♪ welcome to "bloomberg daybreak: australia." ahn. ahn: i am shery sophie: we are counting down to the open. ♪ paul: here are the top stories in the next hour. can't wait to cut. andents from numbers two three suggest a ready to move. morgan stanley losing ground, 14% drop in equities trading revenue the steepest among banks. the fallout from the 737 max grounding worsens, boeing taking

a $5 billion charge when it reports earnings next week. shery ahn: let's check the markets. continueat momentum with u.s. futures gaining 0.25%. stocks were down for most of the reboundedssion, then as we have dovish speak from fed officials. stocksals and consumer leading the gains on the s&p 500. we had chipmakers gaining ground, some positive outlook numbers for tsmc, which is an apple supplier. we had a boost from geopolitical news with the word out that iran had offered a substantial deal to the u.s. that boosted equity markets, but then later had news that the u.s. shot down an iranian drone, so that tempers gains. 0.3% at theing

moment. let's see how we are setting up for asia. sophie: a mixed start with kiwi shares weaker. inures pointing higher seoul, korea in sydney on earnings prospects. gains in tokyo to wrap up a tough stretch into sunday selections in japan. a ramp up in volatility for the nikkei 225. looking for support after a two-day drop with calls for fiscal stimulus after the surprise rate cut. the aussie holding onto gains on bets the central bank will hold off. it continues to benefit from diversions, and the offshore yuan folding onto gains. the yen near at three week high as geopolitics fuel it. shery ahn: thank you.

let's check in on first word news now. >> thanks. relations between the u.s. and iran have and further strained by the seizure of a tanker in the gulf and the shooting down of an iranian drone. the ship was halted because of the suspect did of smuggling oil. but picturesunday, have just been released. washington is demanding its release. it also said it destroyed an iranian drone threatening a warship. >> they took defensive action against an iranian drone which had closed into a very, very near distance, approximately 1000 yards, ignoring multiple calls to stand down and was threatening the safety of the ship and the ship's crew. immediatelys destroyed. >> the u.k. was warranted faces

regulations before financial firms will be allowed to do business with the eu in the event of brexit. the commission would lay out its view of the equivalent system, which allows companies to operate within the block only if domestic regulations are deemed tough enough. the eu draft will be presented in brussels later this month. bank indonesia cut its key rate for the first time in almost two years and said there is more to come as it moves to support the economy. the seven-day reverse repurchase rate was lower by 0.25 basis points in line with most forecasts in a bloomberg survey and came hours after a similar move from south korea and ahead of the fed decision at the end of the month. taiwan is bracing for the arrival of the first major storm of the season. to hithoon is expected the northeast coast. domestic flights have been

canceled, schools and offices closed, and the weather bureau has issued warnings. the government has deployed the military to provide assistance in more remote regions. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. thank you. the fed's number two and three have come out, just a week after chairman jay powell signaled action is needed. this, as forces weigh on global growth and inflation remains below target. kathleen hays has remarks from john williams and richard claret jug. it seems the narrative -- richard clara debt. it seems the narrative is the fed can't wait to cut. >> he called the speech living life in the zero lower bound.

this is about the fact the fed has its key rate at 2.5%. if things get bad, you are awfully close to zero. rates quickly cut when they see a stimulus need rising. he said the lesson with the zero bound is to take swift action. he said there is no advantage keeping your powder try. john williams also talking about inflations and inflation expectations, but this was a strong message to send, and no doubt he knows exactly what impact this could have. let's look at the impact on the 2-year note, the short end of the treasury yield curve. you can see that yield down to 1.74%. the past few days, it was nearly 1.9%, a swift response. people are wondering what the fed might do. john williams got his message across today. paul: william spoke on the same

