rishaad: looking at the state of the markets, in flux in this part of the world. on wall street, equities ending a winning streak, and this time we can't point the finger at the bond market. earnings are the primary culprit this time around. a major blow as it has really had some missteps taking on amazon. haidi: a pretty mixed picture going into the proper asian trading session that is underway. we are still watching the bond market. a huge week as u.s. markets came back from president's day. we had a round of treasury auctions. take a look at this chart. pretty staidlly a session. 2.9%,-year hitting about inching closer to 3%. two-year, two-month and three-month, they went up to rates we haven't seen since 2008. something of a litmus test in terms of how quickly and how disruptively these yields could rise. it is not how high the yields will go, but how quickly the bond markets will selloff, that will have implications. we will have that 30 minutes away from the open in hong kong. singapore, taiwan, malaysia coming on. let's get over to sophie. sophie: the mood has turned more optimistic. welcome back to taiwan. jumping over 2%, the biggest jump since november 2016. we are seeing some negative sentiment in singapore as well as kuala lumpur. sliding 0.2%. on the earnings docket, air asia x out of kuala lumpur do today at 6:00 p.m.. we are seeing exporters support the nikkei as well as the topix as the yen holds onto losses. arees in sydney, they treading water. up 0.3%. now we are seeing korea lead gains. that stock rising as it announced its tie up. checking on some movers in taiwan, checking on acer, which was once a global leader in laptop sales, now betting on gamers. rising over 3%. the stock was raised to outperform. credit suisse sees close to 20% growth coming from tsmc's internet of things business. we are welcoming taiwan with a bang. rishaad: right. $258 billion worth of treasury auctions slated for this week. this amongst this backdrop of surging rates, which weaken the case for stocks and shares. bloomberg mliv editor mark. tell us about the sale. it goes in tandem with quantitative tightening, doesn't it? according to many, rates on the up. mark: good morning. round one went reasonably well, a big sigh of relief that we managed to get through it without major damage to the market. bidderss -- indirect participated heavily, about 60% in that sector. that is usually a sign that central banks are buying u.s. bonds. six-month bonds is not the longest of maturity. it would have been better if they were involved in the two-year auctions, but it is a good start. people will be taking some satisfaction from the fact that at least we've seen the central banks back in there. all in all, not a bad day's work. well, can we have any idea from this as to what happens with the rest of the auctions? mark: indeed. the fact that you got through more than half of the total amount being auctioned this week was sold yesterday, the biggest chunk is out of the way. the bond market is trading reasonably happily. if you look at the 10-year yield, it is still below 2.9%. it hasn't hit the 3% level. there are more important auctions to go. it is a good start. it makes it look as though we are going to have a reasonable week. minutes from fomc janet yellen's last meeting make any difference or are we moving ahead to the testimony from the new fed chair? mark: as you say, the fact that it was yellen's last one probably means at the margin it is a slight positive for the bond market. she is unlikely to have said anything off script. probably going to stick to the idea that it is steady as you go. she is unlikely to deviate from that, which will probably be a relief to the bond market. mr. powell will be giving his first address to congress at the end of this month. he may want to set the stage for some plans of his own. he may give the first indications of where he stands as the new chair. that will be on the radar. at least the minutes are not going to cause any disruption to the markets. very unlikely they would do that. haidi: thank you so much, mark, from our mliv block team. you can follow mark and the rest of his team and their musings on the markets slug blog on the bloomberg. there's commentary and analysis from bloomberg's expert editors. let's get the first word news with paul allen. paul: unicef is repeating its league for an end to what it calls the war on children. the regional director released a blank statement saying the agency can no longer express its horror at the deaths of so many young people in syria and yemen. spoke after forces bombed damascus, killing at least 100 people, 20 of them children. >> i don't have any more words to describe the suffering these children are going through. anymore have the words to tell how deeply parents, grandparents, loved ones, are suffering the loss of innocent boys and girls. lawyer hasdon-based pleaded guilty to lying to u.s. officials pursuing alleged russian meddling in the 2016 election. alexander admitted misleading investigators. he is the fourth person to plead guilty in robert mueller's wide-ranging inquiry, which has also netted indictments of over a dozen people. u.k. prime minister theresa may is under even more pressure as hardliners in her party set out brexit demands. a letter from 62 tories challenge is a transition deal and says the u.k. must not bow to e.u. regulations. opposition leader jeremy corbyn says labour will campaign to keep the u.k. inside a customs union, saying it is necessary for trade and to prevent a hard border with ireland. officials from punjab national bank are being inquired. five bank staff and an employee have been arrested for conspiring to cheat the lender. fakeis said to have used bank guarantees to win loans. he and his family fled india before the fraud came to light last month. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm paul allen. this is bloomberg. haidi: thanks a lot. still ahead, volatility looks like it is here to stay. equity markets continue to swing. we will be speaking to a macro strategist. up,aad: the dollar on the the strongest in a week. we get a view on the greenback from patrick bennett. this is bloomberg. ♪ "bloombergck with markets," i'm rishaad salamat. haidi: and i'm haidi lun in sydney. reports from seoul say -- has stand down from the group's affiliate in japan. the board is to meet later and may discuss the status of the co-ceo. he was sentenced for bribery links to the confident of park geun-hye. shin is appealing the verdict. brothersthe singh fallen below 10%. second biggest hospital chain falling as lenders claim shares put up by the founding family as collateral. the entities related to the family previously controlled about 34% of the hospital operator. shares saw their worst day in more than 30 years on wall street. the stock plummeted after a disappointing profit forecast. wiping out close to $30 billion of market cap. onlines push to expand operations and cut prices contributed to a record low operating margin of 3.3% last quarter. rishaad: -- has more than halved its full-year loss. the oil and gas producer out with a 21% increase in revenue, but won't pay an interim dividend. also teaming up with pipeline .n., boosting lng demand in china. [indiscernible] watch the dollar. risen to the highest level in a week. u.s. treasury yields remain elevated. on track for a three-day winning streak. here's patrick bennett. he's a strategist at cibc. berick, everybody seems to negative. you are in that camp. are you changing your view on this? we are bearish, absolutely. something we are always concerned about. over the medium term, the dollar underperformed. you make a good point about treasury yields. treasury yields are picking up. that creates demand for the bond and the currency. it does provide a point for people to get in. the concern is inflation. rishaad: what about interest rates? this is key to where the bond market goes. but it a we've had all pointing toward the possibility we are going to have higher interest rates. that surely blows a hole in most people's forecasts. patrick: real yields are what we need to look at. the market saying, are wages higher, are picking up, is inflation picking up elsewhere, does the central bank have to move faster -- that is what we fear. inflation will undermine your assets. that is why we continue to view a bearish story. haidi: you spoke about this relationship between the dollar, which has come under relentless pressure, almost the credibility of the u.s. dollar coming under threat. take a look at this. i'm wondering, obviously early days -- we had the bounceback when it comes to the shorter end month,se two- three-month yields, but also the dollar recovering. is this still a relationship that makes sense? patrick: i think the relationship can't be ignored. we need to look at where the real yields are as well. we have inflation picking up in the market concerned that the federal reserve is not going to raise rates at a fast enough pace to maintain that advantage. we do agree that it does look like the dollar can have some greater strength. what we are saying to our clients is, be prepared to be a seller. sell when itdo you comes to dollar-yen? patrick: first place is the 108 level. major support.a 108.50, that is what we are saying to our clients today, and we will be continuing to push to hold the course. there will be people who say, when the dollar goes, the bearish trend is over. we say absolutely not. you need to look at both sides of the story. we have a bearish view on the dollar because the u.s. economy is not performing as strongly as other economies. we are bullish on the yen. rishaad: it is doing better, but i is it doing better than the u.s.? it used to be a problem that people looked at donald trump's implicit perhaps weah dollar policy versus -- weak dollar policy versus the recovery story in other places. patrick: that is the great a lower. the u.s. economy is not performing badly. with got tax cuts, potentially some infrastructure, but it is a relative differential which is really causing the money to move. japan, in our view, really stands out. the yen is very undervalued. we can see dollar back to near 100. rishaad: what about others? let's look at the australian dollar, your country as well, eastern australia as you like to call it, new zealand. patrick: we like australia and new zealand. they are well leveraged to what is happening in asia. we are seeing strong exports, strong imports. both of those economies do well in the currencies do well at the same time. they have very low more modest rates of inflation. the central bank doesn't have to raise rates. as we mentioned earlier about the dollar, that helps support assets. we like those. china, we still like. we continue to like the currency. we think that we are starting to see some inflation there. a modestly stronger currency helps some of that pressure. we think the currency will stay on the stronger side. haidi: you say we are not worried enough about trade tussles right now? patrick: i believe we are not showing enough concern about trade tensions. we think protectionism is underpriced in the market. it is difficult to price in the near term. greater