>> good morning. australian markets have just opened for trade. >> good evening. from bloomberg's global headquarters in new york. >> i'm in hong kong. elcome to daybreak asia. our top story this tuesday big tech week sending u.s. equities tumbling the nasdaq falling to its lowest since april on fears new regulations are on the way. apple suppliers are under pressure again under reports it is slashing production plans for three new iphones. -- it is the end of the

after the arrest in tokyo the barred will meet on thursday. >> we'll start with a quick check of the markets. closed in the u.s. session. we saw broad pressure being led by tech. we had the index just dropping into bear market territory with the nasdaq falling more than 3%. we had pessimism over trade tensions between the u.s. and china also hitting the market. the s&p 500 falling 1.7%. remember, home builders confidence dropping the most in four years. also hitting the home sector on the s&p 500. while the dow reversed two sessions of fwains to fall on this session. the s&p futures right now falling 1.#%. we are of course expected to see another beating for those apple splares, tech stocks in asia as well as we get more

disappointing news for apple, so ofi. >> tech will be a pain point for asia today. in sydney already seeing shares under pressure the lakes of aspen sliding this morning and -- the likes of aspen sliding this morning and the technology on monday in japan also there will likely be a halt today. apple's mounting woes. of course we're keeping a close eye on the continuing drama around nissan's chairman so watch for those shares to take a hit in tokyo this morning. also in light of more week g.d.p. reports from around asia, thailand being the most recent. more firms have trimmed their growth forecast for the flg 2019. a few catalyst ts that could hurt risk sentiment today. in terms of the agenda this tuesday. thailand's export orders for october will be closely watched and are expected to explode to 4% last month compared to the 4.2% growth we saw for the

month of september given the supply concerns from apple. this will certainly be in the spotlight. we also have xi jinping with his philippines trip starting this tuesday. we'll keep an eye on november minutes from the r.b.a. ahead of that we are seeing aussie bonds opening lower. this year yield 2.68% morning. >> thank you so much. industry's to biggest alliance has been thrown into turmoil by the arrest of carlos gohn. nissan says the barred will vote thursday on removing him as -- the board will vote please on thursday on removing him as chairman after he is charged with allegedly breaking aws. >> needless to say this is an act that cannot be tolerated by the company and our experts judge this gives enough reason for dismissal. >> we're joined now by our

guest, craig, we heard this started all because of an internal investigation so what prompted this? craig: right. all we know at this point is that a whistle blower was what got this whole thing started. but there is still a lot missing from this picture of when it all began, when they first heard from the whistle blower. and, you know, who knew about this. how far reaching the knowledge s about this sort of alleged wrongdoing here. ghosn has been at this company for more than two decades. so the idea that he was doing something sort of under the radar is actually, you know, seemingly kind of hard to believe i think for a lot of people. there's a lot of sort of speculation about just to what extent renault and nissan looking into a combination may have had something to do with this. you heard before all this

transpired within the last day about the idea that nissan's interests need to be protected. sort of down played the prospects for these two companies coming together. so there was maybe sort of some tension over this, the idea of a full blown merger between the two. anchor: we were talking about this earlier, craig. in fact, carlos ghosn does have this sort of cult-lake following in japan, right? as you said, not only the head of nissan but also this huge alliance with renault and also mitsubishi. we've heard before the alliance between renault and nissan favored the french auto maker more than nissan. could this be in peril now? >> yeah. i go to your -- i think to your point there was a lot of concern on the part of the japanese about the fact that nissan had sort of out grown its savior in renault so it has been a bigger, more profitable contributor to the alliance. there's been a real concern on the part of the japanese side of, well wait a second.

