginning, so in the next 12 months, were talking about 200 billion. Considering that the fed has 4. 5 trillion, that is a small scale. When it had been announced in june, the market took it quite well. I think the bond yield would be able to remain reasonably low in the next 12 years, even if they do that, in less inflation takes a unless inflation except. Inflation picks up in the u. S. And around the world, the normalization policy will be very slow, and if you have a hawkish new fed chair next year. Quickly, if you are a china bull, youre probably patting yourself on your back right now. What is your outlook . What is your outlook on china . China, we are still positive. It has gone through a lot of different changes, but the china domestic economy has been going strong, and when we look at the trade numbers announced this week, the trade numbers have been very favorable and we have seen a substantial pickup and exportstrong demand together wie stronger domestic consumption market, which is very sizable. You can look at tencent games penetration and the potential for domestic consumption and china is still going to be able to maintain a solid growth in the foreseeable future. Rishaad norman, great having you on the program as ever. Right, lets tell you what we have on the way. , talks of cuts at chinas biggest producer. We look at that stock watch, next. This is bloomberg. Rishaad here we are in hong kong, 10 minutes to the start of the trading day. This is what it looks like when it comes to the premarket auction period. Futures jumping marginally higher. We are looking at al aluminume looking at chilow. Lation china hong there is speculation this company will be deepening output cuts. As a result, alcoa and century aluminum rally. Surging as much as 2. 9 on the london metal exchange. The biggest intraday gain since october 25. It did pair that back a little bit. At the moment, another reason, citigroup analyst saying the the cuts. T im looking at coal, elon musk making comments, saying coal has no future when it comes to u. S. Energy. Enhua plans three are strained coal mines. Hey are scaling back 10 million tons of annual production from these three minds. Coming up, out of reach, taking a look at what is next whoooo. I enjoy the fresher things in life. Fresh towels. Fresh soaps. And of course, tripadvisors freshest, lowest prices. So if youre anything like me. Youll want to check tripadvisor. We now instantly compare prices from over 200 booking sites. To find you the lowest price. On the hotel you want. Go on, try something fresh. Tripadvisor. The latest reviews. The lowest prices. Rishaad 9 29 a. M. Right here in hong kong where it a glorious day here and on long as we count you down to the start of the trading day. Datae looking at singapore ,. 4 growth quarter on quarter, 1. 1 than expected, increase expected after a 1. 9 revision to the previous quarter. Testimony also being looked at closely. , andve cpi, retail sales Industrial Production data out of the united states, something food for thought. J. P. Morgan, wells fargo, on top of that the earnings season starts and we will see how choppy data translates into earnings. Welcomehats right, a shift away from watching the fed. , thee watching china National Work conference, the focuseforms reining in Financial Market , what that Balance Sheet a conundrum and how they can deal of her without creating shocks with the tantrums in the equity and bond markets in there. Lets get it over to sophie for the open. Sophie there is a massive financial conclave underway, waiting for details about what that could mean for the Deleveraging Campaign and who could lead the pboc next. Foot,stocks on the back the csi 300 falling. 1 . The yuan looking steady with a stronger fix. 2 ,ang seng gaining climbing for a fifth straight day, set for the best week in a year. Fitch on china, the Credit Agency of firm chinas a plus reading with a stable outlook as gdp looks on track to meet the target of 6. 5 , although fitch points out the tight monetary conditions could lead to slower growth, but the latest trade data this week marchrcing the economies higher and putting feel behind the rise of the aussie dollar, up. 1 , even in the face of iron and the aussie back above . 77. Chart, thehow this aussie dollar could retest the fibonacci resistance, the yellow line here on the chart, a 23. 6 retracement of the decline of 20112016. There is also a signal of bullish momentum for the aussie dollar. Newss are falling on the of a report that the head office ided by the prosecutor in south korea for Korea Aerospace industries. , the only outlier, down. 2 . Is Worlds Largest chipmaker on the decline following its thirdquarter sales miss. We do have the taiwanese dollar to blame for that in some part because it has been a pain for taiwanese exporters. Rishaad thank you very much for that. Lets get to sydney and first word news. Here is paul allen. Making stocksel headed for the best week after President Trump repeated his promise to crack down on dumping. Speaking to reporters on air force one, trump said he may impose tariffs or quotas or both. Countries including canada and china have been bracing for a u. S. Commerce report on whether steel dumping threatens u. S. National security. Theresa may has announced her brexit strategy, fueling speculation that political opposition could derail her plans. The bill will transfer eu laws on to the british statute book from march 2019. Scotland and wales are threatening to block the legislation as it does not give them sufficient powers. The u. K. Has acknowledged it will pay divorce money as it these the eu. A member of the brexit team says the government will work out a fair settlement. Sums as much as 100 billion have then mentioned, but boris goson said brussels could whistle for the money. Secretary of state tillerson has dampened speculation that his diplomacy may bear fruit. He is currently meeting with qatar, kuwait, and saudi arabia, seeking a basis for the resolution to the crisis, however, the two sides refuse to speak face to face and he expects the standoff to last quite a while. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Haidi thanks for that. Yellens about janet future at the fed continued to dominate on the second day of her testimony on capitol hill as janet yellen told senators that President Trumps growth target will be challenging. Kathleen hays is here with all the details. Nuts andrt with the bolts, inflation, the Balance Sheet. These are the two key elements that are at the core of where fed policy is and where it is heading. No matter what happens to janet yellen, she is the fed chair and leading the charge. Repeated on day two of her testimony when she said the fed is watching inflation carefully in light of the recent low readings. Rob kaplan of the dallas fed once greater evidence in the numbers that inflation is moving towards 2 before he stays on board with the fed hiking rates one more time this year. Friday morning, Consumer Prices janetne, a test of yellens inflation view, which is to say i think it will move higher. Of thisimportant aspect testimony was what she said about the Balance Sheet. Yes, it will start sometime this year and may or oil the bond roil the bond market little. You look at the chart, what do see . The yellow line is the inverted fed funds rate. It goes up, the fed funds rate goes down. Look at that white line. That is the Balance Sheet. It was 4. 5 trillion. What is that turquoise line . 10 year treasury note futures, the combination of that lower runs rate and that hire Balance Sheet. You can see broadly how it helped to fuel this rally in the u. S. Government bond market, and thats probably why janet yellen said the following about why she is careful and concerned about the Balance Sheet. Make sure that we manage this in a way that is not disruptive to Financial Markets. In part for that reason, we have tried to set out increasingly clearly and in great detail how we intend to proceed. Yes, janet yellen did say it will be hard to make Donald Trumps 3 growth target, but the main thing is she a bigledged after putting emphasis on transitory inflation, she lets you know that she is watching it. That has to be the reason why the market has rallied, not because janet ellen changed her tone. The fed chair is watching, and if you think inflation will stay we, that will have an impact on policy, and markets today. Areaad i believe you headed to tokyo to cover the boj meeting next week. What can we expect . The policy meeting and the bojish is a Monetary Policy report to give us their view of the economy and inflation. Even though no policy change is expected, will they take a look at that 2 inflation target team met by april 2018 and the change it and push it further out into the future . See why peopleou are asking that question. The 2 target is the green line. Anywherehe measures is close to 2 and not rising rapidly. The boj is fighting inflation expect haitians. Japan went through 20 years of deflation, had little inflation, what you going to see now . Inflation breakeven, that line the bottom is inflation breakeven, a market measure of where inflation is expected to go. The u. K. , the u. S. , europe, and the boj is in the basement. The last time i was in tokyo, i spoke with economists, many japanese households like having very low inflation. That is another thing the boj is fighting. Rishaad boj also battling economists expectations because they are not exactly lets say optimistic about what the endgame is. A lot of people are questioning that and i will be talking about that big picture. Recent bloomberg survey, 60 of economists we surveyed said the boj target is not obtainable and they expect the boj will not think about tightening until after governor kuroda leaves office. He may be reappointed by Prime Minister abe. When the boj does titan, they will raise that 10 year yield target, so a lot of interesting questions. To beof policy questions looked at end up with next week in tokyo. So much fornk you that, kathleen hays. Have a safe flight. The National Financial were Conference Getting Underway in beijing. What is the goal . We discussed that with bank of America Merrill lynch is helen child. This is bloomberg. Rishaad you are back with bloomberg markets. I am Rishaad Salamat in hong kong. Haidi a quick check of the latest business flash headlines. Giant has soldt its stake in sydneys only casino. Says it has been selling off shares since july and has ceased to hold any interest in star entertainment. Rishaad pimco reporting its biggest quarterly increase in assets since bill gross left. Second biggest u. S. Fixed income manager jumping to 1. 61 trillion, assets at 2 trillion in the First Quarter before concerns about rising Interest Rates led to some withdrawals. Hong kongs reputation as say financial leader damage by rising market misconduct. To Insider Trading and market manipulation have doubled since 2011. The soc says the recent sudden plunge in at least a dozen stocks highlights that problem. Chinas leaders are gathering in beijing to kick off the two day national were conference, a meeting that happens every five years and is designed to improve the countrys gigantic and complex financial system. So what are we expecting out of this meeting. W. Ts bring in helen cho i was reading the laundry list of things they have to deal with. A conferencee of last year that seemed to be the exact same problems. What are they and do they have the appetite to address them . This is something different. The National Financial work conference usually takes place at the beginning of each year and takes place every five years, so the fact it has 10 has been postponed, it really indicates there was no consensus. Rishaad president she asian thing one eye on the national congress, wont he . How much of that will frame what is discussed . How much will politics play a part of this work conference . I would say given the upcoming Party Congress in november, i would say this one more for Financial Experts because they understand the urgency of solving the problems in terms of addressing the problems in the areas of regulating Wealth Management products, so they understand this is important. Delay it until after the cdc, they will probably miss the timing of doing the right thing at the right time. Rishaad what we have is a story that one thing that will happen is there are many