protectionism begets inflation,es, higher and potentially a faster pace of removal of monetary accommodation. andtries will underperform currencies will outperform. we keep reminding of that and think that hasn't played out as yet. patrick, strategist at canadian imperial bank of commerce here in hong kong. we will have lots more on the market action. brent gillespie will be joining us over the next hour. this is bloomberg. ♪ picturehey pretty mixed of asian stocks. what are you watching? >> following that risk off session on tuesday, looks like wa we may be shifting gears in hong kong. as for the share gauge, we mode -- won't be seeing much. nothing major schedule. hsbc will remain in focus as john flint takes over the reins this wednesday. when it comes to what could be more noteworthy to watch, we are keeping and i for any spillover effects from the new year. watch jewelry, retailers, as we are seeing visitors flood from the mainland into hong kong. we are closely watching the casino sector. mgm china here. it posted a beat in fourth-quarter revenue. the latest stats on golden week aren't looking too shabby either. rishaad: let's get more on mgm and these gaming stocks. take us through these numbers. what is the overall interpretation? >> for mgm first quarter, the macau business, it was stellar across the board from vip as well as mass-market. those were up nearly 20% as far as activity. when we look at what they could have done, they are still looking forward to that. rishaad: tell me about that. guaranteed it would be opening by the end of the fourth quarter. it didn't. then we got it opening last week, as you said. got a sneak peak. what was it like? >> a beautifully done property. rishaad: should be, given the amount of time it was delayed. >> absolutely. there was a lot of scrambling going on. they wished they perhaps had more time to get things up and running. only 900 open out of 1400 planned. tables, very small portions opened to direct vip business. that is another ballgame. for that reason, we think ramp-up might not fully play out until later this year when they have the so-called mansion, very high-end type of facility, a room to cater these high-end gamblers. haidi: what about the other casinos? have we had key takeaways? how does that play out into the outlook? >> when you walk around macau, and we ended up going to both the peninsulas, and business was booming. we tried booking rooms at several of these resorts and they were all fully booked, for not thecertainly operators --. -- to drawtime to be a wide range of clients. haidi: it sounds like business is booming. is it sustainable on the long-term? >> when we look at the growth of macau, even from now until 2020, part of it is these new resorts. entertainment, new facilities, more hotels all draw people to macau. you also have existing properties that are really taking a refreshed viewpoint. you have sands opening up a london themed hotel. really making their product better for a different profile of clients now. you have not only that, but you have mgm opening mention in third quarter. you have a new morpheus hotel very soon. that all really compliments and story.re to macau's on top of that you have infrastructure developments. creating connectivity to china, their biggest source of videos, is essential for the growth of macau. haidi: margaret, we have to leave it there. gaming analyst margaret huang there. sunday more to come. this is bloomberg. ♪ ♪ ♪ show me the olympic winter games ♪ ♪ like i've never seen before. ♪ ♪ xfinity x1, yeah, i always know the scor♪. ♪ triple corks in 4k... lookin' so sick. ♪ ♪ stream live on every screen, every win, every trick. ♪ ♪ 2000 hours of coverage, get your mind blown. ♪ 50 olympic channels, yup, you're in the zone. ♪ ♪ and if there's something that you want to see, ♪ pick up that voice remote and just say "show me..." ♪ experience nbcuniversal's coverage of the olympic winter games like never before with xfinity. proud partner of team usa. retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. haidi: a very foggy looking hong kong there. we are counting down to the market open. china markets remain closed. taiwan and hong kong getting back into the fray this week. we are looking at a market, broadly across asia, not much of a lead from the united states. certainly lots of focus on where treasuries are going given that that was the catalyst for the selloff we had at the end of january. rishaad: absolutely. people are not really looking at that after the end of the six-day winning streak on wall street. we talked about walmart earlier. lack of economic data overall. we've got fed speakers relatively quiet. suppose, pretty much squarely on technicals and bond auctions. these unprecedented offerings at the moment making everybody concentrate on supply. how does that work? it is about sentiment, it is about the open, where we are at at the moment. haidi: check it out on the hang seng index. gaining about 0.5%. when it comes to the advance, it is being led by energy, up over 1%. sinopec and cnooc gaining ground. international saying there are exciting times ahead for sinopec given the high help -- higher oil prices. that stock is on the up today. check out what is happening in the financial space. losingining ground after over 3% on tuesday in the wake of its earnings update. we are going to see that handover as stuart gulliver ends his tenure at the lender. other areas we are looking out for, the consumer discretion segment. casino operators. check in on mgm china and other players here. mgm china posted a beat in fourth-quarter revenue. we are seeing the stock under pressure. sands china, the one bright spot. futures.ok at chinese just to get a hint of what might be ahead, we are seeing a slight pessimistic view when china comes back online from the lunar new year. haidi: thank you so much for that. let's get you the first word news with paul allen. paul: sergio marchionne has delivered his best returns among his automaker peers and has been comes in is aided -- has been compensated handsomely. he earns $12 million in base pay and bonuses last year, and collected stock valued at $36 million last march. marchionne drove fiat's ipo. $179.s. treasury has sold billion worth of securities to rebuild its cash balance, with yields rising to levels unseen since 2008. the offerings drew decent demand given the market is facing a deluge of sales. the treasury will sell five-year and seven-year maturities, with both offerings larger than last month. bitcoin's recovery continues as regulators in south korea signal they will support what they term normal crypto currency trading. having once hinted at a ban, the financial supervisory service now says it wants to see open and transparent trading. the latest rise takes bitcoin to almost double its recent intraday low on february 6. president trump has directed the justice department to ban so-called bump stocks that allow semiautomatic rifles to be fired more rapidly. the decision comes after the killing of 17 students in florida. the white house declined to r-15 or on sales of a-1 similar. 90% of americans want universal background checks. a global threat conducting attacks and support of kim jong-un's lee terry interest. fire i says the group has now attacked japan, vietnam, and the middle east after having focused on its southern neighbor for years. ofper targets a range interests. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm paul allen. this is bloomberg. investors also looking ahead to the latest fomc minutes . our next guest says that investors need to stop obsessing about volumes. homin lee, why? investors are paying a lot of attention to bond yields. that is for sure. this is aspective, little misled. it really depends on what kind of scenario that entails. , therebond yield rises will be a pretty good indication that the cycle is basically heading to its end. when you are 10 years into expansion, it is not a good time to panic about bonds. rishaad: far we in the process of effectively normalizing monetary policy, normalizing the economy without that tailwind from qe? homin: qe is helpful, but what is more important is inflation guidance. rishaad: but it is all part of normalization. homin: that is true, but how you strike the balance in your policy still matters. you can raise rates and still have higher inflation. it is about long-term inflation. that is what bond markets are focusing on. all we are trying to say is, if you are sufficiently balanced in terms of your policy guidance, then you can certainly have recovering and inflation expectations, but also higher yields and weaker currency. that is the combination they are looking for. if you have the stronger currency and rising bond yields, it is basically indication from the markets that it is too tight. you will see business margins compressing. this is why the reversal in the markets in late january was interesting. before that, you took weaker dollar to raise yield levels in the u.s. it was very interesting. we think there's pretty compelling incentive to keep the currency competitive on the u.s. side. minutes,e january fomc we don't see any impact out of this. since 2014, it is more about the protections and statements out of the quarterly meetings. the fed will have a chance to clarify their stance and how they react to the dynamic in the u.s., and we are focusing more on march meetings. maybe some parts of the statement could be fodder for market speculation. haidi: i want to throw up a quick chart that puts into context what we saw in the first tranche of these monster treasury auctions. this is 9395. the yields in some auctions rising to levels we haven't seen since 2008. this week, these auctions were seen as a bellwether for a litmus test to how quickly borrowing costs could rise. reflect thesimply market expectation for the rate hike for this year and next year. facing higher inflation, that currency should be weaker. we don't want to read too much into this. more important is the inflation expectation of the bond market. right now, the signal from that is you have higher inflation expectations, slightly higher therefore, and obsessing about the absolute level of yield is a bit misleading. ofbrazil 1980, you had rates 140,000%. does it signal a hawkish policy? no. currency itself was losing credibility. there are many dimensions here. certainly markets expecting higher rates, there's no doubt about that, but we think this is reflecting rising expectations to some extent. haidi: let me put up another chart. i think this is what you were getting at. maybe this is what you think we should be watching a little more. this is 1193 on the bloomberg. u.s. 10-year inflation, note yields, still range bound over the past five years. you get a pickup in inflation. it doesn't hurt stocks as long as you've got this flow provided by real yields. do you expect a breakout of that. we think productivity in the u.s. will be fundamentally kept. it is difficult to get better productivity out of workers when the labor market is in their favor. the only way you can change relative prices is through a recession type environment. you probablyome is see slowing down growth employment