if we're going to combine here our interests need to be protected. we need a role in the future of this alliance if the two are going to combine and some real concern about to what extent they're going to be able to sort of control that process. so a real, you know, fear about the idea that a company that's smaller, you know, definitely regional and sort of contained to europe in the form of renault, sort of having an outside say that would have been something that the japanese would not have tolerated. anchor: i'm wondering how vulnerable is the timing of all of this erupting given it is a time where the companies we're talking about and the industry more specifically or more broadly i should say is undergoing a sweeping change. craig: an absolutely great point. we're in an era obviously where there are a lot of new alliances being formed so just within the last few months

you've seen volkswagen and ford have talks about forming an alliance. you've had honda and g.m. formally come out and say they're going to work together and honda has committed to putting significant investment into cruise. so this idea of the investment to bring electric vehicles to market, sort of navigate the future of car sharing and mobility, all of that is going to cost a lot of money. we're seeing a lot of companies join together rather than split up. so this would absolutely be problematic if the alliance does have some real problems. like how it -- they did come out and say during the press conference as critical as he was of some elements of the alliance he said there was not going to be an impact and did sort of acknowledge that the value of this alliance. so we're a ways from this alliance really crumbling but certainly this is a serious blow for them to lose a guy like ghosn.

>> just quickly what are we watching for next? we know that mitts -- mitsubishi is conducting its own look into whether misconduct occurred in that company as well. there are going to be a lot of meetings and huddles in the next few days. >> definitely going to be something to watch just how the reaction is -- how rash the reaction is during the japanese markets. this broke after the close. renault had its lowest close since january of 2015 so really took it on the chin. renault has not really come out and sort of said, that this guy is done with us. that we're going to meet to fire ghosn. that's different from what mitsubishi motors and nissan have said. his future at renault is still sort of an open question and not sort of clear, not at all clear who is going to be in charge of that company. he remains the c.e.o. of renault at this point. >> craig trudel there coming to us in new york. let's get you to first word

news. >> the anticipated revolt against u.k. prime minister theresa may appears to be running out of steam. her opponents are yet to reach the threshold for a leadership challenge. she appealed for the support of big business saying the issue is not some political theory but a reality of jobs and wages. may's opponents at home and abroad said the deal may be imperfect but it must deb baitd and voted upon. >> i think probably if you had to have the challenge there are all sorts of risks but it could be made short. but i think a much better option is actually put the thing to the house now. what's driving people is a fear they'll end up with christmas with this vote and at which point you really are out of time. >> the reserve bank of india and the modi government have called a truce and will jointly discuss demands for sharing capital. there will be a consideration of transferring funds to the government after a board meeting that lasted more than

nine hours. the two sides have been sparring for weeks over how much capital the bank needs and how tough its lending rules should be. the king of saudi arabia has given a major speech on foreign policy outlining the kingdom's priorities in the coming year. it was his first public address since the killing of journalist khashoggi and the king made no reference to what happened in istanbul last month. he did, however, discuss iran, the need for oil stability, and the war in yemen, and offered full backing for his son the crown prince. and residents of the mexican border city of tijuana have staged protests against central american migrants saying they pose a threat to public safety. some echoed president trump's comments calling the caravan of people an invasion. the tijuana border crossing is the busiest in the u.s. it was closed for several hours on monday as new security barriers were installed. global news 24 hours a day on

air and tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> thank you. still ahead the new york fed president says the central bank will stick to its plan of gradual rate rises but could a cooling housing market make policy makers think twice about a hike next month? >> plus, stocks heading for a bear market. we'll' discuss whether it could spread. this is bloomberg. ♪

