Ticking. The u. K. Must make its position clear. Yvonne guilty of corruption, the brazil inquiry. We have world coverage on daybreak asia, we are live in brazil to discuss the fallout from the conviction of former president lula on corruption charges. Betty stateside it is all about Janet Yellens testimony. We will have full reaction within the next few hours. This is daybreak asia, live in new york. It is just after 7 00 p. M. Yvonne it is just after 7 00 a. M. Here in hong kong. One and done for Janet Yellens testimony to congress. The focus has been on the fed inflation outlook. It was uncertain according to her. Someone, thete janet yellen market knows that she is back. According to how investors are interpreting this. Betty they sold some divisions. They will still continue on this rate hike path, maybe it will be pulled back just a little bit. There are others that doubt we will have a rate hike at all for the rest of 2017. Were leaningers more toward the latter part. Take a look at my bloomberg and the 10 year yield. You can see this precipitous drop later in the session. Janetn reaction to what yellen said in her testimony. That fall in the yield continue through the rest of the treasury session. We will see if she roles that back tomorrow when she testifies in front of the senate. Certainly bond traders were feeling dovish today. After the symphony of centralbank talks we had, it did take a dovish turn for the markets. The green light when it came to equities and bond markets. , these arethe dollar playing out in the asiapacific. Heavy futures on the up in the region. New zealand kicking things off positively on them nzx 50. Up about 0. 3 for the benchmark. 7250 for the kiwi. Up about 1 5 of 1 . Ahead of the china trade numbers out, 0. 5 for those futures. 7677 for the aussie. Drop afteraw the 1 u. S. Crude supply dropped last week area there were some gains on opecs first again for 2017. About seeing crude down 0. 3 . Japan, we saw a strike on the yen, below 113, amid the drop. Now, 113. 32. Also falling after the boj bought more bonds along the three to five your part of the curve. It is the second time in less than a week. We have the bank of korea and bank of malaysia centralbank decisions this morning. Betty lets get the first word news with courtney collins. First up, the chief e. U. Brexit negotiator has warned the u. K. A second time in a week, demanding london make its position there. Knowsaid that you needs to the e. U. Needs to focus. The e. U. Still does not know britains redline, and where they make compromise. Least e. U. Nine positions so far. The impositions are clear. We now need to know the u. K. Positions on each of these issues to make progress. The idea the government is blundering along is horrifying. Clearly there are major divisions at the top of the government. That takes me back to the top of the proposition. It has been pursued in such a chaotic way. Say the boj will raise its growth forecast for fiscal 20172018 by as much as 0. 2 . Is based on recovery and Consumer Spending and the rise of Public Investment in corporate spending. The boj has seen 1. 6 growth in 2017 and 1. 3 the following year. The nikkei says the banks may cut their inflation forecast for this year and the next. Policymakers followthrough to reduce offbalancesheet borrowing. Growth and on Balance Sheet borrowing beat analyst expectations. Worth 227n were billion. The former brazilian president d guilty of been corruption and Money Laundering for his part in that sweeping scandal. Lula remains one of the most popular politicians in brazil and was seen as a front runner. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am courtney collins. This is bloomberg. Janet yellen telling congress she sees an economy that is Strong Enough to push inflation higher, Balance Sheet that will start shrinking sometime this year. Kathleen hays here with more. The fed hike in june, yellen stress to the transitory nature of weaker inflation. But she changed her tone a little bit. Kathleen a little bit. What she did was acknowledge the uncertainty around the inflation outlook. She mentioned the transitory factors like the new mobile phone prices and drug prices. Put them in a broader array that the fed is watching, bottom line is tighter later market labor market will push prices. She said it is to early. Lets take a look at the bloomberg. You can see a redline that the picks the feds 2 inflation target. That is where the fed wants inflation to go. You can see turquoise line that includes everything. It is above 2 , now down to 1. 7 . The white line at 1. 4 . They are clearly headed in the wrong direction. Have a bitrket did of a rally. We were speaking earlier with the chief economist and he said, yes. The fed talk of tightening in an inflation downturn may be one reason bond guys like this. It blows me away. They have been tightening since early 2015 when they started hinting they would do it and push the market to do their job for them. We have now had Interest Rates come from zero to above 1 . That is a substantial increased. Could takef we another look at a chart from our bloomberg bond team, you can see the odds of rate hikes in september or december continue to ease lower. Septemberility of a hike is the white line. That is 13 . Not above 50 anymore. One thing people took is a more dovish signal from janet yellen was her saying the initial rate of the funds rate may be lower than the fed thought, which would signal less rate hikes overall down the road than people have been looking for. The question on the Balance Sheet, we did not get a clear timeline when that when running off that would start running off. John bullard, president of st. Louis said in the last month, it makes more sense to do that