paul: welcome to "daybreak: australia." i'm paul allen in australia. inhie: i'm sophie kamaruddin new york. were counting down to the major open. ♪ here are the top stories were gathering for the next hour. the rising threat to the economy , increasing gloom sending u.s. stocks down the most in three weeks. washington placed on expectations for trade breakthrough china. the administration is still demanding a perform. ,n fedex with the mixed message

the annual earnings forecast falls short. shery: let's get a quick check of the markets close. the s&p 500 fell the most since may 31. the 10 year yield fell below 2%. it was already a shaky day when he came to the equity markets. rising geopolitical tensions between the u.s. and iran, not to mention a drop in consumer confidence as well as numbers that dampened investor sentiment. in you have the fed chair jerome powell and the st. louis fed speaking, investors did not like what they heard, saying a july rate cut should be limited. we saw every sector on the s&p 500 in the red, tech and communication stocks leading the decline. gold jumping the most in six

years, not to mention the yen also rallying. u.s. futures at the moment really not doing much. let's see how we are setting up for asia. asian futures appointing lower, going into it the session. it may complicate u.s. secretary of state pompeo's visit to india this week. in new zealand, kiwi stocks trading flat, halting a seven-day advance ahead of the with the governor standing pat. tylan also holding today and this wednesday will get data from malaysia. here in hong kong, more protests are planned this morning. paul: thanks for that, sophie. let's get the first word news

now. >> new data from across the u.s. show increasing threats to growth amid rising trade tensions and pressure on the fed to cut rates. sales of new homes fell to a five-month low, adding to earlier signs of weakness and lower mortgage costs. in the index of consumer confidence dropped to 121.5, the lowest level since september 2017. and below all forecast in a bloomberg survey. president trump's threatening iran with overwhelming force if it attacks any u.s. targets. relations between washington and tehran continue to crumble with the president even using the word obliteration. he was responding to our ranch morning at the past to a diplomatic solution is now closed after the u.s. imposed sanctions against ayatollah khomeini.

the hong kong leader's popularity has slumped amid mass protest against the exhibition film. her approval rating dropped to a record low of 23% while support for government is the lowest since 2003. sendinge the u.k.'s towd control equipment protests this month. grounded 737 max could fly again before the completion of an official investigation into a faulty sensor that led to two fatal crashes. fitnesson of the planes said not to depend on those investigations. the special committee began meeting earlier this month and is expected to release its report in 10-12 months. 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. again the federal reserve -- jerome powell reiterated his stance that interest rates are rising. the st. louis feds chair also agrees it is time to move. >> inflation expectations deteriorating, growth still ok, looking backward, but looking forward, it looks like a slowdown was some downside risk. you have an inverted yield curve. toseems like a good chance make an insurance rate cut and try to re-center inflation and expectations back at the 2% target.

>> data out today show a housing stats and general confidence. here to added up is our senior economist. great to have you with us here in the new york studio. hearnk it's interesting to jayerent views, and i think powell agrees that the case for rate cuts has strengthened. at the same time, they disagree about the timing. i don't think chair powell is do that just yet. he wants to see things deteriorated. bloomberg economics

recently updated its outlook. su keenan, can you explain your thinking? clear, ias pretty think the fed is ready to cut rates, not because they want to boost economic growth. they want to stop the yield curve inversion. it's the financial conditions deterioration that's making them go for rate cuts at this point. the fed does not want to invert the yield curve and if you look at the 10 year yield, it continues to decline. makereally don't want to the dollar too much stronger. look at the other central banks, they are easing policy, the fed cannot decouple too much from that. shery: especially given that

were seeing economic data with a huge drop in consumer confidence, not to mention home sales. didn't we have some positive results recently, like retail sales and factory output? so what happened? >> it is important to look at different kinds of data. it will be really key between now and the july meeting. i think the economic data will really define whether the fed moves in july or not. a very important report is coming out on july 5. and as you pointed out, it's important to see what the consumer is doing. the health of the consumer is the point where business investment is nonexistent, when home sales are decelerating and declining. it's really up to the consumer to lead economic growth.