in the u.s. and productivity will stay low. despite some pickup in real rates, we don't worry about the breakout scenario. rishaad: [indiscernible] about the impact in this part of the world? homin: the real rate in the u.s. -- many asian countries still have external debt dominated by dollar, and the lower real rate in the u.s. is crucial. if the fed tries to keep these things stable or even slightly lower, then asia markets will be fine. the only market that will be impacted might be japan. rishaad: [indiscernible] that case, basically all these countries have booming trade with the other emerging markets, so also benefit from the same environment. it is a perfect situation for them. our best case is that the fed will eventually settle on a lower real rate guidance, and dollar will probably -- rishaad: let's get to japan quickly. homin: ideally the currency should be much weaker. we are very sympathetic to the program and what kuroda is doing at the boj. they are running out of assets to buy. job market is very tight. they will see some higher inflation this year. they have some political pressures from the u.s., and also a china that is willing to match its move from time to time. the likely course is you will see slightly stronger yen by the end of the year. we heard a 12-month target heading into the year. we still stick to that. japanese equities have a lot of cyclical sectors that could rally. overall, a little more middling in our opinion. we don't share some of the enthusiasm in some corners of the market. rishaad: great talking to you, homin lee. even iron ore couldn't save fortescue from a profit tumble. we will ask where it has been going wrong. ♪ rishaad: we are back. this is "bloomberg markets" in hong kong. i'm rishaad salamat. haidi: i'm haidi lun in sydney. fortescue was dwarfed by its iron ore rivals. the company saw first half crumbles -- profits tumble. rio hit three-year highs. let's go to our asian metals mining reporter, covering this earnings season. fortescue slumping on these results. why is the company struggling when we are seeing a different story with the majors? well, this is all the story of china's efforts to curb pollution. it is all about those cuts to capacity we've seen over the winter months in china. int we saw is a real shift the chinese iron ore market to favor higher quality raw materials. if you have higher quality, it helps you maximize output. comply helps steel mills with some of those mandates to cut emissions. that is boosting bhp and rio tinto. they sell a higher quality product. it is not good news for fortescue. they typically sell a product below the benchmark grade. there is a widening discount for those products. we are seeing that in the first half profit result from fortescue. it is really a story of grade, of quality, and the question is, will that trend reverse? the new ceo here, what should her priorities be? what are analysts asking her, and what are her answers on the way they go forward? >> elizabeth, she had been the chief financial officer for the past four years. she's now transitioned into the role as ceo. the key priority is going to be this issue with quality. can fortescue change its product mix? can it deliver products of a higher quality that are more appealing to those chinese steel mills? it will require them to bring on new replacement mines. she also has several other things to manage. most significantly, she's been picked to lead a project to diversify the company, to add materials that are not iron ore. the company is searching for things like copper and lithium across australia, but also in south america. she will lead the efforts to add one of those new materials to the business. thank you very much indeed for that. gains,ue ceo elizabeth we will discuss those results later on "daybreak europe." this is bloomberg. ♪ haidi: this is "bloomberg markets: asia." i'm haidi lun in sydney. rishaad: and i'm rishaad salamat in hong kong. spotify founders are following google and facebook, trying to maintain control after listings by holding shares with super voting power. the ceo and vice chairman -- [indiscernible] spotify has been valued at up to $20 billion in private trade in the recent month. haidi: sprint is selling junk bonds for the first time in three years to fund a wireless upgrade. it is selling $1 billion of unsecured junk bonds. talksllapse of merger with t-mobile last year left sprint alone in an increasingly competitive market. it lagged verizon, at&t, and t-mobile in terms of subscribers. rishaad: broadcom's ceo received compensation last year mostly consisting of shares linked to the company's performance. the return beat 90%. he would be entitled to as much as 4.5 times as many shares. -- [indiscernible] and what he may achieve from the bid for qualcomm. haidi: tournaments are starting to resemble major sporting events as thousands of fans gather to watch gamers play. that means serious opportunities for acer. the ceo spoke to bloomberg exclusively about why the growing phenomenon is good for business. >> we start with -- [indiscernible] provide notebook, desktop, display. it is notalize that the hardware that we sell. we have to provide very good, , that people are going to say "wow." example, our 21-x. here is the front page of "usa today" last year. was 9000. we got a limited edition cpu. [indiscernible] high-end to affordable. to make sure people got the full excitement and got associated with acer. >> how big is that for you? the events side of it, away from providing hardware, actually promoting this as a new emerging sport, what are you doing there? >> it is a big deal. we sponsor and we do it ourselves. biggest gaming tournament. last year, final was in beijing. paid to watch that sport. if you look at that, it was bigger than concerts. online people watch it. live streaming is more than 100 million people. about 100 million people watch it online. incredible numbers. so many people are excited about that. we have to make sure we don't miss that opportunity. this year -- sorry, last year, it countries. this year, more countries participating. sponsored teams. we sponsor schools. now it is becoming such a big ecosystem. training themers in schools, to provide them the right kind of gears. it is interesting for people my age to watch. [indiscernible] what do you do in school, just play games? they are like, no. we are like you. they write scripts. [indiscernible] i know how to play games. know how to realize, how to strategize, to win the game. >> so what is the potential, broadly, of e-sports, do you think? >> i think sky is the limit. today, e-sport is already bigger than nba in terms of total value. the only sport bigger than e-sport is soccer, the world cup , and eventually, i don't know. sky is the limit. [indiscernible] that was the acer ceo speaking to bloomberg. still coming up, discussing the bond market with brett gillespie. he says a selloff is not over just yet. rishaad: also talking to him about what happens, the next rate hike, and the thesis around that as well. also, it has been a bit of a crisis among some of these indian banks. david marsh is going to be joining us. he is analyzing the implications of india's biggest bank fraud, or at least up until now. on our way to a full market check. mixed markets across the asia-pacific. ♪ we use our phones and computers the same way these days. so why do we pay to have a phone connected when we're already paying for internet? shouldn't it all just be one thing? that's why xfinity mobile comes with your internet. you can get 5 lines of talk and text included at no extra cost. so all you pay for is data. choose by the gig or unlimited. and now, get a $200 prepaid card when you buy an iphone. it's a new kind of network designed to save you money. call, visit, or go to xfnitymobile.com. ♪ money.ing at your equities erasing some initial losses. ,ate declines on wall street the yen weakening towards 108. as the treasury sold securities to boost its cash balance, touring rates not seen since 2008. , sixts and accusations $2stioned about the billion at a national bank. >> i am haidi lun in sydney. a london-based lawyer admits to misleading the robert mueller investigation. this is "bloomberg markets: asia." ♪ >> we are seeing mostly swings and roundabouts in asia. wall street failing seven out of seven sessions. some losses for the s&p. market, this isster $260 billion tranche something of a litmus test as to how steep bar ring costs could rise. also waiting on the fomc minutes from janet yellen's final meeting, parsing wording on future increases, but let's get it over to sophie. weakness, down .2%. elsewhere, mixed. shareshigher as tech offset the weakness in the materials space. php under pressure following their results. in taiwan, the taiex returning on a firm footing. in tokyo, exporters supporting gains as the yen holding losses against a firmer dollar. .5%,ong kong adding consumer stocks leading, but can se casino operators sliding as they digest the latest results. markets, looking men to come up but the philippine peso and the indonesian rupiah bucking the regional trend. highlight the korean won, sliding for a second day, down .1%. is softness in the won reflecting reduced investor the u.s.e as well as proposing tariffs on steel and aluminum. check out the aussie dollar, down .1%, retreating from session highs amid this dollar strength, he earlier gains sparked by that stronger than forecast wage report. let's get to first word news with paul allen. >> unicef is repeating its plea calls a warhat it on children, saying the agency can no longer express the poor at the death of so many young people in syria and yemen. this after pro-assad forces bombed damascus, killing at least 120 people, many children. >> i don't have any more words to describe the suffering these children are going through. i today do not have the words anymore to tell how deeply grandparents, loved ones are again suffering the loss of innocent boys and girls. a london-based lawyer has pleaded guilty to lying to u.s. officials pursuant to russian meddling in the 2016 u.s. election. he admitted to misleading investigators about his relationship with robert gates. he is the fourth person to plead guilty in robert mueller's wide ranging inquiry, which has also netted indictments of more than a dozen people. underile, theresa may pressure as hardliners set out brexit demands. the letter challenges the transition deal after the split and says the u.k. must not bow to eu regulations. jeremy corbyn now says labor will campaign to keep the u.k. inside a customs union with the eu, saying it is necessary for trade and to prevent a hard border with ireland. say an from seoul, korea tte may quit aso the japan co-ceo. shin is appealing the prison verdict. