>> welcome to daybreak australia. we are counting down to asia's major market opens. >> here at the top stories we are covering. u.s. stocks slumped to a 12 week low. robert mueller breaks his silence saying his investigation -- not conclusively

lowdown fromhe chief economist. >> plus we will have an exclusive interview with the chairman and ceo of morgan stanley. you don't want to miss that. for now, let's get you started with a quick check of the markets. we saw the three-month part of the yield curve deeper in inversion. the deepest inversion we have seen since 2007. we continue to have concerns over the global economy. it not to mention the china u.s. trade tensions. every sector of the s&p 500 was in the red. we saw it fall through the 2800 level and is now with the lowest level since march 11. the nasdaq also falling for a second consecutive session.

we had a few data points this week area and we have gdp numbers out of the u.s. tomorrow. we also get the fed's preferred method -- method of inflation coming out. effective have a significant impact on the markets. for now, u.s. futures are unchanged -- unchanged. let's see how things are shaping up for the asian market. >> futures are pointing mostly lower with kiwi shares opening on the -- ahead of the new zealand. looking little change this morning after the benchmark lost more than 1% on wednesday. the korean won is also a casualty. analysts further trimmed their earnings estimates. we are seeing the 10 year yield

for the kiwi bonds recovering. slipped.ates ahead of the decision on friday when the central bank is expected to hold korean yields, they have fallen below the central bank key rate. >> let's get the first word news. >> president trump has tweeted case closed after robert mueller spoke publicly for the first time about the russia investigation. robert mueller repeated his finding that he could not reach a conclusion on whether or not president trump headed obstructed justice. he said there was insufficient evidence to charge a broader conspiracy. a japanese telecom unit has selected nokia --

the president did not commit a crime. we would have said so. we did not make a determination as to whether the president did commit a crime. >> softbank japanese telecom selected nokia and ericsson as vendors for its next-generation wireless network excluding longtime supplier huawei. the trump administration has been urging allies to ban the chinese companies citing security risks. japan has not made an official decision on the four-way that -- huawei. as the trump administration has escalated its battle with european allies over the iran nuclear accord. it is threatening penalties against a financial body created by germany, the u.k. and france to protect trade with the islamic republic from u.s. sanctions. a treasury department letter warns that anyone associated

with it could be barred from the u.s. financial system. 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. treasurer's rally rolling on. throwing the yield curve into further inversion. our global economics and policy editor is here with us. is this still about the trade headlines or has investor sentiment fundamentally shifted? >> it may be that the deepening of the trade war the escalating the trade war has enhanced investor sentiment to think maybe yields are going to be lower for longer. maybe it is time to buy. the chinese fired back with a where earth threat. they're going to weaponize that

in this trade war. it was a sin -- signal to the bond market. rally now that the global -- we have to look quickly at the bloomberg now to take a close look at this yield curve. is a classic recession indicator. if it gets deep enough and stays there long enough. in past recessions, it did. right now, it had been as much widening over 10 basis points now it is back to nine. this is one reason why people are saying the fed could cut rates three more times by the end of 2020 because that signal could get even stronger than it is now. at the emco,rector was on bloomberg television today talking about something the fed is very worried about. that is the risk, the buildup in highly leveraged corporate debt. >> the riskiest credit market we have ever had.

it is true when you look at the size of it, the duration of it and the quality aspects of it. there is a big vulnerability there. bond market wed have had in a long. of time. saying this could get deeper before he gets over. >> the fed has a dual mandate. jobs and inflation. nothing in there about controlling the bond rally. are things getting so bad that it is going to force the feds and? >> the trend i want to show you because there is something called the term premium. if you're going to hold a 30 year bond, you want a higher return. you want mortarboard that if you have a one year note. it is in negative territory. demanding left to hold longer term paper than you are to hold shorter term paper. it is raising questions about

how sustainable is this. our team says the 10-year note contest 0.2%. something important happened today. there was a seven-year note option. after seeing a strong two-year note option, the demand at the seven-year note option was some of the worst we have seen in 10 years. is that a signal that we are going to far? the fed has signaled a few things. patients on rates, being willing to move rates in other direction but there is no signal yet that they are taking all of this to be such a big concern that they are going to start cutting rates right away. a lot of central bankers around the world are crossing their fingers and hoping that even with the trade war, cooler heads prevail and a deal is reached and this risk of pushing down received.