starts deteriorating, we are in big trouble. paul: thanks for joining us. powell's comments added pressure to u.s. stocks and major indexes fell across the board. what are the key moves for the day? su: pressure not only from the powell put comments but there is increasing concern about the g20 and the u.s.-iran conflicts. we seen the dollar rise for the first time in almost six sessions. was tech witness, and let's take a look at some of the big movers. a huge deal in farmer. allergan surged after agreeing to be bought.

gave wall street heartburn is what one analyst said. you can see the downturn there. it almost doubled going into this month and analysts say they're starting to get squeamish about valuations. take a look at sanderson farm, the poultry company that is under pressure because of an investigation into price-fixing, or alleged price-fixing. notice the percentage spike here, almost as big as back in 2007. consumer confidence coming in at a two-year low, weaker than expected. shery: heightening those concerns about the economy in the u.s.. after hours were seeing some moves with two companies that are caught in the crossfire. su: we're seeing that a little

bit with fedex. they both beat expectations. if you look at the chart for fedex, one of the things weighing on it is china indicating that it may have not decided. take a look at micron, right in the crosshairs. it gets 10% of its revenue from huawei. it sees gains in the chip industry going forward so that is a positive for that stock. paul: also seeing oil moving higher in anticipation of a bigger than expected dropping u.s. supply and gold is also continuing its rally. su: a private report came out after hours. we are seeing oil rebound ahead of that. wednesday we get the government data. gold continues to be on fire,

the momentum resulting in gulping the highest in six years. from fed easing to conflicts all very bullish for gold. shery: su keenan, thank you. paul: still to come, president trump on the cornerstone defense pact with japan. will look at what that could mean for regional stability. shery: up next, the current market uncertainty. this is bloomberg. ♪

shery: we are counting down to downydney open pv futures .6% payment a down day for markets here on wall street as well. talking about rate cuts being

limited to .25%. we will see how trading get started in asia. i'm shery ahn in new york. in sydney.aul allen you're watching "daybreak: australia." the u.s.-china trade talks in global easing topping trade has 290 billion dollars in assets under management. thanks very much for joining us. let's start with the chart in the bloomberg library. we have jay powell warming things up for a potential rate cut. where do you see the equity market heading on the back of the fed speech? >> if i had to say one of the

things coming into today that had my attention is clearly what you just cited, how aggressive the fixed income futures market pricing, 100ted perchance -- 100% chance of a rate cut in july but and 88% chance for a second rate cut in september. in december.ance when you think about james bullard's comments today, he is dovish on the continuum. i think the fed is preserving its optionality. respond,to be able to but i think as i heard discussed earlier on the show, the data has got to get them there. that focuses my attention outside of what happened in japan with the u.s.-chinese -- negotiations. if it comes in solve, will he give them more latitude to make that cost-benefit analysis of a rate cut, and how aggressive of

a rate cut? with the fixed income futures market and potentially the equity market. paul: you anticipated my question, you can't measure geopolitics but you can measure in terms of which way it's going to go. what are your expectations? >> there are some risks i look at when i'm trying to look in a concurrent way at some of these things. we had the dallas manufacturing survey that was quite soft. there might be modest risk to the downside on that. that said, it's a tough call right now. if we get positive news on the geopolitical side, then we could see that kind of overwhelm everything else. there's a lot of moving parts, but we should focus on the things we do know and protect the multi-asset structure to defend yourself against whatever outcome we see. if were presented with opportunities, to take advantage

of those relative to the risk that investors can take. shery: were seeing the latest headlines with the st. louis fed president saying the white house approached him about a governor post, although he said he's happy as the st. louis fed president. the president continues to misbehavedfed as child, i believe was the latest, when it came to the president's comments. his is going to affect the market sentiment toward what's going to happen if a powell put will be in place, given that it's receiving so much political pressure? a great question. i think there's two sides to this one. on one hand the market likes to know and see that the

