Anna a very warm welcome everybody. This wednesday morning. I am anna and words. Edwards. Moving the markets, two of them, San FranciscoJohn Williams and the conclusion being that at least two Interest Rate hikes may be warranted in 2016 because of the expansion in the economy. And inflation increasing. Over a goldman sachs, there is a chart over the twoyear spread in the u. S. On the bloomberg. Theyre warning Bond Investors that they need be more prepared for the fed to increase Interest Rates. Bill gross of course did something similar earlier on shouldnth, markets not count the fed out. What were seeing here is the increased demand for longterm debt, at least seeing a decrease over the two year yield. That spread is the smallest since 2007. It seems that in some senses, markets are not repairing a big difference between what we are seeing in the rhetoric from the fed. Not all of the assets have been reacting a great deal to what we heard from the fed, i should say. The dollar index yesterday session actually falling, against the years against the currency market. The fx market not buying into the fed hawkish commentary. The we have the dollar index up today. Twoyear treasury notes doing all of the reacting yesterday. Unchanged in todays session. The most increasing in two months, factoring in the possibility of arete index. I have to say that the function only suggests a 12 chance in june, 64 by the end of this year. In the oil prices as well, 48, up by 3 10 of 1 . U. S. Stockpiles increased can we know that from yesterday. Later we get the data on oil supply from the government side. And canada still topical, putting pressure on the likes of suncor energy. That is where he are on the Asset Classes overnight on fed commentary. That is get the bloomberg first word news with Tom Mackenzie. Tom following from what you are talking about, two Federal ReserveBank President s say at hikestwo Interest Rate may be awarded this year, as the economy continues to expand and inflation picks up. It pushes back against expectations that the central bank will delay actions next month. Is that theseng are projections at a point in time. They are not promises. So i do not know how many rate increases we will have. Two,ntly, my assumption is possibly three. But i do not know. It depends on how the economy vaults. I actually think two or three, given where the economy is, the job growth we have seen, the inflation data we have seen. Motor shareshi have plunged after the company said it used improper methods to test the fuel efficiency of the vehicle. It first originated with Mitsubishi Motors, and suzuki will brief the media on the issue at 8 a. M. U. K. Time. Oil prices rose in chinas cities, after gains in secondtier pass advances in the larger hub. 65 cities, compared with 62 in march, while sales jumped almost 64 to 122 billion. Bernie sanders has won the democratic residential primary in oregon. Meanwhile, Hillary Clinton claimed victory in kentucky. Donald trump one the oregon primary, though he has effectively clinched the nomination as the only contender in the race. Ted cruz and john kasich remain on the ballot. The chances of a brexit have fallen to 24 , according to a firm called good judgment. And the panel of socalled super forecasters, suggesting less certainty than the polls are signaling. Calculated by banks, including Morgan Stanley citigroup and others. Global news 24 hours a day, powered by 2400 journalists in around thereaus world. More on top. Anna thanks very much. Tom mackenzie joining is there with the details of stories we are following this morning. Let us check in on the Market Reaction in. Juliette saly is standing by. We talked a bit about what the fed had to say. That seems to outweigh any positives on the gdp this morning. Juliet it has been an interesting session on the nikkei, it was actually stronger about an hour ago. Of course suzuki motors has had an impact on the nikkei. You can see it is down 10 after announcing that concerning the flaw in the mileage testing method. Tom just said the share price is down to a 16 year low, as much as 60 . But the weakness that we have seen from suzuki has had an impact on the overall index, which was tracking higher after japan First Quarter gdp was released. Much unchanged against the dollar. The dollar is stronger on those fed comments from the president s. Leadersave seen the following the losses on wall street. The shanghai market underperforming. It is down by almost 2 after coming online after lunch. And here in hong kong, you can have a look here. The stoxx on the 50 that are in the hang seng index, quite a lot of widespread selling coming through the lenovo group, a lot underpanies coming pressure as well. A little bit of buying in the Southeast Asian markets. To the tune of around 7 10 of 1 . We are having a look at the graph of suzuki share price, when we did see that big lunch coming through. Of course, the chairman is going to be funding the Japanese Transport Ministry later today. You can see the big plunge. It has recovered a little bit at the moment. Before to quickly show you the aussie dollar, the assisting governor speaking in beijing today. He was actually talking about the fact that he quite welcomes the strength and the yuan, but the aussie dollar being sold off. The japanese yen is pretty unchanged. It is Holding Around 109. Anna thank you very much. Juliet sally in hong kong. Lets get more on the japan story. They managed to sidestep a recession with the economy growing an annualized 1. 7 . Gains in government and Consumer Spending commentator for a slugging business investment. This comes following a revised 1. 