hope as a foundation for policymaking. thank you, kathleen. the s&p 500 dipped below its 200 day moving average for the first time since march. it then bounced back. our guess is here with more. >> for the retail sector alone, it was a bloodbath. in technicals it was a negative indicator. we closed below the 100. center isve front and the rare earth minerals and metals from china. this is a big story in that this increasing graph here shows the huge amount of export. the u.s. gets 80% of its minerals and metals in this class of from china. they cover everything from washing machines to cars to disk rise.

let's take a look at some of the big sectors that were impacted. nike was a big decline or. there is concern about the sales slump. let's go to the different sectors that were down. you sell real estate which was impacted by yields. increasing concerns about interest rates and recession. let's take a look at some of the individual stocks. is the front and center retail route. these stocks you are looking at had some of their biggest declines ever. abercrombie & fitch, a favorite thatler of the teenage spooked wall street by slowing growth sales. some of these companies slashed their forecasts. they are seeing everything from tariffs to whether as a threat to the bottom line going forward. the other big

movers. allergan was a big decline or on an implant recall. johnson & johnson facing the declines we signed health care. it nike again, the shoemakers, a tech company that was up -- weeks ago down in a big way. the oil which also took a big hit but recovered a bit toward the end of the day, in front of the later thursday supply data which is expected to show an toxpectedly big build minimize some of the losses we saw on this selloff and stocks and the multiple concerns about trade and a slowdown that are part of the package that this market is dealing with this week. >> thank you. ceo isup next, the optimistic about the u.s. china trade deal. she joins us for what to expect from the markets. robert mueller breaks his

silence saying his probed it not clear president trump on extra -- obstruction. this is bloomberg. ♪

we're counting down to the sydney open. pointingcurrently lower by one half of 1% after another down day on u.s. equities markets. you are watching daybreak australia. guest says it's time to tune out the noise and focus on the long-term. she is the ceo of pepper international. an investment firm. great to have you with us. we have seen this huge bull market in the -- bull rally in the bond market. on temperament to be a safe

haven. is it time to turn defensive for your clients? they clients are looking at long-term. i manage money for people with over 100 million to $1 billion in net worth. we are planning for five-year and 10 year periods. kind of market is a buying opportunity. you should always have enough liquidity so you can whether the ups and downs of the market. do that, ifou can you look at the s&p over 90 years, it is basically returning 9.8%. remainare willing to invested and you have conviction in your positions, you are better off to stay where you are and have enough defensive cash and bonds to make sure you have liquidity for your requirements area. the foreseeable future, because we continue to see this deeper inversion of the yield curve, this might be a

signal for a recession. some people are pointing to the feds dovish tilt. to what an advisor had to say. a we will continue to be surgeon for yields. -- search for yields. once the correct, they could have negative repercussions or the real economy. the next recession may be caused by a financial event rather than an economy event. shery: do you take those factors into consideration when you are looking at the long-term? the fact that the next recession will not come from fundamentals but from excesses in the financial market? >> yes but i don't think there are that many excesses in the financial markets. i think that is a chicken little the skies. the truth of the matter is you

are only going to make money in the long term in equities. bonds are there for your safety money. money to be made is in the equity market. if you want to make money in the long term and you can afford to leave that money for five years or more, leave it in equities. yes, there will be dips area the people who got hurt panicked and sold. the people who stayed in it did very well over the long term. the key is your time horizon. your portfolios need to be constructed around the time horizon you have for that basket of assets. >> you are not fleeing for the safety of the bond market. what do you like? >> i still love u.s. equities. i think this is the strongest growth, u.s. equities are the place to make money. i believe the whole trade war thing will settle out before the end of the year and the people who do stick with the large-cap growth equities like technology

and health care etc., they will be well rewarded. i think it is still a little bit early for europe and asia. there are a lot of trouble to be solved there. is the. equity market best place to stay for growth. >> the u.s. equity markets did not do well today. the retail sector in particular taking a beating. you take a long-term view area. amazon, check out its performance relative to the retail index. now bigger than the rest of the index put together. bullish on amazon. >> yes i am. they play in so many different sectors. i use it myself all the time. they have tons of cash. of the next 10 years. if you're putting money away for your kids college, but that money and amazon.