decision-making is outside of any political influence. on the other hand, they would love to see rate cuts. i think the market would air on the side of keeping that political involvement and influence on the fomc at a minimum. will still's -- we will still see those decisions from the fomc. you have two sides of this but they still want to see the independence of the monetary policy decision-making at the fomc. shery: we continue to see the defensive stocks gaining ground. the premium of defensive stocks against cyclicals is surging again. what does it say about the trade, is it getting a little crowded our sister right positioning given where we are at the economic cycle? doug: an insightful observation. everyone wants to be defensive because they're looking at this

range. if the get a positive outcome around trade, you could still 10% or market rallied 15% hypothetically. if we have a full-blown trade ar, you could have precipitous downside. as you said, a lot of people are appropriately structuring their portfolio more defensively. when those get crowded, it becomes very expensive and it becomes less defensive than you would think it would be given its original position at pricing. gordhan, a senior portfolio manager, thanks for joining us. some headlines crossing the bloomberg terminal right now, china is suspending -- suspending import support products from some canadian residues wereing found in one batch of a lean meat additive also used by the u.s. pork industry.

so china suspending imports of some pork products from some canadian companies there. still to come later on today, an exclusive interview with australia's prime minister after he delivers an address. morrison's scott first major foreign policy speech in his second term. this is bloomberg. ♪

paul: i'm paul allen in sydney. shery: i'm shery ahn in new york. you're watching "daybreak: australia." that's get a check of the business flash headlines. the deal cap some multiyear overhaul of the canadian playmaker which will now be focused on business jets and passenger trains. it will boost mitsubishi's

efforts to roll out its own regional aircraft line, now call the space jet. paul: workers continue to block access to some of chile's biggest copper mines, extending their strike to 12 days over a labor dispute involving the minds run by the world's largest producer. industry 10,000 tons of production. labor union say there currently no plans for talks. shery: an ipo could raise a billion dollars u.s..

we are told the company is involved in a plan share so that could take place in hong kong were new york. it has more than 3500 stores around the world. fedex beat analyst estimates on earnings per share for the fourscore -- for the fourth quarter but it's the guidance that is bringing the stock down and after hours. blaming global trade weakness. details, ther the trade disappointed with under the trump administration. what does fedex have to say about the forecast >> it's basically a tale of two trends. >> fedex expects to make more money from e-commerce shipments exterior. it's investing a lot of money to do that faster and more profitably. what is dragging them down is trade weakness. with trade flows under stress, that means fewer packages going across oceans and less business for fedex.

so they have sort of a good news-bad news story for wall street right now. shery: did you hear any more details on the losses we have from fedex against the u.s. over those new export restrictions targeting china? >> waiting to learn more. they said on the call that if it is possible to work out a settlement with the commerce department, they are certainly open to that. they reiterated that they feel like they cannot be in the position of having to serve as the policeman of what is in the 50 million a day packages they handle in their shipping network. have the rising trade tensions with china affected the picture going forward? >> it's really weighing on them. china is a big part of their future, the way they have planned it, and the challenge they could face is that it's

possible that china could put them on a list of unreliable companies, which would damage their business at a time when both fedex and ups are plowing money into being able to serve more customers in china and handle more traffic across the pacific. shery: so what is next for the company? we have seen some new strategies by the ceo there. they are basically doing a lot of new things. they recently introduced seven-day delivery. they are also doing buyouts of employees in the u.s., which means they're trying to cut costs. it's all part of an effort to drive down the cost per package. one of their big challenges is that the part of the business that is growing, which is residential deliveries from e-commerce, the problem with that is it tends to be less profitable than handling

packages at an office. --what they need to do is cut the cost. much, thenk you so latest on fedex and will have more of president trump's trip to japan and the g20. this is bloomberg. ♪ i don't know why i didn't get screened a long time ago.