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. haidi: thank you for that. treasuries fell amid a slate of u.s. of debt issuance. on the short end, some of the highest yields in a decade. our next guest says the bond selloff is not over yet and we are in the eye of the storm. also sang what we saw at the end of january it was an appetizer, not the main course. i want to start with this intriguing chart, 1193. our elastic guest and said don't look at whether we go to 3% or 3.5% on the 10 year yield as an absolute come a look at inflation-adjusted yields. chart, do yous expect us to break out of it? until we do, do we have the floor when it comes to valuations and is it still intact question mark -- intact? >> i expect the chart to break. part of the reason that chart has seen such a low level, 0% last year, and a couple of times before, that was the compression of the risk premium from the qe done by central banks around the world. we think the qe or tightening now coming will see that chart raked smartly, probably towards 1.5%. haidi: even if it is gradual? >> we think the fed's research is flawed. when we asked about quantitative tightening and what it will mean , everyone goes to the san francisco fed study that said they thought qe had suppressed risk premium by 90 basis points. they only looked at their qe and did not include other central banks, namely europe, japan, even u.k. and china. on top of that, they looked at the size of their balance sheet. the flow ofis purchases that moves this risk premium around, so i'll modeling back in september said flows will go from $100 billion a month purchases currently down to zero i the end of this year, and that flow will see the premium break. implicationis the if we have 3.5% for the u.s. dollar? maybe we start seeing a re-coupling when it comes to yields. >> you've probably had a number of people talking about the u.s. dollar raking down from rate differentials. what we started seeing in october is the dollar started training as a risk on currency. what happens when the world is synchronized, capital leaving the u.s. them a the ticketing with under weights in europe and japan. what we are seeing on the dixie is that has been weakening since the money left the u.s. and went to other countries. the yield differentials are more important when the economy is moving in different directions, but as growth and synchronizes, it becomes a flow story. rishaad: with what happened on the equity markets in the last few weeks and what has been going on in bond markets, inflation expectations -- we are just returning to a normal world . why are people getting their knickers in a twist? >> we put out a piece saying this is what we call a normalization. premiumszation of risk , which we thought would take us to 3.5% bond yields, and that scenario, that meant the equity market had to digest higher risk premium rates, so you get an adjustment in equities, but does not change the trend. equities are only a concern if you get a recession. , that was our view coming into this year. have moved into this year, we have had the tax package and spending package go 2% gdp when they should be tightening fiscal policy. the blowout in the deficit which will go from 3% to 5% by the end of this year, is unprecedented post-world war ii, except for a minor image --. the vietnam and korean war. genuine concern about a wages and inflation break outcome and that is were bond yields could go markedly higher. rishaad: do you have confidence in the u.s. administration and powell inaded by jay being able to deal with this? >> that is an interesting whenever wecause concerned about inflation or wages moving up to sharply in the past, the fed has been aggressive. 94 and 2000 when he stepped up 50-point rate hikes and even 75-point to rein in rates. you need an aggressive central bank to gain the confidence of the market about inflation expectations. it is not clear he will have that same confidence. he is not an economist. he is a lawyer. believe that may be going slower on rate hikes might rain the bonds in my but that would be the exact wrong policy approach. i suppose the latest minutes of the fomc will reflect anything like that, are they, because that is january? >> that is for sure. i think what we will see is that more hawkish. silencedad the dove now. with the inflation pick up over the last 3-6 months, three months annualized inflation in the u.s. at 2.87, the doves are silenced and will be quite weird i think the debate at the fed is between 3-4 hikes this year. i don't think they will nudge at their forecast to three in march necessarily, but we are forecasting four red hate hikes -- rate hikes this year and next year. haidi: it is small potatoes in terms of the equity market but if we get another tantrum, at what point do they need to take that into account? >> i think you're talking about a 20% correction in equities. dudley is a fan. he built the one at goldman sachs. they fans of the financial conditions index as well. , we had thel we saw easing in financial conditions, the rally in stocks in january, the fall in the currency in the dollar, had added 9% to the u.s. economy on a 12-month horizon. the reversal in february took back half of that, so in the context of that it was small potatoes and you would need to see 20% to talk about a contraction from the financial conditions framework. haidi: stay with us. plenty more to talk about, where dollar-yen is heading and the implications to the chinese growth story regionally and whether today's wage numbers really moved the needle for the rba in australia. also later on in the show, a $2 billion bank fraud taking the shine off india's jewel or to the stars, the latest on punjab national bank, adding pressure to a negative-looking banking sector for india state lenders. this is bloomberg. ♪ rishaad: this is "bloomberg markets: asia." i am rishaad salamat in hong kong. haidi: let's pick up on our conversation. australia, i'm told you have a contrarian view when it comes to the rba. i want to start with this chart. rba battling wage growth pretty sluggish, although today's numbers the best since 2016 may move the needle, but household leverage when it comes to the property market, mortgages, inflation, do they have any room to move, when and how? >> the most important chart is the debt servicing ratio. it is at a record low, the lowest in 15 years. in terms of stress in the household sector, the rba don't see the household sector as stressed. at 2.5e most households years ahead of repayments on average. marketrate rise hurt the , housing market? we look at the debt servicing ratio. we had 50 points of rate hikes per year for three years starting in the second half of this year, and that will move that ratio into the middle of the range it has been in for 15 years. haidi: let me bring in the broader asian growth story. we have been talking about synchronized global growth, a lot of that centered on china and the lack of a hard landing there. we got this story out from one of our bloomberg economist talking about these proxy readings that point to a slow down last year. we also had south korean exports for the first 20 days of february showing as slow down as well. if you look at that as the --aries in the gold mine coal mine, is it starting to falter a bit? >> we run a variety of models to forecast growth. we are keen on the financial conditions index. we do forecasting across other countries. inre has been a rollover some entities from the high levels we have reached, but the momentum in the now casting and from the financial conditions is positive. for china, we think it will be a beneficiary of global growth acceleration. we see them bottoming at 6.5%. if we were to look at europe, it is booming. our now casting is saying it is running 3.5%, even 4%. rishaad: talk to me about the yen and the strength of that so far. you can't put it at the doorstep of dollar weakness. what about the outlook for that boj? >> the boj is getting sensitive to the yen them up but i don't believe they will do anything until we get the low 100. the yen broke its differential rate correlation back in october 2 treasuries, and since then we have seen this waiting to the underweight currencies. start last 5% at the year, and that could easily move up to 9%. moment, the doj's policy is relatively impotent. they had yield curve control in place. they are not having to purchase many bonds to hold it there. not actually enacting a lot of qe to hold the yen here. it is not clear what they can do to turn this move around. there is some talk they do intervention, but i think it is at a lower level. we just had a deputy governor appointed -- rishaad: carry on. i have one more second. >> we just had a deputy governor appointed on the dovish side, but i think boj policy will come into play if we see treasury yields breaking towards 3.5%. that is when they will have to step up qe and have a reasonable chance of turning around this dollar-yen move. rishaad: what about the global macro fund them at 7% since december. that has probably underperformed , but overall you have done pretty well since the start of the year when most of these markets have been underwater. what is the strategic next looking like here? >> we are positioned for higher rates. we have virtually no equity exposure. we are focused on bond rates. in the macro space, it is a good outperformance relative to equities, which is not our peer group. we have had a positive three months on that fund, and our retail fund launched in july has been positive since september, which has been baked in on this view they yields were going to rise. research from july last year saying we will position for higher u.s. rates over the next 12-8 months -- 12-18 months. haidi: i think the tenure got to 2.9% -- 10 year yield at 2.9% overnight. the general messaging seems it does not matter as long it's it is gradual or predictable. is there a top, and what does it portend? >> we were thinking 3.4%, 3.5% in some ember based on that normalization of risk premium and a modest rise in wages and inflation. haidi: it's not even a strong pass through. >> that's right. once we talk about the risks, there are several we highlight. the phillips curve is not a curve, it is a hockey stick. when you go below enough come you get a sharp acceleration. if that was to happen now with the fed still 1.5% and accommodative on policy come at that is almost unprecedented. you have to go back to the 1960's to see the fed that far behind the wages story. that's when you don't have a limit and you get a big bond market selloff, and then it is up to the fed to decide whether it they will try to regain confidence by getting aggressive or hold the curve by not hiking as much. yields differently go up. if we see wages accelerating, bond yields will be going to 4% without any problem. haidi: what is the risk we are if --ely oversol oversold if inflation does not materialized question mark >> -- materialize? >> this bond selloff accelerated in september, and then in early january we had 4-5 governor say we think we should stop in september, so that is the real story him and the real risk is the wages story. haidi: good having you on. plenty more to come. this is bloomberg. ♪ rishaad: new developments in the russian investigation. a former associate of a prominent london law form admitting lying to federal authorities. judicial either has a look at what is going on and how does this leave fit into the inquiry? was a plea of an individual who had some discussions with rick gates, the deputy campaign manager for mr. trump, who has also had a guilty probably. the guilty plea is he misled investigators about his relationship with mr. gates, and essentially puts pressure on paul manafort and mr. gates. it again the shows investigators are gathering more information and are widening the circle of who they are basically bringing charges against. the investigation is continuing and they are widening it, and this has to make the trump administration somewhat nervous. haidi: who were these contacts and what was it all about? >> this is all about connections russian operatives, if you will, russians who they were talking to, and the whole inquiry is about who talked to whom win and what about, and this is what mr. manafort and mr. gates, this is what the charges against them have been about. question is how close does this come to president trump's inner new what wind in the campaign. the president maintained he did not have anything to do with it, that any meetings held with russians, the conversations did not have anything to do with matters of the campaign. that has been the contention the entire time. haidi: actively tweeting to that effect, of course. jodi schneider there in hong kong. road ahead for oil and the implications for asia-based energy companies and the impact of positioning when it comes to oil pricing, and a look at other risk factors ahead. this is bloomberg. ♪ retail. under pressure like never before. and its connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. >> it is 10:29 in hong kong, 1:29 in sydney. 