7 contraction in the previous quarter. Enda curran joins us now with more from tokyo. Good to have you. Tell us more about what has been driving the growth. It has not been corporate spending. Enda good morning, indeed. No, it has not. It is a good headline for japan today. But when you look at the polling, like you mentioned, business spending is contracting. It is nowhere to be seen. Forns Biggest Companies all the cash on the Balance Sheet. They are not expanding, lifting wages at the pace you really need to get the economy off the ground here. So the business cut back side of things during the week, you look at spending, also off on the order. That is not a key component. But do not forget the back drop here is the big debate over whether to hike sales tax. And Government Spending today actually in the quarter help to get gdp cost in line. And the fun thing to remember as of visits per luminary gdp, prone to revision in japan. And the recession they ended up not having, take it altogether, the headline basis, japan did skirt another quarter of contraction. But there is reason to because his, anna. Anna when is a recession not a recession . We have a meeting coming up at the end of may. In japan, what are the japanese good to be looking for . Does this shift the emphasis back onto the fiscal policy conversation . Enda yeah, most likely. I mean, so one of the most pressing policy concerns in japan and a moment is the strength of the yen. It has drawn complaints from companies and lobby groups, suggesting that japan may intervene for the First Time Since 2011. But it will not be on the official agenda. That might be the discussion on the sideline. But where they might make progress is on this idea that they get sort of a green light for a new fiscal spending, even though countries like germany are very posted for us in opposition, that they should be spending more. A lot more on the structural side of things, the reform side of things. Prime minister abe is coming out of the g7 with some kind of path forward to go ahead on the spending side of things, that would be a good result for him. Let us he can get that across. We know that germany is opposed. The u. K. Is not that warm. Canada is prospending. That might be something to get done. Anna thank you very much for joining us today. Enda curran joining us from japan. Let us get to our guest house. He is andrew colquhoun, had of asiapacific sovereign ratings. He is right here on set with us. What better person to talk to on a day like today when we have all this asiapacific data to talk about, how do you expect the japanese to respond to the surprising strength against the gdp. Andrew it does take some of the wind out of the sale on the delay to the consumption side, which is central part of the debate around japans rating going. We said that if the consumption tax increases beyond, that would add negative pressure and you could see negative raising. Anna you see that delay as being less likely now . Andrew the strength of the q1 number would tend to suggest that come up to kerley the fact that consumption made such a strong contribution. Question,condary about whether japan or how large the oneoff fiscal stimulus japan evidence may be across the plays intos, partly the g7 debate, as we just discussed. I think for us, a oneoff fiscal stimulus, even if it means a higher deficit than we currently expect, it wouldnt necessarily have such a negative impact on the rating. As a structural to the limit like a delay to the consumption tax increase. Anna what kind of fiscal stimulus are you anticipating . Andrew we think the have already and limited, or said they would implement, one points the effectsback of the recent earthquake. Beyond that, we have not factored in anything yet. But if it was at the order of say one half of 1 of gdp, that would not be too surprising. Anna and the corporates do not seem to be borrowing as much as the japanese government wants them to. At least not investing as much. The idea that negative Interest Rates makes it easier or cheaper for corporates to borrow. But you cannot make them. What can the japanese do to try to get them to invest more . They expect the Japanese Corporate investment to increase . Andrew there is a real puzzle i think in the labor market, in particular, with an han solo in japan, it is a genuinely low number. Data rates are rising. Not just people dropping out of the labor market. But wage gains are extremely low. Investment has been weakened, which i think maybe reflects some uncertainty over the outlook for the exchange rate. Puts think that in turn the spotlight back on the bank of japan. The Public Perception over how much policy the bank of japan has left. Now there are plenty of people in the markets in japan who are complaining about the impacts of the bank of japans ¥80 trillion annual Balance Sheet expansion. That is hoovering up so many assets in the market, expanding on quantitative easing further. With negative rates, while Central Banks globally the bank of england and the fed point to the impact as an important part of the transition mechanism for unorthodox Monetary Policy, so it seems in japan that negative rates have had a perverse effect on perception. Consumer confidence, Inflation Expectation in business have actually weakened since the move to negative rates. The question mark is there. Anna is it too soon to definitively say whether negative Interest Rates are helping to defend . Andrew yeah, i think Monetary Policy typically works on the long lag. Definitely too soon to kind of right off negative rates. Same debates playing off in europe, adopting these policies, and the effectiveness of negative rates is definitely in question, i would say. And the markets do not seem to be buying it, looking at asset prices. Anna what is the biggest risk in japan at the moment . About public debt at 2. 