that the gauge of u.s. manufacturing search. retail sales coming in strong. so what is the big rush? clarida have an answer. he said you can't wait to cut the economy has clearly and obviously fall. he said you need to act quickly or act now to keep the economy on an even keel. untiln't have to wait things get so bad that you have a dramatic series of rate cuts. importantly, where the risks are lined up. now they line up in global forces, the trade war that keeps going, a global growth slowed down. that is why so many central banks are cutting rates. that is what the fed is saying. the domestic economy looks good,

but that doesn't mean we shouldn't start cutting now. shery ahn: are they getting ahead of themselves now? >> they are starting to price in a 50 basis point cut next week, july 31. i spoke to jim bullard on june 25. he said the 50 point basis rate cut would be overdone. we just heard from the kansas city fed saying she doesn't think a rate cut is needed. are both fedy voters. even so it looks like even if george says it will not make a difference when you have the top three fed officials going in that direction, it will probably happen. if were looking at emerging markets in asia, if the central banks want to make their moves, they got the message today. all right, kathleen hays, thanks very much. u.s. stocks did rebound after

john williams comments. we will go in that next. shery ahn: later, boeing warns that a $5 billion charge related to the grounding of the 737 max 8 plains. this is bloomberg. ♪

paul: we are counting down to the sydney open. another beautiful winter's day with futures higher by a quarter of a percent. shery ahn: don't gloat. it is hot in new york. you are watching "bloomberg daybreak: australia." talk about the market session. microsoft rally late after sales and profit beat estimates. fallout froms the the grounding of the 737 max 8. we have the regular session. down, much of the morning

then these comments from fed officials came out in the equities markets rallied. >> sharp turnaround, stocks higher, bonds and focus. let's go into the snapshot. the chipckside we saw stocks move in a big way that had to do with tsmc putting out positive remarks. no treasury 10 year yields dropped. one of the bigger stories, relatively flat going into the friday session. let's go into the bloomberg. where you can find our library charts. an interesting trend, the two largest tech etf's have seen outflows, investors pulling their money out in eight of the past 10 to 12 months, a trend many are starting to watch. take a look at the big movers.

decline.big it was one of the major stories that track down the faang complex. it underlines concerns that tech stocks may be overvalued. concern was verified for those saying netflix was overvalued. one analyst saying the growth story is really coming to an end. he called for a big decline, 30% decline a couple of months ago. he is reiterating it. it is already down 10%, but he sees the stock has more weight of fall. you see the big strength in chip stocks, a lot of that having to do with tsmc giving a positive outlook. paul: let's stick with tech. microsoft, the big announcements, sales beating, sitting on a nice cloud as well. what is the story? ceos cloud strategy

giving optimism to investors. it has been a strong chart year to date, but this gives it a booze. revenue for the fourth quarter beat the highest estimates. billion, a 12% year-over-year climb versus the estimate. the cloud business clearly driving sales and extending this outperformance under the latest ceo. let's talk about how companies are paying subscriptions for software and runnin renting computer power. that is the trend microsoft has moved into, a big payoff. the company is a clear winner in the digital transformation trend, according to analysts watching this. paul: all right. ask very much for that. let's get more on those market movers with the chief global investment strategist for charles schwab. i want to get your temperature take of earnings season so far. a mixed bag. morgan stanley, not such a great

result. some good numbers from microsoft. what is you will, of things? >> a pretty lackluster earnings season. we are seeing outright declines on a year-over-year basis for the s&p 500, the stoxx 600 in europe, and even the nikkei 225. these are modest declines on a year-over-year basis for the average company. that does not bode well for the stock market now at all-time highs. i think the second half could be about the guidance we will get out of this season, which could trade in then overall global slowdown, as evidenced in the manufacture reports and pmi which is now in recession. paul: as you say, you are underwhelmed by earnings so far, and may the outlook as well, yet of s&p nudging, so how much