179u.s. treasury has sold billion dollars worth of securities to rebuild its cash balance with the yield at 3-6 months that rising to levels not seen since 2008. the market is facing a delusional sales falling the recent suspension. treasury will sell five-year maturities and seven year maturities in the next few days. bitcoins recovery continues as regulators and south korea signaled they will support what they term in normal cryptocurrency trading. the financial supervisory surface says it once to see open and transparent trading. the latest rise takes bitcoin to almost double its recent low of 5990 two dollars on february 6. president trump directed the justice department to ban so-called bump stocks that allow semi-automatic rifle's to be fired more rapidly. the decision comes after the killing of 17 students in florida. rulingte house declined out supporting restrictions on ar 15 weapons or similar. says 97% of americans want rifle purchases to have background checks. a spy group is seen as a global threat attacking in support of kim jong-un's military. eye says the group has attacked japan, vietnam, and the middle east. they say targets are a range of industries from aerospace to automotive and health care. the fiat chrysler boss has delivered the best returns among peers and has been compensated handsomely as a result. earned $12 million in base pay and bonuses last year and collected stock valued at $36 million last march. he drove the takeover of chrysler in 2014 and oversaw the ipo of ferrari and the spinoff the following year. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. haidi: thank you for that. it is a data-light week in asia. south korean export numbers for february disappointing, a bit of a pullback when it comes to the trade front. still waiting on fomc minutes to see if we can get more color added to this idea of gradual further rate hikes. asian markets are more resilient than u.s. counterparts overnight. some nice gains getting picked up, particularly hong kong. let's get some more details from sophie watching the trading for us. sophie: decent gains in japan, the nikkei 225 higher, led by tech shares and materials. both segments adding over 1%. second day of gains, but volatility is still at the 20 level, so this might prompt caution for investors when it comes to japanese markets. we did get a preliminary reading ,f japan's pmi for february indicating exporters continue to enjoy solid global demand that has helped to drive the economy's longest expansion in decades. yendata also indicates strength is starting to bite as new orders from abroad took a push exporters to lower prices to overseas customers. unless the yen is taken down a notch by rising treasury yields, , ith it has ignored so far may prompt the japanese officials to attempt to jawbone the currency lower. i want to look at the broader market moves, focusing on equity markets. tech shares helping to offset the decline in the materials space, taiwan leading the advance, up over 2%. tuesday'sshaking off gloom, h-shares adding 1%. oil, the crude rebound slowing rent and new york crude, under pressure as comments from the u.s. deputy energy secretary saying american oil output is on track for phenomenal growth this year, which is counter to what opec says regarding the rebalancing, saying that is regaining traction. rishaad: they have been talking about that for 8-9 months. when you get to a certain point you get shale becoming the swing and all this. let's find out what is going on with the oil market now. tell me about it. with oilour forecast prices stronger, but not as strong as they were earlier this year when people thought there was a breakout of that range? froml prices have rallied $45 to $65 to $70. earnings for energy companies in 2018have risen, but in they will be diverted into earnings. refinerssee struggling. petrochemicals somewhere in between. enp will be doing well because despite the correction we are still 25% up from last year. this means profits will be up 40% to 50% in 2018 if prices hold on at current levels. rishaad: that princess nice day to the next question. is that reflected in the valuations of these companies they are? is it proving to be attractive? -- iluations i would not would say they are reasonable, but if you break down the sector, enp is still fairly valued come and refiners and petrochemicals being more expensive. bank -- are trading to two times book. enp despite the rising oil prices, investors have not taken into account that enp deserves a higher valuation compared to the sector. haidi: we have had some key strategist talking about one of that could topple his positioning when it comes to pricing for the oil market. what are some of the other key risks when it comes to the earnings outlook for the sector this year? >> shale comes back online pretty fast when oil prices go up, so that he is a risk throughout 2018. oil prices are at levels where almost 80% of shale producers are making money, so you could see more rakes coming into play. our view on enp earnings issue could take a backseat. if oil prices rally coming you could see the return of price controls in asia, like india, like china come where prices could be capped by the government. that negatively impacts refinery earnings in the region. haidi: right, and if you were to pick a subsector for this year, but would be a top one? >> i would stay with enp. i think refiners will lose a lot of money in 2018. there will be a lot of inventory losses for these companies. almost 40% of refinery earnings came from the rally in oil prices. would be my top pick, petrochemical second. rishaad: what about the mismatch between supply and demand? opec says the glut is disappearing. others say it doesn't really because of the machinations of the oil market we have been discussing. thepec says they expect market to balance in q2, but if that were to happen, oil prices would be closer to $100. oil markets are balancing, but if you look at the shale production forecasts, shale production from the u.s. alone will be higher than the demand for global oil demand. that means you would see inventories coming back online and numbers rising and that would pressure oil prices. the market is balancing, but the balancing has slowed down. rishaad: once the balancing act gets completely confused or whatever with shale as well, because of its on and off ability. $65, 80%s true, but at to 90% of shale producers are making money. to bring an incentive back as many rigs as possible. there is a lot of spare capacity to bring back more production online, and that will continue to happen if oil prices remain where they are. rishaad: thank you very much. coming up, the latest on the $2 billion fraud at punjab national bank, the implications will be discussed with credit insights. this is bloomberg. ♪ haidi: this is "bloomberg markets: asia." i am haidi lun in sydney. rishaad: i am rishaad salamat in hong kong. indian banking, officials from punjab national bank question as part of the inquiry into an alleged $2 billion fraud. the central bureau of investigations has fired staff and an employee has been arrested. fakeare said to have used thank think guarantees to obtain loans. let's get more on this and where it stands globally and get to join creditd insights senior banks analyst. this is something that has been a normal thing going on. fraud has not been something that indian bankers have found themselves to be bereft of in the past, but it has gotten better. tell us how the checks and balances in the system play into it. picture isthe bigger air the problem with the that it has -- the sector for many years is many large, well-connected borrowers have been able to take out huge loans and have not always pay them back, in part because the k anduptcy laws were wea they were willful defaulters come if you like. that is something the government has tried to tackle, but that is the bigger picture. on a smaller scale, although the numbers were large, the fraud you were referring to come i think that is problematic. in banks,pen particularly if there is somebody inside the banks working with people outside to create the documentation to carry out the fraud, but it does point to weaknesses, in particular public sector banks. it has raise calls for the privatization of the indian banks. , but itnot a panacea would be better because when you go into one of the public sector banks, it feels like walking into a bureaucracy. they are government owned and staff are paid like public servants. that problem because they are not well paid, particularly at the senior level. i guess that does make the step vulnerable to corruption, but the better staff tend to go over to the private sector or the opportunity arises. all kinds of structural issues resulting in weaknesses in the public sector banks that need to be addressed. rishaad: the finance minister will be looking at all this and trying to clamp down on fraudulent activity. that is something everyone would welcome, but you are getting to the nub of the issue. privatization may be the key looking ahead, but is there a will to do that? think that is the key issue. , the not a panacea privatization am a but private sector banks are better managed, not perfect. lenders, it'svate nonperforming loan ratio has not been so different from the state bank of india in the public sector, but the key difference is that because it is more profitable, earns higher revenues, so it's staff generate more income than public sector banks, but they are in the 40% range as opposed to the 60% private banks are operating more efficiently and doing better in terms of credit quality. . think it would help convincing the indian public and politics mission's -- and politicians is clearly