paul: welcome to daybreak australia. >> we are counting down to asia's major market opens. paul: here are the top stories we are covering in the next hour. policy and politics for the new jay powell -- saying should not bow to president trump's demand for rate cuts. the cloud seems to

be paying off, and remaining optimistic in the face of retail hit and miss his. we hear from ceo rob scott. >> let's get you started with a quick check of the market close on the tuesday session here in the u.s.. it was a wild ride with u.s. stocks paring back some of the gains we saw in the morning session. the s&p 500 lost .3% and the dow lost 120 points. we saw financials leading to clients and the 10 year yields fell below 1.5%. we had high volatility in the vix, some trade optimism coming from the g7 but with chinese officials not confirming some of those remarks by president trump , investor sentiment souring a little bit when it came to trade. some mixed economic data as well. u.s. consumer confidence falling less than expected but the manufacturing index was near recent lows. all of that playing into the

market action today. u.s. futures at the moment not doing much. let's see how we are setting up in asia. >> after that sea salt session in the u.s. it looks like asian futures are going to a flat open here in asia. chicago futures little unchanged. unclear if it will hang on to its 1% gain from yesterday. as you mentioned, there has been some paring back up investor positive sentimentsaid they wera has that chinese media declined to confirm those statements. so there is still uncertainty if they're going to come to the table in september. switching boards again, i want to look at the chinese onshore, which has fallen for nine straight sessions against the dollar, the longest slump since december.

on a day-to-day basis it's on track for its worst months in 1994 which is when china started the modern exchange rate regime. many market watchers are expecting the onshore to retreat even further. we have a lot of earnings on tap here in asia. several bank earnings out of china including china construction bank, and others. we will discuss that more this hour and focus on the squeezing of the profit margins and how they're going to hold up against structural and physical changes in the banking sector in china. paul: let's check in on the first word news. click senior officials in a ran -- president trump seem to indicate a willingness to meet. saying the u.s. would have to

live sanctions if there was any chance of talks. prepared to agree with trump. harsh word suggests that even if a deal is reached, a coalition would be hobbled by infighting. onlyeader said he would support a new coalition government if the party approves and that an online vote will take place next week. u.k. government sees a chance of restarting brexit negotiations after boris johnson's talk -- week in berlin in paris -- and paris. saying they appear to have relaxer tone on the withdrawal agreement and the need for backstop on irish border. the leaders of the u.k. opposition parties held a closed-door meeting to discuss how to block any chance of a note due brexit. againstt of many trials

the former malaysian prime minister has reached the end of the prosecution phase and may conclude as soon as november. he faces 42 charges linked to his alleged role. he has pleaded not guilty. the verdict will test the nation's willingness to tackle a scandal that involves billions of missing dollars and has shaken the country's politics. 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. markets, the u.s. volatility was the theme of the day. enterprise was the start of the show. su keenan joins me with more on this favorited continue to see the bond rally pressuring those financials. it did not foretell the

whole story of the volatility. strategists have said it has been head spinning on the trade issue from friday until now. take a look at the financials being the weakest sector in the s&p 500. you have the dollar holding steady, bond suspension on the move. take a look at the big story of , together again is the title of the chart. phillip morris confirming it is in talks with austria, a planned -- theafter a decade of all stock deal is expected to come together and be the biggest since at&t bid for time warner in 2016. you notice phillip morris and austria were both down on the news.

cosco is up in a huge way. the store was mobbed and they had to close early. also saw adities seesaw session, especially oil rising ahead of wednesday's data. what is the story? su: there is expected to be a bullish outlook. private report was out signaling a bullish data situation and that is overshadowing the trade issue right now. gold continues to trade near a six-year high. ubs predicting that is a continuing run. more detailll have on the earnings from hewlett-packard but give us the

market reaction after hours. su:'s been up as much as 4% on the forecast, boosting their full-year adjusted forecast having to do with improved margins. paul: su, thanks very much for that. let's move on to remarks from the former head to new york fed. he implied that jay powell should not help president trump by cutting rates to shield the u.s. economy from the trade war. .athleen hays is here is he saying they should block trump's reelection bid? it was reverberating around wall street and around central banking circles because it was surprising. it took a very firm stand. let's remember who bill dudley