>> this is daybreak asia. >> let's get a closer look at the u.s. market close. weakness in some of the biggest tech companies pushed the nasdaq down more than 3%. the same stocks as a group were

thrown into a bear market. this is what they call a rough close. we should point out all of the tech names be it facebook, apple, they all had their own fundamental individual bad news story to contend with. >> yes, particularly apple which we'll get to. what we really saw here was software and semiconductors pace the decline. let's go into the snap shot. it really tells the story. we saw the dollar steady here. look at the red at the bottom. the nasdaq 100 the heavy concentration of tech stocks down more than 3% and the philadelphia semiconductor index, the chip stocks are down almost 4%. those have been high beta momentum stocks. it is those stocks that are leading us lower as we speak. let's go into the bloomberg if we can because chip stocks, actually the first bloomberg chart week, we can find these charts, chip stock valuations

below the broad market. you see it dropping just right here. now let's go into the individual stocks that really plummeted. bank stocks as mentioned as group. the cohort as we call it falling 20% since their peak but just on the day look at the size of these declines. "the wall street journal" out with another story for apple that they are cutting production on three different iphone models, which confirms the concern out there that they are cutting back and that filters down through the suppliers and so many other companies. let's look at another group of big movers again the size of these declines is outrageous. look at nvidia the graphic chip stock that had disappointing outlook just days ago. splunk one of the high momentum stocks that had been up gang busters earlier in the year down almost flat for the year at this point. >> thank you so much for the latest on the u.s. markets. joining us now for more is

wells fargo institute's president. great to have you with us. on top of all of this, we saw a lot of fed speak in the last ew days. the chart on the bloomberg just showing the rate hike expectations for 2019 have now plunged. is this a reasonable reaction given everything we've heard? i think it is a near-term reasonable reaction. it does seem that the vice chair walked back some of the comments on friday in the conversation. we still think at this juncture it's likely a go for december and three hikes in 2019. but if the economy softens materially, which it hasn't been, mained you, we saw strong retail sales data, good industrial production, confidence level in nfib and consumer confidence all remain high, the fed views itself as doing its job right now. its job is not primarily to

support the equity markets but rather to tighten conditions as onomic data and employment warrant. >> chair powell in fact down playing the equity market's volatility recently. when you see this environment right now where do you find the best value as you see this sell-off? >> we actually think there are whole bunch of things in full bear market territory. semis, oil, most of the cryptocurrencies in bear market territory. 40% of s&p is in bear market territory. we think probably the best valu-rite now still lies in the industrials -- the best value, right now, still lies in the industrials followed by financials followed closely by healthcare and consumer discretionary. >> we are getting to a point where you take a look around, in particular looking at emerging markets and asian markets evaluations after the recent sell-off which is looking so attractive we may have just found the bottom? >> yeah.

i think, you know, you have to get a clear path and a little more visibility on trade before a call on lly make asia. the point is really important which is there is some fundamentally cheap valuations for investors who got more of an intermediate, long-term time. the key around asian markets needs to be the yuan holding the 7 level. if it pierces and breaks that i think you have more selling in asia. as long as it can hold this, in relation to the dollar, i think asia could be a good opportunity. we're just not terribly bullish yet on asia. >> what then do you think the markets have? we've had a fair number of people over the last few days saying it does look like this is the market if you take a look at the sell-off overnight. for example pricing in the tariff situation is going to get worse in january. that we're not going to get any sort of meaningful breakthrough at the g-20. do you think that's the case? >> it depends how you define a

breakthrough. i think what you have to look for, i'm not sure that it was wise to expect anything to come out of apec over the weekend. certainly the administration is putting all the chips on the g-20. i think a breakthrough as you indicated is really about slowing down the pace of tariffs or potentially not allowing the $200 billion to move at year end up to a 25% tariff from a 10% tariff. just an agreement to restart discussions and negotiations in the next year i think the markets would perceive as a strong, positive, and good for risk assets. >> what do you think of china? we are now hearing bridgewater associates be rather positive about the outlook there. take a listen. >> i'm not worried about the debt crisis in china or the debt situation in china. you know, i believe that it's going to be a very good place for long-term investing. >> good for long-term investing. is that what you think as well? >> yeah. i think ray is correct on that.

