City have opened contract talks with the 19-year-old over a extension to his current deal that expires at the end of the season.
Hughes told the Manchester Evening News: “We would like to keep Daniel, he is a good young player.
“The problem is that his contract length isn’t great and that is a situation that has been allowed to happen before I got here for whatever reason.
“We are trying to address that. We are being honest with the player and his agents and they understand the position we and they are in.
“We are obviously doing our best to keep Daniel.”