>> what about large caps against all caps? despite the fact that we thought perhaps because of these trade tensions and external risks, the mystic smaller stocks were the place to be. >> that is always a trap frankly. when there is a risk on market, people like small caps. the minute it is risk off, people flee to large-cap. but is a great theory but in reality, it never works. shery: in order to hedge, you don't like bonds, what do you like area >> i like cash. 2% or up to 4% in the u.s.. why would you go into bonds when

you can hedge with cash? thank you for that. a reminder, morgan stanley's chairman and ceo will join us for an exclusive interview today at 10:00 a.m. sydney time. that is 8:00 p.m. in new york. another cfoter, joining us for exclusive interviews. this is bloomberg. ♪

shery: i'm shery ahn in new york. in sydney.allen you are watching daybreak australia.

in an exclusive interview, hong kong exchange chief executive told us he is happy alibaba may finally be coming home. isi am happy if this report theyd correct that planning to come. if they do come, it is not a surprise to us because i have said when you travel far, you come home. everybody does that. it doesn't mean you give up your new home. i'm sure this is going to come and keep whatever they are doing in new york are other places and they will be coming back to asia. here, or they could be in shanghai or in china. happy that they are coming back and we will be very happy for whatever decisions they might make. >> the news about alibaba's

potential secondary listing here. are you assessing your strategy in light of this? >> this trade war is a global event. it is going to affect all of us very deeply. nobody likes it. we are all watching on the sidelines praying that this divorce is not to take hold and maybe there are ways to scale it back. we will have to see. >> what messages are you hearing from potential issuers when it comes to reviewing their ipo and here in hong kong or elsewhere? >> everybody is looking at this and asking the question what does this -- how does this impact me? this is not just about ipos. it is about a company and somebody who just wants to start a business. this is the time to do it. should i wait? that sort of certainty that this

-- created is very costly to the entire economy. need totical leaders take the responsibility and quickly defined what you wanted. you want this, we probably get a great. if you want this other thing, we can probably work it out. if you want something fundamentally you know is unacceptable to the other side, then we are going through a divorce and we are going into a civil and peaceful and hopefully a process to ultimately allow everyone to get on with their lives. that was our exclusive interview from the hong kong stock exchange. is bettingseas bank southeast asia will shielded from the trade war between the u.s. and china. iteo told bloomberg that

will become a safe haven planning to use digital technology and ai to expand in the region. rivals which took over hong kong lenders as a gateway to china. >> pimco chief investment officer says he expects more volatility and lower returns from corporate credit markets over the longer term. the $122 billion bond manager told us it is a counterpunching market right now which means being patient and striking during bouts of volatility. by far the area of most concern for us is the credit market. tocifically related corporate credit risk. that is an area where we have a decade of very low yields in an area where we are getting a lot more concerned about fundamentals. >> the two biggest trading houses are warning of a slump.

it citigroup says trading revenue has declined this quarter. joining j.p. morgan chase and reporting a downturn. on tuesday, jpmorgan boss jamie dimon says trading revenue was down to 5% so far this quarter. thatoomberg has been told justice department officials want t-mobile and sprint to lay the ground for a new wireless carrier with a new network. chiefurce says antitrust has not been persuaded that the merger would create a stronger competitor against verizon and at&t. he is still set on four major carriers. coming up next, we will talk more about the battle for rare earth area why thomas -- china's dominance of the sector could be