5 of gdp, by far the highest of any sovereign grossly. If japan does decide to delay the consumption tax increase quality like this. We think two Percentage Points more could consolidate with left stabilization, the Government Debt ratio. And the consumption tax increase is the biggest part of that further to points of consolidation. If that doesnt happen, if the consumption tax increase is postponed or canceled, there is no equivalent other measure, than the Government Debt will go on rising further and faster than we currently expect, and that as a negative pressure. Anna raising the risk we see the increase in consumption tax. Andrew all things equal. Anna andrew stays with us. Head ofolquhoun, asiapacific sovereign ratings. Here are highlights of the day. Jobs data. K. You can be sure brexit will jump on the figures. We will work out what that means about the run up to the vote on the 23rd of june. Half an hour later, the final meeting of euro zone inflation for last month. And parliament, the state opening come all the turmoil that goes along with that. And along with that, of course we get the queens speech setting of the latest of agenda. At 7 p. M. U. K. Time we get the minutes from the feds april meeting. Lest we forget, up on the program, chinese prices continue to climb, full details, next. Anna welcome back. 6 19 in london. 90 minutes past 1 00 in hong kong. The view out of your window perhaps. Let us get the Bloomberg Business flash. Here is Tom Mackenzie. Tom thanks, anna. Chinas biggest maker of Home Appliances is offering 150 euros a share, seeking to raise the state and the german industrial maker. And the offer will be subject to certain conditions, in particular a minimum acceptance condition of 30 . 20 forceas much as wall street workers this year, according to johnson and associates. It says they can fall at every type of Financial Services firm. The sharpest drop probably being with income sales and trading, as well as Investment Bank underwriting. Bank of america is being sued by managing directors who say the company treats women in her position like secondclass citizens, and pays them substantially less than the male can apart. She is seeking mental anguish and loss of dignity. The bank takes all allegations of inappropriate behavior seriously. Chelsea football club, according to people familiar with the matter, will pay about 60 Million Pounds a season over at least a season. Chelsea first has to get out of it 10 year deal with adidas. The club paid around 40 Million Pounds to break the contract. And that is your Bloomberg Business flash. Anna tom, thank you very much. Tom mackenzie joining us there with the business news. Now home prices rose the most in chinese cities in more than two years in april. That is as gains in secondtier cities surpassed larger hubs. New home prices climbed and 65 cities, compared to 62 in march. While sales jumped on the 64 . Andreandrew colquhoun is the head of Sovereign Pacific ratings. Let us talk about china them. We have this fairly strong data from the Housing Market in china. The strongest data in two years if you look at the numbers, where we see price increases. Is what we are seeing in property sustainable . Andrew we do not think the china activity, more broadly in the first four months of the year, is sustainable. It is a bit puzzling to me. Market know how much the is taking from it. I have been going around speaking to investors recently, and the kind of bounce there seeing as result of the confidence in china to strikes me as a bit odd. Behind the pickup in china activity is the further surge in credit. And debt levels in china, which everyone is thinking about as a problem. So china is doing a lot of credit at the economy so far. This year, more than 7 trillion u. S. Dollars the gdp of india, if youre to it that way. Not surprisingly, them a bit of a bounce in activity. Anna what is the problem with that . Is it the overall debt level . The economy goes to . Andrew i think both of those. Banging the drum on the debt level in china since 2010, before it was fashionable i suppose. I think the analysis that debt levels in china are at risk, of dangerously high levels, is not quite likely shared. It is quite think puzzling that so much comfort is taken from a further acceleration anna in credit. Anna would you expect those to come down . We saw that interesting story, somewhere where the commonest party would put the beauty, the original sin of debt, trying to change the psychology of debt in the china market. The same time, allowing it to rise. Andrew negative action in 2013 because of negative concern over the debt issue, that was also the time of the leadership transition in china. Since then, we have been watching to see what the new current leadership does about this debt problem. Now, on the one side, we do have disclosures,policy like the peoples daily, or going back to the very coherent diagnosis of the problem back then. But i look at the march data, the slate of economic targets this data, which implies that the economy will become more leveraged, 13 on the financing target, looking back at high Single Digits not in the guild, the government is saying in the formal targets that they are quite happy with the country becoming more humility. Anna what you need to see on leverage to allow you to increase the rating . One of the reasons and has not gone up to aa . Andrew we have never felt comfortable with china having the aa category. With good reason, we have also identified a potential positive rate trigger, if we get comfortable that china is on the rebalancing path, which is sustainable and looks likely to be smooth, without a sort of sharp disruptive slowdown, what p