this equity rally has been inspired by the fed, and doesn't that speak to underlying weakness? >> you are right. it is all about the fed. it is interesting how the market moves with how the fed is the economy and what they might do. the movie theaters are full of films about superheroes now. i think the market ceased the fed as guardians of the economy, and they will use their superpowers to avert this global economic slowdown, but i don't think a few rate cuts will make a difference, 25 or 50 basis points, at the end of this month. this is probably a mild economic downturn and global scope, and there is little ammunition by other central banks to add to the u.s. while the bond market is pricing in a realistic probability of a slow down, stocks have gone the may b inection and

and shery ahn: getting -- may be in for a surprise. shery ahn: jp morgan asset management in april told people to load on risk assets. take a listen to what he had to say. >> all the way down to zero. i think that is where we are headed over the next couple of years. we have had the recovery. it is coming to an end. now the central banks are falling into lining cutting rates. we saw it overnight with the bok. we saw it with the bank of indonesia. you will see it at the end of the month with the fed. you may see it from the ecb sooner than people expect. we think you need some shock and awe. that is the journey we are on until something different happens. howy ahn: considering that, does the bond probably look at the moment? is it in overbought territory or

adequate levels given the macro environment? >> usually that ten-year yield moves down along with with the fed does, so that movement may continue as long as the fed cut rates. it is a question of whether these are insurance cuts or the beginning of a new cycle. like on the 10 year feels that floor to us. we don't think the downturn will be that people brought that it requires more action. the future actions of other central banks may be focused on quantitative easing efforts, rather than further lowering interest rates. there is not much more you can do without doing damage to the financial sector and undermining profits there, which is the biggest sector by earnings for these companies. you don't want to undermine the financial system. instead moving towards qe outside the u.s., and that may lead the momentum on the downside for interest rates.

shery ahn: the financial markets aside, if you look at what rate cuts have done historically, what has been the success rate trying to reverse of potential recession? >> zero. the fed does not do a good job forecasting economic performance, nor fine-tuning economic growth. where they are good is cleaning up the mess afterwards. that is where we need them. when we find ourselves in the downturn, ensuring liquidity and solvency, that is a critical role for the fed. fine-tuning the economy, they've never been good at that. jeffrey, how do you see the health of the consumer in developed markets now? you feel confidence may have peaked? >> i do. it still looks good as we look at the average, everyday purchase. we saw what amazon did with prime day.

we are seeing good purchases at supermarkets for the everyday consumer staples purchases, but we aren't seeing in the pullback in big-ticket areas like cars. asia, u.s., europe, and auto sales are down. consumers are increasingly doing that. that is an early sign consumers are feeling a bit more cautious than they were six months ago. paul: all right. the chief global investment strategist for charles schwab, thank you for joining us. you can get a roundup of stories in today's edition of daybreak. bloomberg subscribers can go to on the terminal. you can customize your settings so you get news on the industries and assets you care about. this is bloomberg. ♪ oomberg. ♪

paul: i am paul allen in sydney.

shery ahn: you are watching "bloomberg daybreak: australia." boeing 737 from the max grounding is widening with a near $5 billion charge when it reports quarterly earnings. let's cross to our aviation reporter. what will the charge cover and how big of an impact this have on boeing? primarily go will to customers in terms of consideration and other things boeing will have to do to make up for this extended grounding. that is what a lot of investors are focused on, having a concrete number at this point. outlook, isms of there any feel for how many quarters into the future this may ripple on for? >> there is not a good feel for that, but definitely multiple quarters into next year. boeing aside from this charge

will have to deal with customers and the legal cases that have arisen from these two crashes. we don't know too much about the future legal liability, but that is definitely a financial component the company will have to encounter. shery ahn: do we know when the 737 max will come back and operate? the faa is not giving us clarity. the dot, elaine chao, secretary spoke today in washington and said there is no timetable. the timetable is purely about safety. today boeing did say they expect the max to return to service in the fourth quarter. that is the timeframe that gives investors some comfort. at that point, deliveries can resume, and was deliveries resume is when boeing gets paid. paul: once the max returns to service, that is not necessarily