is. he was resident of the federal reserve bank of new york and before that ran their markets. before that he was chief economist at goldman sachs. he has spent a long time watching and analyzing the fed and actually being a fed official. so let's take a look at some of the things he said in this piece, which you can find on bloomberg.com or find it on the terminal if you want to read it yourself. he's talking about the fed going further than just saying the trade war is having an impact on fed policy. officials have said explicitly that the central bank won't bailout an administration that keeps making bad choices on trade policy, making it abundantly clear that trump will on the consequences of his actions. discourage further escalation of the trade war and it would reassert the fed's independence by distancing it from the administration's

policies and it would conserve much needed ammunition along the fed to avoid further interest rate cuts at a time when rates are already very low by historical standards. here's the part that some people may have felt cross the line. he was talking about an argument that the election falls within its purview. threat toy presents a the u.s. and global economy into the fed's independence and ability to achieve its objectives. officials should consider how their decisions will affect the political outcome in 2020. of course this comes at a time when the fed's independence as a central bank has been fired upon by president trump's constant criticism. obviously he feels strong about this and it has had a big impact. chair powelle seen trying to distance himself from all that and try to keep

neutral. no wonder we are seeing this backlash from this op-ed. kathleen: they had a pretty firm statement saying they don't agree. the federal reserve's policy is guided solely by its congressional mandate to maintain price stability and maximum employment and political considerations play no role. he thinks the consequences could be negative for the fed and says he has a lot of respect for bill. said what if the fed had objected to the cold war and raise rates? pick sides and it could make the battle even worse.

agreeing the fed should not have to cushion the impact of the trade war but saying this is an extreme view that could make the issue even more politicized. hays, thanks very much for that. still to come, freeze on oil during the trade war. an active portfolio manager rides the wave of volatility. how craig hodges is navigating the ups and downs in stocks and he has some pix of his own to share, next. this is bloomberg. ♪

shery: another volatile day of u.s. trading has extended swing that have lasted all month. let's get some insight from an investor who has written the volatility waves for decades. he is the chairman, ceo and cio of hodges capital management that has $1.5 billion in assets

under management. always great having you with us. we have seen the hodges fund was one of the big performers your today, but recently it has taken a big hit. how are you trying to ride out this volatility? difficult,as been there is a lot of volatility. it is a market of have and have not. if your stock has been strong you are growing and considered a growth company, your stock continues to go up. if your stock has performed poorly and you are under the radar or been given up on by analysts, your stocks continue to go down and down. we played both. we have a lot of growth stocks, but there are so many mispriced stocks that have been left for dead, that's where we make the money in 20 and 21, some of the stocks that have been left for dead. shery: are you reacting to the volatility and reallocating your portfolio? you seem to like the small caps,

yet there has been a big divergence between the smaller names in the big names. craig: there have been three divergence is where the small caps have -- small caps have underperformed. it's only happened three times and all three of those times, the small caps clawed back up being down the 14% it is off now. so that is a pretty encouraging sign. we are reallocating, we make about 26 hundred company touches over about 800 different companies every year. so our analysts are doing a lot of channel checking and finding a lot of really good names out there that are being left for dead. >> in terms of buying opportunities, how do you know when to buy the dips? s&p,chart shows the multiple swings this month with

1% debt or more. how do you know when you are seeing a buying opportunity or not? craig: you don't for sure, but for the 33 years i've done this, when you can buy really good companies that five times earnings, when you can buy housing stocks, all of a sudden houses are about 25% cheaper than they were a year ago because rates have gone from almost 5% down to 3.5%. so all of a sudden housing is very affordable again. so those make a lot of sense. in the consumer is still strong out there. there is a slowdown industrialize, but the consumer which is 70% of the economy, still very strong with full employment and wages. there's a lot of consumer names. so there are opportunities. you have to know which companies are the g. -- which companies are legit.