even in the near term i think what is being under appreciated by the markets, because all the rhetoric is around where the yuan is at and what's happening with trade, is the amount of fiscal stimulus getting applied in china. it's coming in multiple places. certainly the weak currency is positioning china to be better on its export growth. credit conditions have actually been easing there. they've been lowering their interest rates accordingly. they've actually been reducing a lot of taxes inside of the government itself. all four are stimulative in nature and we think it is going to have a lag effect in the next probably three to six months. a lag positive. >> just quickly on europe. you know, his biggest concern for the next down turn is actually going to be europe because of the lack of coherent fiscal, i guess, group psychology going on that you can see pretty much exemplified by the brexit chaos, right? is that something you would be worried about as well? >> yeah. i think the real reason that

you'd want to get more bullish on europe is less around brexit, per se, which is highly publicized, and even i am concerned about italy and the budget crisis. what we really knead to see out of europe is some growth. some g.d.p. growth and some coordinated growth over time. germany's had it at moments of the cycle. but largely across the continent we've not been able to experience decent growth. we're close to cycle highs this year. inflation is ticking up a little bit as the e.c.b. gets ready to back away from some of its extraordinary stimulus later into 2019 and ease that monetary policy path. perhaps. but we really need to see growth and compelling reasons o be more favorable in europe. >> appreciate your time with us. wells fargo investment institute president there joining us. coming up next j.d..com is under increasing pressure. lack luster results and weaker

guidance to boot. we'll be breaking down the numbers and looking at the takeaways for the chinese consumer. this is bloomberg. ♪ ♪

>> let's get a quick check of the latest business headlines. the widening scandal is threatening to embroil another big name. a whistle blower told danish lawmakers that it is possible that more than half the 230 billion suspect dollars handled bay the bank's astonian unit was funneled through deutsche bank's american -- a so-called correspondent bank for danske's operation in holland. trying to derail the purchase of scheuer, making a last-minute attempt to win support. the group accounts for only about 1% of takata's

outstanding shares. this has been a call for an emergency meeting. the acquisition is valued at about $62 billion. >> the smartphone giant reported better than expected earnings. revenue jumped nearly 50% in the third quarter. bloomberg's china correspondent joins us from bipping with the dea tails. hat were the highlights? >> this is really a story about smartphone shipments and the emerging markets. the strategy to derive sales from countries lake india, southeast asia, but also europe as well saying that they saw strong sales in spain n terms of smartphone shipments those were up for the course at 21%. bear in mind that globally the smartphone market is seen by most analysts as being in contraction. so pretty impressive on that front at least. there is a bit after price

xiaomi is having to pay because the competition is intense not just domestically here in china but increasingly in those countries like india. you see the margins being squeezed from 6.7b% to of.1%. the company is trying to play toward the top end of the market as well. that may give it better margins going forward potentially. the other area where it failed to hit was the emerging market currency effects. of course it books most of its sales in for example indian rupees and chinese yuan. compare that to the dollar of course. there is an impact there and they reported or touched on that in these reports the third quarter results. in terms of the future of this company, yes you did see it tick up in advertising sales and services revenue and the operating platform is being used bay more of xiaomi's hardware owners but still accounts for a small slice of the revenue stream. again, there will be continuing

questions from some out there, some analysts and investors about the valuation multiples because in terms of the multiples and forward earnings it is trading in line with the multiples in likes with the -- in line with the likes of alley baba some say it remains a question mark over whether that is justified. >> we also got disappointing results from j.d..com a company plagued with problems including the founder arrested for alleged rape here in the u.s. >> that is right. that shadow still looms over the company. the police in the u.s. have still yet to decide whether or not to charge him over those rape allegations. of course he and the company strongly deny those allegations. they are the company facing a saturated market, more competition. their forecast for revenues in the fourth quarter came in below estimations. so the results as you say were

disappointing, saying the profits should improve in 2019. >> thank you so much. we'll be talking cryptocurrencies next. this is bloomberg. ♪