a hard sale. there is strong antagonism towards privatizing state-owned enterprises that is difficult to get over. this is an opportunity, because what we have seen is the public sector banks have been losing money through bad loans and fraud and the government has to put in more capital. that is what it is doing now. it has come up with a plan of 2.1 trillion rupees to go into the banks. so there is this great risk of good money being put in and turning bad. because the recapitalization is so huge, there is that opportunity to explain to the public this is the last time and the government should not constantly drip feed capital into these banks unless there are reformed to make sure this does not happen again, otherwise the risk is significant that in a few years time there will be more public money. so that does help the case towards a move towards privatization. haidi: it all sounds a bit like china's banking sector come it doesn't it? what are some of the lessons learned into differences when you compare the two? >> one of the points that hadkes me is that india has one of the best-performing economies for a number of years, relatively strong growth by global standards come a but one of the worst banking systems. they arele argue hidden in china, but that is likely to remain so while growth is strong. the problems in india are the governance, the law being weak, defaults without many consequences, but this is changing. the bankruptcy law is drunk or and the government is taking action. we have seen the regulators getting tougher. years, whenr of they had defaults, the banks would restructure the loans and pretended they were ok, but were just differing the problems into the future. the r.b.i. has gradually tightened up to prevent this. this month we have seen another move where they are sweeping of malay -- sweeping away the various mechanisms they have. the can only do this if loans have been restructured properly and the borrowers can pay. if not, they have to become nonperforming. it is going to create big problems for the public sector banks. they need more capital injection, so we will see more capital going into these banks in the near term, so from a evaluation perspective, the equity markets are challenging. public -- private sector banks but to someer, extent priced in because they are few of them and people want to buy into an indian growth story. although calling for privatization seems to make sense from the viewpoint of improving how the banks are managed, there is a risk that if they no longer have the government behind them, they would not seen -- be seen as such strong credits. people recognize the banks are weak, but they have the government behind them. it could be good for long-term performance, but the bank has to act carefully. any suggestion it might be removing government support would make it more difficult to going for.ng i think they have to withdraw -- where the can see governor is going with this, right? you have this $33 billion bailout. he has brought out the big stick. how long will it take and how much pain will there be before , presumably, the goal is to emerge with a stronger and cleaner banking system? years, thelast few banks have been saying the worst is over and every year it gets worse. we're still seeing nonperforming loans creeping up and bad loan loss provisions hitting the banks. i think this year will be another bad one, lots of red ink. provisions should start to subside next year because we have seen the regulators getting tougher, pushing banks to recognize losses, so i think we should be seeing the worst of the problems, but it has taken a long time because of this tendency by banks to hide and defer problems. i think it will take another couple of years to work through these bad loans, so during that time it is hard to privatize these banks because their and theire is so weak valuations are so low. it will take time to get them on the right footing, but by that time the impetus towards privatization might be waning if they seem to be performing at or within the public sector. the government has to act decisively as they can while the opportunity is there. haidi: we always appreciate your insights. david marshall joining us in singapore. plenty more to come. this is bloomberg. ♪ rishaad: this is "bloomberg markets: asia." i am rishaad salamat. haidi: i am haidi lun in sydney. barcelona football club says there is not enough money in the world to buy their star player, and he will finish his career in catalonia. they are in london to face chelsea. the club president says they are on course to meet targets both on and off the pitch. the investment is with our own resources, but more important will be the naming rights for the stadium. >> are you close to naming a partner? >> we are quite close. >> you have found a partner? name.an not say the there are 2-3 companies, but our ustner will probably bring half the investment. the rest will be paid by our own economy, which is a good economy. barcelona is looking for new revenues. this year we will finish our season with revenues that are quite high. >> you had a one billion euro revenue target. >> i think we are going to be one billion before 2021, which is new for the club. that means the industry of football is growing. >> do you think the city will be involved in the funding of the stadium? >> no. owned are a private club, by a 145,000 people and don't have any funding from the city or government. it is impossible. we are capable for the new funds and all this investment, which will be roughly the highest investment ever done in the city of barcelona in our club. numbers.dig into the you have net debt less than 2% of ebitda. will you be able to sustain that? >> we have rules that say we cannot go higher than two points ebitda, and that is what we are looking for. because theorried, objective of the club is to earn money every year, of course, because we have to confess that money in players or real estate. we have to have a good team, not only in football. interviewur exclusive with the barcelona club president. let's find out what is going on in the next hour. david taking a look at the big stories of the day so far. no amount of money on earth essi. buy lo m si.leo mes >> $1 billion may be? yields andsus call, all these things, one guest to 2.7% on will go the 10 year yield. over the next 10 years -- rishaad: we have to ask why he thinks that will happen. all the stars seem to be aligned for the opposite call. -- i will this call be asking him why and what the time horizon is. at some point it does go down, but does it go up before it goes down? also, moody's in the mix. lots more to talk about in the next hour. ♪ $2 billion bout a another decent day across equity markets. taiwan. and 2.8%. and that market opens up 45 minutes from now. the big market is fixed income and what we are seeing across bond yields and treasury yields. the short end. we did get a massive auction. there was decent demand and that price was on the shored fer shortened. >> one we are talking about this 9422 and see how gold is under a lot of pressure as the yield said it dropped the most on tuesday. trade is pretty much waiting for the fed where gold goes from here. gold pretty sharp at this point in time. we are looking at gold. 9422 and you know, david, a lot of pressure on the metal at this point in time. and deeply grandparents and loved ones are suffering the loss of innocent boys and girls. theresa may is under pressure d demand a letter from torre challenges and says the u.k. must not bow. opposition leader says labour will keep the u.k. inside a customs union and prevent. and part of this inquiry in this alleged $2 billion fraud. this investigation says a staff has been arrested for conspiring to cheat the lender. and bank guarantees and he and his family fled before the fraud came to light last month. and in north korean cyber, eeing a google threat. attacked nown has vietnam and fire ice says it targets a range of industries erospace and auto. powered by more than 2,700 jourmists in more than 100 countries. >> it's all about treasuries. a deluge of u.s. debt. the u.s. treasury issued $179 billion of debt on tuesday. and hit the highest level since the financial crisis. this is what they had to say about the rising yields. >> and exactly the time and should be partnering fiscal policy. this blowout you will see in the .s. from 3% to 5% is unprecedented post-world war ii except a minor image and that is completely unprecedented. so for that reason, we now have a againin concern and that's where the bond yields could go markedly higher. >> the real yields and we have inflation looking up and our wages are higher and our wages and picking up elsewhere and move faster and that's what we fear. if we do see that, inflation will undermine the assets. that's why we continue to have a bear-style story. > let's bring in our guests. what happens when it gets to that and whether it will stay at 3. >> we have to think about the long end and shortened. and what the fed is doing and driving this concern over yields going yields 3 and-a-half and higher. i wouldn't disagree. we are going to see it when we look at the minutes. but the use of the language from the statement is going to be standed on in the minutes is going to point to further hikes. and if you listen to cleveland fed, she made that more clear in saying she thinks this year and next year would be at the similar pace to last, which was 3. 3 this year and 3 next year and that is what it is pointing to. e think we could see four rate hikes. so i don't disagree with the idea that the short end is not pacing on an aggressive fed. but we think where people should be going long treasuries. >> having said that, where should the money go to? >> people thinking three and beyond is inevitable. you have to take a pause and what should drive the long end rates a and this is the time to think about it and going back down to 2.7. the long revenue neutral rate should be driven by u.s. potentialal growth. you have a tax package and that isn't clearly that is going to move potential deproth in the long run. you are going to get an overshoot if the fed is on the move as we're expecting. think about further medium terms and the 10-year yield. we are late in the cycle and the recession is likely to come over in that time period. i heard the president speak clearly at the meetings last month in philadelphia about what the fed should do because it is go g to come and probably back to zero. people are focus on the short-term move in the next year or two. think about an undershoot when rates are cut. so that's a second macro point that long rates might be capped at these levels. if the fed is on top of their game and they are moving as inflation starts to move higher and we have four hikes for this year, then i think inflation expectations what ought to be a component in determining the long end of bond yields should be capped. if they can keep the cap on and as we expect and the fed stays adepress i have, we think we should be going long treasuries. david: we were playing a sound bite right before we came here and one of our guests pointed out something fairly unique. nd at a time