the end of it. individual airlines will have to decide when they want to resume flying? >> right, it will take several weeks for most airlines to get back into service, and several months for others. we will likely see a different pace at different carriers. that is one of the main issues here. once regulators sign off and say this plane is safe to fly, boeing can begin their deliveries, begin resuming the normal process, and that is where some of these costs we have seen where it starts to make it back in terms of payment to the company for products going out. that is an important thing investors are focused on right now. shery ahn: have we heard any major airlines cutting business with boeing? >> we have not. there was one order that was theched over to airbus from

saudi arabian budget carrier, but it has not been the case where the max has represented a big loss in business. everyone so far is standing still and those orders are unchanged to this point. , thanks forght joining us. let's check the latest business flash headlines. considering asset sales in austria, south korea, and central america after the failed listing of its asian unit in hong kong. dow jones reports the company wants to raise $10 billion to cut debt. acquisitions of hundreds of brands have left ab invev owing more than $100 billion, while global beer consumption is slowing. shery ahn: china's top importer of liquefied gas is weighing an ipo in singapore. oriental energy is discussing a

share sale for the unit. other exchanges are being considered, including hong kong. imports haved gas increased underpinned by new plans that turned the fuel into building blocks for plastics. paul: the outlook is bright for the world's largest contract chipmaker. quarterly revenue better than estimates and shrugged off concerns over eight quarterly downturn over the trade war. income fell to just over $2 billion, better than analysts expected. the ceo says business is now set to rebound. inry ahn: microsoft gains extended train as quarterly sales and profit topped estimates. the growth is thanks to the strength of its cloud computing business, which racked up more clients. commercial cloud revenue jumped by more than a third and profit

margins widened to 65%. shares have surged this year over optimism on the cloud business. com, zerol to yields ahead. we will have more in a moment. this is bloomberg. ♪ g. ♪ we're the slowskys.

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♪ we have the market open 19 minutes away. 0.25%s pointing higher by after positive gains on the u.s. equities markets. i am paul allen in sydney. shery ahn: you are watching "bloomberg daybreak: australia." let's get the first word news. >> thanks. the fed sending more signals it will cut rates this month with two top officials calling for action sooner rather than later. john williams and richard clara rida said aussie maker shouldn't wait, it is expected to cut rates by 25 basis points at the end of the month, but

opinion is divided on a 50 point reduction and others on note that at all. china's coal industry group said the government will restrict imports in the second half, keeping shipments at similar levels to 2018. becausethe halt is imports have exceeded quotas in the first six months of the year and says overseas orders will decline because domestic demand is faltering. exports of gold from switzerland have fallen to a record low as major global buyers balk at high prices. order slump 55% last month due to smaller orders from india and china. the rally has lifted local prices to a new high in india, in slump indicates demand is slowing after gold hit a six-year high. in two deadliest fire

decades has killed 33 people at an animation studio in kyoto. 30 more being treated for injuries. a man screamed "die" as he burst in the building, setting flammable liquid alike. the man tried to escape, but collapsed on the street and was captured, detained and taken to a hospital with injuries. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. thanks very much. we want to get you to an alert on the bloomberg terminal. in a be has a new ceo. has a new ceo, ross eeo of rbse former c -- ceo of rbs. he did indicate he might put himself in the running for the

top job. ross mcewan will begin as the ceo know later than next april. ross mcewan, former rbs ceo to be the new ceo of national australia bank, which came in for a severe beating at the real commission in austria. shery ahn: let's turn to u.s. banks. morgan stanley rounding out the week of bank earnings on a negative note. our finance reporter is here to tell us more on this. weak,w trading would be but the magnitude of the slide was surprising. >> wow. 14% decline in equities for morgan stanley. it is known as a trading powerhouse. it is worrying. on thesome bad numbers bond trading side of the house as well. it looks like a bad picture.