that's what we are doing is finding those companies. paul: you do have some individual names that you like. do you want to tell us more about those? is ccsthe first one community residential housing stock, in the low end. in the best market out there. that is a company that should do well. norwegian cruise lines, the smallest of the big cruise operators, that stock has been knocked down about 20% this year just on the fact that they will not be able to go to cuba anymore which is about a 7% hit to earnings but it has been in over a 20% hit to stocks. it should grow in the 18-20% range. and then a stock like united rentals which has dropped 40% in the last few months. it will earn over $20 a share

and they had a tremendous quarter that they just reported. they had some weather issues and a few markets but that stock is now five times earnings, another growth company. so there are three growth companies you can buy at value prices. shery: how do you play the consumer story? in the u.s., consumption remains strong. there are some restaurant stocks that make sense. i mentioned the housing market that makes sense. there's even some retailer set up and left for dead like capri or tapestry that trade well below their historic averages, and there's a lot of insider buying in those. in a year or year and a half, you can have tremendous gains in some stock like that. the consumer looks to continue to be strong. go abroad foralso those bargains?

craig: we don't. at hodges capital, we just stayed to mystic and we just deal with u.s. companies, mostly small cap. we feel like there is so much opportunity there, so many is prized stocks. there are fewer and fewer people doing the fundamental research we do. we feel like we have an advantage more than ever in those names. paul: craig hodges, thanks very much for joining us. stories youout the need to know to get your day going. mobile.o available on customize your settings so you only get news on the industries and assets that you care about. this is bloomberg. ♪

shery: i'm shery ahn in new york. paul: and i'm paul allen in

sydney. you are watching "daybreak: australia." startup ellag thanh has filed for an ipo and is aiming to spin himself onto a nasdaq listening -- listing. gun sells high-end exercise bikes with a link to a touchscreen that shows spin classes for monthly subscription paid -- subscription. stake a deal includes bp in the largest producing oilfield in u.s. history as well as all its pipelines in the states. alaska's oil output has slumped from its heyday in the 1980's as reserves dried up and companies found it easier to produce crude elsewhere. paul: costco's barking wild

enthusiasm and lengthy cues. it was the -- forced to suspend sales and shanghai ahead of what it called heavy traffic and customer flows. many global rivals have given up in that market. german wholesaler metro is looking to sell its operations. shery: hp jumped in late trading after recording strong third-quarter earnings. it gave a profit forecast that topped wall street estimates signaling efforts to cut costs and reshape its business. i thought these hardware companies were under a little bit of pressure. we did see disappointing results, so what is the difference here? >> we had low expectations coming in and they outperform those low expectations from an earnings perspective, predominately driven by

component costs. lower costs dramatically impacted their gross margins, jumping by 170 basis points, a huge jump. so the fact that sales are still weak year on year, but it's not as weak as people were fearing. droveative expectation sales. they also suggested sales were weaker for their larger customers, so the micro trend didn't affect them but the small and medium portion, that business segment trends were better. so there were some offsetting puts, some growth areas verve -- versus weaker areas. theink the bigger story in hp business was the gross margin

strength. up.tually, this will catch they cannot sit on this growth margin benefit forever. their corporate customers will say you are seeing lower memory prices, can i have a piece of that? eventually that is going to fate, but for the next couple of quarters they are going to enjoy it. paul: the ceos trying to move the company more into the hybrid space. how is that going? >> it is an interesting story. we continue to believe that the modelciaries of the cloud will be software companies and the public cloud companies. companies like dell and hp in our opinion are sort of stuck in the middle. they are benefiting to some degree from the transformation that corporations are undergoing. eventually i think they will see pressure from both sides and

they are going to see the hardware business commoditized to a great degree from one end of the business. the other portion is the internal footprint will shrink dramatically and i think that will see some pressure from that is companies transform themselves to more of a software-based footprint and more of a public style footprint. but temporarily they are benefiting from the dislocation. shery: when are analysts expecting that to pay off? they are going to transform to a dramatically subscription driven model by 2022. this is a long way off. in the near term, it is not a sales growth story. it's going to continue to improve. thank you very much for coming up there,

next, twists, turns, and tweets. the latest from beijing on china's stance in the trade war. this is bloomberg. ♪