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so why didn't we do this earlier? life line screening. the power of prevention. call now to learn more. paul: it's 8:30 wednesday morning here in sydney. futures are currently weaker, off .5% after a down day on u.s. equity markets. shery: you're watching "daybreak: australia." let's get the first word news. >> u.s. stocks fell the most in three weeks as fed chairman jerome powell warned about rising threats to the economy. speaking to the council on foreign relations, he said the lack of progress in the trade war and week eco-data causing concern about global growth.

a consensus that the fed will cut interest rates in the coming trump something president has been demanding. >> our judgment is that on balance, the vulnerabilities of the financial system are at a moderate level. there will always be vulnerabilities. i would say, as i said at the beginning, i would not hesitate to deploy a countercyclical buffer if the test were under our framework. >> the trump administration playing down expectations of trade talks at the g20, saying it is not prepared to compromise. president trump and xi are expected to meet on saturday in osaka. finance minister has told bloomberg the trade war is hitting the economy and she would be happy if the central bank lowered rates to provide help. >> if we look at the tensions in

risk, weof creating see the risk in terms of global growth weakening and the global threat which is also weakening. this is creating more global rates for our country, including indonesia. >> trade war tension it three top chinese banks was shares tumbling after u.s. media report suggested they may be caught up in an inquiry into plan violation of sanctions. said threeton post unidentified chinese banks were found in contempt for refusing to comply with the investigation. a dealnt trump's offered , using a glossy video to show his vision for the palestinian economy. jared kushner told a seminar in bahrain that a deal with israel could launch a vital commercial

and tourist hub in gaza on the west bank but did not ask lane how to achieve political reconciliation in the region. palestinian leaders rejected the seminar. >> economic growth and prosperity for the palestinian people are not possible without injuring and fair political solutions to the conflict. when that guarantees israel's security and respect the dignity of the palestinian people. >> 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. let's turn back to sophie in hong kong. sophie: we are watching aussie coal miners as shipments to -- fell while russian exports at a record. goal miners in sydney also in

, reportedly considering 3 billion aussie dollars in western australia. we'll track to two point 4% rise in wellington after announcing a share buyback and proceeds from a sale. it's being weighed by a falling residential market. thanks very much, sophie. trading gets underway in asia. adam is with us. bearish ahead of a rate decision later today. adam: as we see markets get to thatme levels, the risk of

backfiring does often materialize. it's difficult to predict what the aussie is going to do, but the tone of the statement, assuming they don't move, will be what traders are looking for, to move potentially. the charts show the extremities of the short kiwi position, the extent of how far that has gone. those red bars have come all the way down now. it shows that there is a usential to lean on the hawk -- hawkish side a little bit. you can see little bit of a rally is that takes place. it will be an interesting one to watch today. that will be the main piece of information for asian traders first thing this morning. shery: we are seeing some

caution returning to the stock markets. how come some traders including hedge funds are jumping back in and leveraging up? adam: of course there is always some part of the markets that are willing to take on the additional risk and put it back on at a time when stocks are close to all-time highs. what's interesting about this particularly is that it is a part of the market that was previously reluctant to get involved in the rally, back in the middle of last year, that was the case. now there has been a notable sector ofthe leverage people who are willing to put on additional bets. they had a 6.6% increase over the last month and that's brought it up to about 64%, the highest we have had in quite some time. and indeed, it is happening at a time when people are increasingly nervous about how

much multiple expansion you had in u.s. price-earnings ratios, given that fed cuts are pretty well priced into the market. it begs the question as to what further they might seek to push this higher. some part of the market is still thinking you want to take a little more risk in equities. paul: adam, thanks for joining us. check out our library for some of the charts you just saw there on gtd . president trump recently mused about withdrawing from the long-standing defense treaty with tokyo. it treatsdly thinks the u.s. unfairly. however administration officials say pulling out of the treaty is unlikely. tobias, great to have you with us. given that we have seen the