because morgan stanley is not as the source of pride -- as diversified, morgan stanley took this pretty hard. paul: wall street's trading divisions have the worst first half in the decade, so quite were results so bad? >> it is a combination of things. if we want to use a sports metaphor, clients are all on the sidelines. we have an uncertain macroenvironment. we don't know for sure if the fed will cut rates. we have a global trade war, worsening conditions on the macro fund for global growth, so a lot of clients have not decided how to reposition for this outlook. they have stayed on the sidelines. that has had a pressurizing effect on all banks and their trading divisions. shery ahn: let's look at the rest of the year. we are now expecting fed rate cuts. how does this impact the outlook for banks? >> it is all about the fed now.

things were asked repeatedly on calls this week what it will mean for profits. when the fed cuts rates, that will pinch margins because they won't be able to charge as much for their customers. banks have been talking about the potential impact on revenue all week. it remains to be seen when the fed will confirm when this will happen, then we can go from there. we also have the outlook for the u.s. consumer, a lot of the outlooks were positive, so i bright spot in what was otherwise disappointing. reporter,finance thank you for joining us. let's get more on the fed and what we should be watching us trading gets underway in asia. our global markets editor is with us. adam, a market suggesting a 50 basis rate cut might be coming this month, so is there any juice left in the tank for gains from here?

>> it is clear how quickly sentiment is changing. charles schwab talking about how intraday moves are getting bigger. we had another one overnight. the movement in the euro-dollar futures pushed out quite significantly. it is right there in your gtp library. library. we have been diving back expectations, but now 50 basis points is alive and kicking. an interesting point by citigroup, they are noting the timing of these two senior officials with their dovish commentary, coming just before the blackout period start, which is when you don't hear from any fed speakers prior to the decision. he notes that in particular really enforces for him that the fed will definitely move by 50

basis points in his you, so the market is leaning towards that. equities are enjoying a nice pick up, but the dollar kingsland was the real move. your question about whether there is more in the tank, there is, but you only have 10 days whether 25ut comes, 450, so equities looking fully priced at this point. whether 25 or 50 or so equities looking fully priced at this point. shery ahn: not the fed put, but the trump put, we know the president loves the stock rallies. >> we do, don't we, because he tells us he loves it so often, little bit less when stocks come off, but it is an important point. , we spokelks at bnp to the ceo of asian operations

for the asset management part, she is backing that trump campaign element of the rally and the fact trump would not want to do anything to harm and equity rally, which is so important to him and so symbolic, so yes, there may be flareups in the trade tensions over the next few months, but she does not expect serious deterioration and any real threat to how that might feed through to equity prices, so certainly at least in her view she is backing the fact that trump won't do anything to destabilize that rally too much, but of course, as we were saying before, a lot of this is dependent on with the fed will do. trump has been pressuring the fed, saying it was a mistake to be hiking in the back end of last year. now it is not long to wait and see what they would do with the end of this month. paul: thank you for joining us. you can check out our gtv

library for the charts we have been talking about at gtv on the bloomberg channel. shery ahn: let's look at the shift dovishness with the president and founder -- great to have you with us. this turn to dovishness from the wasand bank of indonesia, this the case of these economies thinking there economy is in such dire condition, or the fed has virtually guaranteed a rate cut? why didn't they just wait? .> it is the latter what is happening with the fed is they have essentially guarantee the rate cut on july 31. mario draghi has indicated the ecb release further, so two major central banks will be following easier policies during the months to come. the problem for these countries,

not only korea and indonesia, but particular before thailand, it is a big rush of foreign capital going into those countries. unless they do something about it. what you see happening is korea has cut rates. indonesia has cut rates. thailand on the others has decided they don't want to go through that route, but put restrictions on foreign capital and easing the ability to invest abroad. they are trying to find ways to get ahead of the curve, and you will see more of that happening during the months to come. if they're going to let their currencies weaken as a result of these moves, expect the fed to ecb to back further and you will have several rounds of these tit-for-tat moves taking place. shery ahn: if we see central