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paul: breaking news on the bloomberg terminal, earnings from virgin australia. -- a full your loss of 349.1 billion. virginal straight saying it would not pay the final dividends this time around. most virgin shares are now held by big profit players, only about 10% of it is free-floating on the market there. virtual shares have been declining all year, a pretty sorry set of numbers there. word check in on the first

news now. >> president trump has returned from the g7 and wasting no time reviewing his -- renewing his attacks on the fed. he cues jay powell and his colleagues of standing by watching american manufacturers struggle with exports, adding that the rest of the world has long been taking advantage of the u.s. and the fed has been calling it wrong for too long. saying the central bank should reject the u.s. demand for rate cuts and not bow to pressure to fix the damage caused by his trade war. by exceeding to the white house it could just end up encouraging trump to escalate the trade war even further. and a charge of stealing technology from alphabets waymo unit.

he voluntarily surrendered to the authorities and faces up to 10 years in prison if convicted. tolerate --ill not these are the crown jewels of companies. wille brazilian president only accept g7 a to fight the only if he receives an apology from emmanuel macron. his chief of staff said since macron could not stop the fire at notre dame cathedral he is in no position to lecture anyone else. writeras national strain was arrested on suspicion of espionage. he was formally charged on tuesday after spending the last

seven months in detention in china. his longer said the basis of the charge remains unclear. 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. another alert for you on the bloomberg terminal, this time earnings from oz minerals. 419 millionvenue dollars, that's down 21% on the year. 43.9 million dollars, still down 66% on the year. oz minerals will still be paying sees coppernd output of 103,000 times.

oz minerals has been struggling with the decline in copper prices. let's get more on what to watch in the markets is morning from beijing. quick some other australian stocks to watch after ratings changes, one is caltech australia. we close down about 4.6% after the reported a 59% fall in profit, capping off a pretty rough year for that company. and a mixed picture there but it did close down 3.9%. and also watching qantas, which was recently downgraded by morningstar to sell. that's also after reporting some difficult earnings and seeing challenges on several fronts including higher fuel costs, and a mixed picture for domestic demand as well. i want to take a quick look at commodities, oil earlier posting

its biggest intraday jump in two weeks after the industry data showed that inventories that larger than expected declines in inventories and the u.s. china trade war has kept a cap on those prices as the overall demand outlook is being muddied by the ongoing trade war. i want to take a look at gold as well, earlier closing at a fresh six year high, up about 1% for gold futures. investors are clearly concerned about the ongoing u.s. china trade war despite some of the paring back with the escalations of tensions, still high-stakes here is having demand is still high. more what weet should be watching as tracy -- as trading gets underway in the asia-pacific. the market seem to be taking one step forward and two steps back. i guess we will probably see more today.

>> that's right. it's a pattern that we're starting to see and were getting used to it, the de-escalation and then quiet. having said that, the u.s. market has been more prone to the up-and-down movements. msci has not had a one-day advance of more than 1% since mid-july, yet it has fallen much more than that on four occasions. it speaks to the twists and turns and increased hostility in the trade narrative as it has become more erratic. we've heard a lot about the psychology of the market, investor saying we are scratching our heads. it's difficult to anticipate what is going to happen and difficult to trade on fundamentals. and again, fundamentals are not great, when you put all that

there is fear of heading into a global recession, fear about how much central banks can do. last night we saw the german economy teetering on the brink of a recession. so there's a lot of things out there that are concerning investors, but one thing that has become very clear in the last couple of weeks is that we just don't know what's going to happen from one day to the next or one hour to the next. shery: all of that fear is being seen with rallies we are seeing in safe havens, including the japanese yen. begin is not rallying as much as other assets. the and is upt about 3.7% this year because it is a premier safe haven asset. however, that pales in comparison with things like gold, where we heard that gold

is up about 20% this year. here in asia, the thai baht is up more than the in. the reason is because of a surge in outflow from japanese investors, up about 28% this year as the chart shows. just to give you an idea, the reason they are doing that is because tenure japanese yields are now -0.6%. for example if they buy italian tenure debt, which is one asset -- one asset they have gone into. they can get 1.5% by hedging the currency. similarly, they buy treasuries, they can get much better returns without hedging. so you have seen investors go overseas to secure those yields. that has rained in some of the gains in the end. having said that, hedge funds still have long positions because there anticipating the trade war will escalate.