president withdrawal from treaties and deals, are you surprised at all by this? tobias: the thing that is not surprising is that the president for 30 years has talked about how unfair the u.s. and other defense relationships, he's talked about nato in the same terms as well. this is something he is not said before. to the extent that people are surprised, maybe it's because they wanted to forget that that is what he said before. shery: why are we hearing this sort of talk now, then? tobias: we have to step back and look at where the u.s.-japan relationship is. last month he talked about how important that relationship is. the administration certainly access if that is the case. largers buying ever amounts of u.s. weaponry. hadhe other hand, you've

u.s.-japan trade negotiations that began after japan was reluctant to join those talks after trump complained about japan's trade surplus with the u.s.. looking into 2020, you have the u.s. and japan looking ahead to renegotiating the terms of japanese support for japan. that's the backdrop for this kind of discussion. shery: whether this is true or not, how much leverage does this in hisime minister abe own domestic policies? he has long wanted to change the pacifist constitution. tobias: i don't think we should look at it that way. if somehow in the unlikely event the u.s.-japan security treaty

were abrogated in the u.s. withdrew its security guarantees from japan, you're looking at a fundamental shift in japanese to mystic policy. this is something there is no precedent for. i suspect it might open the door to constitutional revision but it would cause japan to have to fundamentally rethink how it defends itself. you have a total earthquake in japan's domestic policies. east asian security affairs with unpredictable effect on what it means for south korea and china and all the countries in the region. you're talking about something so colossally big it is hard to wrap our minds around what the implications would be. mind,keeping all that in does this start to look more and more like some kind of bargaining chip? tobias: that's how it looks to me. without more buy-in from congress and the u.s. military, theomething, trump saying

things he is always said in a private context. this is what the president leaves and has thought for eight long time. we don't want to go there, but this is who you're dealing with. there seems to be a lot of resistance to the idea. they appreciate having those bases in japan's support. he would have to find a way to build a coalition to get support for this kind of move. paul: we are on the eve of the g20 summit in japan, it's being watched closely for a of reasons. what would japan be hoping to get out of this? tobias: the prime minister is going in with a realistic

approach. i think he recognizes that getting a consensus on some of , i hardest global challenges don't think he expects a dramatic breakthrough on climate reform, which is another issue he has highlighted, but i think he's trying to find some way -- is there some area where you might get limited agreement or at least start negotiations. on datathat is the hope flows. first you have to get to the agreement where you have discussion on negotiations on that. i think that really is his goal going into the summit. shery: does the trump administration have a strategy on a should that is not completely centered on china? have sort oftill the structure of the obama

administration's rebalance asia strategy. you don't really have a comprehensive economic, military, political strategy that says this is what we want asia to look like. there's a lot of talk about countering china militarily, but not a lot of sense of this is what the u.s. is offering as an alternative. paul: tobias harris, thanks very much for joining us this morning. still to come, the controversial coal mine one approval in queensland. the deputy premier joins us for an update on the project. this is bloomberg. ♪

mininghe indian coal giant after years of struggle has finally got the go-ahead for its mine in the state of queensland which is expected to deliver some pretty healthy royalties for the state there. we had the deputy premier and treasurer with us, thanks very much for coming in. there is an agreement on the carmichael royalties. when might we see something? >> now that all these approvals have been put in place, final negotiation around the agreement is underway. that will take its normal course of action. it's no impediment to them commencing work. paul: the groundwork has begun.

i just want to bring up a chart on the bloomberg terminal. these are some numbers compiled by bloomberg. i'm sure you have seen plenty of statistics like this. in 2026.d to peak thate: we've always said the carmichael mine has to stand up both environmentally and financially. they made the decision to continue the project. your chart is incredibly interesting. i wonder if this is around the geographical breakdown of supply and generation from coal. we know that in europe, for u.k. has gone a number of weeks without using firedlowered -- coal

power. but we also know there is a different story. like other states in australia, we are diversifying our energy generation. we made a commitment to 50% renewable energy can ration by 2030. we are almost at 20% now. we will continue on that path. for years we have been facilitating significant large goal energy projects to connect to the grid, feed into the grid. what we have seen is a direct result of that, significant price decreases because