devastating in the trade war. this is bloomberg. ♪

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pointings currently weaker by a shade under one half of 1%. this is after another down day on u.s. equities markets. i'm paul allen in sydney. i'm shery ahn in new york. let's get the first word news. boeing has outlined plans to ease the 737 max 8 back into commercial service. that is once regulators lift a global grounding for the jet. it will take around three months before flights resume. in the meantime, teams are

preparing to take 500 jets out of storage including around 100 new planes that cannot be delivered until the grounding is lifted. israel will hold a new election after benjamin netanyahu failed a form of government by a midnight deadline. the six-week deadline expired with two of his party's potential partners unable to agree on a proposed military draft law. a nationwide strike in argentina to protest government austerity measures has halted hundreds of trains, buses and flights. many schools were also closed and hospitals offered emergency services. strike was organized by a labor union over plans to slash subsidies amid a recession , currency devaluation, and one of the world's highest inflation rate.

to luxury new york condos two a financier will be sold as part of a u.s. of forfeiture lawsuit. the owner is accused of buying them with money stolen from a malaysian fund. it is not clear who will keep the proceeds. lawyersors and his asked for permission to sell another luxury mansion in los angeles. a 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. we are still waiting for major markets to open in asia. >> when it comes to stocks to watch in australia, energy players reportedly preparing to revive a power policy that is designed to compel companies to cut prices and guarantees apply. and to divest generation assets.

on felt to have percent wednesday on the back of that news. fillompany is seeking to the gap in u.s. supply. we will also watch how miners struck oil prices which stalled after the exchange increased these on futures trading. production cuts to cope with weak demands. let's get more on what we should be watching. our editor with us. stocks trading lower since january. more gloom after a day of declines on wall street. >> it looks that way. right now, it is all about the fixed income markets. investors are trying to gauge what this tumbling bold -- bond yield from sydney to japan and the treasury yields are saying

about the prospect of a recession. there seems to be little doubt that the markets are now realizing that this trade war is here to stay. that is very different from the complacency we had about three weeks ago. aboutare genuine fears the outlook for global growth. there was more optimism a few weeks ago. it now investors -- it is really sinking in that with u.s. towardy yields, raising 2%, there is a genuine fear about growth. we have data coming up in the u.s. and that will be very the path forgauge the federal reserve. with the market already pricing in one and perhaps more fed rate cuts before the end of the year. all of the fears out there, it is not surprising that emerging markets entered a correction last week. what are we seeing? >> that is right.

the emerging market index down 10% from a mid april high. in oversold month territory. despite those valuations becoming more attractive, we are seeing an outflow from emerging markets. part of that is because they are a lot more vulnerable to this trade war because of the impact of the supply chain. also because of the stronger dollar we have been seeing. it is worth noting that the stocks waiting on that index are all giant asian tech companies. even though those stocks are still in the green this year, they are a lot more vulnerable to these tradewinds from a tech cold war. even the valuation is becoming attractive, the appetite is just

not there right now for these emerging-market stocks. >> thank you. gtv libraryk out for the charts you just saw. that is at gtv on the bloomberg terminal. robert mueller stopped short of exonerating president trump for obstruction of justice. this as he made his first public statement about the russian investigation. >> as set forth in the report after that investigation, if we had had confidence that the president clearly did not commit a crime we would have said so. we did not however make a determination as to whether the president did commit a crime. >> our analyst joins us for more. can you tell us about the political implications of today's statement? >> the special counsel broke two years of silence on the report. he did not go beyond what was

already written down and delivered to congress. leaving both sides disappointed somewhat. the power of him in person on camera saying those words that they were not able to say that no crime was committed is adding fuel to the impeachment drive among house democrats. several democrats that have been fence aboutn the proceeding with impeachment have come down now in favor of the house taking that action. steadfastsi remains in wanting to take down that for now and allow other investigations by house committees to take place. republicans also took it as another opportunity to say the case is closed. that this is done, he had his last say. this stepping down at