banks cut and ease policy to boost their economies, can it backfire in the sense that this will actually push for more risk-taking, more debt added to the economy, which could eventually weigh on growth? >> absolutely. you see that happening with u.s. high-yield. the spreads have come down sharply in the last couple of months. you see that in the case of greece being able to offer a seven-year paper at a very low yield, was just a few months ago it was in difficult straits. you see the italian yield having come down sharply in the spread between italy and germany narrowed massively. these are all indications that the ecb-fed policies are having an effect in terms of having investors reach for yield. it is good in the short term. youoosts the market, but

are setting yourself up for a bigger fall sometime in the future. paul: what we see going on in the bond market you have described it as a paradox. i like this description. can you unpack that for us? caseat i said was in the -- this case, it is an essential item when the price of the item goes up. it is so important to the consumers they can't do without it, so they buy more of it, and once they do it, they have less money left for other items. ins is used, particularly the context of the irish potato famine of the 1840's and the price of potatoes rose, the irish in return reacted by purchasing more potatoes, and -- the the op. cit.

opposite of what economic theory tells you, when the price goes up on demand goes downs. in the case of bonds, yield goes , you price is increasing find suddenly for a variety of reasons that the bond becomes more and more attractive, principally there is so much fuel was the bond yields go down that people buy more of it, and thatmakes it very much type of case. shery ahn: it -- paul: it does seem to be happening as this charter list rates. world'so much of the bond market now paying below zero. we had some common -- comments from j.p. morgan, saying they see treasuries in the u.s. near zero in the next few years. do you see that happening? >> first, that sounds excessively alarmist. i have been saying for a while that my target is 1.50% for the

10 year, so we have another 50 basis points to go, but if you were to say that yield instead goes to zero, then you are talking about the 10 year german 30, 30 two today was basis negative in today's trading, is going to go anywhere 2%the range of 1.50% to negative for the two year german paper. that is a global economic catastrophe, so that way you 200 to 250keep a basis point spread between germany and the u.s., which means that german economic crisis gets much, much worse, and i am not ready to say that will happen, paul, and that is why 0% for the u.s. treasury seems like an excessively as a

mystic forecast. shery ahn: set aside with the bond markets are telling us, the equity markets are telling us, what can you tell us about the state of the u.s. economy? we continue to see mixed messages. we got the philadelphia fed survey of factory surging the most in the decade, strong jobs data, strong retail sales numbers, decent at least, this week, so where are we? >> this is usually the final stages of an economic cycle. you have contradictory indicators coming from different signals. that is something we saw in 2007, 2008 as well. recall that in the middle of 2008, oil prices shot up to $145 a barrel, and the president of the european central bank at that time decided to increase interest rates in july 2008 because he saw the sign of a

very vibrant global economy, so i will answer you in a couple of ways. one, the bond market has been the better indicator, so generally i go with the bond market in terms of where to look at. ,n terms of other indicators you see housing starts in the u.s. have weakened. you see that record number of people are holding multiple jobs in the u.s. because they can't get any job which pays them orugh, so there are two three other indicators showing you the signs of weakness are pervasive, even though they are not uniformly pointing to a recession. lastly, we are talking about recession a year ahead, so we are still a long time, and that is why it allows enough space for contradictory indicators to rise. paul: ok, thank you very much. >> thank you. paul: thanks for joining us.

still to come, japan heading to the polls this weekend in an upper house election that could shake prime ministers shinzo our base legacy. -- shinzo abe's legacy. this is bloomberg. ♪