when you have the unemployment or the economy at full employment, it's hard to extrapolate certainty. being he chances of it overshot? >> this is unprecedented and numbers that will get a large, 5% of g.d.p. we have to see how the fed is going to react. we should look at those minutes. and because we did get that january print since that meeting where both core and headlines on the upside, but i think our expectation is as inflation starts to gain momentum and it will be interesting to see in the minutes was there a consensus. youink it will be less than do around deproth. there are still members who want to see the evidence and given the fact that inflation has been missing so consistently on the downside. inflation in this combination of a strong cycle that is pushing the recovery and the stimulus that is in the pipeline but has president resulted in the higher growth and inflation that might manifest itself, if it would happen, that the fed would indeed react. it is a date after watching game. the presumption if it tamps out that way, the fed will react. >> we are going to get a charp up here. we have seen this basically collapse since the 1960's, do you expect this to remain negative or pick up and in a lot of ways -- >> i think we should see that there is flattening -- the term premium has gone back up. getting towards zero. more volatility. but still at a low level. and i think that is likely to still be the case. still negative capped at zero. >> 250 billion in auctions. and we are expecting more. how closely are other countries looking at this and what is the reaction? >> that is key. we had the shot across the bow from china where i think it's a question whether or not that funding that the u.s. has enjoyed over this extended period that the g.f.c. will continue. the context of this is global growth. there are opportunities and that confidence that is coming back will make it more challenging and increase the supply. what we are having -- the show is going to come later on. and consistent supply to finance these larger deficits. if growth continues to be strong globally and investment opportunities elsewhere are looking better, that will be a big challenge whether or not the u.s. our view is that we will be strong and significant demand for treasuries but in a different environment because it is a more confident world that people are happy to put their money in other places. >> you talk about growth and the u.s. dollar is in focus and linchinged it to the deficits. what is your take on that? >> i go back to growth. you are having an environment there are so many more opportunities and if we look at the e.m. space, but we don't have to stay -- look at europe and look at japan, u.s. isn't the only game in town. isn't an arisk averse environment. >> david, hang tight. chief economist. stay with us. still ahead, ratings about the outlook for india's banks after takes ion dollar fraud it. >> opec, russia, stating that they see the demrut easing at a faster pace. this is bloomberg. ♪ >> let's bring in chief economist for the asia-pacific. and i think i asked you, what central bank might be next to hike? the conversations we are reading about japan and whether or not them not buying enough bonds anymore is the same thing of them. help us understand the situation there. >> china, there are so many policy settings at the d.o.j. that can be confusing and virtually impossible for them to satisfy all of the targets they set for themselves and the quantity target and not buying as many bonds but they switched to the focus on the 10-year yield target and they have intained as the market has trying to breach it around and put into place when u.s. treasuries and deprobal rates are moving higher and haven't been able to do it. they are going to be centered on the policy they have for quite a while. david: asian central banks will have to deal with it. do you see this as a problem? >> it's all about whether it is gradual and orderly. if it is a abrupt move to 325 or higher, that is a situation where so much of the flows have been into these markets as traditionally had a difficult time. if it is more orderly or what we think is going to happen in barclays and the treasuries tap out at current levels, i think it will be ok as long as the fed is moving in line with that gradual movement. you will see moves in asia. the phillipines and other places where you will see some reaction and some move up in policy rates. >> asia seems to be ready and the weak dollar story has to deal with the strength in this part of the world. > it's a growth story. asia is the higher data when global deproth is strong. we like singapore. you heard about a very confident government talking about upgrading its outlook on growth and consistent with that view. if you look at the way the monetary settings for a flat no appreciation, we think that will be adjusted. e like playing this story. >> a confident city. thank you for your insights. dave fernandez, chief economist. make sure you turn into to our minneapolis president later today and still to come, why digital will add $1 trillion in the next three years. kakhkari, next. >> microsoft said digital prouth consists of 60% growth in asia. i talked about the power of a.i. of capital intelligence. >> digital transformation is on the agenda and we have been interested of what it means for the economy and businesses. we did a study with i.d.c. and asked more than 1,500 position makers in 15 markets in asian there are two interesting data points. 15% believe they are getting the benefit but in the next three years, 50 percent expect it to make an impact on their business. and this is encouraging. we are expecting in three years, $1.2 trillion impact on g.d.p. on data information technologies ich is massive at 0.8% increase on g.d.p. >> but that's the potential. are companies and governments on board. because some studies suggest that sole don't even know where the next technological investment should be. >> i think the c.e.o.'s are setting up for a tough problem. 60% g.d.p. will be based on digital technology. we are undering now. c.e.o. need to change on a.i. number two, reskilling the company and reskilling the ecosystem and the third one is focusing on what i call micro revolution in the way you develop products. >> how are you capital idsing? what are you doing? >> we are focusing on two things. a.i., we believe is in everybody's product and all our products have a.i. ad we just recently have made major break point and the machine reading has the capability of human beings and texts can be answered from machines and it is the spirit of a.i. where we are collaborating with the human ingenuity and what a.i. is doing. > let's get you updated on the headlines. berkshire hathaway is cutting jobs. the world herald is cutting and costs are falling. other papers are cutting back. industry being hurt. . gital deproth is 1.2 billion deal will have expanded its business and xpected to close and including two other groups. > google and facebook by holding shares. we are told a c.e.o. and the vice chairman own a bunch of stock. another class will be able to investors and has been valid up to $20 billion in private trade over the last few months. if you don't necessarily like what you see but like what you ear, catch me on bloomberg radio. bloomberg, tune in 7:00 a.m. hong kong a.m. get access to it. this is bloomberg. ♪ ♪ haslinda: 11:30 in the lion city. we are in the middle of the trading day. after opening, in the red. corp. along with other large-cap stocks. david: let's have a look at live pictures. beautiful morning in beijing -- i am sorry, the city of mumbai. 15 minutes away from the open of cash markets. the biggest drop in seven months oflowing the buildup outflows both from the fixed income and equity space. we will see what happens in that cash market opens up, 15 minutes from now. i am david ingles and hong kong. haslinda: i am haslinda amin in singapore. you are watching "bloomberg markets: asia." first word headlines with paul allen. recovery continues as regulators in south korea signal support that they term normal cryptocurrency trading. having an outright ban, they now say they want to see open and transparent trading. bitcoin almost double its latest on february 6. fortescue slumped. 42%,-half net income fell $681 million. revenue was $3.7 million. the iron or producers have a capital expenditure of $900 million. fiat chrysler boss has delivered the best returns among his automaker peers and has been compensated handsomely as a result. nearly $12 million in base pay and bonuses and stock last month. andtakeover of chrysler fiat and the spinoff the following year. president trump has directed the justice department to ban so-called bump stocks that allow semi-automatic rifle's to be riflesore wrap ugly -- to be fired more rapidly. shows and 97% of americans now want universal background checks on rifle purchases. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am paul allen. this is bloomberg. ♪ haslinda: paul, thank you so much for that. we are keeping an eye on oil prices. so many banks back to 62. i want to bring up this chart, g #btv 9580. shrinking supplies. it has been falling, impacting prices. where does it go from here? david: rebalancing, that tells me one thing. great fundamental chart. let's bring in our reporter to talk more about where we go from here. sense of the story is, rebalancing at a faster rate. when do we get there? >> according to opec or the joint committee, it will be the second or third quarter. that will be an improvement of the forecast. to -- thentinuing skeptics, the market was not rebalancing in 2016. now it is rebalancing quicker than they thought. ,he big problem or question is how about reforms? it is responding well. david: how about the need for cuts? if it were talking rebalances by june, they might not extended. ben: and we have an opec meeting in june. you may hear more talk or rhetoric prior to that, talking about an exit to the cuts. that is a question, how do they exit without shocking the market. opec seems to be sticking to the plan. and possibly extend those cuts. in what sort of way remains to be seen. .27 look at u.s. shale, 01 million barrels a day. that is higher than saudi arabia. shale haveimes when the best opportunity. haslinda: what are the big questions? also the alliance between opec and russia. they wanted to last forever, but that is not likely, is it -- they want it to last forever, but that is not likely, is it? ben: there is no expectation that would happen initially. but skeptics have been proven wrong. cuts are going through to the end of the year. they are talking about cooperation through the end of the year. thataffect the u.s. has on and the rest of the group remains a big question. , thank you so much for that, laying out the landmarks. let's bring in our bloomberg senior analyst. forecast, taking into consideration everything we were talking about? it is up from the lows of this year. going to be a big impact, like been pointed out. the oil supply from shale alone plus new supply. that alone is higher than the global oil demand. yes, the market is alan finkel, -- yes, the market is balancing. that