us.: thanks for joining check out our library for some of the charts we have been talking about. on theat at gtb bloomberg channel. shery: china is preparing for the worst on trade with donald trump's apparent policy flip-flop and the distrust on both sides. tom, we have been talking about this pattern of president trump saying something and beijing not really confirming it. so what is china's view on all of this? tom: it's not just the switchbacks and the flip-flops we've seen over the last few days from president trump, it's throughout the trade war. china expects that they would be getting somewhere and then the u.s. will fall back and hit them with tariffs. it has built in the past few days, the sense of distrust, the since at president trump cannot be trusted and even if you do

get a deal, he may just rip it up and heat you again with tariffs. it just feeds into the hardliners who say we cannot give any major concessions, we got to talk about ensuring the policies that the government of china comes out of this with face. it's about the sense of national pride. so the hardliners are being strengthened by the kind of comments we've heard from president trump of the last few days. calling of friday, president xi an enemy of america and then 24 hours later saying we are closer to a than we have ever been. they are continuing to prepare for self-reliance. that's what presidentxi is saying, saying people should prepare for new and long march.

as well as blacklisting of some u.s. companies, and it should be said that china is still continuing and is prepared to negotiate and talk with the u.s., and as yet we've not had a cancellation of the talks that could still happen in washington dc, but certainly the preparations are underway for a no deal eventually. and that's not to mention the yuan, which still remains under pressure. that may be a catalyst there. tom: absolutely, the trade war is a catalyst, the slowing economy domestically. we are now poised for the steepest drop in the yuan on record. we seen it fall almost 4% in the month of august already. that's the biggest drop we have seen since january of 1994. a record low versus the basket of currencies, the renminbi

index has dropped to around 91. so the yuan has been under pressure, of course there's the likes of credit agricole who says in the near term are looking at the yuan dropping to 7.3. others like thank of america merrill lynch, and it should be noted that in the last five sessions the pboc have fix the currency slightly stronger than traders had expected, suggesting they may be getting a little bit concerned about depreciation and capital flight and outflows as well. so there have been no stronger fixes over the last five days and we will look closely today. our china correspondent, tom mackenzie in beijing. more breaking news on the terminal from macquarie group, saying is planning to raise $1 billion in institutional share sale. that's about 2.5% of existing

shares. announcing capital raising their of $1 billion of institutional share sale. those headlines just crossing the bloomberg channel now. coming up next, the trade war makes the oil trade more complicated. daniel hines will try to help us get a handle on that, up next. this is bloomberg. ♪

paul: oil rose after president trump calm nerves on the trade war but commodity markets remain -- this week will get new tariffs from both sides including china on u.s. crude. let's bring in daniel hines. pressuresnflicting weighing on oil at the moment a bit which ones are you watching most closely and what is your outlook for the rest of the

year? the market is clearly focused on the trade war, that is taking front stage at the moment. that means trying to wade through the changing policy shifts we are seeing within that, certainly the weekend was quite tumultuous and the market is coming to a point where essentially they are looking at thatworst-case scenario we've been hearing about for so long. that means pressure on the demand side of the equation. we're looking at indicators that it is starting to come through in the data. the data has held up relatively well but any initial sign that tensions are starting to weigh on actual consumption numbers will be big for the market. paul: you have to say that more cuts are pretty much baked in at this point. daniel: i've been bullish on the

back of the supply side for a while now. up, continue to ratchet just haven't had the focus and attention that the other issues have had. we continue to see pressure on venezuela with opec compliance very strong on that production cut agreement. the array and issue a still bubbling away, essentially exports are collecting nothing at the moment. alluded topec has that in recent communications, indicating there will be some drawdowns in the second half. it's hard to see how the issues around the trade war and the effect on demand will be. shery: we have seen base metals also take a hit. iron ore plunging at the moment. when are you going to see a rebound in prices?