>> markets here in sydney have been trading for about 30 minutes taking a look at how the benchmark is faring. a down side about 0.4 of 1% as we've had tech really driving what was in large a pretty broad based sell-off on the wall street session. of course some of the fundamental issues of demand plaguing the likes of apple, reputational issues, but also a cloud over the semiconductor industry. that's likely to weigh as we get some of the asian markets trading hear today. >> no wonder. semis and software developers were the worst performing groups among the s&p 500. e're looking at s&p futures.

developers were the worst performing groups among the s&p 500. we're looking at s&p futures under pressure down 0.2 of 1%. 6:30 p.m. here in new york. i'm shery ahn. >> here in sydney air watching daybreak asia. let's get you the first word news. >> thanks, haidi. nissan tumbled the most in 31 months after the arrest of carlos ghosn for alleged violations of japanese financial law. renault also led by ghosn closed in paris at the lowest in almost four years. nissan's c.e.o. says ghosn under reported income and misused assets and he is said to be removed by the board. he also says the committee will look into the structure of nissan's alliance with renault and mitsubishi. >> in terms of structure, 43%

is held by renault. the head of renault is concurrently serving as head of nissan and in terms of governance, this concentrates power on one individual. this is not the only cause but one of the factors. a committee will look closely at this issue as well. >> china accused the united states of ruining the atmosphere. israeli officials have criticized airbnb's decision to stop renting out homes in jewish settlements on the occupied west bank. the san francisco based company says it's removing about 200 home and room rentals in the region. critics have long accused airbnb of profiting from rentals in illegal jewish outposts. it says it knows some people will disagree and it appreciates their perspective. and pop superstar taylor swift has chosen vivendi's universal music for her hotly sought after new multi year contract.

financial terms weren't included in the statement late monday but the company will share proceeds from the expected sales, equity, and spotify. the 10-time grammy winner said on instagram she feels motivated by the new opportunities created by streaming. global news 24 hours a day on air and at tictoc on twitter. powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> thank you. u.s. stocks got hammered as we saw tech stocks now falling. the nasdaq seeing its worst day in more than three weeks and also fell to the lowest level since april. we are seeing the impact of that in asian markets. no surprise. we've seen tech stocks are also leading the way down. >> we have tech leading the decline for sydney shares off half a percent. . third day of losses

we do have technology one attempting to escape the down turn but so far not bucking that trend. technology one shares are under pressure this morning despite forecasting strong profit growth for fiscal 2019 on a strong sales pipeline. fletcher building is the biggest for the 200 after the company forecasted an earnings drop due in part to challenging australian trading conditions. want to highlight a2 milk jumping earlier after the company reported a 40% rise in four-month revenue on strong formula sales and increased marketshare in china. as we go up to the start of trade in tokyo nissan shares are poised for a heavy hit in light of carlos ghosn's arrest. as you can see on this chart and as jessica pointed out -- sliding to the lowest level since february 2016. analysts are divided as to what this development means for the

japanese carmaker and its alliance. an arrest or restriction of ghosn's activities would be a blow to both renault and nissan. bernstein does not see the unraveling of the alliance being a total disaster for shareholders, haidi. haidi: a verdict very much split at the moment. sophie kamaruddin there. let's get more on our top story, the arrest of carlos ghosn and the aftermath of the company that has been involved in. nissan says its board will vote thursday on removing ghosn as chairman after he was detained for allegedly breaching financial laws. northernto our chief asia correspondent stephen engle. we know there will be another flurry of board meetings over the coming days as all of these companies struggle to work out what to do next. >> it's a very complicated story and a complicated holding structure of the nissan-renault-

mitsubishi alliance. some have called it the ghosn- ian knot he has created. taken offs apparently guard by this news that broke late last night in asia. there, the board is going to meet later on tuesday in europe time. also thursday, as you rightfully said, we will get the miss on board meeting in yokohama, where the current ceo is saying that they will lean towards possibly removing both carlos ghosn, as well as the board director, greg kelly. this is what we do know. according to him in the press conference late last night, a hastily arranged one, a whistleblower complaint led to a several month investigation by nissan itself. ghosn was detained by police on suspicion of breaching