when there is a meeting. That would signal september. What did janet yellen say . She sees the Balance Sheet shrinking soon. It is going to be this year. It is contingent upon the economy performing as the fed anticipate. I assume that means stronger jobs and inflation picking up. If subpar inflation does not go away, could this throw the fed off track on their plans to start the Balance Sheet reduction this year . I think the fed would say, no it wont. Steps. Make small if we are waiting for inflation to turn around, we could at least get normalization on the Balance Sheet underway. Yvonne stick around, we will get more from you after this short break. We have Janet Yellens testimony. How asian markets are seeing the fed the strategy. This is bloomberg. Up next, Julia Coronado joining us as well on the shift in yellens tone. ,onne this is daybreak asia i am yvonne man in hong kong. Betty i am betty liu in new york. Lets break down Janet Yellens testimony with Julia Coronado. Hays stayed with us. First and obvious question, what did you think about the testimony . Im agree that she was more dovish, leaving the door open for a softer interpretation of the inflation trends. Betty soft enough we will not see a rate hike this year . Julia i do not think we will see a rate hike in september. We can wait and see whether the inflation turns higher. Kathleen lets get to the Balance Sheet. I raised the possibility, people worry wondering if the fed will normalize this year. I have a chart for you. You can follow along at home. This overlays the portfolio. Two big part of the mortgagebacked securities, 1. 8 trillion. And the treasuries, another 2. 3 million. Security gets you up to 4. 5 million. Am i right in saying the fed will take this, no matter what happens in the next six months . We will at least get this process underway . Julia it does seem to be on autopilot, not independent, as the rate hike seem to be. A complex policy is such a heavy lift that once you have all your ducks in a row, lets keep in mind those ducks are about the change, lets go along with it. Kathleen jamie dimon expressed concern this is such a big risk. There is so much uncertainty, anything could happen. Or do you take the feds view . Everything will be slowing gradual, relax. Julia i put myself somewhere in between. I do not put so much faith in markets that everything is already reacted to. It is uncertain, we have never been here before. We do not know how markets will take it or how it will interact with other things im a what the ecb, the boj and data are doing. We could see more tightening as more markets absorb the information. They have been as careful as they possibly can about laying out every detail and putting it on a very gradual trajectory. It gives them plenty of time, if the situation changes, to change course. Yvonne there were that stability and asset issues over the past few weeks. Looking at active price evaluations, we try not to opine on whether or not they are correct. Do you read that as a pullback . How much do you think financial conditions are a factor in the fed forecast . Julia the booming stock market was a factor in their deciding to accelerate the pace of rate hikes. Along with good data. Assetey have opined on prices, of late. The fact she pulled back ever so slightly suggest these inflation misses are weighing heavily on their minds, then they were admitting at the june press conference. Kathleen why do you think inflation is not rising . Could it be corrected by the Federal Reserve . Julia i am not sure about that, we are all confused about the driver of inflation. It is a global phenomenon. You were just speaking of the boj raising their growth target and lowering their inflation projection. I do not think it is just transitory factors, it is not all about cell phone price wars. Betty you are right. It is japan, australia, europe. Why . Julia some of it is good inflation in the sense, why do we have a price war . Progress,chnological that they can offer unlimited data and that is more feasible. Some of it is technological progress. Some of it is global forces, like the label labor market. It is not just about what is happening in your country, what is happening in other countries. Betty is a demographic . Julia some of it is. And that is also a global phenomenon. Demographically, we are losing the growth drivers, and that is a driver of inflation. And competition across countries, and throw on to technological progress, which is quite rapid. Up to low inflation trends in Central Banks that will find themselves stuck close to the zero bound. Yvonne how critical is the cpi going to be tomorrow . Some are calling it a make or break moment. If that disappoints, could that push the fed to delay the Balance Sheet unwind, or at least the announcement later this year . That the does not feel Balance Sheet unwind is so dependent on the inflation trend. Unless the economy rolls over, that is probably on a preset course. Our thinking is it september for an announcement. I do think it matters for the next rate hike. We are below consensus thinking. That,dbased driver of that could take december off the table, at least for now. Unless something changes. Kathleen she was cory when it came to the future. She was grilled so many times about what would happen after february 2018. So many headlines are about gary cohn being a possible successor to janet yellen. What do you make of that nomination . Julia it is unconventional. He has no central banking experience, no academic framework that we can look to that will say whether he is a hawk or doubt. Pragmatic is, he is and will want to keep economy on course. Probably not a big regime change in the current policy structure. Kathleen which makes me think of