renewable energy generation has reduced the wholesale price of electricity in the state. paul: they have a lot of gas reserves as well. the state budget did announce an increase in royalties. it did not go down to well with the industry. could that deter investors going forward? jackie: i don't think so. the issue around the gas royalties going forward look very much like the decision was based on the fact that over the not10 years they have driven the industry to be established as a competitor. 10 years ago we were not supporting any lng. has made the decision to open up the gas resources. other states have not. the industry is growing, it is established, 46 percent growth

over the last year alone. we think it's time the industry gives more back in terms of taxpayer resources. paul: i'm sure you were surprised about the reelection of the morrison government. has that cost any recalibration of the budget? jackie: we are keeping track of all the commitments being made during the election and the potential it fact -- impact on agreements fiscal decisions. the much greater problem we have, it's not only queens land, it's the growth of consumption within the nation. we're facing significant write-downs in revenue to the state, to all states. that's the impact in queensland. apart from the election outcome, the problem we have in australia is that wages are stagnant and

consumption growth is very low. something needs to be done to kickstart the economy. we are doing our best in queensland. paul: and you have an infrastructure spending program. jackie: correct. critically, in places like the those minerals that are desperately needed for the new economy. paul: thanks very much for joining us here this morning in sydney. still to come later on today we will have an interview with australia's prime minister after he delivers in a stress on australia and the indo pacific. with scott morrison's first major policy speech after

winning that second term. watch us on our .nteractive function on tv you can become part of the conversation by sending us instant messages. .heck it out at tv this is bloomberg. ♪

shery: i'm shery ahn in new york. allen in i'm paul sydney. you're watching "daybreak: australia." let's get a quick check of the latest business flash headlines. projecting sales at the current quarter will be in line with analyst expect haitians. estimate,he median micron announced shipping some products to huawei. some: fedex recovered

regular session losses in late trade after fourth-quarter earnings-per-share topped expectations. as the traderecast as trade talks continue. it includes reducing reliance on the u.s. postal service. paul: the hsbc boss says the bank has not yet felt the impact of the trade war on its earnings but says continuing tension could lead to more investment decisions. income.perating flint says china's rapid .xpansion in the global economy >> when we get past trade, it's clear there is a broader desire to see china contained in some

way. i think we will move into ,hapter that covers technology there may be a bifurcation of technology and technology standards. on a: microsoft slumped report that called it materially overvalued. saying cloud computing products are too high. the drop marks microsoft biggest one-day law since january, but the stock has still had a strong month, with an eight day rally that took it to record levels. gates is always forthcoming about the company's mistakes. in a conversation with david rubenstein at the economics club in washington, he opened up about microsoft biggest mistake. >> we missed it by a tiny amount. we were distracted during our antitrust trial and we did not assign enough people to do the work permit the biggest mistake

i made in terms of something that would clearly -- was within our skill set, we were clearly the company that could have achieved that, and we didn't. designwed the motorola to go to android. dominant non-apple mobile phone operating system globally. watch the david rubenstein show on wednesday nights at 9:00 p.m. eastern in the u.s.. 7:00 p.m. hong kong and 9:00 p.m. in sydney. shery: plenty more in the next hour on daybreak asia. thefight against costco and south korean government. stay tuned. paul: that's almost it for "daybreak: australia." trading in new zealand is underway.

we are an hour away from the open here in australia. futures are currently a little bit weaker and the kiwi dollar fednst the -- ahead of the decision. this is bloomberg. ♪ we're the slowskys.

we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help. snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands! check it out! now you can schedule a callback or reschedule an appointment, even on nights and weekends. today's xfinity service. simple. easy. awesome. i'd rather not. mark: good morning, i am going

in sydney. >> good evening, i am shery ahn. kamaruddin inphie hong kong, looking to daybreak asia. paul: our top story this wednesday, jerome powell warns of english england. this sends the stocks down the most in three weeks. washington plays down