japanese financial law, underreporting to regulators. during that investigation, they uncovered, quote, "numerous other significant acts of misconduct." he did not go into great detail on the allegations. however, kyoto news is reporting that ghosn may have understated his income by some $44 million u.s. over five years. keep in mind his remuneration between this on, -- nissan, renault, and mitsubishi totals more than $20 million u.s. per year. that was always a source contention, especially within the ranks of nissan. he did say last night this is an act that cannot be tolerated by the company. it is sufficient grounds for his dismissal. >> very strongly worded press conference there. very evident that they wanted to

distance themselves from ghosn. what are the next steps procedurally, if we know what to expect? stephen: again, this is a complex shareholding, cross-shareholding that will be very difficult to kind of -- i'm not saying it's unwinding. it is still a very strong partnership. but just finding how to remedy this situation, if it needs to be. mitsubishi, of course, which is also 34% by nissan, ghosn is the chairman of that automaker. they say they will investigate and decide on any possible action against mr. ghosn. renault, the board apparently was taken by surprise, is set to meet tuesday evening, according to a source, in europe time. as we have been saying, renault shares are down sharply. nissan depository receipts were down. the french government owns 15% of renault, which adds another complexity to this complex

cross-shareholding. this is what the french finance minister had to say overnight. >> i will have all of the necessary discussions with the people that are in charge and we will take decisions as soon as possible to ensure the stability and long-term vision for both nissan.and stephen: i'm not necessarily suggesting this was a political motive behind this, but keep in mind, again, on this conflux cross-shareholding -- complex cross-shareholding, renault owns 43% of nissan. nissan only owns 15% of renault. nissan contributes most of the profit. we are hearing from insiders that nissan increasingly was not happy with an increased partnership and what carlos ghosn was likely aiming for and that was merger of parties, and that the french perhaps had too much influence.

so, it will be very interesting over the next couple of days to find some of the back reasons why this is all taking place now. >> definitely, steve. give us the broader context of carlos ghosn's demise. i mean, he was a titan of the auto industry. if i'm not wrong, there is even a comic book, a manga, about his story, turning around nissan after he joined in 1999. stephen: i have the book about that issue right there. it's called "turnaround." his reputation in france for turning around renault and then taking a similar approach to nissan. there were some interesting comments yesterday. he questioned repeatedly the legacy of carlos ghosn for being a sole heroic turnaround artist. he again said it was the work, the tireless work of the nissan employees. it may rub nissan a little bit

wrong. on the back of the book, it says "perhaps only carlos ghosn could have done it." that doesn't sit too well with nissan and the employees there who worked to turn it around as well, especially since nissan contributes so much to profit of the alliance. >> that's really interesting. stephen engle with the latest on nissan. we are also watching the cryptocurrency space. since its january peak, the bloomberg galaxy recto index has lost-- crypto index has more than 75% of its value, around $660 billion. ramy inocencio is here to explain this digital dive. let me show you this chart on the bloomberg. you can see the plunge in the coin -- in bitcoin prices, leading to the 14-day rsi to a record low. seemis point, it doesn't

there is any circuit breaker. ramy: no circuit breaker right now. looking at it from the high we were reporting back in december, it is down 75% since then. and the fear is twofold. one is the jaws of enforcement clamping down right now on these ipo's. maybe they are trying to run off with our money. we are not really sure. they are possibly not following the statutes. there's also the fear there might be more regulations at the sec and the u.s. government. hop into the bloomberg terminal. i want to show you how bad this is breaking here. this is in the gtv library. you could see the decline here has reached this key support level of about $6,300. we are trading bitcoin at $47 .92. it has fluctuated even lower than that. we are seeing a little uptick from that low here. as you said, bitcoin is down eight days in a row, it's worst