♪ check the japanese economy was inflation data is released in the next hour. the numbers will indicate how government and boj policies are working as voters prepare for upper house elections on sunday. tonzo abe is on course becoming the nation's longest-serving prime minister. shery ahn: we have 124 seats up for grabs. the ruling coalition needs to add 53 to its current tally to secure a majority. straight when would

reinforce the status as a political force and cement shinzo abe's legacy. some in the opposition claim he has failed to deliver widespread prosperity. the electorate is divided over the sales tax hike, while social security reform has been cited as the most important electoral issue. constitutional changes are also among the hotly contested issues, tweaking an antiwar provision has been one of his policy goals. paul: bloomberg daybreak: asia it up brian fowler is tracking the elections in tokyo. -- editor brian fowler is tracking the elections in tokyo. it looks like a one horse race at the moment? >> you can look at it in two ways. on the one hand, the jobless rate is low, the economy

continues to expand, and there is optimism over the rugby world cup this year in the summer olympics next year. we have seen visitor arrivals skyrocket party before this event, so that is a good thing. there iswnside, concern about geopolitical tensions, trade frictions with south korea, relations with washington, and any effects from the u.s.-china trade in past, goodn both cases, this is for shinzo abe and his party because people are happy or worried about things he is best able to deal with, and that explains why his support raining on the survey ranges from 45% to 52%, so he is in pretty good shape. shery ahn: let's talk about the consumption tax hike. this has been jinxed, hasn't it? any party that tries to push for

a tax hike will not to will and the elections -- in the elections. >> that has been the case in the past. let me say two things. bump leadingen any up to the sales tax hike, which is odd. we always saw that in the past, indicating consumers might not be thinking about it in terms of changing the behavior, but as you mentioned, another big concern among the population is social welfare. concerns were stoked recently by a report that said people would need ¥20 million to supplement them in their old age, to sustain them, and so in that since this sales tax hike mitigates those problems, but despite what some of the report say, i don't think there is much widespread disapproval of that move.

about --: how paul: how about the broader state of the economy? were expecting cpi to state well below the 2% boj target. might this move the needle? statisticseconomic are exports. we had dated this week showing exports in june fell for the seventh straight month. in particular, shipments to china fell 10%. within that, shipments of electronic components for 20%, a direct result of the trade friction between the u.s. and china weighing on japanese suppliers. the big concern is if japanese manufacturers are worried about external demand, then they need to fix the margins and cut costs, and that might mean not going ahead with wage hikes, weighing on consumption and

creating a negative cycle that would create more downward pressure on prices and we could see the reemergence of deflation. i don't think we will see that in the cpi data, but that is a possibility where we are going later in the year. shery ahn: thank you. ahead of sunday's boat, japanese -- vote, japanese stocks have had a rough week. plenty of factors playing into investor sentiment. sophie: it's turning out to be the worst week for japanese stocks since may. summer blues, indeed. volatility spiking 27 percent thursday, the biggest jump since march as investors consider a trade spat with south korea and brace for earnings next week with hundreds of companies to report. ,aking a bigger picture view prices for the nikkei to not far off from the lows of the year. the yen is only retreating from

a record low. history walk the recent , elections that have taken place since november 2012, volatility has ebbed and flowed. thanks very much for that, sophie. we do have plenty more to come this morning. we will get more japan analysis in an hour when we break down the june inflation numbers. we will be joined by the former boj monetary policy board member. this is bloomberg. ♪

♪ plenty more still ahead. the state street global strategist joins us and tells us why he is betting on emerging

markets as central bank easing takes hold. paul: that is it from "bloomberg daybreak: australia." daybreak asia coming next. this is bloomberg. ♪ hey! i'm bill slowsky jr.,

i live on my own now! i've got xfinity, because i like to live life in the fast lane. unlike my parents. you rambling about xfinity again? you're so cute when you get excited... anyways... i've got their app right here, i can troubleshoot. i can schedule a time for them to call me back, it's great! you have our number programmed in? ya i don't even know your phone anymore... excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass.

paul: good morning. i am saikawa in sydney. we are under one hour away from the australian market open. shery: i am shery ahn. sophie: i am sophie kamaruddin in hong kong. welcome to "daybreak asia." paul: our top stories this friday, cannot wait to cut. senior fedom two officials suggest policymakers are ready to move at the end of the month. a 14% droqu