point and it is time for the republicans and the president to move on. we areching gears, seeing the u.s. is threatening -- this is a vehicle to keep trade between europe and iran what are they saying? with the trump administration withdrew that the nuclear accord, that was imposed by most european allies. the u.k. france and germany set thatis mechanism essentially allows companies to trade with iran not using u.s. dollars or u.s. banks as a way around the additional sanctions that the u.s. has placed on iran. what the u.s. is now telling them is that it doesn't matter where the transactions are processed through, anything that is sanctioned activity will subject companies to penalties

from the u.s.. is another ratcheting up of tension between the u.s. over the iran deal. the u.s. is once again trying to get those allies to go along with putting additional pressure on iran. the u.s. content that it continues to back terrorist andps and work against u.s. european interest in the middle east. this is another shot across the bow. the europeans have not yet fully responded to this latest step by the u.s.. yet. full response europe how about iran? any words from them? kept somewhatstly circumspect in their responses to the u.s. actions though they

have said they are not interested in talking with the u.s. or negotiating with the u.s.. president trump himself has somewhat softened his tone on the next steps by the u.s.. this perhaps may be the result of seeing some possibility for progress and the allies to go along the u.s. position. there still is some time to be spent negotiating between the two sides. and posturing between the two sides. >> thank you so much for that. is the latest on president trump and his foreign policy. boeing commenting on cbs news that he never considered resigning. he fell short in notifying airlines of the alert glitch.

this was the standalone warning signal of the angle of attack data that can indicate if the plane is in danger. he fell short in notifying airlines of that alert glitch. the airplanes continue to be grounded after those two fatal crashes. let's turn to another story. china's dominance in the rear of market could be devastating for the u.s. if beijing pushes forward with threats to use the front in the next trade war. the u.s. gets 80% of its rarer supply from china which are used in everything from cars and dishwashers to key american weaponry. reporter toin our talk about this. fighteralking about jets, smartphones, turbines. these are very important critical materials. china would also lose.

>> the initial reaction is if china is going to limit the amount of rare earth the goes to the united states, that would be terrible for the united states. the united states has to import the majority of the robert uriel's for rare earth but they also expect to import a lot of raw materials and finished form. that are already made for electric vehicles and generators. through countries that are major tried -- trade allies with china like japan and korea. that brings a question. are the chinese willing to go to that level? were they want to get back at the u.s. on this level of rare earth to do so, we are going to hurt the supply chain to other countries. i get the feeling sometimes that we are watching history repeating because the very similar thing happened about 10

years ago where china was threatening to tie up the supply of rare earth. why was there no diversification taken then? the u.s. could have something up and running by now. >> we have noticed that the share value of the import has gone down since 2014. the number we threw in there was a used to be between 500 and hundred 50 million in value and now we 160 million in value. it is obviously a western of are those raw materials here and at what length are minors willing to go at which they feel it is worth the cost to do so? -- importing them from china is such a cheap endeavor. to aally does come down cost thing. right now, there is only one u.s. producer that doesn't leave a major question on the table. cutsina just completely off the flow of those metals. >> take a look at the export

data from china. this chart on the bloomberg showing that they are exporting 4000 tons every month. you're on your growth really has been contracting when it comes to those exports. tell us about the rare earth metals. daunting. they have difficult names. they are not that rare. >> they are more plentiful than precious metals. people wonder what they are used in. the story was focused on the defense department. missiles, tracking and the f-35. we had one analyst is that if you are looking at the gdp impact on the united states, this is small compared to a lot of other things that china could go after. these are usually for permanent

-- it's basically the magnets. inge magnets that you need electric vehicles. outside of that, the question is how much of a big deal is this to the consumer? to the u.s. gdp? maybe not as big as we think. however, the biggest part of that is the critical part. that is what china might be pointing out. at least on the diplomatic side of thing. they can get the attention of congress when they say rare earth. it came of eight years ago. >> when we see xi jinping go into a facility, we see editorials pointing to the supremacy of rare earth. thank you for that. coming up next, new zealand handing down its budget today with a focus on will be a rather

than just economic growth. we will look at what to expect when a cheap economist visits us. this is bloomberg. ♪