is going to push that target back, essentially. a lot of people were hoping for that new balance, especially if you were and equity bulls. where do you think valuations are? fully priced, or are we ahead of ourselves? down, we break it being fairly attractive. refiners had a strong run last year. it is because the volatility in oil prices were going up 50%. a lot of inventory gains. about 40% of the earnings for these companies came from the value of oil prices alone. if oil prices remain flat as , earning -- earnings will collapse. emp is trading 1.2 times. they are looking much more attractive. aboutda: we talked earnings, what are key risks for the energy sector this year? >> i think oil prices, the biggest risk. it plays both ways. take apanies could u-turn. low oil prices mean high inventory losses. on the flipside, if the market continues to balance, what you could see is price controls in the asian markets like india and china. this takes off in inflation cycle in the country. that could impact to the refiners in general and petrochemicals in general. that is the biggest risk, oil 's mightoing up, emp look more under. haslinda: [no audio] we might be having a little bit of an audio issue. you look into your crystal ball, what is your top energy pick? kunal: emp, definitely. i would stay away from refiners. petrochemicals are interesting. they were having rallying oil prices, not able to pass that on to consumers. you will see the pricing power coming back to petrochemical companies in the later half of this year. david: something came up when you were mentioning inventories. this might be one for the accountants and auditors. you don't like refiners. that is for the simple reason, when you are sitting on inventory in the price goes down, you have to market that on your balance sheet -- you have to mark that on your balance sheet, right? kunal: if you look at last quarter, we are probably reporting 8.5 barrels. if it continues, that margin could come down 25% to 30%. david: we are going to bring up this chart, 9149. we are down about 5%. is this the one we are talking about? down 25%, 30% if what happens? kunal: if oil prices are lower. is that reasonable to assume, if we stayed at 60, we could be there, no problem? kunal: yes. david: any specific group of asian refiners exposed -- chinese, japanese, or other names? kunal: the biggest impact of other koreans, taiwanese. simply because the markets are deregulating. if you come to india and china, government has control over domestic pricey and can stabilize. it could impact of them on a negative basis. look at the oil market and the korean refiners, thai refiners, taiwanese refiners. david: you were here when ben and i were talking about things to look out for. is, some pointse soon, the market is rebalancing quicker than a lot of us expected, it may need to put a halt to those production cuts. is that the feeling you are getting, and what should we be watching? kunal: if you look at market balancing, yes it is happening, but on a lower space than people are expecting. oil prices would be closing at $180 a barrel compared to $50, $60 a barrel. shale obviously is the biggest risk at $60 wti oil price. shale producers in the u.s. are making money. david: this is on my terminal, your homepage for all things opec. we mentioned this drop in production from 2016. let me take my pen out and color that for the viewers. from here to about 32 million. when should i expect u.s. shale to come out of the woodwork? kunal: i think it is on the way. i don't think opec will come back into production again, bring back those production levels. that will not happen anytime soon. i think they will continue to expand. if you bring it down production 8% to 9%, prices go up 40%. there is really no incentive for them to scale back or bring russia online. david: as long as you're making money, don't stop doing what you are doing. thank you so much, talking about all things oil. what is going to happen with the banking stock, have a look at futures. still pricing in decent gains at the open up markets in about three minutes from now. a little bit of weakness popping, that the rupee took yesterday. we will bring you the market open. this is bloomberg. ♪ ♪ all together now, 3, 2, 1. we have the open in india and sophie is here with the opening numbers. not even a bottle of warm milk. in thes the opening days session. india stocks under pressure. we did see them snap in three days slide in the wednesday session. there is concern it is losing some of its shine. analysts are pointing to the weakness in the public sector banking space, especially the state bank of india, which delivered a surprise miss. we have the r.b.i. meeting minutes due today. bond traders waiting with that -- waiting for that with trepidation. they have been dumping them, dave. haslinda: the selloff in bonds, adding to the drag on the rupee, which has fallen to a three-month low. what are the prospects? rupee: you have the dropping to a three-month low, a november low. looking ahead, the level analysts are looking for is the 6418 line. it looks like it could go toward the 66 handle moving forward. with macro fundamentals not looking enticing, the widening deficit will add to the depreciation pressure for the currency. the central bank is reportedly tightening offshore debt sales to avoid defaults, should borrowing costs rise. david: the r.b.i. has their hands full. we have seen the latest lines coming out. what else are you watching? sophie: let's check in on some stocks i am watching in mumbai. reliance industries has agreed to buy a 5% stake, a place for india's entertainment and media market. second of india's largest hospital chain up for brad -- up for grabs. let's check in on indian banks. a quick check as the industry grapples with fraud. a little change when it comes to the pessimism we saw earlier this week. gauge up about 0.2%. haslinda: we are going to stay with the indian banking sector, particularly indications of fraud at the punjab national bank. let's see how they have been doing, shares up 0.9%. it has gotten a snap over a viability rating on a negative. joining us of the of phone from phone -- joining us by from mumbai, our guest. is this a problem within the indian banking sector? >> good morning. i would, to an extent, say so. there is larger fraud underlying the risk. it has been a weakness for much of the sector. the lack of strong risk controls has contributed to the sector as a whole. something of this nature to be happening at the second largest sector bank is something that is important and noteworthy. perhaps we have repercussions for the sector. factnda: do you think the that the state controls much of the banking sector has a lot to do with it? if you see how our ratings are, they are more or less at the same levels as larger banks. there is a support factor in their -- there. if you look at the viability they areyou would see rated on a standalone credit strand. thatf the factors driving is essentially our assessment of this control and management supervision, which we think is pretty weak in state-owned banks. some of that has to do with the fact there are conflicts of interests in the way the board is a structured, the influence of the government on the board. it does indicate to governance issues. which we think is the core of the problem. david: this is david in hong kong. some lines coming through here. this fraud case, speaks to what you are saying, a failure of internal controls. the bigger picture i want to ask you, it is a fairly large, second largest state-owned bank, as you mentioned. but in case this gets messy, could i be assured the government steps in. in other words, is pnb too big to fail? bigata: you see situations as this as an onion. we will get a nether level every day. my sense is that that will take some time for the facts to come out on the table. , for the your question the supportwe think is likely to be there. and in the past, the bank has provided capital. since it is the second-largest state-owned bank, it is systemically important. at this stage, we do not see any reason why it would not -- why support would not be forthcoming. david: this time yesterday you place the bank on nate -- on a ratings watch it negative, as did moody's. what does the bank need to do to make you change your mind on the situation? iswata: as a rating analyst, won't be in a position to advise the bank. negative showsh the possibility of a downgrade. to assert thele the failureaspects, of risk controls and what has been done to address those, and equally important, the , before wee impact can arrive at the extent of the rating movement on this particular issue. haslinda: indian banks seem to be in a pickle. this seems to be coming amidst bad loans. 13.5%.io at it does not seem to be in a good position. how are indian banks coming along? how they are positioning themselves as a stronger sector? saswata: clearly, i think if you look at these incentives, a setback on the somewhat has been the pnb reducing for the last three odd quarters. whole,to the sector as a a negative sector outlook on indian banks. it has to do with the balance sheet challenges we see out there and the amount of time we think it will take to address those challenges. if you are to look at the latest data from the latest quarter, 16 of the 21 state-owned banks have reported losses, indicating the pressure coupled with weak positioning continues to exert pressure on up fairly declining income pace. i do not think these challenges will go away anytime soon. the regulator is carrying on in terms of recognizing these problems which perhaps have been swept under the carpet. haslinda: thank you, saswata ratingsrector at fitch in mumbai. if you are a bloomberg up oniber, you can catch our interviews using our interactive function. that is dayb . also, send interactive messages to our team. this is bloomberg. ♪ ♪ --linda: this is mifid ii this is "bloomberg markets: asia ." say hereports from seoul has a stood down from the group's operation in japan. they are to meet later on. he was sentenced to 30 months for bribery, linked to the confidant of former president park geun-hye. he is appealing the verdict. coo had: the broadcom compensation consisting of shares linked to company performance. they linked it to index members. he would be entitled to as much as four and a half times as many shares. what he has done so far and what he may achieve from the $120 billion bid for qualcomm. david: i am looking across markets, it decent midweek session. next, bloomberg markets middle east. [no audio] ♪ alisa: i am alisa parenti in washington and you are watching bloomberg technology. president trump posted a white house ceremony for the u.s. safety medal of valor award. the awards are given each year top asserts who have exhibited exceptional courage, regardless of personal safety, in the attempt to save or protect a human life. the president has directed the justice department to ban the use of accessories it known as bump stocks. they allow semiautomatic rifle's to be fired more rapidly. the gunman who killed 17 people at a florida high school last week

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