different regulators in china and the pboc will take more and more regulation, will that happen, and is it a good idea . I would not say that is going to be the roadmap yet given that the conference is being held today in beijing today and tomorrow, but there are talks of a super central bank so that the pboc will be in charge of cord and aiding the Regulatory Framework of managing the entity. If that is the case, it might not necessarily be a bad thing given that we will have better coordination as the central bank has a bigger macro picture. Likely to get progress on structural reform ahead of the 19th Party Congress or do we just check back afterwards . Financial say regulatory changes, this is probably that time to make announcement on reforms. We dont have to wait until the end of this year for the announcement. However, for other types of reforms, we would be better off waiting until the end of this year. Regarding equity reforms, services sack her, deregulation, opening up, etc. Haidi if you go by the logic key thinglity is the this year for the Party Congress ones power has been consolidated, does it reason that we will see more economic instability next year, at least volatility . That is a good question. The Investment Society has been betting on the fact that before the 19th Party Congress that policy makers will try their best to maintain the growth stability and Financial Stability in the economy. However, going into 2018, there has not been enough debate over this and people were wondering whether since power is consolidated we can do what ever. Be the is that will not case because policymakers still have a good continuity within the party and they also care for financiality and system sustainability, so they were not let go by the end of this year. Next year with less worries about the political front they can launch some of the more important and deep, impactful kind of reforms given they are less concerned about the power consolidation. Rishaad lets move to the macro side. We get the gdp number monday. , 1. 1 slow slight down from the First Quarter, but what will it tell us . Is the engine of growth in china moving and shifting to where they wanted to be, which is Service Orientation . In terms of the secondquarter gdp growth, we are expecting a slight stunning sixfrom a point 9 in the First Quarter to us slowdown of 6. 7 or so in the Second Quarter, probably does not mean much from a headline perspective, but we have to look at the structure of where the growth contribution has been made. I would expect the real estate sector is still making more contributions than we expected at the end of last year given that despite property tightening, the policy has not slowed down that much and property sales. Exports will probably make more contributions given the number you saw yesterday, still pretty strong. Rishaad it remains export led, but it takes time to transition to a Service Oriented economy. How far are they down that line and what happens at the go up the value chain . They are already moving into that. When weast five years, see rebalancing towards domestic demand away from manufacturing towards consumption, away from investment, you probably see more of that as a result of investment or external slow down instead of consumption , solerating that much starting from q1, you already see some of that which has strengthened, and exports were doing great, so all the engines seem to have performed a bit better. In terms of what outperformed others, it is more about the investment and exports, so given the recent financial tightening in china in the near future we are more likely to see a slowdown. Rishaad thank you for coming in. Pleasure to see your daughter as well. Coming up, not so fast. Maybe to slow out of the blocks when it comes to being online. This is bloomberg. Right, when it comes to ecommerce, fast retailing may have been slow on the uptake. Posting lower than expected earnings and a share tumble, it looks like the Company Needs to shift its focus. Thats what our bloomberg gadfly columnist has been recommending. What is going on . How can you tell fast retailing spent too much time and too much money on brickandmortar . Each news story they build, the salesperson square foot are going down. More and more stores might be bringing you topline, but each is diminishing returns each way, so as the world is going more online, they have only 6 online. In the japanese stores, they dont break out globally, and that needs to be much higher. The company saying they do have a plan. Is the plan likely to work . It is an question. This is a billionaire who built this company into the Third Largest retailer, apparel retailer, in the world, so it is good they have acknowledged what they need to do, but they have been talking about this for at least a few years. They have this interview, saying we have been thinking about this and planning this for a few years, and now we are starting to implement, but i mentioned that governments can do fiveyear plans, but retailers need to keep going every minute of every day, responding to how consumers are shopping. You cant plan for five years now to say what will happen and what my stores will look like. Rishaad very quickly, 20 seconds. The lesson for Japanese Company and investors. The lesson is even though aroundountries have been forever, they cannot rest on the fact that their shareholders are founders. They need to keep moving with the times. Rishaad a lesson for us all really. Over janettaking yellens testimony and a former Central Bank Governor who work closely with janet yellen and ben bernanke. He is with us in a few minutes. This is bloomberg. From our studios in new york city, this is charlie rose. William good evening. Charlie is away. I am william cohan, a special correspondent from vanity fair. We begin tonight with charles blow, a bestselling author, and oped columnist from the new york times. His columns have grown increasingly critical of the trump administration. Many see him as one of the leaders of what can loosely be called the resistance. I am pleased to welcome charles blow back to this table. Welcome, charles. Great to have you here. My temptation would be to start with curre ent