does it seem a little overdone at this point? daniel: it does, although i can't see it ending anytime soon, to be honest. these things can overrun the fundamentals and that's the sort of position we have been taking just recently. trade densities and metals remain under tension. it's hard to see any sort of recovery in those markets outside of a catastrophic supply-side issue. we obviously saw that in iron or earlier this year but that starting to ease a little bit now as well. unless it is something significant on the supply side, markets are going to struggle. shery: what about the fact that we could get more significant stimulus coming out of china if things get worse? >> we've had a bit of a deep

dive on the stimulus measures in china. outside of some boost to steal demand in the short term, the benefit to a lot of the commodities is relatively minor. the chinese authorities have been quite adamant that they will be more focused and measured in the response this time around compared to previous. as a consequence, we are not expected -- expecting to see fixed asset growth grown quite substantially. our target is around 7%-8% growth for 2019. on the basis of that, we only see minor support for demand for raw materials such as steel and iron or. outside of that, very minimal. i'm not expecting to see that resulting in a fundamental pickup in china. paul: i want to get your thoughts on havens before we let you go. i just noticed silver in the tot few hours quietly moving

$18. has that been undeveloped as a haven lay? daniel: we saw it underperform gold the past couple of years. it's a little bit of a reevaluation from investors. ultimately i think gold is the one that will push the precious metal sector forward. paul: daniel hines, thanks very much for joining us. we will continue the commodities conversation with fortescue metals ceo elizabeth gains on the show tomorrow right here on "daybreak: australia." another big guest is coming up tomorrow as well. san francisco fed president marion daily, tomorrow. ♪

paul: i'm paul allen in sydney. ahn in newshery york. you're watching "daybreak: australia." fromdepartment store sales kmart and target and a cloudy economic backdrop are overshadowing results. the ceo told us he is not that concerned. >> are clearly some pressures as we have seen around a bit of a slowdown in economic growth and consumer spending, partly impacted by concerns around house prices. we are seeing stabilization there and once again as we showed in the results, things are not too bad. >> recently said you will no longer be pursuing linus. is a big acquisition still on the agenda? said when i first took

over as ceo, the main options we focus on is investing capital in our existing businesses. we have some quite high returning businesses, good return on capital and that is the primary focus. we will be opportunistic from time to time. since we first announce our interest in linus, we have completed the acquisition of the e-commerce business and we have pending oner vote another opportunity. we are quite happy about the investments we have in the pipeline and will continue to invest in our businesses, particularly expanding our data and digital capabilities. >> the proposition from part of the analysts is that you have gone after businesses that have limited pricing power and limited assets.

what do you say to detractors that criticize the deal you have done and perhaps understand part of the reason you pulled out of linus, those are the two propositions that you're doing deals with limited pricing power and limited assets. what do you say to that? >> i think that shows a misunderstanding of how we think about investment opportunities. the market loves trying to apply some dramatic overlay onto acquisitions, but we're very discerning and focused on asset specific opportunities. interestingly, the lithium opportunity through kidman is a high grade deposit, but most importantly and of most interest unique opportunity to develop a chemical processing plant adjacent to our own successful chemical processing opportunities.

we took th tleveraging a world-s capability together with one of the lowest cost basis, that in itself was a good opportunity. seconds but we've had comments on the concerns around trade. how concerned are you about the trade war? rob: i think it does present concerns to australia. clearly china is a significant trading partner. we will not be immune to any economic ramifications from the trade war, so it is something we are monitoring closely. scott.hat was rob let's get a quick check of the latest business flash headlines. a proper forecast that tops wall street estimates, indicating progress to cut costs and reshape the business. shares jumped in late trade up.r adjusted earnings are

the ceo has been trying to prepare hpe for a future increasingly defined by cloud-based software. shery: american airline says it is stepping up damage control efforts for targeted work slowdowns from mechanics and baggage handlers who are pushing for better contracts. the issue because more than 1200 cancellations and lengthy delays, delivering a blow to the busy summer travel season. they have sued for damages to help recover some of the costs. paul: cyber security company mcafee is said to have hired underwriters to pursue and ipos this year to bring a valuation of at least $8 billion. a share sale could happen in the coming weeks. however, sources also say the final decision has not been made and the plans for an ipo could change.

shery: plenty more in the next hour on daybreak asia. later we will have bloomberg opinion columnist. this is bloomberg. ♪

paul: good morning. i am paul allen in sydney. we are under one hour only from the market open in australia, japan, and south korea. shery: good evening. i am shery ahn. sophie: selina wang in beijing. welcome to "daybreak asia." paul: our top stories this wednesday, policy and politics. bill dudley says jay powell should not bow to president trump's demands for rate cuts. china is preparing for the