a quick final question. Saidsion, is the tightening into a falling inflation environment, and is somebody like gary cohn equipped to handle it . They are showing a little more flexibility on rate hikes. They do not want to be the cause of the next recession. If inflation stays low, the neutral rate is low and they will stop earlier. But that is the worry of having an unconventional person who may find it harder to form consensus when you are confronted with a crisis. When we thought at the helm, he had so much credibility, it helped him form consensus. It is not to say there is one model for central bankers, we have had many types with many different backgrounds, but is it is a little concerned. Yvonne great to have you, Julia Coronado. Thank you. More and a roundup of stories to get your day going in todays edition of daybreak. For subscribers, go to dayb. It is also available on your mobile. You can customize settings to get news, industries, assets you care about. This is bloomberg. Yvonne this is daybreak asia, i am yvonne man in hong kong. Betty i am betty liu in new york. Endingn airlines is chair agreements with Qatar Airways over a dispute of government subsidies. They notified carriers of the decision june 29 and see no financial impact. The pilot union had called to an end for thek the qatar theair after they called aircrew grandmothers, a comment for which they have now apologized. Yvonne the second of three major u. S. Securities investigations. It is the biggest the finance organization has struck. The bank must deal with the three investigations before can return to the private sector. Betty show me the money. That is what a lawyer told management about attempts to outbid warren buffett. Berkshire offered 9 billion cash for oncor. However, elliott is pushing for more time to put a deal in place. They will be back in court later this month. Braziliane former president Lula Da Silva has been sentenced to nine and a half years in jail for grafton Money Laundering. Carwashs a sweeping corruption investigation. Lets get to our economy and government editor who joins us live from brazil. It great to have you. A mentioned how big of setback of this is for that 2018 run. Tell us the latest. What does it mean for him . This is bad news for his chances of reelection in 2018. If this sentence is upheld on appeal, he will be ineligible to run. At the moment he has a chance. But it is looking increasingly slim. He had a solid core of support. Many protesters out on the street. They were demonstrating against the decision. For Many Brazilians, who might be more on the fence, this conviction is the last nail in nail infor lulas the coffin for lulas credibility. Betty what does this mean for brazil . It offers a shortterm respite for michelle kummer temer, going through his own corruption charges. But that is only shortterm. The longterm will only increase brazilian disillusionment with their ruling class. Congress is under investigation as part of this carwash organization, but also for other crimes. Was the icon, he left office with an 83 Approval Rating and was beloved by Many Brazilians until many of these Corruption Allegation started to surface. His crashing down to earth is failedbol of brazils political establishment, which is coming under serious pressure from all sides now. Thank you, live from brasilia with the latest on this Corruption Scandal involving former president Lula Da Silva. We want to break down the june figures coming up next. And the new loans in aggregate financing. We continue to look into those numbers. This is bloomberg. 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. Yvonne beautiful morning thursday here in hong kong. 30 minutes away from asias first major market. Betty it is 7 30 p. M. Wednesday. Turned out to be a nice day here in new york. A nice day for the bond bulls and equity old, the market closing higher after Janet Yellens they won testimony. I am betty liu in new york. Yvonne i am yvonne man in hong kong. Lets get the first word news with courtney collins. Records, rose toward treasuries rallied and the dollar fell back. Janet yellen signaled the said would not rush to tighten inflation below target. She told the committee the u. S. Economy is expected to grow consistently, allowing repeated gradual rate hikes. She repeated the feds intention to begin unwinding the Balance Sheet soon. My colleagues made the judgment in june when we laid out the final details, that if the economy continues to evolve in line with our expectations, it something we should begin to do this year. To my mind, i would say relatively soon. The Trump Administration is telling lawmakers it intends to redesign americas trade deal with south korea. President renegotiated the accord in 2012 to gain better terms for u. S. Automakers. However, President Trump has called it a horrible deal and plans to revamp or terminate. He told president moon that seoul should give u. S. Automakers a fair shake. 1. 5 adding pressure on the r. B. I. When it meets next month. Shares led by Energy Stocks and auge of from aipments surged year earlier. An iceberg weighing one trillion tons has split a way in antarctica. It is the size of greater london. Floating, iteady is not thought to raise sea levels. Satellitesored by and scientists expected to break up and the smaller icebergs that may drift into warmer waters. Environmentalists say it shows how fragile the polar region has become. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am courtney collins. This is bloomberg. Yellensnet reassurances that will not be a rush to raise rates should help stocks in the u. S. The dow closing at this fresh high. Joining us now is su keenan with more. Fall, bothhe dollar oil and gold higher. A bit of green