string of losses in its 10-year history. bloomberg intelligence is saying, in terms of analysts it has been speaking with, it could fall another 70%. analysts are saying it could fall to $1500 here. in terms of the enforcement of those existing statutes, this gets to the heart of what happened on friday with two companies. one, taking a look at monetization of ad clicks in the emerging market. with paragon, they are trying to raise money for a blockchain technology in cannabis, but the sec is saying, hold on, not so fast. let's pull up a little bit of what the sec said in that statement. these cases tell those who are considering taking similar actions that we will be on the lookout for you for those violations, so make sure that you are forewarned. let's take a quick look at what's happening in the alternative coin space as well. you can see that bitcoin is --

it's a little bit of a mixed picture. ether, the second one on your screen. down 0.4%. it had been down as much as 13% u.s. trading. and the last one, the lone gainer during the u.s. trading day. it's down by about 15% since its january high. >> what's the deal with it being the outlier in all of this? ramy: i was talking with some of our bloomberg news colleagues. they could not put a finger exactly on it, but a lot of folks have been saying over the past year or so that if bitcoin was the first iteration of some cryptocurrency out there that could stay, then ripple could be some kind of next iteration or evolution. the idea is that it is really geared towards the banks, the financial institutions, and

there might be some stability there. one other thing we should look ahead do is another technical indicator, similar to what you just pulled up. hop back into the bloomberg terminal. i want to show you this indicator on the global strength indicator, again in your gtv library. this right here in green is meaning that it is the best time, possibly, if you want to get into it, because it is oversold the most ever since this year, the first time it has signaled that ever since august. if you are daring enough, haidi, to get into this, then if you believe the technicals, you might want to dive in. a lot of folks are saying, maybe hold on, because a lot of this selling my continue as the sec continues to look out for those players out there. >> never a dull moment in the crypto space. ramy inocencio in new york. lots more to come on "daybreak: asia." this is bloomberg. ♪

this is "daybreak: asia." i'm haidi stroud-watts. haidi:-- shery: i'm shery ahn. the new york fed president is the latest fed official to share his take on interest rate policy. >> unemployment is very low. the economy has a lot of good, positive signs. for us, it is just keeping a good balance, keeping this economy strong and stable. we, will likely be raising interest rates somewhat but it is really in the context of a very strong economy. >> he was speaking in new york, adding that the fed is not locked into a preset course. our fed reporter was at the speech. did we get anything new from his comments? >> nothing hugely new. what we got from his comments was the identity the -- idea the economy is still strong and they will be cautious in hiking rates. he was careful not to make it

sound like they will be too aggressive in their path forward, which is very much in line with what we have been seeing from speakers over the last couple of days. >> just before williams gave the speech, we got the biggest drop in us home builder confidence since 2014. is this really proving to be the bugbear for the fed? >> absolutely. extremely attentive to the fact that home sales have taken a leg down and that homebuilder confidence is falling right now. i think that they have been closely watching that sector, because it is so directly sensitive to interest rate increases. as rate increases continue to feed into the system, they will be watching to see whether this is something that persists and something they need to worry about. >> jeanna, thank you so much for joining us, our fed reporter. joining us now from tokyo, patrick.

most of the analysts we speak to say one more in december, three more next year. do you think that could be jeopardized? putting aside what happens with trade. but the domestic pressure point that is building within the housing market. is that something that is going to give the fed pause? >> i'm not sure. .25%,e fed wants to go to 3 which they tell us, it is not that dangerous for the u.s. economy. i think it will slow down markedly next year, because of two reasons you mentioned. one, there was a report this morning that when you go to full employment, costs go down, for the basic reason that it is harder to [indiscernible] this, what you see in housing investment and