shery: i'm shery ahn in new york. >> i'm a paul allen in sydney. begin budget is coming out thursday to target metrics that matter to everyday life rather than just economic growth. it was overshadowed by accusations that documents have been leaked to the media. well-being budget, a budget is about how you pay for stuff. >> historically it is. the capital aspect of it is very much front and center. people will be interested in the

continued budget surplus are also focusing on things like natural capital, social and human capital. it is not as easy to measure as the financial capital but i think it is still important and people's lives. seen the new zealand 10 year yield slipping. what is the growth outlook here? >> like everywhere else, to some extent in new england it was camouflaged a bit through 2014, 2015 into 16 by strong -- per capitad gdp had started to weaken. now that migration has started to normalize, those two trends have started to come collectively together. like a a bit new normal lot of other countries i think. >> if that's the case, what the government book look like at the moment? is still strong.

budgets typically lag at the end of the cycle. new zealand has done quite well isn if most of the growth seen a more by people than higher living standards. the government has an objective to get it down to 20% of gdp by 2022 and keep it around that level. i don't think those targets are under threat right now. australianseen yields also fell below the cash rate. chart showing you that. that's the first time since 2015. when you look at this global on therethat we have seen, has not been a particular catalyst. we are talking about trade tensions, global economic outlook, what is telling us? is this more of a fundamental

shift in investor sentiment at the moment? i think it is a fundamental shift. there have been expectations. let's go back to 2017. bullish.uite the world bank quite bullish. there was an expectation that the world was returning to normal. happening is to blame last year on the trade war. even last year when it is like the trade war was going to be resolved, about for was not really a bounce it was more of a stabilization. the realization is the 4% gdp that was recorded in 2017 growth could be it for quite a long time. >> it's going to be a big week here in australia. jpmorgan forecasting cuts in the next 12 months. what these see it doing? >> a lot of cuts in the last --

next 12 months says estoril your needs to stable for the recession. is quite weak and has a soft tone. it is almost certain to cut next week. typically they would wait a meeting and cut again. do have some signs of life in the housing market. the aussie dollar is down. one of the things they traditionally complained about is the lack of fiscal stimulus. note that the coalition government is back after a surprise victory, you think the shackles could come off? >> and 2019, australia hit the budget. both sides of politics argued how to get the budget back to surplus. the discussion now is about how

to spend it. there is fiscal stimulus coming. >> australia is one of the most exposed economies to the chinese economy among the g20 countries. we get pmi numbers out of china later on friday. what are you seeing in the chinese economy at the moment? we are going to continue the rebound in the first quarter. are we again going to see a bit of a more slowing down in the pace of growth acceleration? really important question, maybe the most important in the global economy does china hold six? i think you would expect the next to be weaker. on,n what has been going globally around trade, they should be softer the next couple of months. how much stimulus china does and whether it uses the opportunity of the trade wars to reset growth expectations that must

happen at some point is a big question. our view is no. >> accu for joining us. we have other big guests coming up. exclusive interviews with company executives. don't forget you can watch us live if you are a terminal subscriber. you can also dive into any of the securities functions that we talk about. thecan even become part of conversation by sending us instant messages during our shows. this is bloomberg. ♪

shery: amazon is updating alexa software to let users delete

recordings of their requests with a simple voice command. it follows criticism of the company's privacy practices after reports that some amazon employees listen to users of voice recordings as part of research and development. the only way to previously remove recordings was through a smart phone or on the website. talks withis in banks about arranging a credit billion ahead of an ipo. j.p. morgan chase is leading the potential financing. we work was found in 2010. backers are including softbank group. it is being touted as the years biggest offering since uber. shery: coming up we will be joined by wells fargo asset manager and other guests.

plenty more still ahead in the next hour on it daybreak asia. this is bloomberg. ♪

paul: we are under an hour away from the australian open. stephen: -- sophie: welcome to "daybreak asia." paul: our top stories this thursday, asian stocks remain under pressure after wall street slumped to a 12 year low amid growing concerns of a recession. robert mueller breaks the silence concerning the investigation did not conclusively clear donal