corporate investment, it is slowing down. it is not a dramatic slowing down. you could go from 3% to 2% growth next year. it would not stop the fed from going to 3% or 3.25%. i think they may take the course of 25 bp's in december. it makes sense. >> what about some of the global growth pressures, though? we talk at length about trade and the impact on global supply chains and the pressures we are seeing in asia in particular. when we spoke to ray in this exclusive conversation, he pinpointed issues with europe as being the biggest source of concern over the next year. take a listen to what he had to say. >> i would say, when we have the downturn, it will be an issue of continuity, cohesiveness. i think europe will have a greater amount of challenge,

because they don't have a common fiscal policy. they don't have unity within the countries. they don't have unity between the countries. and they have big structural issues. so, i would say that europe, probably, would be the most strained. >> i mean, the existential issues with europe are well documented and well debated. in terms of the pace of growth, is this as good as it gets for european growth? patrick: i think what we just heard is quite true. the biggest issue in the world economy, apart from europe, is china. we have a lot of signs that china is really slowing down. look at corporate investment. look at housing investments. china also is a very weak spot in the global economy. but the biggest issues are

brexit. outcome wouldble be free trade for good between the u.k. and eu. if this is not the case the u.k. might lose -- if this is not the case, the u.k. might lose dramatically. italy is a problem, not only for europe, because it may be starting to gain a eurozone crisis and the banking crisis in europe. the chain of events is very clear. the talent -- italian government wants to run a bigger budget deficit. -- the retirement dates back with no productivity gains. the bigger budget -- it will be much bigger. it's leading to higher rates on italian debt, and the higher

rates on italian debt are a big problem for italian banks who have 200 billion euros of italian debt on their books. this is transmitted to the rest of eurozone. italy is a very good candidate , comingng a big problem from this contagion between the situation. >> aside from italy, though, when we talk about global growth slowdown, that is very different from hard landing. what could transform a slowdown in two a recession -- into a recession? where in the world are you seeing those risks? patrick: globally what we have is a world downside goal in investment, corporate investment, cars. especially if you look at car sales. and in housing. it's a very standard, traditional down cycle in equipment growth. the big issue is -- you are asking the very red question, not whether -- right

question, not whether we have a downside. it's already there. owth [indiscernible] or course isecond one of financial distress. look at all the existing indicators of risk aversion in the capital markets. this is very close to where we were 10 years ago. no one seems to realize that we have a stock market crash. it is there. of course, it is a very slow process every day. we lose 1%. but u.s. tech stocks, eurozone banks, china. we have an equity market crash. it will have a lot of effects on the real economy.

people are getting poorer. this is already there. look at credit spread, especially in europe. look at bitcoin. look at oil. so, risk aversion is a major issue, because it can have real effects. >> but fed chair powell recently downplayed that volatility we have seen in equity markets. of course, we see the u.s. economy and the unemployment rate at a 47-year low. we've seen participation rates stagnating. isn't it kind of obvious and inevitable that we will see a slowdown? patrick: yeah. i mean, you have two sides on the u.s. economy, and i think you just mentioned one. one is on the demand side. corporate investment is almost flat. housing investment is down quite substantially. fed rates are still very low,

but mortgage rates are close to 5% in the u.s. wage growth is at 3%. your income goes up by 3% and you have to pay 5% for the mortgage. this has a very negative effect on housing. and the supply-side, we are at the end of this process where the u.s. economy can just create 200,000 jobs a month. when you go through state to state full employment, you end up with about 100,000 new jobs, which is consistent with 2% growth. the imf is predicting 2.2% next year, which complete me makes sense. now president trump -- which completely makes sense. now president trump once more. -- wants more. this won't be having any substantial effects on the real economy in the u.s. >> patrick, we are out of time. thank you so much for being with us.

up, we have a bloomberg exclusive interview with morgan stanley ceo james gorman. that is tuesday in new york. this is bloomberg. ♪ g. ♪

♪ >> good morning we are in sydney. good evening from bloomberg's global headquarters in new york. >> welcome to daybreak asia. ♪ >> the top stories this tuesday. asia-pacific racquets facing decline. they are in their territories. apple supplies will be feeling the heat amid new reports that production numbers are being